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Exclusive: Embedded insurance startup Authentic gets $5.5 million

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Sep 20, 2023
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Authentic, a New York City-based embedded insurance startup focused on small businesses, raised $5.5 million in seed funding led by Slow Ventures.

Why it matters: Authentic offers captive insurance, a form of self-insurance used by an estimated 90% of the Fortune 500 for its tax benefits and flexibility in underwriting a broad range of risk.

How it works: Authentic sells to software companies and franchise groups that own SMBs or count them as customers.

  • These organizations can then offer insurance to their small-business customers and members, with Authentic saying it spin up individual captive insurance operations for each of its customer in a matter of hours rather than months or more.
  • It also takes care embedding the buy button, underwriting, claims handling, reinsurance, and customer service.
  • The company says it's able to tailor underwriting for each of its clients, though it currently only focuses on property and casualty products and has created business owner policies and worker's compensation policies.
  • It does take on balance sheet risk.

How it makes money: Authentic makes money from administrative fees, taking 10% off premiums.

  • By going through a captive insurance rather than a traditional insurance policy, CEO Cole Riccardi says he can pass on underwriting profits to the customer.
  • "It's more compelling and more sticky for the folks we work with," he says.

What they're saying: "Most captives still today are a way for large companies to self-insure, but what you're seeing right now is people getting way more creative with the structure of a captive," says Riccardi.

Details: Altai Ventures, MGV, Clocktower, Commerce Ventures, Mischief Ventures, Core Innovation Capital, and Upper90 joined Slow Ventures in the round.

  • The company launched earlier this month.

What we're watching: Riccardi said he's going after businesses like Mindbody, GlossGenius, or even more traditional franchise business that, for example, own 50 Jimmy Johns.

  • He would not disclose what customers had signed on.

Of note: Captives are not without controversy. Most recently, small-business owners using the vehicle to create tax loopholes have come under fire from the IRS— with a dentist for example creating a captive to insure against terrorist attacks.

  • But the captives universe is so diverse that Riccardi says those concerns are not relevant to his company, which focuses on group captive insurance rather than so-called micro-captive transactions.

State of play: Interest in embedded fintech and insurtech products continues to proliferate among investors, especially as increasing premiums push customer to consider alternative forms of insurance.

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