Launch HN: Goodcover (YC S17) – Cooperative renters insurance for half the price
I (Chris) worked in traditional insurance for 8 years. That time taught me to love insurance and how it picks people up after disasters, but it also gave me first hand exposure to the things people hate about it – the ever-increasing prices, the adversarial claims negotiations, the mountains of paperwork, and the byzantine decision making. All these inefficiencies kept us from really understanding and working for our policyholders – the people we were meant to serve. I became convinced technology was coming for this industry.
I moved to SF in 2016, which is where I met Dan through a family friend. Dan had co-founded Cloudkick (YCW09) and was now looking to start another company. He also knew technology was coming for insurance, especially after his early career at IBM where he saw just how many “tech consultants” were placed in State Farm. Meeting him was a breath of fresh air – we started Goodcover in 2017 and got into YC right after.
And then… it took us two years to get a product to market. We had opportunities to get going faster – you can get an agent’s license, buy off the shelf software, and sell other companies’ products in a matter of weeks. But they would be the same crappy, overpriced, adversarial products that everybody sells, and everybody hates. What good is that? Instead, we didn’t take the shortcuts and stuck it out to change the business model to cut the price in half, and Goodcover is the result.
The story of how we did this starts with how insurance prices are made. If you have lots of claims data, you can run regressions to learn how underwriting factors like location, customer data, previous losses, etc all affect the frequency and severity of claims for every dollar of coverage you are providing. You then load that claims model with your expenses and desired profit margin, and boom you have insurance rates. You then have to get the Department of Insurance in each state you enter to sign off on your rates (not too low so you lose money, not so high that the government calls out your gouging).
We knew technology would save us a lot on processing costs – with Dan’s technical background we knew that we could build technology that would run the business for a fraction of the cost that the typical industry vendors charge. We weren’t going to be saddled with huge agency forces or massive brand advertising. But, we didn’t have any claims data.
Enter Quirk 1 of the insurance industry: all personal lines insurance pricing is public. Since all product and pricing is approved by the state government, to start something new you need to essentially reconstitute work other companies have done, proving that the elements you choose work for your target market. This is why most new insurance offerings are basically just another version of the pricing model sold by the “Insurance Services Office” (ISO – yes, that’s a company, not a government agency). It’s approved everywhere and used by everyone, so it’s a quick start. Lemonade uses ISO with one important modification: they set their minimum premium at $60 instead of $120, allowing them to claim an introductory price of $5 a month. If you buy more than the minimum coverage though, you’ll quickly get to “everybody else’s price” territory.
However to cut the price without sacrificing coverage, we couldn’t use the same model that everyone else does. We needed a more granular model where we could charge the safest 99% people very little in exchange for charging the riskier 1% more. In my insurance caree...
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[ 4.4 ms ] story [ 148 ms ] threadBy way of background, I consult on litigation for a living. I may not be the Farmers guy but I've seen a thing or two when it comes to displacements (evictions, mold, fires/explosions, natural disasters, etc.). Here are some reasons and scenarios explaining why $29K is likely to be woefully inadequate in the areas I mentioned:
1. You're going to eat up a chunk of your ALE coverage in the immediate aftermath of your displacement and will never find permanent relocation immediately.
2. You have to assume that the claims reps on the subro or defense side (or both) are going to fight you on paying out limits.
3. You have to assume that you'll need to retain an attorney. With a standard contingency fee of 30%, your maximum ALE recovery is going to be 70% of your ALE limit, which in Goodcover's case is $20,300.
4. You have to assume that there will not be an entity against which you can pursue an uninsured loss above your limit (for various reasons).
5. You are highly likely face a substantial monthly rent increase, including the loss of financially tangible amenities, when you relocate. Full stop. That increase is likely to be indefinite.
