Insurance is fertile ground for artificial intelligence innovation, working at the nexus of huge data sets, risk assessment, predictive analytics, fintech, and customer service. Riding on that momentum, startup Federato has now raised $40 million to expand its AI-powered underwriting platform that helps insurers better understand and respond to risks.
Stepstone Group is leading the round, with participation from previous backers Emergence Capital, Caffeinated Capital, and Pear VC. The startup has now raised a total of $80 million. The company did not disclose the valuation, but CEO and co-founder Will Roth acknowledged in an interview that it was a “significant and significant disruption” that was many times larger than the previous valuation.
To give you some background, Federato's final valuation was $125 million based on last year's funding. Further background is that one of its competitors, Duck Creek, was acquired by Visa Equity in 2023 for $2.6 billion. The latter company offers a wide range of SaaS services for insurance companies, giving an indication of where the valuation of lucrative AI products lies. Something targeted at this area could go. (Globally, insurance is estimated to be one of the world's largest industries, totaling trillions of dollars, and insurance underwriting is one of the key areas where AI is expected to play a major role.) )
Federato was co-founded by Will Ross (CEO) and William Steenbergen (CTO). Mr. Ross was one of the early employees of IBM's Watson Group, where he worked on a deal to acquire the Weather Company and leverage data from it to build environmental models. He then returned to graduate school at Stanford University, where he met another William (Steenbergen).
It's 2021 and AI is already all the rage (January 2021 was the month OpenAI released Dall-E, an image generator). However, it was already positioned by many as an alternative to repetitive tasks.
“We had a common theme that instead of automating low-value tasks, it's better to apply AI to optimize things that humans can't do or don't have time for,” Ross said. I say. “The analogy here is Uber and DoorDash. They're consumer-facing companies, but they're solving problems that humans haven't had the time to solve effectively. And they're like optimization problems. It tends to be visible.”
Ross attended business school and Steenbergen worked in the fields of computational and mathematical engineering. “We were actually collaborating on a completely different project, a wildfire modeling project,” Ross continued. “Then we got to know the insurance industry because they were interested in wildfire modeling.”
That got them thinking about broader challenges in insurance. It's usually when insurance companies go through the underwriting process and figure out how to calculate the cost of a product against the surrounding risks. Or even what products to build in the first place, have teams in-house that collect vast amounts of data directly and indirectly related to potential insurance scenarios, gaining better insights and You'll be crunching the numbers to make more informed choices. Federato's solution, which the company calls RiskOps, provides decision support for that process.
The company claims that its customers have seen a 90% improvement in “time to quote” (the time it takes to provide a quote for a specific service in order to win a sale), among other efficiency improvements.
Their first foray into wildfire modeling led to Kettle, one of their early customers. The reinsurance platform has historically focused primarily on one market, California, and one big problem. That's reinsurance and fire catastrophe, which is a big problem in the state. Our customers also include large corporations like Nationwide.
There is no doubt that AI brings speed to operations, but another important aspect here is the ability to evaluate large amounts of data, which is a key part of the diligence with which insurance companies operate. How do we use AI for this purpose?
“We're in Facebook country, moving fast and breaking things,” said Lottie Siniscalco, a partner at Emergence. “But you can’t do that with insurance.”