My chat with Rahul Mathur, Founder of Verak

I have published chats with founders and executives of mostly American companies so far. You can expect a series of chats with first-time and seasoned founders from India over the next few weeks. While I grew up in India, I spent my formative years of adult life in the US and have only worked in the American startup world. I now plan to learn more about the Indian ecosystem through these conversations. I will try to focus on similar themes across India and the US to compare and contrast. It feels weird not to be sufficiently knowledgeable about the tech scene of the country I grew up in. India has grown and evolved so much in the nine years I have been in the US. I have been guilty of underestimating the depth and breadth of the ecosystem that has come together in the past five years. I would take a less opinionated and more exploratory approach to chats with people from India. That will help not only me but also my global readers understand better. For example, I’m going deep into the insurance market and have multiple conversations in the works. Given the investigative style I aspire to have in these chats, I believe I would have to do some translation of cultural nuances and national context to make things make more sense to people outside of India. I will get better at that over time. I’m working with Indian founders across fintech, mobility, and streaming for upcoming chats. I’m kicking off the India series and insurance sub-series today by talking to Rahul, the CEO of Verak, a Mumbai-based insurance startup.

Sar: You work at the intersection of SMBs and financial products in India. That naturally piqued my interest. How did you get started?

Rahul: I went to college in the UK, got a management consulting job, quickly decided that this was not for me, and moved back to Mumbai during the pandemic. I banded up with a bunch of my childhood friends, and we've been working on insurance ever since. The first product was focused on education in personal lines insurance. We shut that down a little over a year ago because we couldn't get the economics to work. No one will fund an insurance business if the purchase funnel doesn’t work. We eventually moved to commercial insurance, specifically property and casualty insurance, targeting blue-collar/traditional SMBs.

Sar: Before starting the company, did you have exposure to property & commercial insurance? What inspired you to go after property & commercial insurance? I saw personal stories of your employees around property damage on your Team page on the website. It humanizes what can be a boring problem and shows teammates’ passion. 

Rahul: Yeah, in fact, I worked at Laka Insurance, a UK-based property insurance startup. That experience taught me that public asset managers love intangible assets - but normal humans love tangible assets - these are their prized possessions.

Our customers at Verak are small businesses dependent on their premises, machines, or goods (tangible assets) to earn a living! Most of our team members have a “reason” for being here - pay & hours are always better elsewhere - but most of us have friends or family members who run a traditional SMB and empathise with SMB problems. They find their work at Verak rewarding.

Sar: Can you give us a top-down overview of the market and where you fit in?

Rahul: You can segment it by the revenue, size, or turnover of a business. There are the enterprise, mid-market, and SMB segments. In India, the SMB segment is known as MSME (Micro Small Medium Enterprises). MSMEs are at the bottom of the food chain.  You can segment MSMEs into trading, manufacturing business, IT services (including startups) & other services. Activity in business insurance in India is very concentrated in the mid-market and enterprise segments. Those segments are catered to via a traditional enterprise sales motion, purely service oriented. There is no technology involved. 

Most startups in the business insurance market in India are targeting service-oriented businesses across enterprise and mid-market. These are typically the kind of businesses where the primary asset is the people, not the stock, the machines, or some tangible asset. Verak instead caters to the traditional blue-collar SMBs. Think of small shops, independent hotels, independent cafes, single franchise retail outlets, and small factories. If you're a business owner of a factory, you don't need to insure your workers as much as you need to ensure that expensive $100K piece of equipment that's running your entire business. We serve asset-heavy companies by making it as easy as possible for the owners to insure their assets like inventory, machines, fixtures & other physical assets. 

Sar: Talk about the status quo experience of your prospective customer getting property insurance today.

Rahul: Let's take an example of a small juice shop. The business owner employs six employees and has no insurance. He's working 16 hours a day, seven days a week. 

Sar: This is the classic owners-manager SMB profile. They are too busy running the day-to-day and have no time, patience, or resources to make long-term investments with uncertain payoffs. 

