'Insurance Is Failing Small Businesses' -- SpaceX Backers Bet $50M On AI

Forbes contributors publish independent expert analyses and insights. "The companies that thought they were doing compliance are discovering they were doing liability," Jim Stroud, a career and workforce intelligence analyst, posted on X late last week, pointing at a wave of new state laws aimed at automated hiring. Three days earlier, Harmeet Dhillon, the Justice Department's Assistant Attorney General for Civil Rights, had said that the DOJ had just settled with a company that used AI-generated job ads to screen out U.S. workers. "Whether it is an employee, a recruiter, or an AI tool," Dhillon wrote, "we will hold employers liable when they engage in illegal discrimination." That is the backdrop against which Counterpart, a Los Angeles specialty insurance company built for the AI era, said Tuesday it had closed a $50 million Series C. The round was led by Valor Equity Partners, an early SpaceX backer, with continued participation from Vy Capital. It brings the company's total funding to more than $106 million. The announcement is not really about the funding. It is about the size of the gap that Counterpart's investors are now willing to underwrite. The U.S. Equal Employment Opportunity Commission recovered roughly $660 million for workers in fiscal year 2025, the highest in its history. About $528 million of that came through pre-litigation enforcement alone, the most ever for that channel in the agency's 60 years. The agency fielded close to 270,000 inquiries over the year. Counterpart's proprietary book shows the same shape. Wage-and-hour claims have roughly quadrupled. Retaliation claims have surged more than tenfold. Discrimination cases regularly cross $100,000 before a single attorney bills an hour. Gallagher's 2025 Survey of Small Business Owners found that 89% of owners are not confident they would be covered if something went wrong. Fewer than a third actually carry the specialty policies (Employment Practices Liability, Directors & Officers, and Professional Liability) designed for exactly these claims. "Insurance has a very bad reputation, I'll be honest with you," Tanner Hackett, Counterpart's CEO, said on the On The Margin podcast in an interview recorded ahead of the raise. "I think they play a very important role in our society, in our economy." The first AI-discrimination case settled by the EEOC was a small one. In August 2023, the tutoring company iTutorGroup paid $365,000 after the agency alleged its application software had been programmed to automatically reject female applicants 55 and older and male applicants 60 and older. More than 200 qualified U.S. applicants were rejected before a human looked at a single resume. What was a curiosity in 2023 has become a category. In Mobley v. Workday, a federal judge in California granted conditional collective certification in May 2025 for applicants 40 and older who applied through Workday's platform from September 2020 onward. Workday's own filings put the number of applications rejected through its system during that period at roughly 1.1 billion. In July 2025, the court expanded the collective to include applicants screened through Workday's HiredScore AI features. Workday has said the case "lacks basis" and that it is "just a software provider." In January, a separate class action, Kistler v. Eightfold AI, was filed in California by former EEOC chair Jenny R. Yang and the nonprofit Towards Justice. The plaintiffs allege Eightfold scraped data on more than a billion workers and assigned them hidden 0-to-5 match scores that filtered out lower-ranked candidates before any human reviewed their applications. The legal theory is that those scores function as unregulated consumer reports under the Fair Credit Reporting Act. Eightfold says its platform "operates on data intentionally shared by candidates or provided by our customers." "Clearly these tools can't actually distinguish if somebody is a qualified applicant or not," Hilke Schellmann, an NYU journalism professor and author of The Algorithm, told NPR in October. In her testing, one Workday-style résumé tool gave more points to candidates whose résumés mentioned "baseball" than "softball." The system had no idea it was using a rough proxy for gender. According to Goldman Sachs's 10,000 Small Businesses Voices survey, 76% of small business owners say they are using AI. Only 14% have integrated it into core operations. "AI-related lawsuits are already being filed in hiring, content creation, customer service, and automated decision-making," Hackett said in the Counterpart announcement. "Small businesses cannot afford to sit this out." Counterpart says it has processed more than 250,000 applications and written over 35,000 policies through about 2,800 brokers and A-rated carriers including Aspen, Markel, and Westfield Specialty. Premiums grew nearly 175% in 2025. The new capital will fund new specialty products and the collateralization of Counterpart Insurance Company so it can retain more risk on its own balance sheet. Hackett is a three-time founder. His first company was the Lazada operation he ran in Southeast Asia, the e-commerce platform Alibaba bought for about $1 billion in 2016. He built a mobile marketing company next, then started Counterpart six years ago. "We are seeing businesses that have and have-nots of did they make the investments five, ten years ago in the right data infrastructure," Hackett said on On The Margin. "Those are gonna be the ones that are able to ride the AI wave and support companies. And those that haven't, hopefully they're having wake-up calls." Jon Shulkin, a partner at Valor, framed the bet in similar terms. "We look for companies that become the category, and Counterpart is doing exactly that," he said in the announcement. "They saw the AI inflection coming years before anyone else." "What employers and AI vendors are dealing with right now is a growing demand from candidates for explainability," Josh Bersin, a longtime HR industry analyst, said in a January YouTube analysis of the Workday and Eightfold cases. He pegged the global HR-tech market at roughly $840 billion. Vouch, Embroker, and Coalition have all built specialty-insurance books on parallel logic: traditional carriers underwrite slowly, while software risk compounds quickly. Stroud's patchwork warning is starting to bite. Illinois House Bill 3773, which took effect in January, prohibits AI tools that produce bias against protected classes in employment decisions. Colorado has a parallel disclosure law. New York City already had one. "The cost of that gap is only getting higher," Hackett said.