6. Supposing you are lucky-- for example you're in a rent-controlled unit in an area governed by a law which requires the landlord to offer back a unit under your original lease terms upon rehab/rebuild-- you are highly likely to hit your ALE limit anyway for a variety of reasons. A) There might be no rebuild, in which case your rent increase will be indefinite. B) Your landlord might violate the requirement to re-lease under the original terms, in which case your rent increase will be indefinite. C) A rehab/rebuild could easily take 2-3 years (especially in a heavily regulated metro area) if the building damage is extensive, in which case you may well exhaust your coverage before you can move back in.
In the renters insurance market our ALE numbers are pretty normal (or better!), so wanted to get a sense of what you think is needed here.
I live in SF. My personal best case scenario in the event of a permanent relocation (insurer freely pays out limits without me having to hire an attorney, I use none of my ALE coverage in the immediate aftermath of my displacement, I relocate to a rent-controlled apartment with the same amenities), is that if I'm extremely lucky, $100K might last me 4 years before I have to leave SF entirely.
ALE is not meant to permanently replace your apartment. I don't understand why you would be expecting 4 years of living expenses to be covered in the case of your apartment burning down. I wouldn't even expect 4 months. It is meant to help you get back on your feet, and go to a hotel for the immediate aftermath while you look for a new place to stay.
You lost your apartment, not your entire livelihood. Chances are you still have an income to pay rent and a big chunk of contents coverage to help you out with down payments, and honestly, the insurance company should be going after the building owner.
1. ALE time limits are set by the policy unless otherwise defined by statute. In CA, for example, if you are displaced due to a natural disaster, your ALE coverage remains in place by law "for a period of no less than 24 months from the inception of the loss" (CA Insurance Code 2051.5(b)(2))
2. There is no statutory ALE time limit on uninsured losses (at least not in CA). In theory (and in practice), you can make a claim for an indefinite period of time if you can prove you'd more likely than not stay in your apartment forever (I have recently seen one such actual claim in SF for 30 years of ALE, for example).
3. If you live in SF, you should expect 4 years of ALE because it might well take that long to rebuild. The building owner may spend the better part of a year deciding whether or not to rebuild, 3-6 months getting estimates, and 2 years actually rebuilding. This happens all the time.
4. I won't speak for what other people want from their insurance, but the loss I am personally trying to protect against is not the out of pocket cost while I look for a temporary apartment, it's the additional $2K or $3K+ per month that a temporary apartment is going to cost me until I can either find something cheaper, move back into my old unit after a rebuild, or decide to permanently leave the Bay Area. I want to buy myself as much time for that process/decision as possible, because the odds are good I'll need it.
If the underlying issue here is that you're in some sort of rent controlled situation, and market rents in your area are way way higher than what you pay, and you expect the insurance company to pay ALE until you find another rent controlled apartment--sorry. You're not going to find many insurers that will plan on covering that.
A) There's no point in quibbling over what "temporary" or "permanent" means because the definition varies from policy to policy. There is no other source of truth unless it's in a legal statute.
B) With respect to the scenario I'm talking about, you are both factually and legally wrong. Again, I know this because I work on property damage lawsuits for a living. If my rent-controlled apartment is damaged in a fire and I have to temporarily relocate to another more expensive one for 3 years while I wait for mine to be rebuilt, the additional living expense I pay in the form of increased rent during that period is absolutely something ALE is intended to, and does in fact, cover.
Also, since unlike homeowners' the carrier has no way in expediting the rebuilding of the building, I'd be surprised if they are willing to pay for your rent indefinitely until the original building is rebuilt. Perhaps you could win if you took them to court, but it will not be a routine process.
It could be, along with say family size. But the UX cost of asking such questions is real, especially on an insurance application form. People get worried why we want to know such things so early on.
Today we're able to provide a pretty good estimate with no personal details, nothing but a zip code in fact. We might work the zip code into temp housing default at some point, but it's not without issues. Changes to the property <> temp housing link built into our rating require solid data and regulatory approvals.
Don't take this too literally as I'm just a developer, not a licensed insurance agent. But this kind of thing is harder in a heavily regulated business such as ours.
PS you've got me thinking about how I would explain insurance to a five year old! My son is 3 and Dan's is 4 so we'll get practicing.
