E32: A Case Study on Insurtech & Legacy Partnerships

How should industry incumbents and technology solutions providers engage? What should industry incumbents be asking themselves and potential solution providers about business solutions beyond what is immediately pressing? How should tech providers position their products and solutions and presentation so that their relationship are less transaction and closer to true partnership?

In this episode, I explore this with a real-world use case. Butler University’s RMI program teaches insurance hands-on with a student-run captive insurance company. When Zach Finn, the head of the RMI program at Butler envisioned commercializing the Butler Captive, he realized he needed to bring in some serious technology deployment. He also realized that with the right partnership, this could be a learning experience for him, the captive and for the solution provider. In steps Sunlight Solutions. And as David McFarlin explains, the education and value prop can go both ways, creating a relationship and partnership where 1+1 can equal 3.

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Zachary Finn (LinkedIn)
David McFarlin (LinkedIn)

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Transcript

Nick
And we're back. This is the Coverager Podcast. My name is Nick Lamparelli. I am in podcasting headquarters, as you can tell in Naples, Florida. That's not really my backdrop, but we'll pretend that it is. I'm excited to have this particular episode, the theme of which is going to be how incumbent players that are dealing with insurance related items and how technology...what sort of dialogue should they have? I'm going to use this particular episode to have that discussion with two folks that are going through this now and have been going through it for a little while. I have Zachary Finn from Butler University. And David McFarland from Sunlight Solutions. And Welcome to you both.

Zach F
Thank you. Happy to be here.

David M
Thanks Nick. Thanks for having us.

Nick
Yeah. So let's put some context to this at first, so let's give the audience a flavour of who you are, and what your institution slash company does, so that we can kind of spring from there about how you know how the dialogue went between you two and what we can learn from that. Zach, why don't you go first?

Zach F
Yeah, so I'm Zack Finn. I'm director of the Davie Risk Management and Insurance academic program here at Butler University. I've been here for about 10 years now and came to help establish our undergraduate program, which we're very pleased to be recognized as one of the ninth largest programs in the nation in 2019. Since that time, we've now got our online Master's of risk and insurance. And so I wear a lot of hats at Butler. I'm a faculty member in the program, both undergraduate and graduate, with a focus on the classes that involve our student run captive insurance company. And that's really my other role of Butler. I'm the chief risk officer and chief underwriting officer, for the world's only student run insurance company, the MJ student run captive domicile better Bermuda.

Nick
Yep, I love I love that story. So for anyone that's followed me, you know, that I've interviewed I interviewed Zach. He was in year one of my set of interviews when I first started my podcast. So the whole student like lead captive thing is just just a phenomenal combination of actual insurance experience given to a student population. So hats off to you. David MacFarlane talk, yeah, talk about your company and what you do.

David M
Thanks, Nick. And it's nice to be back.

Sunlight is a is a extremely flexible, cloud based solution to manage all key insurance operations at an extremely high level, policy, billing, claims being at the core of what we do, sitting on top of our rating and rules engine. But we've kind of we certainly tiptoed out the traditional outside the traditional boundaries of core policy administration, we have our own form solution, we handle CRM and agency management, distribution management, we have a growing library of web services and API's reporting. So and that kind of rounds out our solution anyway, we like to think of Sunlight as a, as a platform where our insurance clients can quickly design and deploy any insurance product, where they can utilize AI and automation and analytics to make their users and to make our system smarter. And we spent a lot of time especially recently working on our policyholder and agent portals to provide a you know, a nicer engagement experience for them too. So we've we've pretty much hit on the the gambit of policy admin

Nick
good well now that we have that as a backdrop let's sort of what level set with the problem that's at stake so Zack Why don't you talk about what for the MJ captive the captive app Butler talk about you know cat your particular captive? This isn't something where you can just go get an ISO form and kind of do that why don't you talk about the unique characteristics of the captive, what you face and how your situation maybe even compare and contrast your situation with a company that would be considered like an incumbent insurer.

