Why We Invested: OTONOMI

As the COVID-19 Pandemic has unfolded our team at REFASHIOND Ventures has been privy to the pain that small- and medium-sized businesses have encountered as they have attempted to navigate the problems and stoppages that have bedeviled the supply chains that they have become accustomed to relying on and that they had previously ignored, or even taken for granted; Our unique position as community organizers and co-founders of The Worldwide Supply Chain Federation and The new York Supply Chain Meetup respectively is what has given us that privilege.

The Problem

One problem such business owners face is that when they encounter an unforeseen crisis, they have no quick and easy way to obtain some relief to enable them more easily work through the problem. When supply chains functioned smoothly, this was not an issue. But that world no longer exists. In the reality we have been ushered into by COVID-19, supply chains have been highly unreliable, and as a result the owners of SMBs have become more open to thinking about some of the tools they might want to adopt to enable them manage their businesses better and reduce the risks and uncertainties to which they are fully exposed.

As we realized from our conversations in 2020 and 2021, many SMB owners had no real understanding of all the things that can go wrong while goods are being shipped internationally; COVID-19 has changed that.

Cargo Insurance vs. Freight Insurance

According to the U.S. Department of Transportation’s Bureau of Transportation Statistics “Transportation Statistics Annual Report 2020” , “The U.S. freight transportation system moved more than 18.6 billion tons of goods valued at $18.9 trillion (real dollars) in 2018, or an average of 56.9 tons of freight per capita in the United States in 2018, a 4.0 percent increase from 2016.”

The goods shipped above could be covered with Freight Insurance OR Cargo Insurance, OR both: Freight Insurance is protection that the shipper or beneficial cargo owner (BCO) buys to protect the BCO from the impact of mistakes made by a logistics service provider. Freight Insurance does not cover the value of goods lost or damaged as a result of mistakes made by the logistics service provider. Cargo Insurance protects the BCO for any losses directly tied to the value of goods being shipped. The distinctions are more complex than this simple explanation, but as you can imagine these are not distinctions that are apparent to the typical SMB owner who is shipping freight across international borders; For example, many of those we heard from during meetups, virtual seminars, and conversations on Clubhouse had never engaged with a freight forwarder before the pandemic.

As a result a significant amount of cargo is shipped with inadequate insurance coverage, putting small- and medium-sized BCOs in a terrible bind at the worst possible time with no easy recourse when things go wrong.

Moreover, the trend I highlighted in Commentary: Competition in e-commerce is heating up! , published by FreightWaves on August 6, 2019, about 2018 data from the World Trade Organization is confirmed in the report published on May 3, 2021 by the United Nations Conference on Trade and Development (UNCTAD) ; “global e-commerce sales jumped to $26.7 trillion in 2019, up 4% from 2018, according to the latest available estimates.” According to UNCTAD, that figure reflects “business-to-business (B2B) and business-to-consumer (B2C) sales, and is equivalent to 30% of global gross domestic product (GDP)” in 2019. Most of the SMB owners we heard complaints from manage and operate ecommerce businesses, sourcing goods from China, Vietnam, or other parts of Asia for sale to customers in the United States and Canada.

According to Why Do I Need Cargo Insurance? , an article on Flexport’s help page; “Fifty percent of freight claims are denied by carriers. If something happens to your goods while in transit, it’s highly unlikely that the carrier will be held accountable for much, if any, of the value of the goods.”

This is where OTONOMI comes in.

OTONOMI: Makes it Significantly Easier to Price and Issue Parametric Cargo Insurance Policies

One can think of insurance in two broad categories; Indemnity Insurance or Parametric Insurance.

Indemnity Insurance: Compensates the insured exactly for a loss, subject to the details of the specific indemnity insurance policy, and an often lengthy claims adjustment process. This is the traditional form of insurance that most people are accustomed to.

Parametric Insurance: Also known as index-based insurance, payouts to the insured are determined by a pre-selected and objective threshold of an agreed, independent and measurable event that has a causal or correlative relationship with the potential loss for which the insured seeks protection.

Parametric insurance does not replace indemnity insurance, but rather complements indemnity insurance by making it possible to insure a wider range of losses that may be difficult to model by traditional means. Parametric insurance also provides the insurer and the insured with flexibility to create highly bespoke policies and for the insured to use the payout to cover any economic loss that they have suffered as a result of the trigger event, and allows for faster payouts.

Parametric insurance reduces the overhead associated with providing insurance coverage since there is no lengthy claims adjustment process, making it possible to provide protection for smaller losses that could not be profitably protected with indemnity insurance.