Rahul: Exactly. When we build a buyer persona in SMB, we must be very specific about whom we are going after because there are many types of business owners. For us, the primary criteria is a family-owned or owner-managed business. That business owner has a specific set of problems: they are emotionally attached to the business because it's the family's hard work. And they’re not at the scale of a business where a sales rep from a service-oriented insurance company says, hey, you need to insure your business, and here is a quote. A combination of small ticket sizes and owners being too busy means they are not being pursued today by insurance companies. It's the classic innovator's dilemma. 

Sar: The juice is not worth the squeeze for the big insurance companies.

Rahul: Yes. Let's say a business owner wants insurance. In the old world, the owner would have to take pictures and videos of their property and walk up to a local insurance company branch. Assuming the branch has a P&C (Property & Casualty) expert, they would ask the business owner to fill in a 25 questionnaire form and to put together a folder of paperwork, including the incorporation documents. 

Most businesses, by the way, are not registered. If the business is registered, the insurer would ask the owner, who does not even have time to use the washroom in peace during work hours, to print out company documents to sign - only to be eligible to pay $25 for the insurance policy. 

Sar: And all of that is assuming the owner knows what property insurance is and can make the time to go into the branch, and the branch has people who understand insurance for informal small businesses. 

Rahul: Yeah. We don't assume this owner knows anything about property insurance. Let me talk about the selling dynamics now. The independent agent force in India is not licensed to offer these kinds of insurance products. Only insurance companies and registered brokers can sell this insurance directly to owners.  

Sar: You distinguish between independent agent force and insurance agents or brokers? 

Rahul: An independent agent is a person who doesn't necessarily work for an insurance company or registered brokerage. They are known as point-of-sale people (POS). You can become one with some basic training and start selling basic insurance policies.  If you look at the insurance companies, they're still pushing life, health, and motor insurance products because those are still not penetrated in India. Margins are better in personal insurance than commercial insurance. Due to all the above factors - our target persona is not actively pursued by anyone in the market to buy insurance for their business.

So there are two situations wherein an Indian would buy an insurance policy:

1. You are getting solicited by someone.

2. You might be interested in buying, so you ask around.

Our target persona is not pursued, so it falls in the bucket (2) above. And we also know that when you end up at the insurance company's branch, it's a 1950s process. What's interesting here is property and casualty insurance is a very profitable business. 

Sar: Say more about why that is so. And why wouldn't the big companies be more interested in a profitable business?

Rahul: If I'm heading up the P&L for a large publicly listed Indian insurance company, my corporate health insurance book of business would be running at a loss of about 20%. So for every hundred rupees in premium, I'm paying out ₹120 in claims. A big part of my book is my motor insurance. My motor insurance is running on break-even. Now, with my commercial insurance book, I need to make sure that I recover that loss from my corporate health insurance book. And then, hopefully, make a little bit of underwriting profit so that at a group level, I turn out profitable. That is standard cross-subsidization. You use your corporate health to acquire customers and make money on your property insurance business. 

As a standalone business, the real money in property and casualty insurance is not in the distribution margin. It's actually in the underwriting profit margin. If you're operating at a 60% loss ratio, you have a 40% underwriting margin which is crazy money. So for us, the play for us over the next decade or so, assuming we can remain in business, is to integrate backward to start using our balance sheet.

Sar: Interesting. So you're saying they are becoming profitable by going after mid-market and enterprise segments in the property and casualty insurance business? That means everything they do, from sales to underwriting to collections, has been designed for large customers. An SMB walking into the local branch will have a challenging experience and likely get rejected because the profile makes no sense to the insurer.

Rahul: Yes! They put the straight jacket, enterprise sales process on an SMB who walks through the front door. A typical SMB owner asks basic questions like what a policy covers.

Sar: Right, they want the cheapest and fastest option to get back to servicing customers.

Rahul: What matters is convenience, choice, and price. This status quo is not convenient. There is no choice here because you must go to an insurance company. By definition, you just have one option: the offering of the local branch of the insurance company. Business owners are highly price-sensitive. If they get a 40 rupee saving, they would run elsewhere and buy that policy.  Every dollar is so hard to earn when you are an independent business owner - that you do anything and everything within the realm of possibility to get savings. After understanding the scope of coverage, some business owners ask us first what discount I will get.

