We recently announced our investment in Openly's $75 million Series C financing. Openly is a tech-enabled personal lines MGA initially focused on homeowners' insurance. The Company targets mass-affluent homeowners exclusively through the independent agent channel. Openly's user-friendly broker portal allows independent agents to quote and bind a policy within minutes. Openly’s ambition is to become the largest agent-focused personal lines insurance carrier in the US. In some of the states where they have been writing business for a couple of years, Openly is already a top three carrier by new premium volume among independent agents.
We have been following Openly since their Seed round and are excited to be investing three years later in one of the best teams we have come across in the InsurTech space. We invested primarily because of the team and Openly’s focus on serving the independent agent rather than going direct-to-consumer.
The unit economics for direct-to-consumer insurtechs have proved to be challenging. Companies have burned significant capital acquiring individual customers at high CACs and at premium rates that don’t allow for underwriting profit. Case in point: The share prices of the insurtechs that IPO’d early (Lemonade, Root, Hippo) are down 80-95% from their peak prices. Despite strong early share price performance, it is clear that public market investors have less interest in subsidizing substantial losses as we enter a more challenging macroeconomic environment.
Since inception Openly has grown more quickly and burned significantly less capital than competitors to achieve the same premium milestones by leveraging agent distribution. Further, Openly’s premium product and channel focus has led to retention rates over 90%, well ahead of InsurTech competitors, and even several points better than best-in-class agent-focused carriers. The focus on more affluent customers is clear with the average home rebuild cost of an Openly home being $425k vs a national average of $300k.
US Personal Lines Insurance Market
Estimates suggest total US personal lines insurance premiums exceeded $370bn in 2020 (Home - $110bn, Auto - $260bn). Most Americans purchase their homeowners’ insurance from large, well-known brands such as Allstate and State Farm that distribute primarily through direct and captive agent channels. These companies benefit from extensive marketing budgets, fortress balance sheets, entrenched distribution relationships, and decades of underwriting and claims experience.
Openly’s focus on independent agents
While incumbent carriers have tremendous scale benefits, we believe independent agents are currently underserved by carriers who have failed to create a delightful, digital-first customer experience for agents. We consistently hear from brokers that the primary reasons they work with Openly are "ease of doing business”, "flexibility", and "focus on agents”.
AM Best estimates that independent agents account for approximately 48% of homeowners’ insurance premiums and approximately 31% of auto insurance premiums – a staggering market share considering four of the five largest personal lines carriers (GEICO, State Farm, Allstate, and USAA) distribute exclusively through the direct and captive agent channels. The direct and independent agent channels continue to take market share at the expense of captive agencies, as customers increasingly prefer multiple carrier choices and the ability to choose between a high or low touch customer experience. While auto insurance is more amenable to the direct channel given consumers’ purchasing decisions are driven primarily by price (auto insurance is a commodity product), we believe most consumers still prefer the advice of an agent when looking to protect their most cherished and expensive asset, their home. In homeowners’ insurance, there is greater variability in coverage options and policy language across carriers, making advice and consultation with a broker crucial for many consumers.
Agents currently must use different platforms (e.g., comparative raters or carrier specific portals) and answer numerous questions to produce quotes for a customer. In contrast, Openly can produce a fully bindable quote enriched by third-party data in less than 30 seconds with only three pieces of information - the policyholder's name, date of birth, and address. Further, an agent can easily customize coverage options for their clients using intuitive sliders to manipulate limits and endorsements – and see the resulting price changes in real-time.
“Insurance First” Management Team - Real Underwriting Talent
At its core, Openly is a team of actuaries and data scientists with deep quantitative experience in insurance. Openly’s CEO Ty Harris is a veteran in insurance with experience as the former Chief Product & Underwriting Officer for Liberty Mutual's $20bn personal lines business. While at Liberty, Ty led an 800+ person organization, including several research and actuarial teams with projects ranging from home and auto rating models to catastrophe capital allocation and pricing methodology. Ty is surrounded by a best-in-class insurance team steeped in product, claims, and underwriting expertise from companies such as AIG, Allstate, and of course, Liberty Mutual.
Openly’s technology stack has been built from the ground up internally by a talented engineering team led by Co-Founder and CTO Matt Wielbut. Matt has extensive software engineering experience inside of large financial institutions, having spent nearly a decade leading engineering teams at Goldman Sachs. And even Matt has insurance DNA, having co-founded Elements Insurance, a retail insurance agency that was acquired.
As many insurtech start-ups have learned, rapid premium growth and technology can only get you so far if you can’t underwrite profitably. Combining Ty and Co.’s underwriting talent and the tech team’s engineering skills has enabled Openly to build pricing models that are more agile and take into account new sources of data such that the Company can move quickly to react to changing market conditions, unlike traditional players. While Openly’s book needs time to scale and mature to prove they can consistently underwrite better than the market, we are confident they will deliver.