Biotech with a Side of Insurance

What led you into addressing problems in the food supply chain?

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.

How big of a problem are food contamination and food-borne illness?

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.

How does traceability help mitigate food recall severity and costs?

The severity is really about the antimicrobials and the prevention aspect—that will lower the odds of it. Where the traceability comes into play is, right now, an investigation can take anywhere from three to eight months to figure out who is involved. We can do that in a day, if not hours. That’s just one critical component where we’re creating efficiency so we can attack the costs. The Food Safety Modernization Act requires traceability, but we’re basically giving that compliance for free.

What are the different approaches to compliance with the act?

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.

There’s a lot of resistance to genetically modified foods. How do you overcome that?

We actually have a gene-edited version of our tags as well. It’s semantics to a certain extent, but the new gene-edited version doesn’t contain foreign DNA, a characteristic that is usually associated with GMO foods, meaning it may not require traditional labeling.

Tell us about the preventive technology?

Basically, bacteria have a natural ability to kill other bacteria. Bacteria get viruses just like everything else, and they have their own immune system. Essentially what we are doing is expressing a peptide—we are taking that naturally occurring protein that kills bad bacteria and concentrating that so we can use that as a way to kill E. coli and things like that. Most of that right now is done through chlorination. They are maxing out how much chlorine they can use. We don’t think it’s sustainable. If we can have an alternative, or at least a supplemental way of doing that, where you’re tagging, you’re providing some extra protection in this naturally chemical-free way. We think that’s a win.

Going forward, how can Aanika’s technology help lead to more sustainable agriculture?

If you look at regenerative agriculture, it tends to have fewer claims in terms of crop insurance, but the question is how do you know what was grown regeneratively and what wasn’t. If we can ensure by tagging that those practices were actually done, then those people should get better rates. We can incentivize people to do more, whether that’s regenerative ag or not using child labor to source your coffee beans. There tends to be some correlation between using child labor and food safety issues: if you’re lax in one area, you may be doing it elsewhere. If you can use tags to make sure these coffee beans were sourced from verified places, maybe that leads to better pricing, more incentives, in different lines in insurance.

Where are you now, and what’s in the future?

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.