Sar: Yeah. You have designed everything around a deep understanding of the buyer persona. The website prompted me to pick Hindi or English when I first went to your website. As you expand in India, you will probably have to regionalize things even more. 

Rahul: The default language, if you go to any other insurance website in India, is English. That goes back to my point about convenience: we communicate using the language our prospects are most comfortable with. 

Sar: Talk about the 1950s process, as you called it earlier. How are you improving it?

Rahul: Typically, the employee at the insurance company's local branch will manually collect the information about the business and key it into a system. The application will go to someone at the company's corporate office for underwriting. A quote will return 48 hours later. 

We’ve just automated the process from underwriting, pricing, and delivery of the quotes as much as possible while keeping in mind choice and convenience. Insurance companies engage with business owners via email. This demographic doesn't use email outside of logging into certain apps on their phones, like Youtube. Trying to communicate via email just doesn't work.  Anyone who fills in the interest form on our website gets asked about their language preference. Do they want to be engaged in English or Hindi, or Marathi? We support five languages right now. We do a lot of our communication on Whatsapp, where our persona spends most of their time. 

I have seen an insurance company send an excel file via email to a business owner with only a mobile phone. And this poor business owner did not know how to open that file on his phone. He didn't have the right app installed. We don't even send PDFs of insurance policy information. We send them screenshots in PNG files that open natively from within your WhatsApp. They click on it and look at the information and options before deciding and taking the conversation further with our sales reps. Through a simple, conversational chat interface, we take them through the purchase journey on Whatsapp. 

Self-serve sales in this segment in India are at the bare minimum. Someone has to be there on the phone with them to drive that closure. We must have one of our sales reps on the phone to walk them through everything. And this is despite trying to do everything to make it a low-touch process. We have a hundred educational videos out there about all the aspects of our products.

Sar: Makes sense. Even the timing of when you call matters a lot. You often have this narrow window between them opening the shop and their first few customers showing up when you can have their undivided attention. Those dynamics vary by the kind of business you are looking at.

Rahul: Yes! For example, if you're dealing with a consumer goods shop that sells mobile accessories, it's best to call them in the morning because most of their foot traffic happens in the evening after work hours. When someone sells machines or electrical fittings for an office, it's best to call them in the evening because their customers are not coming in after work hours. 

Sar: Talk about how you speed up the manual process of information collected from your prospects. 

Rahul: We use vendor APIs that allow us to access a satellite image, so prospects aren't giving us photographs of their facility's surroundings. We waive the requirement for taking pictures inside the facility unless there's a claim history. So we're already pre-underwriting about 90% of the businesses.

Sar: They still have to fill out the forms and sign the paperwork, right?

Rahul: Most users are savvy with answering any questions on WhatsApp. Suppose you take that same customer and put them onto an insurance company's webpage, where they have to do the same form. They commit like 210 blunders, which is shocking, but it's true.  We don't make the customers fill in their business details - instead, they give us business details on the phone with one of our sales reps. 

Example: The question: "what stock do you have in your business?" The prospect might not answer it correctly, but our reps would ask for a bifurcation between raw material & finished goods. 

Sar: What is your relationship with your insurance company partners? How is the underwriting process split between you and them?

Rahul: Underwriting means classifying the business so your machine learning pricing model can apply rates. And then pricing involves assigning a premium based on each insurance company's guidelines. We've built our automated underwriting model. Insurance companies don't have any infrastructure for this product. They rent us the balance sheet, and we do the underwriting for them. It took us six months to build this end-to-end infrastructure because you have to work with legacy carriers on the back end, and you now have to deal with a customer on the front end who does not even have an email ID.

Insuring a customer is a two-step process. The first step is underwriting, deciding how to classify the business. The second step is pricing the risk (assets to be insured) based on the business classification. 

