May 24, 2022
Co-founder & CEO
Commercial construction is woven into the fabric of our everyday lives. Most of the world is in a constant state of building the physical spaces we live, work, entertain and so much more. The US Construction market represents $1.36T in annual spend, among the largest industries in the country alongside healthcare, manufacturing, and tech.
The infamous 2015 McKinsey chart demonstrating the construction sector’s low relative digitization (only Agriculture was worse) can be found in more than a few founder pitch decks (I may be guilty here as well), helping spur venture capitalists to jump at the opportunity to fund new products. Since 2014 over $8 billion of venture capital has been invested into construction technology, and this number has grown exponentially in recent years.
As a result, the industry is in the early innings of a mass digitization movement – where everything from construction documents and drawings to day-to-day project management and financials is becoming digital. Contractors rely on data more than ever for drawing insights into how they work, and areas to improve their bottom line.
Source: Brian Potter @ Construction Physics
Despite these advancements for the industry, insurance underwriting in construction has, at large, been slow to leverage new data into the rating models that determine pricing. There are virtually no direct connections between construction tech products and insurers. Even the most innovative contractors aren’t properly rewarded by their underwriters for investments in these loss control tools. We built Shepherd to solve this problem.
In today’s construction tech ecosystem there are (literally) hundreds of innovative startups working to improve some element of the construction value chain. It’s exciting! That said, when thinking about first partnerships we decided to focus on quality over quantity – preferring to go deep with a select few and expand our support slowly. We believe this approach is fundamentally better for customers, brokers, and tech partners because it means we can lean in more as underwriters to truly understand the impacts of that technology on risk management or loss control. As a framework for selecting these early partnerships, we developed criteria based on the following three categories:
Coverage refers to both the size of the product’s customer base as well as the geographic spread (Shepherd is a countrywide insurance provider). Data quality measures things like the granularity of the dataset for each user and how robust the partner’s external API is for integration. Finally, ease of partnership refers to the aligned incentives between Shepherd, our technology partners, and our common customers – contractors. We want to focus our time on the partnerships that create the maximum benefit for end consumers, resulting in underwriting credits or improved terms on a quote. To do this, we need to invest the time to study the historical data and develop a thesis for applying product data to the underwriting process.
Enter Procore – one of the major success stories in the short history of construction tech. Founded in 2002, they have built both a platform and marketplace that is used daily by thousands of contractors including GCs and Trades. Their journey is truly remarkable – after nearly a decade of steady growth, the company really exploded in 2012, aligning with the surge of investor interest in the construction industry.
When selecting an initial technology partner, we were particularly excited about Procore given their broad adoption (coverage) and deep data set (data quality). Procore’s open API is robust and easy to integrate with, which is still unique among construction tech products. As we leaned in to study Procore’s impact on job sites, we consistently found that contractors who use the Procore platform tend to outperform their peers in a variety of metrics related to safety and risk management (ease of partnership). Once we had conviction in Procore’s impact on underwriting, we capped things off by bringing on Procore as an investor in Shepherd to align our interests long term.
When contractors renew their insurance programs annually, insurers require them to provide information about things like their prospective exposures for the upcoming year, their loss history, and details about their company operations. These are the fundamental drivers of pricing insurance policies in construction.
With Casualty Pro, we’ve added Procore usage as a new category to this information request with one key caveat: customers can only benefit from sharing this information - it can not adversely affect their underwriting outcome. The upside is the potential to receive underwriting credits, increased capacity, or more favorable coverage terms. There’s no downside. That’s how strongly we believe in Procore’s impact.
Why would we do this? First, we think contractors deserve to be rewarded for their investments in technology that make them safer, more productive, or more efficient. Second, we believe in a future of construction that is safe and sustainable. Delivering innovative insurance products is how we accomplish that mission, and we’re excited to be aligned with Procore as our first technology partner.
If you’re interested in activating or learning more about this partnership program sign up here. We’ll work with you and your broker to get started!