(The Insurer) – Vouch’s Sam Hodges said that the insurtech’s data shows no “direct correlation” between a startup’s risk of failure and insurance claims, and also warned of the emerging risk associated with AI.
The co-founder and CEO of the insurtech, which focuses on providing insurance to early- and growth-stage startup companies, made those comments in an interview with The Insurer TV at last month’s inaugural Equal Ventures Insurance Capital Summit.
“Startups failing doesn’t lead to an insurance claim, typically. Sometimes it might, but, typically, actually it doesn’t,” Hodges said in the interview.
“And we’ve actually in our data not seen a direct correlation between startup failure and D&O claims, for example. Contrast that to if you were writing financial lines products for community banks,” he said.
Hodges said that when a community bank fails there are often claims associated with such an episode, but said that “startups function very differently”.
“Startups can be risky, but they tend to be risky based more on how the company is operated, what products and services they’re offering and who their end customers are,” he commented, adding that more heavily regulated companies like FinTechs and crypto firms can pose a great insurance risk.
AI AS AN EMERGING EXPOSURE
Vouch currently has 700 clients that are focused on leveraging AI, as Hodges outlined the emerging risk of AI exposure as an area his company is focused on.
“With AI, you’ve got a whole set of derivative risks that companies, founders and boards really ought to be thinking about,” he said, pointing to “model performance” claims as a potential source of liability.
“If a startup founder goes out and says, ‘Hey, my product can do X, Y and Z,’ and then they don’t deliver the goods the way they claim, that can lead to insurance claims or risks, frankly,” he said, in addition to drawing attention to the derivative use of intellectual property.
“A lot of that risk likely will accrue to some of the foundational model companies. But … let’s imagine that you’re doing music mixing and delivering derivative content,” he hypothesised.
“Well, there are intellectual property-related risks around that, (which) one needs to be really thoughtful about. And so, I think any time you go through a major technology shift, almost always there are going to be emerging risks that come out of that shift,” Hodges said.
The executive said Vouch currently has around 6,000 clients, about 1,000 of which he characterised as growth stage or middle market, as opposed to early-stage companies, noting that the larger cohort could have hundreds of employees as well as millions of dollars in revenue.
VOUCH’S PLANS FOR VERTICAL EXPANSION
Hodges said that Vouch has factored the natural growth of its clients into its business model and the complexity of the accounts that it serves.
“So, our aspiration for Vouch is that we can serve and hold on to these clients for a long time to come,” he pointed out, saying that Vouch currently isn’t focused on serving public companies.
“There are great experts out there who really are focused on public tech companies. That is not our bailiwick. But frankly, most tech companies stay private for quite a long time. And that’s really where we’ll focus.”
Hodges said Vouch is currently focused on broadening its reach within the existing products and in vertical markets where it already operates.
“We are a meaningful share of the market, but we’re not 30%, 40%, 50% yet, so we still have a ways to go,” he explained, while saying that the insurtech is working to broaden the types of companies it currently serves.
“Part of that is continuing to push upmarket a bit. There’s more to do there, but also part of it is expanding into other vertical markets where the risk and client profile is similar to the types of clients we do a great job with today,” he said.
“And so, there are a whole set of similar segments that we want to get into over the next couple of years. And those are things to begin; we’ll hopefully have more to share on in the next coming quarters,” he added.