Our reps go through a series of questions with the business owner & enter details into our sales platform. We take in all the inputs - like what kind of goods are stored there, address, type of business, etc. We match how the customer describes the business to the pricing tables of the insurance company. So the insurance company at a high level tells us that for shops that are not selling chemicals, here's the minimum rate we need to charge.

We can take free text values (business & inventory description) and classify them; we put the “risk” pricing on top of the floor rates that the insurance company says to charge. The insurance company gives us a floor rate. We set the ceiling rate for a given business category. Then, we solve a constrained optimization problem to hit a target portfolio loss ratio (claims paid to premiums collected).  We do that category-wise. Which gets revised each month with insurer approval

Sar: So your pitch to the insurance companies is, "you want to serve these guys, but you don't have the bandwidth or know-how to do it. It might be more cost-effective for you to partner with us. Give us some guidelines, and give us the capital. We will build the brand to acquire customers and serve them."

Rahul: Yep. Because our insurance partners are government sector insurance companies, which have large mandates from the insurance regulator and the central government to ensure small businesses are insured. And they are happy to outsource the servicing of micro-enterprises to a partner who can do this at scale.

It is far cheaper for them to let us do this. The simple reason is that we have a far lower cost base because of our technology. We don't have an expensive resource doing data entry or doing the underwriting manually. We also don’t have a costly resource trying to coordinate between these two resources. So our cost of servicing is so low that Verak can profitably serve a customer who pays $7 a year in premiums. 

Sar: And since these public insurers have a higher appetite for loss ratios than private sector insurers, you have room for experimenting and making money, right? :

Rahul: Yeah, they're very open to experimentation. They sit with us once a quarter to review our books. They tend to be pretty savvy people. The private sector companies are the ones who chucked us out the front door, and the government sector is like, dude, come, let's work on this together because it's an interesting problem. Those guys might be career bureaucrats or, however you want to demean them, but they're very smart people. They find it exciting that they're working with us, and they've supported us fairly.

Sar: Does the government partnership help you win trust in the market? 

Rahul: Absolutely. Our buyer persona is very apprehensive about putting money into any instrument because they have typically heard about many scams involving online companies. They're a WhatsApp native user. They keep getting these WhatsApp forwards about online fraud and scams. If you do a little demographic digging into these people, they are big believers in the government, being someone out there to help them now. They are interested in taking that conversation further if they know government money is involved. 

We're already going up against a trust barrier because Verak is an unknown brand, and we're selling financial services online. Plus, this insurance product is unknown to the customer (no TV ads or celebrity endorsements). So you have these three things going against us, and that's why the form filling is pretty minimal. It's a super straightforward WhatsApp purchase journey.

Sar: How do they pay you?

Rahul: We generate a Razorpay payment link. People pay online. Some people want to pay in cash or by check. We have a small team whose primary job is to visit the prospect to collect a check. 75% of our customers make a UPI payment. 5% do it through a net banking app or cards. 20% are doing it via check. This might not be popular, but the middle-class Indian mindset is about looking for deals. 

Sar: A deal only makes sense when it's relative to another deal that doesn't make sense.  

Rahul: Exactly. That is why we deliver three quotes in 30 seconds when someone applies for a policy. 

Sar: Are those offers from 3 distinct insurance companies? 

Rahul: Yeah. Effectively every insurance company gives us a different base rate. So although we apply the same pricing model to a given business, our backend would return three different prices based on the floor price from various insurance partners.

Sar: So there's no real-time collaboration between you and the insurance partners while underwriting? There are no technical dependencies on those guys. 

Rahul: Oh, no. Thank God. We have no dependencies. And that's what makes us super fast because we don't have the man in the middle; you just have the machine in the middle.

Sar: How do you find high-intent prospects?

Rahul: I do not think we have high intent prospects. We have highly curious prospects who come through the front door because this isn't an established product where your customer knows what value they will get upfront. And they don't wake up in the morning saying I need an insurance policy.

They might wake up saying I need to fix my order management system or automate my customer invoicing. These problems are well defined. There is a desire to find a solution. But, in our case, the search query volume for business insurance in India is 10,000 units a week. That is not enough search density to build an SEO-based business.

