The Block: Karn Saroya raises $14 million for insurance protocol Re as insurtech platform Cover is wound down

Serial entrepreneur Karn Saroya has raised $ 14 million in a seed round for his new decentralized reinsurance protocol called Re.

Saroya previously co-founded insurtech provider Cover and fashion app Stylekick, which was acquired by Shopify.

Cover launched in 2016 with the goal of using data to underwrite customers in a better way. The startup raised a total of $27 million from backers like Exor, Tribe Capital and Sand Hill Angels, according to data from Crunchbase . In June of this year, the company terminated “all but a handful” of employees as funding and acquisition efforts were unsuccessful, Coverage reported.

“We were underwriting profitably, we distributed through 5000 independent agencies, but ultimately decided to wind the business down and transition all our policyholders to another insurer,” said Saroya in an interview with The Block. “So born out of us building Cover really came Re and Re is a licensed reinsurer.”

Cover is in the process of transitioning policyholders to other insurance companies and Saroya is assisting with this process.

Investors in Re’s seed round include Tribe Capital, Framework Ventures, Morgan Creek Digital and SiriusPoint, said Re in a release. The startup is valued at a $100 million post-money valuation, said Saroya in an interview with The Block.

“The opportunity set for a decentralized approach to reinsurance is immense - there’s nearly a trillion of existing insurance surplus to be tokenized, and a huge amount of capital on the sidelines that will start to earn reinsurance premiums in the near future,” said Arjun Sethi, co-founder and partner at Tribe Capital, in a statement. Tribe Capital incubated Re under its crypto labs umbrella.

A 'decentralized Lloyds of London' Reinsurance transfers the risk from one insurance company to another to reduce the likelihood of a large payout. The reinsurer will receive a cut of the insurance premiums but will also bear a portion of the losses when a claim is made.

Saroya describes Re as a “decentralized Lloyds of London,” referring to the specialized insurance and reinsurance market in London.

“We own a commercial reinsurer and if you think about what Lloyds does it takes a risk from other insurance companies that are looking to offboard certain concentrated risk,” Saroya said. “And it works with large companies, it also works with governments [and] works even with individuals to be able to back specific esoteric risks.”

Built on the Avalanche blockchain, Re will enable reinsurance brokers to bring business to clients via the protocol, Saroya said. Distributed syndicates on the protocol will be able to underwrite the claims, he added.

Syndicates can earn yield in return for supplying capital. Members will also be able to earn yield by supplying capital to an index of insurance programs across a range of industries. This will be separated into different tranches, and the member pool will be the senior tranche, according to the whitepaper.

To join as a member, an individual will need to be an accredited investor and be willing to undertake know-your-customer and anti-money laundering checks, Saroya said. He hopes to eventually have the platform enable retail investors to also gain access to insurance premiums.

“From my perspective, this is one of the very few use cases where we're directly correlating yield generated via crypto asset holders to real-world economic activities and real-world risks and so that's particularly exciting,” Saroya said.

The protocol’s whitepaper outlines that Re will be ceded with millions in premiums generated by auto insurance policies written by Cover. Another $50 million to $100 million will then be ceded by partner insurance companies and reinsurers over the next 12 months.

Re recently partnered with Joe Gaito and Jason Hoffman of Freedom Re Underwriters as the protocol’s first independent syndicate and is now inviting underwriters and actuaries to apply for syndicate roles.

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