Cover spinoff Re insures $35 million on Avalanche blockchain

In a difficult reinsurance market, Re launched this year and offers a blockchain-based technology to cover a wide range of risks with reinsurance.

The insurtech startup, led by CEO and co-founder Karn Saroya, began development in 2020 at Cover, an auto and home insurance insurer he co-founded in 2016. Re has written about $35 million in coverage so far and expects to reach $150 million by the end of the year.

Re uses Avalanche, a blockchain platform for smart contracts, as a protocol to handle accounting, and applies it to warranty decisions, Saroya explained. With that, Re users can operate as “reinsurance MGAs,” he said.

Re covers risks including workers compensation, directors and officers, errors and omissions, as well as industries such as agriculture and aviation. The technology “mines” data in Avalanche to use for warranty and pricing decisions, according to Saroya. With Re’s platform, an underwriter can “assess the business and put their hand up, like a syndicate at Lloyd’s, provide capital for that deal, and get the protocol behind it to provide the rest of the capital needed to support a deal,” he so.

Capital set aside to cover a risk is held in trust accounts, but these have a continuous real-time audit. “They know exactly what risk we’re at at any given time,” Saroya said. “We give access to auditors to read our bank accounts in real time.”

The reinsurance market has faced challenges, including rising premiums and tightening margins, but these “dislocations” have created a rare opportunity for Re, Saroya said. Being a “new entrant with no legacy of losses” made it easier for Re to step in and sell its coverage.

Another selling point for Re is the security that blockchain technology provides to keep permanent records, according to Saroya. “If you misrepresent performance to a third-party administrator, it lives on in the chain,” he said. “If you’re a bad actor as a front carrier, and you convince or you do a number of things that front carriers can do to be a little shady, it’s on the chain. It forces an incredible amount of transparency that’s going to be attractive to people who are high achievers who ultimately want the benefit of better finances.”

This in turn helps insureds satisfy regulators and pass scrutiny, by providing full disclosure. “It’s to their advantage,” Saroya said. “They now have the ability to query any given deal and have the ability — in a nice, neat interface that’s built for them — to ask what capital reserves are in place in the performance over time.”