Highlights
- Assurely and AXA XL provide insurance for officers of Security Token Offering companies and their investors
- Assurely’s co-founder Ty Sagalow was also Chief Insurance Officer at SoftBank-backed insurtech Lemonade. AXA XL is also one of Lemonade’s reinsurers
- Part of due diligence relies on STO platform doing some vetting
- Due diligence is automated
A week ago we wrote about New York startup Assurely offering CrowdProtector insurance for crowdfunding and security token offerings (STO) in collaboration with AXA XL. We had some questions given it’s providing coverage to investors who will get their investment returned if there’s misrepresentation from the issuer or they misuse or steal funds. So what’s the due diligence process?
Having attended Hanson Wade blockchain conferences targeted at insurers, we’ve seen how risk averse the insurers are when it comes to blockchain. So how did Assurely get AXA XL on board?
Part of the answer lies in Assurely’s co-founder & Chief Insurance Officer, Ty Sagalow who was also a founding team member of SoftBank-backed insurtech Lemonade and is still a member of the Lemonade Insurance Company’s board. Plus he spent 25 years at AIG latterly as President of AIG Product Development. Sagalow also quite literally wrote a book on Director’s and Officer’s insurance (D&O), and Assurely’s STO coverage includes D&O insurance which protects officers if they get sued.
For those not familiar with Lemonade, it sees itself as the Uber of the insurance world and heavily leverages behavioral science and automation. Its first product offers home and renters insurers. The startup raised $180 million and regularly ranks in the world’s top five insurtechs, sometimes as high as number two. Number one is China’s Zhong An.
Apart from Ty Sagalow, Assurely has a couple of other things in common with Lemonade. Last year AXA merged with XL Catlin to become AXA XL and XL Catlin is a Lemonade reinsurer. So Sagalow closed a deal with XL Catlin / AXA XL for both companies.
Lemonade uses artificial intelligence and bots for a light touch insurance application process. So the other part of Assurely’s announcement that sounded similar was the emphasis on the token issuer not having to fill out forms and the process being low friction. One way it does that is by ensuring that the crowdfunding and STO platforms vet the companies themselves. Still, it must be hard to audit a start up founder with little track record.
For the due diligence process, we fired off some questions to Assurely and received the response below from Sagalow and Assurely CEO David Carpentier.
Q: What is the due diligence process?
Ty Sagalow: As the only insurance specifically designed for online capital formation, we take due diligence extremely seriously but at the same time make it completely frictionless and seamless for the securities issuer. We conduct diligence not only on the securities issuer but also the partners and platforms that support the issuance – their processes, diligence techniques and best practices.
This is done without increasing friction nor adding workflows to any stakeholder in the process. We have been successful at accessing more data than traditional insurance underwriters, while still not imposing an onerous process to secure insurance. Our diligence process is automated, instantaneous, and completely application free for the issuer.
As the industry grows, we are continually creating and adopting additional automated underwriting tools to review data such as social network commentary, scanning litigation databases, and accessing additional data to improve underwriting as well as reduce the risks to the stakeholders engaged in online capital formation.
Q: Is the due diligence both technical and about the people?
Ty Sagalow: Absolutely! Evaluating the underwriting risk exposure of a new issuer is multi-faceted. It includes understanding the business plan for the issuer and also looking at the people who are managing the operations for the issuer.
How much experience do they have in this field? Have they been successful in the past? Much of our underwriting due diligence leverages available APIs or existing data set for the first level of underwriting due diligence.
David Carpentier: As the industry continues to mature, our ability to access decentralized and deep data sets improves our ability to diligence both the project as well as the team without friction.
Q: Who carries out the due diligence?
Ty Sagalow: As far as the insurance policy is concerned, it is our company, Assurely, the program’s Managing General Agent acting on behalf of the insurance company. However, in an effort to streamline the process, we leverage the support of issuance partners, platforms, and advisors to reduce friction, cost, and effort for the issuer.
Q: What features are needed to ensure acceptance?
Ty Sagalow: To be accepted for coverage, we evaluate the documents filed with the relevant governing bodies as well as communications to investors. Underwriting criteria include, but are not limited to the issuer’s financials (if any), the experience of their management, the industry and jurisdiction they are operating in, and the type of security to be issued.
David Carpentier: Because the advisory and issuance stakeholders are so crucial to the success of a security token, we recommend projects choose those platforms and advisors where Assurely has a relationship or partnership. We expect that over 90% of issuers who choose to raise funds through our partners will qualify for insurance.
Q: Any other information or insights you’d like to add?
David Carpentier: We view online capital formation as a fundamental change in our economy. The role insurance needs to play is to embed and communicate the value propositions of trust, safety, and confidence in this emerging industry.
Our goal is to be a contributor to the growth and evolution of an industry that creates more access, allows for investor liquidity, decreases the friction to raising capital for exciting innovations, and above all, leverages the power of community.
The existing insurance model, although successful for many years, needs to adapt its value proposition and how it interacts with these changing industries, changing risks, and the fundamental changes in our lives and economies. Assurely was built specifically for this need.
As innovation continues to accelerate, Assurely’s technology-first model to creating and delivering new and adapted risk products for innovative marketplaces allows insurance to deliver the value proposition that it was intended to create.