Zach F
Yeah, so we we set up a student run insurance company I mean, insurance is one of the only products that you could buy and if you don't have a claim you'd never even know you had a good product or not. You know, if you have bad accounting or finance or marketing it's immediately apparent a bad insurance or risk management. Plus you're facing a global pandemic, for instance, you wouldn't necessarily know that risk management's not not going so well. So we wanted to create an experience that makes it real, you know, we we insure our bomb sniffing dog, our care dog, our live mascot. We ensure the liability associated with our student run businesses that our sophomores run, and we ensure a lot of our fine art and scientific equipment on campus. And so what this allows us to do is rate those items, we loss control all of those items, interact with the owners of those risks, and really help to make the university a better place for everyone. And so the brilliance of it, it's it's very, you know, it's a fully licensed insurance company in Bermuda, but we're essentially running it out of Excel, right? I mean, there's not a lot to our operations here, we got to rate three dogs, we've got to rate you know, 30 student run businesses, and we've got, you know, $4 million for the pianos and some other things. And so, it's not, there's not a level of sophistication to it. I mean, I ran a 900 million dollar captive in my career in Excel just the same kind of way. And so you know, when we set up the student captive, we always had this plan, you know, right now we're a class 1 captive, we can only ensure the risks of Butler University. And so we stick the really small risks that we all joke, you know, won't get Professor Finn fired and working at Arby's, if it goes awry. But we try to stick to those kind of risks and keep it simple. But we always had this idea that, you know, as we establish this online, master's of risk program, we're working with, you know, fortune 500, risk managers and underwriters and all these interesting people in that program, which we're running right now, by the way, we wanted to take our captive to class two, maybe a class 3 captive, start looking at selling commercial insurance products to others. So we've, you know, had discussions with the Indianapolis airport about insuring their bomb sniffing dogs with the Shriners about ensuring their care dogs.

Nick
Because you've been you have you in the risk management of the program, you have expertise in this now.

Zach F
Yeah, yeah. I mean, we, you know, I had the Minister of Finance of Bermuda pulled me aside and said, Zack, you know, did your students really do this business plan? I won't be mad if they didn't, but I need to know, because we had six fortune 500 companies this month that I'll get kicked kicked back six times, and yours is going on the first time, but the student really do it? And my answer was, yeah, they did. I mean, it was, you know, there's only 80. So insurance of risk manager programs out there. So there's not a lot of people running around that have the experience that I have, what it's not like it's not replicatable. And that's one of the things that I saw in my fortune 500 risk management career, that's why I left it is because, you know, when I got to be a fortune 500, Risk Manager, I thought all risk managers were like me, and I ran into fortune 500 companies where, you know, they don't know what an umbrella policy is. And again, because, you know, if you don't have a claim, you may not know you have bad risk management or bad insurance. And so, you know, my mission has been to, to really shine a light on the importance of risk management, insurance through our programs here at Butler. And and what we want to do our master's program is take it to the next level, look at ways that we could sell products. And not only that, but, you know, show people how to set up captives like this. I mean, well, you know, what the pandemic I mean, one of the futures that, that I see for insurance is Tesla becoming an insurance company that's happening, right? Google become an insurance company that is happening, McDonald's, franchisees don't buy insurance from Liberty Mutual, they buy it from McDonald's. And in a world where you can't get pandemic insurance, how do you deal with that you start to monetize other risks that you have, you're Fortune 500 risk manager, you got a cap, if you start thinking, geez, if I'm going to get sued for my supply chain for product liability anyway, if I'm gonna have to deal with the recall anyway, why don't I just sell these guys recall liability insurance and get that third party risk. And then I can sell myself pandemic insurance to get a tax deduction. And so captives are the future for how to spread risk and Insurtech has lowered the bar. You know, the barrier to keeping you know, Google and Tesla and others for becoming insurance companies in the past, to really compete against official industry was the real back office function of what insurers do. And you know, again, if you haven't spent time in, you know, two academic programs like I have, it's really kind of hard to understand how insurance carriers work. They have different accounting. They have that investment component, their state regulated, and what Insurtech is done with technology, like David's is that it lowered the bar, it's leveled the playing field. And so I had this epiphany like, geez, I'm out here on LinkedIn, for putting that the future of insurances, you know, companies using captives and Insurtech to monetize risk management. We're about to run a class two commercial insurance company, I can't do this in Excel. It's ridiculous, right? I'll look ridiculous. I got to practice what I preach. And that's when I realized like, Oh, my gosh, I'm advocating for this technology. But do I really even understand what it all can do? And who's out there doing it? And that's how I was able to get connected with David and Sunlight to help solve that problem.

Nick
Yeah. So let's, let's talk about that. So by the way, I would say never underestimate excel.

Zach F
Youcan do a lot in Excel.

Nick
I've seen some pretty amazing things done in Excel, we could we could probably send a person to the moon if we wanted to.

Zach F
I love Excel. Right?

Nick
Yeah. I mean, it's just probably the world's greatest software application, but it does have limitations. Right. And, you know, so you have you're looking to make this evolution and potentially transition to I don't think we need to understand the different the distinction between class one and class two. You're looking to commercialize some of your stuff. So, David, you, yeah, you're hearing the story. And so tell us from a tech perspective, someone that's built a lot of this back office policy management software that you know, that straight through processing, talk about the interaction and the types of questions you needed to ask to try to understand what was going on in Zach's world, or you know, what, what he was fantasizing about where he was going.

