CEO Nakatsuji: Clearcover “well on the path to profitability” as auto conditions rebound

Clearcover CEO Kyle Nakatsuji has said the firm is “well on the path to profitability” as personal auto conditions rebound, while acknowledging the difficulty of innovating in insurance and discussing funding conditions after recently completing a $50mn round.

Speaking with The Insurer TV on the sidelines of last week’s Insurtech Insights USA Conference at the Javits Center in New York City, Nakatsuji said Clearcover is “getting ever closer” to becoming profitable.

“I think we are well on the path of profitability,” said Nakatsuji, who co-founded the personal auto specialist in 2016.

“I think there are two components for any company, ourselves included. The first is making sure that, from an underwriting perspective, you're positioned to be a profitable organisation,” he explained.

Nakatsuji said Clearcover is making “great strides” as he pointed to a 13 percentage point improvement in its Q1 loss ratio to 84 percent, adding that it is going to see an even greater improvement in Q2.

The insurtech posted a 163 percent combined ratio in 2023, versus 158 percent in 2022, 153 percent in 2021, 146 percent in 2020 and 144 percent in 2019.

“We feel very good about the progress we've made on the underwriting front, despite the macro challenges we've faced as an industry and as a company,” he added.

Nakatsuji said the second component to being profitable is being big enough to cover the fixed costs to run the business and to build all the technology needed to be a great underwriter.

“So that part is going to take a little bit more time for us, in part because we've tried to ensure we grow the company responsibly,” he explained.

“But both are on track, it's just for us making sure that we are patient, because there is a way to get to profitability more quickly which will compromise the long-term value of the business, and we don't want to make that decision.”

“Next generation auto insurer” with agency distribution

Nakatsuji describes Clearcover as a “next generation auto insurer”, with the goal of leveraging modern technology to deliver a better customer experience at a lower cost than incumbents.

An attorney by training, he spent four years as a principal at American Family Ventures before co-founding Clearcover with Derek Brigham, who serves as the firm’s COO and previously spent almost seven years at American Family Ventures and more than 20 years at CUNA Mutual Group.

“Fast forward not quite eight years, and that is still very much the mission. I think we've accomplished a lot of it, but there's a lot left to go,” Nakatsuji said.

The Clearcover CEO said most auto insurtechs share in common the aim to use technology to create operational efficiency, but that his firm stands out by using an agency distribution model.

“We made a decision pretty early on that we were going to be a fairly agency-centric company,” he commented.

“We don't necessarily call it agency so much as we think of it as ‘demand capture’,” he continued, adding that a direct-to-consumer approach would be expensive and difficult when competing with incumbents that have been building their brands for a century.

“The other way to do it is to capture demand, which is to say you build technology and connections that allow you to go and plug into places where someone else has already created that demand and make it very easy for that person to procure insurance,” Nakatsuji explained.

“And we thought that as a start-up that was a place we stood a better chance of winning because those connections were based on technology,” he continued, while avoiding spending billions of dollars on brand development.

Nakatsuji echoed comments made by Hippo CEO Rick McCathron describing the ambition of insurtechs to compress the timeline of innovation versus incumbents, saying that doing so tends to create a conflict between growth and underwriting results.

Shift in funding conditions forcing “responsibility and accountability”

Discussing funding conditions, Nakatsuji acknowledged that Clearcover completed an unannounced $50mn fundraise in April, and said that the shift in insurtech funding conditions the last two years has likely been healthy.

“We did close a round recently, led by our current group of investors, who are great and have been very, very supportive,” he said.

“I think it's forced more responsibility and accountability and thoughtfulness and prudence onto companies in terms of how they think about growing their organisations,” he commented.

“I think our belief – and we've been fortunately proven true the past few times we've gone out to raise – is that if you stay focused on the long term and you're building a company that you believe is going to create long-term value for customers and long-term value for shareholders, you'll find somebody who can see that vision,” Nakatsuji explained.

He said as a result fundraises may take longer and insurtechs may have to do more work to prove themselves.

“But at the end of the day, we just believe that if you focus on playing the long game for your customers and your shareholders, somebody will find you and we've been fortunate enough that it's been the case,” he explained.

Watch the full interview with Clearcover co-founder and CEO Kyle Nakatsuji to hear more about:

  • How the personal auto insurtech is “well on the path to profitability”
  • How Clearcover is differentiated by virtue of its agency distribution model
  • Balancing growth with profitability
  • How the shift in funding conditions is forcing “responsibility and accountability”
  • How Clearcover was launched to bring modern tech to insurance