Also, the fact that you can give me a quote without an email address is amazing. I’ll sign up but it’ll be a year before you see anything because I just got Lemonade.
Also we can cancel your lemonade policy on your behalf, and you'll get a pro-rated refund! The same applies to us if you cancel, too.
Again, totally understand the legal aspects of making too many promises. Just curious. Cheers!
More info: We have to roll out state by state, meaning we need to get approved in a state before we can do business there. That can be a pretty tedious process. So although we are working on it, we don't really have a good estimate for when we'll be available in each one. Since our model is a bit... different... some state regulators may take more convincing. California is very consumer friendly, so we got along because our model helps people. But other states don't share that point of view.
Good luck! Hope you come to New York
Congratulations. I wish there were more like Goodcover.
How would you handle premiums and claims from high risk earthquake and fire prone areas (in California)?
For example, if I invested in building a defensible area around my house, would you give me a discount on "fire insurance"?
To your question: Premium: Our model has granular rating for high risk areas (fire is the biggest issue there). And part of that is the defensibility of the specific property for sure. But unfortunately the biggest factors there are all location specific - distance to water, slope, ease of access, distance to burnable area, etc, which not much can be done about. This is why although it is hard, communities investing in collective defense has the biggest impact on insurance prices.
On claims: We have reinsurance, so no need to fear us being blown out capital-wise. To actually get the claims paid and work done we (like most others) have contracts with emergency-overflow claims administration teams, so that a force is ready at peak times.
A few months ago during the socal fires my community was up in flames, as were a lot of other's.
The house a mile down from me burned. We were evacuated
There is no insurance company willing to insure our area
> This is why although it is hard, communities investing in collective defense has the biggest impact on insurance prices.
100%. My neighbors and I self insure. We have built defensible areas and maintain it together.
It's cheaper (?) to self insure than pay premiums some, who managed to get a quote, said.
It is a lot of work maintaining that defensible area and keeping it up to spec!
We like to say our actions stopped the fire from spreading but when I saw embers in the air around me, I could not stay around to verify whether that was true.
Our firefighting department, incidentally less than a mile away from us, is one of our best buddies.
This is possible because of the rural location I have chosen to live in.
I see no way of pulling this off in a city.
I will keep checking with you and recommend to my community.
Please keep it up
To your question on self insurance - it's a matter of risk and statistics. No insurance is less money up front than coverage, but you retain the risk which may or may not cost a lot. We give a quote everywhere, and we think it accurately represents the risk Goodcover is covering for you, but I concede it is more expensive than it used to be.
Something else to know - CA has a non-renewal moratorium in force for wildfire areas, if anyone is being cancelled or non-renewed in your area please check this out: http://www.insurance.ca.gov/0400-news/0100-press-releases/20...
Thank you sharing the link as this raises a question I think you are perfect to ask:
What are your thoughts on this regulation?
Would it now, in effect, significantly increase premiums for everyone now that an insurance company cannot drop the high risk customers?
Feel free to email me as the answer might be not something you want to make public.
If you can answer, and I think the answer is yes, how much in hike in premiums would account for this regulation?
How much is hard to say. An old mentor of mine always said, "There's a price for every risk, but sometimes it's as much as the limit of insurance." That's a bit geeky but basically, as wildfire becomes more common, the models will adjust to accommodate. Community efforts to make their communities more resilient will go a long way though, like mentioned above.
Because that has a specific meaning, especially with regard to insurance. (And there are a lot of mutual insurance companies out there that are genuinely, 100 percent member-owned.)
But you mention venture capital and a rate of return for your capital partners.
So how is Goodcover what you say it is? Sounds like a for-profit company to me.
Saying you operate as a co-op when you're actually a for-profit is like saying you operate as a non-profit when you're actually a for-profit.
Ultimately, if you have outside investors, you've gotta make them money. If that's true, then suggesting you're operating as a cooperative is misleading at best.
EDIT: I looked at the legal notices section of your site, and this ain't a cooperative in any shape or form.
* "Goodcover takes a fixed fee - currently 20% of premiums."
