A Lawyer and an Engineer Walk Into a Bar and Start an Insurance Company

James “Jim” Bowen joined from Boston, where spring weather and vaccinations had arrived, and from a small office at the Cambridge Innovation Center he rented to get out of working from home. His company, Energetic Insurance, began about four years before this recording. He and his co-founder, an engineer, came from the energy industry. Jim is a lawyer who had worked in Massachusetts government before developing solar projects. They set out to solve a big problem in energy and were quickly pointed to insurance, so they started an insurance company.

About James Bowen

James Bowen is co-founder and CEO of Energetic Insurance, an MGA that provides credit insurance for corporate solar and other renewable energy projects.

The Problem: Good Businesses Without a Credit Rating

Solar, wind and similar technologies are financed over 10, 15 or 20 years. A business that wants solar on its roof will usually do long-term financing, and when it goes to a bank, the bank asks for its Moody’s or S&P rating. More than 90 percent of US businesses don’t have one, so banks can’t extend them long-term financing.

Jim and his co-founder kept running into this while developing solar projects. They would find established businesses with $10 million to $50 million in revenue, 25 or 50 years in operation and a record of paying their bills, and get rejected by bank after bank and investor after investor over credit. Their view was that the default risk on an electricity bill is measurably lower than on other loans, because almost no business can operate without electricity. Paying for it is an existential payment. The market was misunderstanding and mispricing that risk.

The Product: Trade Credit Insurance for Electricity

There are three parties in a transaction: the business owner who buys the electricity, the project developer who builds, owns and operates the solar and receives the electricity payments, and the banks and equity investors who finance the developer. The project developer buys the insurance policy, which gives lenders and investors confidence that the developer will be paid.

Energetic covers non-payment, not physical damage or the production of electricity. The product is a trade credit insurance policy, a manuscript policy with some unique electricity aspects, covering up to ten years of payment default risk on solar and other renewable energy financing. Jim noted the credit risk category is common at insurers, in their political and trade credit departments, but very few early-stage insurtechs do financial risk rather than something tied to physical damage.

Energetic is a classic MGA/MGU: it does the underwriting and actuarial pricing, and its logo is on the policy. SCOR provides the paper, as the initial capacity provider, and Energetic takes no balance-sheet risk. Its sweet spot began with small and medium-sized businesses, but it was quickly asked to cover larger deals, often portfolios of 25 or 50 projects financed together, which gives diversification. Individual policy limits run about $500,000 to $2 million. By the time the episode aired, Energetic expected to pass 150 insured projects.

How the Government Fits

Jim said the government matters through insurance and energy regulation, but distributed generation (solar on site at a business) is affected more by state policy than federal. Some states have strong subsidy programs or tradable renewable energy credits that add a secondary revenue stream and increase installations. He thinks government should enhance projects rather than be the reason they exist: the economics have to work on their own.

From a Napkin at the First ITC to a Binding Authority

Jim met his SCOR contact at the very first InsureTech Connect in 2016, which drew about 600 people, with meetings where you stood on a numbered square and the other person walked up for 15 minutes. He had convinced his wife to let him use airline miles, printed business cards with a made-up company name on the flight, and arrived with an idea and little more than a napkin.

The insurer didn’t jump on it, but gave him a year to flesh it out with his co-founder, and at the 2017 ITC booked a meeting to say there was an opportunity. They then spent six to nine months refining the concept, underwriting guidelines, actuarial modeling and policy wording until they agreed on a binding authority. Jim credits the London market’s receptiveness and collaboration, where several insurers share a new risk, as well as ITC for the meeting.

No Insurance Veteran on the Founding Team

Gilad asked how the founders overcame not having an insurance person on the team. Jim said they asked early, since the founders had college friends working in insurance. In 2016 insurers still relied on Excel and fax machines, and their friends advised against bringing on an insurance person and to focus on problem and product-market fit. SCOR agreed: insurers have plenty of smart people, but not industry expertise in every possible industry, which is why they want MGAs.

The risk of hiring veterans too early, they were told, is that they steer you to an existing solution when a more innovative one is needed. Energetic built its policy from elements of surety and business interruption, rather than pushing an existing form at a problem. In Jim’s phrase, insurance often has a solution looking for a problem; they had a problem looking for a solution in insurance. He acknowledged they might have learned some things faster with an insurance expert, but thinks they learned more by building the knowledge themselves. He also agreed with Gilad that this was first-wave insurtech: more recent founders such as Philip Naples (the previous guest), Ben Monroe of Brisa and David McFarland of Coterie came out of insurance.

Funding: Grants Are Allowed

Energetic is lean, with about seven full-time equivalents including part-timers, and expected to reach 10 or more by the end of the year. Its investors reflect the intersection of clean energy, insurance and finance: Congruent Ventures, a leading clean tech VC, led the seed round; Powerhouse Ventures, an Oakland clean tech investor that began as an incubator and event convener; Clocktower Technology Ventures, a Los Angeles fintech VC Jim praised as founder-friendly; a New York investor with commercial real estate background; and Clean Energy Venture Group, a Boston angel group.

The notable part is the grant funding, which Jim said insurtech founders can envy. After a 2017 angel round of a little over $600,000, Energetic won an $850,000 Department of Energy SunShot grant plus grants from New York and Massachusetts energy agencies, over $1 million in all. That non-dilutive money helped build underwriting technology and persuaded investors their money would go further. The full seed round was $2.75 million, and the company expects to raise again later in the year. Capacity will also need to grow: policy limits and ambitions will outgrow a single provider, and SCOR has said it will help bring in others.

What’s Next

Energetic plans to expand from solar into battery storage, fuel cells and energy efficiency, using the same underwriting methodology, and geographically into new states (which Jim compared to new countries given 50 insurance markets) and abroad, starting with Canada and Europe, then emerging markets.

Advice: Calendar Exercise, and Skip the Daily News

Jim had two recommendations. First, for anyone starting a company, schedule exercise, family time and time off; he thought he’d keep a work-life balance and the long nights and eating on the road proved him wrong. Second, a reading recommendation to not read something: two years earlier, he stopped reading the daily news and reads only weeklies and monthlies and listens to podcasts, on the theory that if something matters for a week it will reach him. Gilad said his attention span improved after doing the same, and that he’s read more books, adding a joke that the one daily read he would still recommend is the Coverager newsletter.

Key Takeaways

• More than 90 percent of US businesses lack a Moody’s or S&P credit rating, which blocks them from long-term solar financing; Energetic insures the electricity payment risk to unlock it.
• The product is a trade credit insurance manuscript policy covering up to ten years of payment default, written on SCOR paper by an MGA that takes no balance-sheet risk.
• A meeting at the first ITC in 2016, a year to refine the idea, and a 2017 follow-up led to a binding authority; the London market’s collaborative approach helped.
• The founders deliberately held off hiring insurance veterans so they wouldn’t be steered into an existing product, and built their policy from surety and business interruption wording.
• Non-dilutive grants (an $850,000 DOE SunShot grant and state energy agency grants, over $1 million) funded early development before a $2.75 million seed.
• Next steps: more technologies (storage, fuel cells, efficiency), more states, and Canada and Europe, with additional capacity providers as limits grow.