Direct Intelligence
Connecticut Life and Casualty (CLC)
If you really want something, it is within reach, believes Robert S. Weiss, a former insurance agency owner who bought an island in Connecticut “to have as a refuge from the trials of his fledgling insurance agency” for $25,000, significantly lower than the asking price of $150,000. Even more amusing, he had no money, so he layered a construction mortgage over a mortgage to buy the island without a down payment and with financing to build on it, as covered by The New York Times in 1995. No money but plenty of work ethic is a story told back then, repeated to you now…
Weiss created Connecticut Life and Casualty (CLC) in 1990, securing financing from Fleet Bank (now Bank of America), with headquarters in Meriden, CT. Back then, more than half of the insurance sold in the state was by independent agents, which, Weiss argued, isn’t truly competitive. He claimed that giant insurance companies buy the loyalty of “independent” agents by paying them high commissions, costs that are ultimately passed on to consumers.
CLC mostly sold its policies over the phone. Then, in an effort to better understand the properties it insured and reduce losses, it began sending inspectors to examine the houses and cars the company was asked to insure. From the start, CLC aimed at “the middle of the market.” “We are not looking for the high-priced home but for moderate homeowners. And we don’t skim.” Weiss also added that they “underwrite people” and remarked, “If a dummy like me can do it, something’s wrong with the industry.”
Weiss wasn’t only about hard work but also about tough love. When teen drivers covered by CLC got into accidents, they were called into his office. In ~6 months, about 60 teenagers trooped into Weiss’ office. Weiss would spend about half an hour with each young offender to ensure they learned a lesson. Over the past 30 years, the concept of tough love has evolved from an offline approach to a digital, data-intensive one, becoming increasingly complicated, connected, controversial, and costly. This week, we witnessed the lackluster sale of Zendrive’s technology assets to its longtime partner, Credit Karma.
Founded in 2013, Zendrive is a San Francisco-based startup focused on driving analytics, co-founded by Jonathan Matus. A Coverager source indicates that it’s currently unprofitable. In 2016, the company raised $13.5 million in Series A funding led by Sherpa Capital. By 2017, it had raised an additional $37 million in Series B funding led by XL Innovate, with participation from Hearst Ventures and existing investors such as ACME Capital, BMW iVentures, and others. Zendrive’s software analyzes data from smartphone sensors to assess driving behavior, including risky actions like phone use, speeding, aggressive acceleration, and hard braking. In total, Zendrive raised $57 million. It also spun out a connected commercial auto proposition named Fairmatic. Another Coverager source mentioned that investors got shares in Fairmatic (during its launch).
In 2020, Credit Karma launched Karma Drive, a usage-based insurance product powered by Zendrive and in partnership with Progressive. This product allows users to potentially obtain an auto insurance discount based on their actual driving, with no requirement to purchase a new policy before seeing how much money they can save.
This new product followed Progressive’s launch of Snapshot Road Test, a feature in its Snapshot app that allowed drivers to see if they might save on their car insurance rates before switching to Progressive. However, Snapshot Road Test is no longer accepting new enrollments. The classic Snapshot is still available for enrollment with the following details: a plug-in device is optional, and after six months of driving with Snapshot, future renewal rates will be based on the driving habits shared. For NY drivers, there’s an extra requirement to provide updated driving information after 36 months to continue qualifying for a Snapshot discount.
To date (over 3 years), Karma Drive has enrolled more than 6 million members and generated over 4 million discounted policy offers. As of March 2023, Credit Karma had more than 120 million members in the US, achieving an enrollment rate of 5%, which is half that of the Apple Card.
Intuit acquired Credit Karma for $8.1 billion, marking one of 2020’s largest fintech buys. However, Credit Karma’s revenue for the full fiscal year 2023 was $1.6 billion, down 9%. ‘One of the biggest frustrations for consumers is the lack of certainty around whether you’re qualified for a product,’ said Ken Lin, the CEO and founder of Credit Karma, in 2020. The offering of over 4 million discounted policy offers through Karma Drive is proof that usage-based insurance isn’t about certainty in savings. With this move, we’ll see Credit Karma pushing a product rather than pulling in customers.
Direct Response Corporation (DRC) & Homesite Group Incorporated (HGI)
There’s another version to the NYT story suggesting that it wasn’t a vision for competition that prompted Weiss to open CLC but rather necessity. “When Weiss burned through all his carriers and couldn’t get any more appointments, he started Connecticut Life & Casualty as a direct writer,” shares an anonymous person known as CT Agent. The source further shared that the policies were unconventional, with six-month terms for auto, home, and umbrella insurance. When CLC hit a plateau and realized that underwriting was essential for growth and profitability, they sold the book to Direct Response. Direct Response aimed to grow the Meriden-based insurer, which had ~20,000 policies and wrote $13.2 million in premiums in 2019. Weiss would remain in his role as chairman and CEO of CLC, alongside President and COO Ron Licata.
Direct Response started business in the US in 1997 following an equity commitment of $215 million from an investor group led by Morgan Stanley Dean Witter Capital Partners. That investment was later augmented by an additional $97 million. It was led by two principals: James (Jim) Stone, the founder and CEO of Plymouth Rock and also the founder of Homesite, which was also founded in 1997 as one of the first companies to offer home insurance policies online – “during a single visit.” The other principal was Sir Peter Wood, a serial entrepreneur who has founded seven companies in the UK, Europe, and the US before shifting his focus to luxury residential developments.
Wood and Stone imported the bright red telephone on wheels to symbolize for American consumers that they don’t need an agent to buy car insurance, just a telephone with a trusted name at the other end. This approach was not unlike GEICO’s strategy, which in 1997 sold over 900,000 policies—that’s 2.7 times Root’s in-force book as of last year, which had 341,764 policies. Ultimately, Direct Response was sold to Trinity Universal Insurance Company, a subsidiary of Unitrin, and now Kemper, in a cash transaction valued at ~$220 million back in 2008.
Like Trinity, American Family also eyed the direct channel with the acquisition of Homesite in 2013. The Boston-based carrier was primarily a direct writer of home, renters, and condo insurance. Since then, Homesite has expanded its offerings to include business and auto insurance, and it has also started sending pet insurance leads to JAB-owned Embrace. However, if you’ve read reviews on Reddit, Homesite appears to struggle with internal management, outdated technology, and poor customer service. Issues aside, we first reported yesterday that Homesite works with Lemonade as a partner, underwriting home insurance in Kansas, Kentucky, Minnesota, North Carolina, New Mexico, and Utah. Additionally, Lemonade announced a partnership with Gusto for pet and renters insurance, which functions as an affinity link. According to Gusto, they act as “a facilitator in the partnership.” While Gusto is a licensed entity, it does not serve as an insurance broker or carrier in this arrangement, according to a Gusto rep.
Lemonade succeeded in gaining market share because it stuck to a $5 price point, creating certainty in pricing and in experience. Only a year ago, Lemonade’s cofounder stated that “incumbents are encumbered” (5:20 minutes in) yet Lemonade now depends more on established players than before and certainty isn’t certain.
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While today’s gatekeepers are well known, the future’s are less certain. Technologies like ChatGPT introduce risks of adding more noise, as quality depends on the time invested and critical thinking requires effort. Maintaining direct, intelligent access to customers is more relevant than ever as a differentiator.
// Article edited on June 17 to reflect that Zendrive investors received a stake in Fairmatic ahead of the Cardit Karama acquisition