* "Whether a Dividend can be paid is up to the discretion of Goodcover’s board."
This is absolutely a venture-backed, for-profit company that is describing itself as a "member driven cooperative." I would not be surprised if legal issues arise because of this misrepresentation, because California treats cooperatives as a distinct legal structure. (For instance, it's illegal to have the word "Cooperative" in your business name if you're not incorporated as a co-op.)
It's not all that different than taking a business loan which requires repayment of the capital - but the bank doesn't have voting rights and doesn't attend board meetings.
I'm curious to hear more about Goodcover's structure, too, like what rights do members have beyond dividend returns. I've, personally, always thought that my needs from insurance companies are significantly lower than many peoples. The thread below about 4+ years of expenses paid absolutely blows my mind. I would _never_ expect my insurance company to do that and I'd hope to get proportionally lower premiums.
My hope for the proliferation of cooperatives is to provide more diverse offerings in every industry and combat the consolidation that we're seeing everywhere. That said, I understand that the insurance industry is under a tremendous amount of regulation (for good reason) and I might make bad choices as a consumer.
One of the other perks of cooperatives is their commitment to benefiting members which could include much better education and support around policy options.
The original business model we were looking for is known as a "Reciprocal Exchange" (RE) - a type of co-op or mutual (like you mention) where the members own the claims capital, but the business is managed by a company called an "Attorney in Fact", which is usually a for profit (Farmers is an example). That would be us - we’d make money providing an amazing service to as many people as possible.
Unfortunately, we found out from the CA regulators very early on that starting a Reciprocal Exchange today was basically a non-starter. The capital requirements I mention in "Quirk 2" mean we can't just raise money from somewhere and kick-start the RE. We would need to get future-subscribers to put up the cash, and the amount we were talking there was just not possible. Farmers started in 1928 with a loan for their backend capital, something that is illegal today. So we were stuck - how do we start a new co-op insurer given this requirement?
The above story is the process of us figuring that out. Goodcover is an MGA that manages insurance on behalf of its Members, like an Attorney in Fact does for an RE. However since we can't have an actual RE until we have sufficient number of Members, we rent the capital backstop from conventional carriers. They pay us a fee and return the "underwriting profit" to us (that part is even more complicated and can talk later if you want), which we then return to Members, like Farmers should, but doesn’t anymore.
So, long answer - but yes, we are a for profit company. We operate the insurance like a cooperative, but like many other coops we do that for a for-profit fee. But, given the regulatory environment today we don't really look like your 1920s co-op!
Do your members get any voting rights or other feedback mechanisms?
On voting rights - we haven't worked out how to legally do so, but we're experimenting with ideas over how to give the community more control. Would love to brainstorm ideas! Feel free to reach out, chris @ goodcover com
Thats is not good marketing -- do you want customers to believe that you are the only innovation that happened in the field of _insurance_ (worth what, many trillions of dollars a year? ) in 100 years?
That sounds like a scam. You may want to change the pitch, just my 5c.
However the environment those companies started in is gone. Insurers went in and out of business all the time in the 1920s and 30s, it's the survivors who are left (I think it really is amazing how many of the top insurers started in the 20s and 30s!). It's good there's more regulation and safety for insureds.
It does mean though we have to work in the current framework to get things done - the companies of the 1920s can't be started the same way in the 2020s.
As a marketing guy though, I saw a few points I'll mention in case you want to implement. I'm sure the editing will improve your conversion rate:
1- Authority logos - I'm pretty sure the average renter won't recognize them. Find more recognizable logos to use, or don't use them. The whole purpose of authority logos is to leach off the goodwill people might have to brands they know and love. If they can't recognize the authority logos, that defeats the point of having them.
2- I'd change from "TV Famous Insurers" to "Geiko" or whatever specific one you are talking about (lemonade uses specific names on their landing pages for a real good reason)
3- Clarify the meaning of "Free Insurance" - I'd use the Get 1 Month Give 1 Month of FREE Insurance" or simply "One Month of Free Insurance". I'd then make the text under the headline much clearer. Why you do something isn't as important as what the end user gets, avoid getting bogged down in too many details.
