Federato, an AI-powered underwriting platform, has secured $40 million in funding to help insurers better assess and mitigate risk
Insurance has been a favorable environment for artificial intelligence innovation, as it operates at the intersection of fintech, customer service, predictive analytics, risk assessment, and large datasets
Stepstone Group is leading the round, with participation from previous investors Pear VC, Caffeinated Capital, and Emergence Capital. The venture has now secured a total of $80 million in funding. The company is not disclosing its valuation; however, CEO and co-founder Will Ross verified in an interview that it was a “serious, significant upround” that was multiples of its previous valuation.
For context, a fundraising effort last year determined Federato’s most recent valuation of $125 million. Visa Equity’s acquisition of Duck Creek, a competitor, for $2.6 billion in 2023 provides further context. It does provide a direction for the valuation of a lucrative AI product targeted at the insurance sector, as the latter company provides a broader range of SaaS. Estimates place the insurance industry among the world’s largest, boasting a global value of multiple trillion dollars. We anticipate AI to have a significant impact in underwriting, one of the key areas.
Will Ross (CEO) and William Steenbergen (CTO) were the co-founders of Federato. As one of IBM’s Watson division’s first employees, Ross helped acquire the Weather Company and use its data to develop environmental models. Later, Ross went back to Stanford for graduate school, where he met William Steenbergen.
In January 2021, OpenAI released Dall-E, its image generator, and AI was already a popular topic. However, it was already being considered by numerous individuals as a substitute for repetitive tasks.
“Rather than automating low-value tasks, we believed that AI could more effectively optimize tasks that no human could or had time to complete,” stated Ross. The analogy here is DoorDash and Uber.”These are consumer enterprises, but they effectively address a problem that no human has time to address. Additionally, they are inclined to resemble these optimization issues.
Steenbergen worked in computational and mathematical engineering, while Ross enrolled in the business school. Ross continued, “We were actually working on a completely different project—wildfire modeling.” “And we began to establish a relationship with the insurance industry, as they were intrigued by the wildfire modeling.”
This subsequently prompted the duo to contemplate the broader obstacles in the insurance industry. Typically, insurance companies have an internal team that gathers a vast amount of data, both directly and indirectly, related to potential insurance scenarios. This team crunches numbers to gain a more comprehensive understanding and make more informed decisions. Federato’s RiskOps solution offers decision support for this procedure.
The startup asserts that customers experience a 90% increase in “time to quote” (the duration of time required to provide an estimate for a specific service in order to secure a sale), in addition to other efficiency enhancements.
One of the early customers of the pair was Kettle, a reinsurance platform that has primarily concentrated on one market, California, and one significant issue: reinsurance and fire catastrophes, which are significant in the state. This was the result of the pair’s initial venture into modeling wildfires. Nationwide is one of the larger companies it serves.
While speed is undoubtedly a factor that AI brings to its work, its ability to evaluate vast quantities of data is a critical component of the due diligence that insurance companies must undergo in their operations.
According to Lotti Siniscalco, a partner at Emergence, “We are in the land of Facebook, and we are moving fast and breaking things.” “However, this is not permissible in the insurance industry.”
