Stable, an insurtech aimed at minimizing a company’s risk due to volatile commodity prices, today announced that it has raised $ 46.5 million in a series of Series A financings led by Greycroft.
Notion Capital, Anthemis, Continental Grain, and existing backers Syngenta and Ascot also participated in the funding, bringing the Chicago-based startup’s total raised to around $ 50 million since its inception in 2016. Anthemis led its fundraising effort. funding round of $ 3.5 million at the start of 2020.
Founder Richard Counsell is the son of a farmer and a former trader. Growing up, he saw with his own eyes how volatile commodity prices could have devastating effects. His goal with Stable is to help “millions of companies exposed to volatile commodity prices to manage risk in a simple and effective way.”
In a nutshell, Stable wants to give businesses – especially those in the $ 8 trillion food and agriculture industry – a way to purchase insurance to protect themselves from potential volatility in commodity prices.
The startup is on track to hit a $ 500 million annual bonus within three years of launch, which Greycroft partner Ian Sigalow said could make it “the fastest growing insurtech of all. time”.
Counsell said he wanted to found Stable after realizing how little the industry had innovated since 1848, when the Chicago Board of Trade opened with the mission of providing financial certainty to buyers and sellers. of harvests.
“I set out to create a platform that combines modern tools such as machine learning (AI), great user experience, and a clear, customer-centric goal to get back to the basics of our industry. and become relevant again for companies with real risk to manage, ”he said. noted. “When trading stocks on platforms like Robinhood has never been easier, why should you feel like you need a doctorate to cover your commodity risk? “
The company’s parametric platform hosts more than 5,000 third-party indices from 70 countries that can be used to purchase a policy to protect against an unexpected rise or fall in prices. Customers can select an index to customize a contract. Payments are automated and refer to the local or highly correlated index to minimize basis risk.
Stable uses an index to simplify risk transfer.
“Instead of having to calculate the exact loss the company faced, we are using an index as a proxy,” Counsell said. “So if you use an index, the more the index correlates to your actual risk, the better. That’s why we have over 5,000 indices – so we can create an index-based contract that is super accurate and accurately reflects the client’s actual risk.
The other big advantage of using an index, he said, is that complaints can be completely automated and no complaints process is necessary as everything is agreed in advance – in referring to the index they have chosen.
“So if the index is currently $ 100 and the customer is a food buyer, they might know they are losing money if the index hits $ 120,” Counsell explained.
Stable charges a premium and then provides a “payout” if the index exceeds $ 120 in this case.
“Our payment replaces the client’s lost income and gives them the financial stability they seek,” said Counsell.
Agricultural products are perishable and come in all shapes, qualities and sizes, making them “very difficult” to standardize and trade on an exchange, noted Counsell.
“The result is that only 8% of commodities are available to trade on the Chicago Mercantile Exchange (CME), making it difficult to purchase risk management products such as risk-free futures or options. huge base, ”he said.
In the agri-food sector alone, more than $ 5,000 billion in non-traded commodity exposures are currently self-insured, according to Counsell. Companies that simply want to protect their risk rather than trading or speculating may find hedging complex, risky, or intimidating.
“We used a pretty sophisticated type of machine learning to find the price of that risk, or the index up or down, and it took us three and a half years,” Counsell told TechCrunch. “We run around 62 trillion simulations every day to manage this and seek a fair price for customers but also fair for capital providers. “
The COVID-19 pandemic has caused major disruptions in the food chain, making manufacturers and producers even more aware of the potential risks, Counsell said.
For example, if a smoothie maker typically sells their product to a grocery chain for a fixed price of $ 1 a can and the price of mangoes (which can be up to 50% of the cost) fluctuates a lot – Stable will pay off. the difference. of anything above 20%.
“It just gives more certainty for the future,” Counsell said. “Whether they are on the side of the producers or they are buying. “
Stable has operations in Chicago, Austin, New York and London. It plans to use its new capital to strengthen its North American sales and marketing teams and hire data scientists, particularly in New York and London.
Stable gained regulatory approval earlier this year, and as such is now starting to work with many large food companies in the United States, as well as farm organizations looking to protect themselves against future price cuts.
Over time, Stable plans to expand into other sectors such as packaging, construction / wood and energy and geographically in Central and South America. Because the company is able to serve both producers and consumers of commodities, it “appears to become popular in tractors as well as in treasury services in the months and years to come,” according to Counsell. .
The 50-person company is a regulated insurance company that works with “A-rated” reinsurers to assume the risk.
“We are just a technological platform. Our job is to find as many companies as possible that need help, assess the risk, manage their portfolio, reinsure all that risk and pass all that risk on, ”Counsell told TechCrunch.
He makes money like he’s a broker, charging a fixed commission for the business he brings back to his reinsurers.
Stable’s insurers are optimistic about the company’s potential.
Ruth Foxe Blader of Anthemis said she was drawn to Stable because it is so rare to have the opportunity to invest in “a really new product”.
“Stable isn’t just a better mousetrap,” she wrote via email. “It’s a completely innovative way of designing protection against price movements of non-traded commodities. Tailored commodity price insurance did not exist before the launch of Stable this year. “
Stable leverages a “huge” amount of index data to create “simple” protection products for clients exposed to volatile commodity prices, “added Blader.
“While the models are, individually, quite simple and therefore insurable, the power of data science and machine learning within every Stable product was unthinkable just a few years ago,” she said. . “The result is straightforward and perfectly tailored commodity price insurance.
For its part, Greycroft’s Sigalow was impressed with Counsell’s “unique perspective” in the crop insurance market.
“He has assembled an incredible team of data scientists and subject matter experts, and we estimated that this market could represent hundreds of billions of dollars in premium every year,” he said. It also integrates well with Greycroft’s other insurance investments, such as Bright Health, Branch Insurance and Pie Insurance.
When asked how Stable compared to other similar offerings, Sigalow replied that he didn’t know of any.
“I’ve never seen this before in my career, ”he told TechCrunch,“ but when we called customers they told us there were no substitutes and it was an ocean. totally blue.