Branch Insurance aims to make it easier and less expensive for people to buy insurance, thanks to an application programming interface (API) that connects to a network of distribution agents, such as mortgage lenders and home security providers.
When buying a home, “you always have to buy a new policy, [making that] the most relevant moment you could ever be considering an insurance purchase,” Branch co-founder and chief executive Steve Lekas told Venture Capital Journal. “But without having an API, you’ll ultimately have to send someone to talk to a person or give them a price that’s inaccurate that they can’t purchase in the moment.”
That’s also true for a new car, for which a dealership won’t allow a buyer to secure a loan or drive off the lot without an insurance policy.
Launched in 2017, Branch raised $147 million in Series C funding in May 2022 from Weatherford Capital, SignalFire and Greycroft, among others. The round enabled it to expand from 28 to 37 states, plus Washington, DC, while continuing to refine its product. That funding is expected to see Branch through to becoming cashflow positive, projected for some time next year.
American Family Ventures, Foundation Capital and Greycroft were early investors, all participating in Branch’s $3.5 million seed round in July 2018. It went on to raise a $24 million Series A round in 2020 and a $50 million Series B round in 2021.
Aiming for a nationwide market footprint is challenging due to a patchwork of different laws and regulations for insurance state by state. Agents have to understand how the product differs from that of other providers and how it conforms to the laws of the state they’re selling in.
Something the Columbus, Ohio-based company has had to consider in expanding is prohibitions in some states against using data in a consumer’s credit report to determine their premium. Even in a state that does allow that practice, a law that resembles the Fair Credit Reporting Act may be applied differently, requiring an insurance provider to adjust notices for how it sells products and how it orders data, Lekas noted.
People who switch their insurance over to Branch and bundle car, mortgage and other kinds of insurance together will save roughly $935 in annual premiums, the company estimates.
Getting to cashflow positive
Becoming cashflow positive and doing so ahead of competitors has been part of Branch’s long term plan since before it began accepting investors’ money. VCs would give Lekas a funny look whenever he mentioned it was central to the company’s strategy.
“Insurance is a high variable-cost business, so if you’re not focused on unit economics from the beginning, you’re likely destined to have a very difficult time to ever [achieve it],” he said. “And because it’s so highly regulated, in some places fixing the problem you create by underpricing this regulated product is also very difficult to unwind.”
Branch focused on profitability before the market downturn and rising interest rates compelled VCs and founders to shift their gaze from growth at any cost. “We continue to grow fast regardless of [the shift in narrative] because we have differentiation in a commoditized market, not because we were selling a dollar for 50 cents,” said Lekas.
Getting to cashflow positive will require higher recurring revenue than initially projected because the company wants to generate enough cash from its growth “to fund the complexity that we continue to add to so we can take this big swing in the industry,” he said. “If we stopped growing our expenses today and took a smaller swing at what’s possible, we could become cashflow positive more quickly.”
At large and well-established insurance firms, “it’s very rare that anyone actually knows how it all goes together,” he explained. “By virtue of having to document how every single part of this incredibly complex business would come together, must exist and co-exist, it gave me the understanding, which allowed me to build far less expensively than any other insurtech.”
Other insurtech start-ups that caught the zeitgeist early typically raised between $10 million and $30 million before getting to market, while Branch spent $2 million. “But instead of just one line of business we launched with four, and we got to five states with just $2 million,” Lekas noted. “So we did this all very efficiently from the beginning and part of that was knowing how to spend it instead of spending a lot on attorneys and things to do it for us.”
The entire plan originated in his night-time spreadsheet exercises, he added.
Partnerships with mortgage lenders like RocketMortgage and home security providers like SimpliSafe help Branch meet customers when they most need insurance. Once an applicant signs a purchase agreement with Rocket, they are prompted to provide proof of insurance and will also be asked if they still need insurance. If so, “you’ll have an opportunity to bridge over to Branch and inside of a minute, you can be fully insured,” said Lekas. “We’ll tell Rocket your insurance coverage details, so you don’t have to bring anything to closing and they’ll pay us out of your escrow, so you’re done. Friction-free.”
With security services, consumers know they typically get a price break on home insurance if they make efforts to protect themselves against financial disaster. “So there’s a great marrying here with home security where insurance and home security are designed to help protect a consumer from things like a fire or a theft,” he noted.
As a certified public benefit corporation, Branch is structured as a cooperative, which it manages on behalf of its membership, or customers. Benefit corporations aim to do well by doing good in society. Branch created SafetyNest, a program that is looking for ways to reduce the number of uninsured people in the US.
Lekas cited more than 30 million Americans who drive illegally every day and are subject to more citations, leading to more suspended licenses, more jail time and greater losses of income from missing work. The uninsured are also generally more likely to stay beneath the poverty line.
If more of the uninsured were insured, “our addressable market would increase [and] then you and I wouldn’t pay for uninsured coverages on our own policies,” he said. “This is why it’s a communal product.”
It’s proved to be much more complex than originally conceived. “It’s not nearly as simple as ‘well, it’s too expensive, these people can’t afford it,’” he noted.
SafetyNests’s goal currently is to understand why the uninsured are uninsured and continue to experiment with public/private programs to sustainably include those who historically have been financially excluded. For now, it remains pre-product-market fit.