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Cowbell CEO Kudale predicts trifecta of public InsurTechs

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Cowbell Cyber CEO Jack Kudale said there is space for three monoline cyber InsurTechs to make it into the public markets in the next three to five years.

In an interview with Inside P&C, Kudale said that Cowbell wants to stay “singularly focused” on the cyber insurance market, and he predicted that high volumes of growth could allow some cyber players to enter the public markets in the near future.

The InsurTech market welcomed its first public companies in 2020, with four currently public via IPO and special purpose acquisition companies, and at least one other in train – although after uneven early success, they have traded very poorly this year.

The cohort of cyber InsurTech MGAs are being closely watched and have garnered high valuations in big private rounds, contributing to a record period of capital raising that has hit $10.5bn in the first three quarters.

Coalition has been widely discussed as a likely near-term entrant to the public markets, although Kudale did not indicate which firms he expected to be part of the triumvirate of public players.

The cyber MGA has been valued at $3.5bn, while its peer At-Bay was valued at $1.35bn and Corvus hit a $750mn valuation after a $100mn Series C round.

Growth potential

Cyber MGAs could be looking at top-line growth of 40%-70% right now, as huge upward rate pressure is combined with increased adoption from insureds amidst a threatening security landscape.

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Kudale predicted that the size of the cyber insurance market will catch up with the cyber security market in the next five years.

“Right now, we are 20 times smaller than the cyber security market,” Kudale said.

He went on to say that the leadership in this growing cyber market will not be composed of “traditional players”.

The biggest US cyber writers have written premiums of between $100mn and $400mn in 2020.

For comparison, InsurTech Coalition said that through its acquisition of Attune, the combined companies will have in-force premiums of more than $500mn (although the Attune book is non-cyber).

At-Bay recently surpassed $160mn in annual recurring revenue on 800% year-over-year premium growth, while Corvus landed fresh capacity from SiriusPoint, after its existing capacity deal limited the InsurTech’s ability to write new premiums following major growth.

Sources have indicated to this publication that the MGA reached the premium limit on its capacity agreement with Hudson Insurance several times in recent months, writing an estimated $65mn-$70mn in premiums before the cap on the program was not extended further.

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Cowbell is among a cohort of InsurTech start-ups in the cyber insurance market that uses artificial intelligence and proprietary datasets in an attempt to outperform traditional underwriting processes for commercial cyber risk.

The San Francisco-based cyber MGA recently secured additional underwriting capacity after reaching a fronted deal with Palomar Insurance’s excess and surplus lines operations.

Cowbell also raised $20mn in a Series A funding round in March, which was understood to be at a valuation of $100mn.

The hunt for capacity

Amid a sharp uptick in ransomware attacks, rising cyber rates, and a higher demand for cover, cyber MGAs have had to scour the market for additional underwriting support.

Cyber loss ratios jumped to 67.8% in 2020 – and higher for many carriers – from 44.8% in 2019, according to a recent report by RPS.

According to Kudale, the cyber insurance market does not face a demand problem, but a supply problem.

“I don’t say that lightly because the attack surface has extended in such a big way, the frequency of the ransomware has increased, although the severity may have decreased over the last three to six months,” he said.

Kudale said Cowbell currently has 10 capacity providers across its programs, including four fronting partners.

He went on to say that the diversity of Cowbell’s portfolio is “pretty good” and aligned with the type and size of companies that the MGA seeks to do business with.

“We are relying on our fronting partners and capacity providers to make sure that our supply lines are really strong, to satisfy the demand we have,” he said.

One of the traditional weaknesses of the MGA model is the scope for paper providers to pull their support in times of stress, like those the cyber market is currently experiencing, amid a surge of ransomware attacks.

There is capacity in the market for the right deal

When looking for capacity, Kudale said that Cowbell attracted market support due to its technology-enabled underwriting precision, its low loss ratios, and its strategic approach to the cyber market.

“The approach to the market that we are taking is beyond just issuing a policy,” Kudale said. “It is about managing risk all the way from the time of coding to renewals, and managing that risk throughout every hour, every day of the week, every month.”

“That has really helped us in terms of securing capacity in the market,” he added.

Kudale went on to say that Cowbell’s precision in underwriting is what really helped the company get support from its reinsurance panels, which otherwise would have been difficult, if underwriting practices are not to the standard that reinsurers expect.

“There is capacity in the market for the right deal, [that] is what I'm saying,” he said.

Stay in your lane

According to Kudale, partnerships between MGAs, InsurTechs that offer services to insurance companies, and the cyber security providers can be an “amazing triangle”.

The secret to success, though, is a strategic alignment of interests within all parts of the triangle, Kudale said.

He said that each business model should remain in its own “swim lane”, with InsurTech vendors focusing on selling their products to insurance companies, cyber security providers focusing on selling their security tools to enterprises, and MGAs focusing on their premium models.

For us, we decided that our only business model is the premium business model

To further illustrate the potential conflict, Kudale gave an example of an MGA business that is offering an in-house software subscription model in addition to premium models.

“The moment these swim lanes are overlapped, there is a conflict in terms of business model. For us, we decided that our only business model is the premium business model,” he said.

He continued: “It has been easier for us because we do not offer services outside of the premium. So, there is no conflict for us to work with cybersecurity players or work with the InsurTechs who sell to the insurance carriers."

“If they all work together, we can see a ton of innovation in the market,” Kudale said. “What that means though, is that conflicting business priorities among these three stakeholders need to be avoided.”

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