What was Karn Saroya's professional background before starting Cover?

Before Cover, Karn Saroya was a management consultant at Oliver Wyman in their financial services practice, studied finance at MIT, and contributed to their finance and risk practice. He also had a previous startup, Style Kick.

How did Style Kick, a fashion marketplace, lead to the insurance business?

Style Kick, despite having many users, struggled with monetization due to high-end products. After a stint at Shopify, Saroya and his team sought to build a business with a solid economic model, eventually focusing on insurance due to its high LTV and potential for a capital-light distribution model.

What is Cover's 'capital-light' approach to insurance?

Cover focuses primarily on the distribution aspect of insurance and acts as a sophisticated frontline underwriter. Instead of holding significant capital reserves for risk, they partner with carriers and are prudent about the risks they pass on, allowing for a leaner operational model.

How does Cover acquire customers and what are its lead generation strategies?

Cover acquires customers exclusively through its apps on the App Store and Google Play, leveraging strong ASO and paid acquisition. They also build 'pre-insurance' tools like price drop alerts and offer free access to defensive driving courses to add value and attract potential customers.

What was the strategy behind acquiring the domain Cover.com?

The acquisition of Cover.com for $750,000 was strategic for brand discoverability and general awareness in the trust-based insurance business. Even with a large upfront cost, the increased conversion rates from improved discoverability can quickly pay for the domain given Cover's high LTV policies.

How does Karn Saroya manage working with his fiancée, Natalie, who is also a co-founder?

While commingling personal and professional life can be challenging, they benefit from having worked together on two previous businesses, leading to clear divisions of responsibility. Saroya trusts Natalie's expertise in product and design, while he focuses on other aspects of the business.

What advice does Karn Saroya give to new startups entering Y Combinator?

The core advice is to pick a Key Performance Indicator (KPI) and focus on growing it, as startups are often held together by duct tape and glue. He advises against unnecessary hires and attending conferences unrelated to the KPI, emphasizing the three-month sprint to accelerate progress.

Key Moments

Karn Saroya on the Capital-Light Way to Start an Insurance Business

Y Combinator

Science & Technology4 min read35 min video

Feb 27, 2019|4,861 views|84|2

YC Y Combinator Karn Saroya Cover Insurance Tech Podcast Interview Craig Cannon

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Key Moments

TL;DR

Cover's capital-light insurance model streamlines onboarding with AI, focusing on distribution before underwriting.

Key Insights

Cover utilizes computer vision and AI for a streamlined, visual insurance onboarding process, allowing users to photograph items for insurance.

The company adopted a capital-light strategy by focusing on distribution and acting as sophisticated underwriters, deferring full underwriting and balance sheet risk.

Prior to Cover, the founders had experience with a fashion marketplace startup, Stylekick, which provided lessons in user acquisition and the importance of impulse purchases.

Cover strategically acquired the domain CARICOM for $750k to enhance brand discoverability and conversion, leveraging its high LTV business model.

The startup prioritizes customer service through a dedicated text line and value-added tools like price drop alerts and defensive driving courses to build customer loyalty.

Building a strong core team with shared history and clear role division is crucial for managing co-founder relationships and scaling the business.

COVER'S INNOVATIVE INSURANCE APPROACH

Cover differentiates itself in the insurance market by offering a unique, technology-driven platform. Customers can use the Cover app to photograph and document items they wish to insure, ranging from cars and homes to pets, jewelry, and electronics. The process leverages computer vision, specifically a TensorFlow-based camera, to identify and catalog property. This not only simplifies the onboarding experience but also acts as a sophisticated frontline underwriting tool by verifying property existence and condition. For customers, this visual proof significantly reduces potential pushback during the claims process, ensuring a smoother experience.

FROM CONSULTING TO STARTUP FOUNDER

Karn Saroya's journey to founding Cover is marked by a transition from a career in management consulting, where he specialized in financial services and risk, to a more hands-on entrepreneurial path. After obtaining a CFA and studying finance at MIT, he found the risk-adjusted returns of professional services less appealing than the prospect of building and taking risks. This led him to learn coding and pursue a maker's mindset, questioning why advisors didn't build the businesses they advised. This desire to create rather than advise was a significant catalyst for his entrepreneurial endeavors.

LESSONS LEARNED FROM STYLEKICK

Before Cover, Saroya and his co-founders built Stylekick, a fashion marketplace, which despite acquiring 400,000 active users, struggled with monetization. The platform focused on high-end items, which did not align with the impulse-driven nature of mobile e-commerce. They learned that success in the mobile e-commerce space often relies on lower-priced, impulse-purchase items, similar to platforms like Wish, or building a strong, integrated brand. This experience provided invaluable insights into user acquisition, platform strategy, and the economic realities of different market segments.

