Insurance provides fertile ground for AI innovation as it works at the intersection of giant data sets, risk assessment, predictive analytics, fintech and service customer. Federationa startup that is taking advantage of this momentum has now raised $40 million to develop its business: an AI-based underwriting platform to help 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 $80 million in total. It doesn’t disclose the valuation, but CEO and co-founder Will Ross said in an interview that it was a “serious and significant upside” that was several times higher than its previous valuation.
For some context, Federato’s last valuation was $125 million, based on last year’s fundraising. Another context is that Duck Creek, one of its competitors, was acquired by Visa Equity for $2.6 billion in 2023. The latter company offers a broader set of SaaS for insurance companies, but it directionally shows you where the valuation of lucrative AI lies. a product intended for this sector could disappear. (Insurance, globally, is estimated to be one of the largest industries in the world, totaling worth billions of dollarsunderwriting being 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). Ross was one of the first employees of the Watson group at IBM, where he worked closely with the Weather Company after it was acquired by IBM, helping to mine data from there to create environmental models. He later returned to graduate school at Stanford, where he met Steenbergen.
It was 2021 and AI was already all the rage (January 2021 was the month OpenAI released Dall-E, its image generator). But many were already presenting it as a substitute for repetitive work.
“We had a shared thesis that AI could be better applied to optimizing what no human can or has time to do, rather than automating low-value tasks,” Ross said. “The analogy here is Uber, DoorDash. They are consumer companies, but they are solving a problem that no human has had the time to solve effectively. And those tend to look like these optimization problems.
Ross was in business school and Steenbergen was working in computer engineering and mathematics. “We were actually collaborating on a very different project, a wildfire modeling project,” Ross continued. “And we started getting to know the insurance industry, because they were interested in wildfire modeling.”
This then led the two men to think about the broader challenges of the insurance industry: typically when insurance companies work through an underwriting process and figure out how to price a product based on the risk that it carries. surrounds; or even what products to create, there will be an internal team gathering large amounts of data directly and indirectly related to potential insurance scenarios, analyzing the numbers to gain a better understanding and make more informed selections. Federato’s solution, which the company calls RiskOps, provides decision support around this process.
The startup claims that customers see a 90% improvement in “quote time” (the time it takes to give a quote on a particular service in order to win a sale), among other efficiency improvements.
The couple’s first foray into wildfire modeling led to one of their first clients, Kettlea reinsurance platform that has so far focused primarily on one market, California, and one big problem: reinsurance and catastrophic fires, a big problem in the state. It also counts larger companies like Nationwide among its clients.
While speed is undoubtedly an element that AI leverages in its work, another important aspect here is how it is used to evaluate large amounts of data, an important part of the diligence that AI companies confidence must be demonstrated in their work.
“We’re in Facebook land, and we’re moving fast and breaking things,” said Emergence partner Lotti Siniscalco. “But in insurance, you can’t do that.”
Updated to clarify Ross’ role at IBM.
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