Biotech with a Side of Insurance
A foray by a Wall Street financier into a lotus-seed snack food led to a biotech-based food safety startup whose tracing technology adds a new ingredient into the food recall insurance mix.
I had various jobs on Wall Street, but one of the things that I focused on consistently, in addition to credit derivatives and interest rate swaps, was insurance-linked derivatives—everything from catastrophe bonds to packaged life insurance policies to longevity swaps. I was fascinated by how we could use insurance to address different problems outside of what you would consider first-party risk.
Fast forward to 2017-2018, and I was a portfolio manager at a now $6 billion hedge fund. I was making angel investments, side projects, and one of those things was a snack project. It was a snack food sold all over New York City, and this key ingredient was coming from India. We kept running into this supply chain problem where, because of aflatoxin and certain pathogens, we kept having to throw away tens of thousands of pounds of this stuff at the New York-Canada border. So this little pet project became a nightmare.
It dawned on me that in our food supply chain there is no way to distinguish one commodity from another commodity unless you rely on paper documentation. I was looking for a different solution, and I came across my co-founder, Dr. Ellen Jorgensen, who had a Ted Talk on moving biology outside of the lab. There’s a field called synthetic biology, and it’s about how we can take engineering principles, programming principles, and apply it to the editing of living things.
Ellen and I started Aanika Biosciences with the idea that we could use probiotic organisms, beneficial bacteria, and turn them into microscopic tags. So, if you spray them on food or an agricultural product, you can now trace it through the supply chain. If you take something like lettuce, you can wash it and mix it, and we can still take each leaf and essentially get a serial number back. It’s this amazing platform of biotechnology where we can drop a unique DNA sequence into an organism, make sure the organism doesn’t grow, doesn’t replicate, that it’s totally safe, and you have this nanoparticle of information stuck to a commodity.
Over time it became not only can we just tag things, but we created ways to kill E. coli, to kill salmonella and listeria, and we’re working on antifungals for aflatoxins—all these ways we can trace things and make them better within the food and agricultural world.
It dawned on me that we have this great technology but, if we can blend that with insurance, that would be something. What I noted in the food recall-contamination insurance market, because there is now no traceability, the claims process can take months if not a year. The underwriting is inefficient.
We wondered if we should sell this to insurance companies, and pretty soon we realized that we could actually just do the underwriting. We ended up creating our own parametric food recall policy. We issued a policy on a farm as a pilot where we’re tagging about 5,000 pounds of produce every week. We ended up partnering with Greenlight Re on our initial capacity and getting into Lloyd’s Lab, and now we are becoming a full-fledged MGA and applying to become a Lloyd’s coverholder. That’s been the trajectory. We are building all this biotechnology, but really, we’re just using it to lower loss ratios.
There is about $500 million of food recall contamination insurance, which is sort of small, but there is a lot of food at risk. We think the products in the market now are very limiting in the sense that they don’t cover legal costs and they don’t cover brand damage. They’re limited, and the claim process is very clunky. Our technology is better suited for a parametric policy—something with a really quick payout, something that’s instantaneous, very few limitations, no deductible.
The other thing is, with climate change, we think food recall becomes super interesting. Warmer temperatures are better for pathogens, more moisture and more rain. All of that spells more outbreaks, more food and water contamination. Overall, we think that there’s about $500 billion worth of markets where our technology can play, for instance crop insurance on different specialty crops. About 95% of corn from India is rejected for things like pet food because of the growth of microtoxins and aflatoxins. There are all these little places where we think biology can play an incredible role and actually help get insurance at better rates.
People think it’s just better records, but we’re living in the era where the ability to read and write DNA is one of the only technologies to grow faster than Moore’s Law. The human genome project took about 20 years and about $15 billion, and now you can read someone’s genome for a couple hundred bucks in a couple hours. My point is that they’re throwing more documentation at it and better standards but there is another technology that is just going so fast that I wouldn’t be surprised if there was a massive shift pretty soon.
As part of our insurance product, we do pathogen monitoring. We build a data set around all the different organisms growing at the facility, in the water and on the farm. That is very low cost. Our product itself is incredibly cheap—that’s how we make it work within the premium and our underwriting fee. But we think over time that this is the only way to do it.
We are getting a lot of interest from bigger carriers, from brokers, from underwriters. At the heart of it, we are a biotech company using insurance in a clever way. We are not an insurance company looking to arbitrage. There has been a lot of good guidance at Lloyd’s Lab to help us refine our actual insurance product and make sure it meets customer needs.
Right now, we have done a pilot, and we are really heavily focused on fresh produce on the West Coast and in Arizona. Once we get that up and running, it’s rinse and repeat. We can go to the almond industry, dairy, all these consortiums and co-ops; that’s really our model.
The other thing is that this opportunity for us doesn’t end with traceability and antimicrobials. We see this whole intersection between biotechnology and insurance. We think this is a massive opportunity for us to play at this intersection.