Stable, an insurtech aiming to help minimize a businesses’ risk due to volatile commodity prices, today announced it has raised $46.5 million in a Series A round of funding led by Greycroft.
Notion Capital, Anthemis, Continental Grain and existing backers Syngenta and Ascot also participated in the financing, which brings the Chicago-based startup’s total raised to about $50 million since its 2016 inception. Anthemis led its $3.5 million seed round in early 2020.
Founder Richard Counsell is the son of a farmer and a former trader. When growing up, he saw firsthand how the volatility of commodity prices could have devastating impacts. His goal with Stable is to help “millions of businesses that are exposed to volatile commodity prices to manage the risk in a simple and effective way.”
In a nutshell, Stable wants to give businesses — particularly those in the $8 trillion food and farming industry — a way to purchase insurance to protect themselves from potential volatility in commodity prices.
The startup is on track to reach $500 million of annual premium within three years of launch, which, according to Greycroft Partner Ian Sigalow, could make it “the fastest growing insurtech ever.”
Counsell said he wanted to found Stable after he realized how little innovation the industry has seen since 1848 when the Chicago Board of Trade opened its doors with a mission to provide buyers and sellers of crops financial certainty.
“I set about creating a platform that combines modern tools like machine learning (AI), great UX and a clear and client-focused purpose to get back to our industry’s grassroots and become relevant again for businesses with a real risk to manage,” he said. “When trading shares on platforms like Robinhood has never been easier, why should it feel like you need a PhD to hedge your commodity risk?”
The company’s parametric platform hosts more than 5,000 third-party indexes from 70 countries that can be used to purchase a policy to protect against an unexpected price rise or fall. Clients can select an index to customize a contract. Payouts are automated and reference the local or highly correlated index to minimize basis risk.
Stable uses an index to simplify the risk transfer.
“Instead of having to work out the exact loss the company has faced we use an index as a proxy,” Counsell said. “So if you use an index the more the index is correlated to your actual risk the better. That’s why we have 5,000+ indexes — so we can create an index-based contract that is super precise and accurately reflects the client’s real risk.”
The other big advantage of using an index, he said, is that claims can be completely automated and no claims process is needed as it’s all agreed in advance — referencing the index they have chosen.
“So if the index is currently $100 and the client is a food buyer — they might know they lose money if the index reaches $120,” Counsell explained.
Stable charges a premium and then provides a “payout” if the index goes higher than $120 in that case.
“Our payment replaces the client’s lost income and provides the financial stability they are looking for,” Counsell said.
Agricultural commodities are perishable and come in all shapes, grades and sizes, which makes them “very hard” to standardize and trade on an exchange, noted Counsell.
“The result is that only 8% of commodities are available to trade on the likes of the CME (Chicago Mercantile Exchange), which makes purchasing risk management products such as futures or options contracts difficult without enormous basis risk,” he said.
In the agrifood industry alone, more than $5 trillion of untraded commodity exposures are currently self insured, according to Counsell. Businesses that want to just protect their risk rather than trade or speculate might find hedging to be complex, risky or intimidating.
“We’ve used a pretty sophisticated kind of machine learning to find the price of that risk, or the index rising or falling, and that took us three and a half years to do,” Counsell told TechCrunch. “We run like 62 trillion simulations every day to manage this and look for a price that is fair for the clients but also fair for the capital providers.”
The COVID-19 pandemic resulted in major disruptions to the food chain, which has made manufacturers and producers even more aware of potential risks, Counsell said.
For example, if a smoothie maker typically sells its product to a grocery store chain for a fixed price of $1 a can and the price of mangoes (which can be up to 50% of the cost) fluctuates a lot — Stable will pay the difference of anything that goes over 20%.
“It just gives more certainty over the future,” Counsell said. “Whether they’re on the producer side, or buying.”
Stable has operations in Chicago, Austin, New York City and London. It plans to use its new capital to build out its North American sales and marketing teams and hire data scientists, particularly in New York and London.
Stable won regulatory approval earlier this year and as such is now starting to work with many large food businesses in the U.S., as well as farming organizations wishing to protect against future price falls.
Over time, Stable plans to expand into other sectors such as packaging, construction/timber and energy and geographically to Central and South America. Because the company is able to serve both producers and consumers of commodities, it “looks set to be popular in tractors as well as treasury departments in the months and years to come,” according to Counsell.
The 50-person company is a regulated insurance business that works with “A-rated” re-insurers to take on the risk.
“We’re just a technology platform. Our job is to find as many businesses as we can that need help, price the risk, manage their portfolio, reinsure all of that risk and pass on all that risk,” Counsell told TechCrunch.
It makes money as if it were a broker, by charging a fixed commission for the business it brings back to its re-insurers.
Stable’s insurers are bullish about the company’s potential.
Anthemis’ Ruth Foxe Blader said she was drawn to Stable since it is so rare to have the opportunity to invest in “a truly new product.”
“Stable is not just a better mousetrap,” she wrote via email. “It is a completely innovative way to conceive of protection against price movements in untraded commodities. Bespoke commodity price insurance did not exist before Stable launched this year.”
Stable harnesses an “enormous” amount of index data to create “simple” protection products for clients with exposure to commodity price volatility,” Blader added.
“While the models are, individually, fairly straightforward, and therefore insurable, the sheer data science and machine learning horsepower within each Stable product was inconceivable even a few years ago,” she said. “The result is a simple, perfectly adapted commodity price insurance.”
For his part, Greycroft’s Sigalow was impressed by Counsell’s “unique perspective” on the crop insurance market.
“He assembled an amazing team of data scientists and subject matter experts, and we felt that this market could be hundreds of billions in premium annually,” he said. It also fit in well alongside Greycroft’s other insurance investments — such as Bright Health, Branch Insurance and Pie Insurance.
When asked how Stable compares to other similar offerings, Sigalow said he knew of none.
“I haven’t seen this before in my career,” he told TechCrunch, “but when we called customers they would tell us that there were no substitutes and it was a total blue ocean.”