Rainbow’s Touran: Insurtech looking to capitalise on dislocation in admitted SME market

The founder of Rainbow has said the exodus of admitted carriers from select classes and geographies is giving the SME-focused insurtech a leg up in capturing business, while leveraging an agency distribution model.

Speaking with The Insurer TV at last week’s Target Markets Mid-Year Meeting in Tampa, Florida, Bobby Touran detailed the insurtech’s strategy around specialised underwriting and the excess demand for insurance in some segments where carriers have pulled back.

“We think there's a big opportunity to marry good underwriting with a digitally native approach,” Touran explained.

Rainbow has an admitted BOP program focused exclusively on restaurant insureds, which it distributes through agents. The firm has 15 colleagues on staff, about half of which are software engineers.

The insurtech launched in January 2022 and spent its first year in operations building its own quote, bind and issue platform to distribute its product to roughly 4,000 agents – relationships that are all new to Rainbow in the last 10 months.

Touran said that one of the appeals of initially focusing on restaurants is dislocation in that market, in addition to the fact that their exposures are more liability-oriented, in the context of a challenging property market in the last couple of years.

“As we looked at small commercial … we thought about what are the biggest segments within that, and restaurants was one that was large,” he explained.

“It didn't have a huge amount of property exposure, which is obviously tough in this market,” he continued.

“It's been going through a lot of dislocation and, to some degree, distress since Covid. And so it was attractive for us. And we felt like it was an opportunity that we were hearing from agents. They wanted more options and more markets. And so that's why we went after that.”

Also, Touran pointed out, the demand among restaurant insureds for insurance is high.

“These businesses need insurance. They don't have an insurer available, which is a great situation for us because we can be very selective in terms of the risks that we focus on,” the founder said.

Frictionless underwriting

Agents, he said, have appreciated the rapid turnaround time Rainbow’s tech stack affords, along with the ability to connect with human underwriters.

“For every submission that comes in, we scrape many different sources on the internet; that looks at reviews, hours of operation and issues that the premises may have had in the past,” he commented.

“And we know those things instantly upon the agent submitting it to us,” he added, while explaining that Rainbow does continuous underwriting after a risk is bound by checking certain data points such as an insured’s latest customer reviews.

“We have underwriters on staff, which allows us to look at much more interesting risks and also much larger risks,” he said, explaining that Rainbow’s average premiums are around $10,000, versus competitors who might have average premiums in the single-digit thousands of dollars.

“And that's all made possible by the fact that we have all this information on the submissions, and then we have humans that can intervene at those edge cases,” he explained.

“That's really resonated with agents. They love the human touch. They love the ease of doing business. And they like that we're a market for a class of business that they struggled to place with other markets.”

Expanding to other verticals

The Rainbow founder said that his firm’s broad appetite has also been a source of growth, as it doesn’t immediately decline risks but instead looks for opportunities to offer insureds discounts.

“We give the agent the ability to apply all different discounts based on the behaviour of the underlying risk,” he explained, noting that the insurtech offers cyber and EPLI add-ons to its BOP product, along with liquor liability as part of its BOP product.

“So for restaurants, we really are becoming the go-to market for a lot of agents,” he said.

“And that's what we want to repeat in other industry verticals that we'll move into and make available through the same online platform.”

Opportunity with admitted lines pullbacks

Touran is bullish on the opportunity that has been presented by the pullback of admitted writers, but also said the insurtech is being selective around business let go by other carriers.

“First of all, we're in – and a lot of this depends on the state that you're talking about – an excess demand situation,” he explained.

“We can be pretty selective and write good business, meaningful-size accounts, which is like a meaningful premium to the agent. And the agents remember that, and then they think to themselves, ‘Okay, I want to try placing more and more business with Rainbow,’” he said of the strategy.

He pointed to the continuous monitoring of a risk through things like tracking sentiment around a business and reviews to develop a picture of an insured’s risk characteristics.

“So if a sushi restaurant we write starts having a lot of reviews, [that are] like, ‘I feel sick every time I eat there’, that informs us, and it informs the agent. And it becomes a way for us to demonstrate to them that we're monitoring the health of the risk,” he explained.

“And then we can see with a lot of granularity [things like], when are they doing business? Are they selling more alcohol than they maybe told us initially? These are all just ways for us to keep our businesses accountable and ultimately keep our reinsurers happy.”

Full-stack pivot unlikely

Rainbow has raised $12mn since its launch, with Touran saying that insurtech MGAs are having a much tougher time attracting capital than software-as-a-service companies.

“Especially if you're a first-time founder, you might run into some challenges as you're thinking about financing in this environment. But we've been fortunate that that's not really been an inhibitor for us so far,” he commented.

Touran said his firm “loves the specialisation” of having an industry-focused program, arguing that it has made Rainbow an easy destination for generalist agents to place business for restaurant-related risks.

“We'd love to just be able to service more of their business and be more of a help to the agents that we work with. So our goal is to launch other verticalised programs that are specialised in the way that the restaurant program is,” he explained.

Rainbow is looking to launch at least one new program a year for the next three to four years and grow into a several hundred million dollar premium firm over that time horizon.

“And the key thing, though, is to really keep an eye on our loss ratio as the North Star metric that we want to maintain control over. I think it's important for us to reach a certain critical mass,” he commented.

Touran also expressed uncertainty over whether Rainbow would ever look to become a full-stack carrier, citing heavy capital requirements along with regulatory hurdles as obstacles.

“You have to get into a whole new world, especially because we're in the admitted world. You have to go through quite a bit of regulatory red tape. And I'm just not totally sure that the ROI is worth it,” he explained.

“I actually think the MGA model is a great model. It's been proven. Obviously, we're at Target Markets, but it's been proven to work really well,” he concluded.

Watch the full interview with Rainbow’s Bobby Touran to hear more about: