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Cyber insurance MGA startup working on unique coverage model in nascent sector

➤ Cowbell Cyber Inc. plans to apply artificial intelligence and continuous underwriting to an insurance sector whose actuarial model is still under development.

➤ The managing general agency startup's CEO can foresee a future in which the company is a full-stack insurer. However, the focus for now is on the existing model and its expertise in risk selection and pricing.

Cowbell Cyber uses public data to assess companies' vulnerability to hacking before policies are written. CEO Jack Kudale said the company is developing an artificial intelligence-powered platform to assess exposure on a continuous basis and allow clients to adjust coverage accordingly. Kudale is a software entrepreneur who most recently ran businesses in the cybersecurity space before delving into cyber insurance, a sector he said is as fledgling as cybersecurity was about a decade ago.

Within a year of starting up, Cowbell began writing policies as an MGA in Colorado and Arizona. Backing the underwriting are Markel Corp. and RenaissanceRe Holdings Ltd. for products covering businesses with revenues of up to $100 million. Kudale recently sat for an interview with S&P Global Market Intelligence. The following is an edited transcript of the conversation.

S&P Global Market Intelligence: The market is getting a bit crowded with insurtech MGAs. What sets Cowbell Cyber apart?

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Jack Kudale, CEO, Cowbell Cyber

Source: Cowbell Cyber Inc.

Jack Kudale: We feel like we understand the risk at a much more granular level and with much more detail. Based upon our proprietary data and machine learning models, we are rating the risk on a more individualized basis.

As of today, we're able to price 300,000 companies in the first 15 states that we'll go into. We already have their data. We understand the risk, and we do it on a continuous basis.

Cyber liability is tricky to underwrite because of the lack of loss data. How do you expect to implement something as complex as continuous underwriting?

We're probably in the first year of a three-year journey here in continuous underwriting. The first step for continuous underwriting is continuous assessment. In one quarter, we'll likely go to 1 million companies, so we are continuously assessing cyber risk, which is evolving. We are creating a dynamic actuarial table on the fly, and we don't want to act on it right away. So we think that over a period of the next 18 to 24 months, we will be able to truly go after the vision that we have set out for ourselves.

Smaller businesses can lack sophistication when it comes to cyber liability insurance, which is very new and not always easy to understand. How do you deal with smaller companies?

There are three things that our small cyber clients care about. In order of priority, the first thing they care about the process. That is, what they have to go through to obtain cyber insurance. "Do I have to fill out an application? Do you want me to bring all the artifacts? How long does it take?" The second thing they care about is coverage: "Am I covered from regulatory fines?" The third thing is insight. "Do I know what type of insurance I need?"

For bigger businesses, the priority is reversed. They care about insights more.

For small business cyber coverage from the time a broker knows the name of the company, we can activate a policy in less than five minutes. We've done that already a few times.

Do you think there is enough funding to keep you going, or do you think you will be able to stand on your own?

This is my fourth startup, so I have gone through this rodeo a few times before. My principle is you raise money when you need it. The seed round was great; it got us started. Initially, it was bootstrapped with friends and family.

Right now, we are entering six states, including California and Illinois. This will require us to go for more capital. And when the right time is there, I think we will have a series A funding event sometime in 2020.

Do you think you will eventually want to become a full-stack insurer holding risk?

You look at some of the other models, some companies have been very successful as a full-stack insurer. We think in our future there is a possibility of conversion from an MGA to a full-stack insurer, but that day is not here yet. We truly want to accomplish our vision first. Right now, we like the model today. We like that we are focused on what we're really good at: risk selection and pricing.