Branch Insurance shot up to a $1 billion valuation by galloping in the opposite direction of other tech unicorns, said co-founder and CEO Steve Lekas.
The digital home and auto insurer since inception has opted for steady growth by setting premiums high enough to cover claims costs, he said. But rates are still lower than many competitors by cutting distribution and marketing expenses – just enough for an underwriting surplus.
"It’s very hard as an insurance business to (both) grow and make money," Lekas said. "That is not the normal venture way. The venture way is to grow at all costs. Our way was to grow at an adequate cost."
The 4-year-old Branch Financial Inc., which sold its first policies and moved to Columbus in 2019, was valued at $1.05 billion in a $147 million private equity round this week, led by Weatherford Capital.
The family-owned private equity firm, including a partner who formerly was a state lawmaker in Florida, brings expertise and deep connections in state governments, Lekas said.
"This round is intended to bring us to cash-flow positive," he said. "We filled it with investors that have a longer-term view."
Even if premiums cover claims, fixed operating costs – such as staffing – result in a net loss for insurers until the number of policyholders hits a critical mass. With pragmatic pricing, Lekas said, Branch intends to hit that inflection faster than most insuretechs.
Branch sold direct written premium of $19 million in the first quarter – almost as much as the $20 million in all of 2021, according to filings with the Ohio Department of Insurance. Most of its business is in homeowner policies; Texas and Ohio are its largest markets. That's still a tiny sliver of a $650 billion property and casualty market.
The insurer sells through independent agents and in embedded partnerships with online services such as mortgage lenders, auto dealers and home security companies that offer a quote at the time of purchase. That minimizes advertising costs and increases uptake – people are presented with an easy option at the moment they're forced to purchase coverage.
"We can make insurance conveniently accessible at a price no one can match," Lekas said. "We’re not competing with (Columbus-based) Root or Lemonade; we’re competing with State Farm and Allstate."
Branch grows only as fast as underwriting profit allows – and that prudent approach along with consistent customer growth attracted a unicorn round amid a severe pullback in venture capital this year, Lekas said.
"We had started the fundraise right as things were getting shaky (over winter)," he said. "We happened to be in a really fortunate position."
Fintech companies that raised huge rounds or went public in recent years have struggled financially and contended with falling share prices, including Root Inc.
"The market has hardened dramatically," Lekas said, although not mentioning any startup by name. "The profit was never there, and as the companies tried to find opportunities for profit, they damaged growth.
"The investor thesis, though shaken in confidence, remains intact: This is one of the largest global markets that is largely untouched by the technological revolution."
Lekas, an insurance veteran, founded the company with CTO Joe Emison, who led software companies. Lekas credits the company's success to the team they've built. Branch was ranked No. 13 nationwide among small and medium companies in this year's Glassdoor best workplace awards.
"We intentionally built a company that is not bro-y," Lekas said. "It’s those employees that make us capable of being so good to our customers.
"We try to live this brand internally: Getting (insurance) back to getting each other’s backs."