THE STRATEGIC SHIFT TO INSURANCE

Following the Stylekick venture and a brief stint at Shopify, Saroya and his team identified insurance as a promising opportunity. Their prior experience working with insurance brokers for Stylekick provided a foundational understanding. The key attraction was the substantial market size and the potential for a capital-light model. By focusing on distribution and acting as sophisticated underwriters rather than taking on full underwriting and balance sheet risk from the outset, they could build a scalable business without massive upfront capital requirements for reserves.

COVER'S CAPITAL-LIGHT MODEL AND GROWTH

Cover's capital-light strategy is central to its operations. By focusing on distribution, they earn commissions on policies sold through their platform. The initial focus was on building a user-friendly app and establishing national licensing, which they achieved rapidly by securing licenses in 49 states with 30 carriers within 12 months. Their growth strategy relies heavily on app store optimization (ASO), paid acquisition, and innovative "pre-insurance" tools like price drop alerts and free defensive driving courses. These tools not only add value for customers but also act as lead generation mechanisms.

DOMAIN ACQUISITION AND TEAM MANAGEMENT

The acquisition of CARICOM for $750,000 (facilitated by a broker to anonymity) was a strategic move to enhance brand discoverability and conversion rates in a business with high customer lifetime value (LTV). Saroya emphasizes the importance of a strong core team, particularly highlighting the effective partnership with his fiancée and co-founder Natalie. Their shared history and clear division of responsibilities in product and business operations have been instrumental in managing the inherent tensions of co-founder relationships and scaling the company across multiple offices.

ADVICE FOR ASPIRING FOUNDERS

Drawing from his own experiences, Saroya advises new Y Combinator batch members to focus intensely on a single Key Performance Indicator (KPI) and relentlessly pursue its growth. He stresses that early-stage startups are often held together by makeshift solutions, and the investors' bet is on the founders' ability to figure things out. He also advises against unnecessary hires, attending irrelevant conferences, and getting distracted. The YC program is presented as a crucial forcing function to either find or confirm product-market fit and accelerate growth.

Mentioned in This Episode

●Products

●Software & Apps

●Companies

●Organizations

●People Referenced

Insurance Policy LTV Comparison

Data extracted from this episode

Policy Type	Average Annual Premium (California)	Estimated Distributor Earning per Policy	Estimated Broker Churn Rate (High)	Estimated Broker Churn Rate (Good)	Estimated Policy LTV
Auto	$1,600	$200 - $300	10%	15%	Thousands of dollars

Common Questions

Cover is a multi-line national property insurance entity that uses a mobile app for customers to upload pictures and videos of items they want to insure. It utilizes computer vision for underwriting and claim processing, aiming to simplify the onboarding and claims experience.

Topics

Technology & Innovation Lead Generation Founder Relationships Venture Capital Business & Entrepreneurship Company Culture Insurance Technology Startup Founding Risk Management Mobile Applications

Mentioned in this video

Software & Apps

TensorFlow

A deep learning framework used by Cover's computer vision system to identify and catalog property for insurance purposes.

People

Arjun Sethi

Lead investor and board member at Cover who introduced Karn Saroya to the broker used for acquiring the domain Cover.com.

Austin Allis

Mentioned as someone Karn coached prior to their time in YC and one of the first investors in Land of School.

Companies

Land of School

A company Karn Saroya has invested in and coached founders for.

Cover

A multi-line national property insurance entity that uses a mobile app for customers to upload photos and videos of items to be insured. Processes submissions with computer vision for underwriting and claim processing.

Y Combinator

A startup accelerator program that Karn Saroya's company, Cover, was a part of in the winter 2016 batch.

Oliver Wyman

Karn Saroya's former employer, where he worked as a management consultant in the financial services practice.

Gap

A retail clothing company that Karn's first startup pitched their body scanner technology to.

Style Kick

Karn Saroya's second startup, which was a mobile e-commerce marketplace focused on fashion and influencer content. It applied to YC multiple times and had 400,000 active users.

Instagram

A social media platform mentioned as a place where individual brands were emerging, influencing the strategy for Style Kick.

Wish

A mobile e-commerce marketplace cited as an example of a successful model for impulse price purchases, which Style Kick could have emulated.

Shopify

An e-commerce platform company where Karn Saroya and his co-founders worked after Style Kick was acquired, running a mobile product team.

GEICO

A major insurance company whose significant spending on customer acquisition was contrasted with Cover's more capital-light approach.

State Farm

A large insurance provider whose substantial investment in customer acquisition highlights the high lifetime value of insurance policies.

Berkshire Hathaway Inc.

The parent company of Geico, mentioned in relation to a peculiar affiliate discount where owning a share of its stock provided a discount on Geico insurance.

Organizations

CFA Institute

Karn Saroya pursued a CFA (Chartered Financial Analyst) designation, indicating a background in finance and risk.

MIT

Massachusetts Institute of Technology, where Karn Saroya studied finance.

Products

Kinect

A motion sensor input device used in Karn's first startup venture to create a body scanner.