4- Testimonials need to look more like testimonials. Use pictures or something that shouts 'this is a testimonial'. The colored boxes look cool, but I believe design should always follow function.
5- I'd avoid mentioning the packages on the lander/home. Just mention the highlights "From as Little as $5 for insurance of up to $500,000". Moving people through the funnel before you get into details.
6- Avoid the word 'ruthlessly'.
7- I'd include a hero shot or something a little more human. The page is a little dry.
Overall though, I love the concept and will likely sign up soon (my wife generally handles that, but I'll bring it up to her) - The website is also super well done, my comments aren't trying to detract from that in any way. Just trying to give feedback to make it even better.
Please do put a jobs page up, though. Your thoughtful and frank description here definitely has me curious.
On a jobs page, thanks for your interest! We have something up on AngelList right now: https://angel.co/company/goodcover-co/jobs
I worked in insurance for a few years and I am sometimes flabbergasted that it's legal. Good job analyzing where (some of) the sticking points are and working through them.
I hope this actually works and gives us a new model that makes me stop seeing insurance like some kind of evil empire.
Large landlords: They often mandate specific coverage, and will cross sell & promote you into their tennant email/welcome kits.
EQR requires something like 100K of liability in the bay area, gives you 30 days from lease effective or so to secure a policy or they auto enroll you in a $10/Mo from another vendor.
How will you deal with aggregator sites? Will you allow scraping?
Best of luck.
I think (correct me if I'm wrong) you're asking about comparison sites - in those cases the law requires them to establish an agency relationship. We're open to it and think we'll compete well, but much like Southwest it would be hard to give better prices anywhere else than our own site.
Competing on better pricing/underwriting models, and modernized, streamlined endorsements of ISO forms is fine. (I can't speak to whether the actuarial and underwriting work you did is up to snuff, but will give the benefit of the doubt, and TransRe is a good company, as is Milliman). You probably didn't need to create your own PAS (hint...you've just just started! MTE are not the only hard parts...) but enjoy the challenge.
If you're doing by-peril, bit surprised you didn't try to collaborate with AAIS, instead of copying CAIC? AAIS loves working with startups, and they're a non-profit, member-driven organization. (Btw, delete the CAIC references from https://www.goodcover.com/files/Goodcover_Policy_Sample_Full... )
Surprised (did you? I don't see it mentioned in your Filing Memorandum, which it definitely, definitely should be) you got approval for "Goodcover's Invitation Thank You Policy," pretty sure that won't fly in NY. Your advertising should really say "up to" everywhere, as you (and everyone knowledgeable) knows you are not selling steeply discounted insurance across the board. (As you quite rightly admit, Lemonade's "$5/month" (including instalment fees!) offer is a loss leader, even if they can't admit that.)
Looks like your TOS was updated, still not happy about the blanket ownership of customer data terms.
I have 3 questions:
1) how much, in total, excluding your own hours, did the regulatory compliance stuff cost to launch just 1 product in 1 state?
2) how much would it cost to launch that same product in 50 states?
3) since you didn’t want to have x3 or more sitting in the bank you chose to go with a re-insurer. And that took a year. Why was it that hard? Did you need a connection?
If the server is being used primarily for business purposes, it is not covered.
Question: does someone like me need renter's insurance? I rent a bedroom in the owner's flat, don't have anything super valuable in there and am not required by the owner to have insurance. If I'm comfortable self-insuring my personal belongings, is there any other outsized risk that would justify paying $60/year?
Edit: Also keep in mind our renter's insurance (and most others) covers you wherever you are, so if your laptop is stolen out of a coffee shop, it's covered. Also if there's a fire in your building and your stuff is not damaged but you have to move out, renters insurance covers additional living expenses.
goodcover would cost a third of my current premiums for the lowest tier, and half for the highest. i'm going to dig a little deeper and will likely switch!
(i also did some tech consulting early in my career in life insurance underwriting, when mutual firms were all converting to corps)
Is it a matter of time before you would move into this sector as well?