A drawback of parametric insurance is that the insured is assuming the risk that a parametric insurance policy’s payout may not fully cover the actual loss suffered by the insured as a result of the trigger being met. This is basis risk, and it is one reason parametric insurance is not a replacement for indemnity insurance. However, the business owners we heard from would rather have some payout for their loss than no payout at all. Depending on the regulatory jurisdiction, there may be a proof-of-loss requirement associated with parametric insurance.

is an insurtech startup that provides parametric insurance products and a claims management platform for insurance carriers, insurance brokers, policyholders, and claims third party administrators — outsourced claims adjustment and claims management service providers who act as vendors to insurance companies.

The company’s product and platform;

  • Makes it significantly easier to create tailored parametric insurance products,
  • Makes it easier to design and implement risk prediction and pricing models that are better suited for widely distributed parametric insurance products,
  • More easily uses the increasing variety of data sources to support underwriting and risk management,
  • Automates the processing of claims through automatic trigger event detection using APIs,
  • Automates parametric insurance policy execution using smart contracts,
  • Automates payouts using integrated digital wallets.

OTONOMI reduces the loss adjustment expenses associated with settling insurance claims. At scale the product has the potential to positively impact the profitability of insurance companies that become customers.

OTONOMI is a technology platform, AND a managing general agent (MGA) supported by Pro Global Services. An MGA is an insurance broker or agent that is vested with underwriting authority by an insurer. Being an MGA enables OTONOMI to offer the insurers and reinsurers that it partners with customized, but easy to deploy, parametric insurance products at significantly lower costs than existing approaches allow.

We believe that in its final form OTONOMI will become a robust innovation platform that enables the various parties that are active in the global insurance market to create, deliver, and extract value from one another using parametric insurance products for global freight and cargo flows across international boundaries. With the explosion in international business-to-consumer and business-to-business ecommerce, we believe this is an already enormous but rapidly growing opportunity.

Here’s an example; Using OTONOMI’s parametric air freight product, a claim can be settled in 45 minutes instead of 45 days, while eliminating 90% of the cost that it would normally take to process such a claim.

Willis Towers Watson’s Quarterly InsurTech Briefing Q3 2021 features a case study of OTONOMI on page 26.

A TEAM OF TECHNOLOGISTS FORTIFIED WITH INDUSTRY EXPERTISE

OTONOMI’s co-founders: Yann Barbarroux, CEO & Founder, Head of Analytics; Jeremy Sutton, CTO & Cofounder, Head of Engineering; and Sebastien Henot, COO & Cofounder, Head of Digital Assets, each brings extensive technical expertise and experience to bear in their collective effort building OTONOMI. Uniquely, while they each possess a technical background, their professional experience spans diverse functions. Their direct experience is augmented by an advisory board with experience from insurance, travel, blockchain, and marketing. Yann and Sebastien have known one another since their days as graduate students in computer science and engineering at Telecom ParisTech.

The team at OTONOMI reflects one archetype of the types of teams that we seek to back at REFASHIOND Ventures; Technically excellent, with perspectives developed from professional experience in supply chain, or a way of thinking developed in a different industry, but directly applicable to an entrenched problem within global supply chains.

OTONOMI participated in the Winter 2021 Cohort of NYC’s Entrepreneurs’ Roundtable Accelerator. The team won the award for “Judges All-Around Favorite” during the Global InsurTech Innovation Challenge 2021 organized by InsurTech Hartford.

We believe that strong macroeconomic forces are working in OTONOMI’s favor. These forces are only going to become stronger in the foreseeable future. We also know that many more SMB owners now have a better understanding of the value proposition OTONOMI offers, and will see it as value-additive for their supply chain risk management toolkits as the team develops a marketing strategy and develops a more robust brand presence. We are excited at the prospects that exist for the team to execute on OTONOMI’s mission and vision, and we believe that there are large adjacent opportunities that OTONOMI can expand into as it grows.

OTONOMI is closing its current round of fundraising in November 2021 which will give the team an 18-month runway till the Series A next year. Feel free to reach out to Yann, the CEO (yann@otonomi.ai), if you’re interested in learning more about the round, which is being raised as a Simple Agreement for Future Equity (SAFE), or to just brainstorm ideas. You can also follow OTONOMI on Twitter.

Originally published at https://www.refashiond.com on November 2, 2021.

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Early-stage VC — Supply Chain Tech. REFASHIOND. #TWSCF. NYUTandon. FreightWaves. | I’m not afraid to be different. Blog @ www.innovationfootprints.com.

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Brian Laung Aoaeh, CFA

Brian Laung Aoaeh, CFA

1.6K Followers

Early-stage VC — Supply Chain Tech. REFASHIOND. #TWSCF. NYUTandon. FreightWaves. | I’m not afraid to be different. Blog @ www.innovationfootprints.com.