So for us, most customers end up on the phone to ask, "what is this?" and "Why didn't I know about it? Why hasn't my local insurance agent told me about this? Can you tell me a bit more about this?" We don't necessarily have to discover customers with intent because most don't know what they're coming in for. It's all about educating them.

A customer might fill in the lead form in April. Speak to us in April, and ask for a call back next month. Never pick up in May. Wake up in June because they read somewhere in the news about a factory that caught fire. And they suddenly remembered that I had spoken to those guys at Verak, and they ruined my happiness by sending me a notification once a week. Let me now go and buy from them.

Sar: You are biased, but I'm still going to ask, is the margin you make at the portfolio level enough to support the cost basis of having an entire army of sales and customer support? You don't have self-serve customers for all the reasons you talked about. 

Rahul: The harsh reality of serving this customer is that you need a sales rep, but the ticket size & Indian rep salaries support the entire model. We were unit economic profitable in July '22 (* in insurance, this means you’re doing a one-year payback period). The actual revenue acceleration in this business is when you come out to the renewal cohorts. And you're now trying to drive referrals from your renewal cases. If you started working with us as a sales rep in January, your first renewal as a sales rep would only come in March next year. So we already have profitable representatives in month 4 of working with us.

The real battle every day is at what point do our channels exhaust? And this is because we are offering a product where there's no natural demand. The question is, at what point does digital acquisition become unsustainable? For every percentage point increase in our cost per lead right now, we've had a more than proportional increase in our lead to a sale which keeps our Cost Per Closure (a Metric That Matters) under control.

Sar: Switching gears, what are some recurring topics in your conversations with founder friends these days?

Rahul: 

1. Seeing lots of folks pivot due to capital-heavy business models / non-sustainable unit economics / crypto-related factors

2. Suddenly no one is discussing how many engineers, designers & PMs have been hired this quarter. It is all about "unit economics" (LMAO)

3. Investors are suddenly asking questions (my response usually is - "when were they not?")

Sar: Do you think how people look at startups is changing culturally?

Rahul: Within certain pockets - yes. In general, not really. India recently went through its own “Shark Tank India” mania (Indian version of the US Shark Tank TV show). A fair amount of parents (> 30 years of age) watched this. Maybe, they would open up to letting their kids do startup jobs - perhaps because they all heard of Shark Tank. And, every major Indian city now has 1 or 2 success stories of people who made ₹100 crore+ ($15M+) in a few years. But this is purely the rich/upper-middle-class perspective. A government or multinational corporation job would still be the preference for 8/10 Indians.

Sar: Want to chime in on the Bangalore versus Bombay debate? As a lifelong Bombay person, what’s the most robust case you can make for someone young and ambitious to move to Bangalore?

Rahul: Great question. The simple answer is in two parts

1. If your dream company requires you to be present in the office & their office is based in Bangalore.

2. If you want to attend in-person events (I haven’t found much value in these - apart from recruiters trying to slide in everyone’s DMs & getting some cheap merch),

I know several great startup operators who work for Bangalore HQ’ed unicorns but work out of Mumbai remotely (yes, this does happen!)

Sar:  What about London should Mumbai try to adopt?

Rahul: Hard to say - very different cultures despite Mumbai having the British legacy (especially where I stay). The only thing - I've worked in large Indian offices - I wish people were as disciplined as some folks I worked with in London. I got a lot of work done from 8 AM to 4 PM - no tea or "sutta" (cigarette) breaks, just one lunch break. I don't see this happening often in Indian offices, even today. I brought that disciplined approach to work - focus on output & outcomes (NOT working hours) - to Verak. It isn't for everyone - but for those who prefer it - work is bliss.

Sar: Is there anything you are closely following that you don’t think is making progress fast enough? What in your world is not improving fast enough?

Rahul: Yeah, one thing - India’s obsession with examination scores. It has become a “necessary evil” in a society where these scores are viewed as the only way to make professional progress. I don’t know what the solution to this (if any) would look like - but I wish we had one in India. I don’t see an escape from the examination scores.