David M
Yeah. And that's really the path that we have ahead of us right now Zack and I is getting a better fundamental understanding of how we want to try and basically layer a system on top of the business that Zach and his team has created. So that's, that'll be good work that's ahead of us, I think, at a maybe to step back for just a second, I feel very fortunate to have met Zack, you just got a pretty good window into what the considerations for it from from Butler were. And at the point at which we cross paths it was, you know, me trying to figure out, how can I solve a fundamental kind of a fundamental consideration for Sunlight and that is a smaller company, we're newer, I want to get people to know who we are and be familiar with our product. And education is very interesting. Zach has a unique window into a number of students each year that are going to go fill roles at the type of companies that of course, we would, that we would like to do business with. And we have this unbelievable opportunity to, not in not only kind of get in and good on the ground floor and get that level of familiarity up and get some little evangelists satellites out there working for Sunlight as they move through the program and go and work for these companies. But a really unique opportunity to partner with academia and, and support Butler's mission of not only supporting students and educating students, but getting them prepared for what's next in their lives. So we feel really good about just kind of where we sit in that, in that partnership. As far as the types of questions, you know, I'd say, Sunlight didn't have many concerns from a business perspective, we are well versed in the type of products that Zach and his team are offering. And from a from a functional standpoint, no real issues, I think, where we were really challenged and where Zach and I are gonna have to figure out something that works well is more on the operational model and the delivery model. This would be a non traditional deployment for Sunlight, we want to have Zach and his team and their students actually deliver it, which is a really unique aspect of what we're doing when it comes time to take Zach's insurance products, and as they scale this to potentially, you know, a different type of captive, or maybe they scale it outside the Butler network, maybe they decide that they want to start operating some of their existing lines and scaling that to where they're offered today. We wanted to have their team work on the delivery, because the one thing that we're going to be really challenged with is there's a rotating door of faces, there is going to be on an annual basis new people that need to become familiar with Sunlight. And how do we keep there and how do we get a kind of a knowledge depth within Butler. That is that is scalable from year to year, and where there is that knowledge base and where they can maintain their own solution. And as they want to offer new products, they have the wherewithal within Sunlight to be able to deliver that. So what we've come up with, I think, is a really good operational model to get Sunlight more visibility directly into the classroom, where they'll get to be hands on a little bit more quickly, we use them to support some of the exploration of what they're doing and their captive analysis, and to be able to provide training seminars, and provide kind of code configuration sessions. So that we can really do kind of a true solution handoff and and let Sunlight become best practice consultants for how to operate something that they know very much about, which is captive insurance and the products that they offer and be able to do it within a system within a system like Sunlight. So as far as those questions that we have to get into, you know, that's really what's going to be ahead of us over the first semester that we do that understanding how their products function, understanding how their organization functions, how they want the different pieces from Zach's underwriting team to their claims team and their billing team, how they want to work with one another. And that is really how we get the true juices flowing in Sunlight about how we're going to configure this to really meet the the needs of the the Butler RMI. So I think that's that's kind of the the first thing that we had have ahead of us in semester one of our partnership.

Nick
Zack, it's, it's probably been a few years since you were exposed from risk management standpoint, being at a fortune 500 company. How when you started to think through this and you started to have the conversations. Was like Back to the Future? like and what I mean by that is like In my experience, the Tech has just like exploded in the last few years. So I'm wondering like, even from your standpoint, as someone who's very enriched, you know, a very high position, very legacy oriented position in insurance, how much did you have to learn? You know, coming sort of coming back in and trying to understand what you know, what should I do with tech? I'm wondering what your learning curve was.

Zach F
Yeah, you know, for me it's I was definitely surprised to me the definitely was a learning curve. I'm I'm a naturally kind of curious guy. You know, I'm reading a book about string theory over the summer and I was doing a theory of mining and I got interested in the blockchain. One of the first epiphany is I had a number of years ago was, you know, geez, if you've got a blockchain enabled transaction, do you really even need an reinsurance intermediary anymore? Like what would stop a sophisticated seller risk and a sophisticated buyer verse from eliminating that intermediary, just going straight to the blockchain? So I started, you know, mining Ethereum is and writing articles to try and get my arms around that. And that's basically, you know, there was a learning curve, but one of the benefits of my job that I really enjoyed to have the time to pursue that. I got to spend, for example, the entirety of last summer talking to David Mocklow of Gramercy Risk Management who connected me with Dave, and Sunlight to you know, a Jeff Hobson, who's a man who owns a lot of companies who's looking at you know, revolutionising how he buys insurance and what the insurance transaction looks like. And so you're right the technology is different and and what you can do with it is amazing. And here's some of the things I've really taken away from it. I don't think the insurance industry understands how powerful technology is. You know, when you have technology that can change the risk behavior of an insured, you almost have to ask, does it disintermediate, the insurance carrier, right, as a risk manager, one things I know is a lot of insurance is bought by corporations, because they don't know enough about the risk to give themselves permission to not buy the insurance or to not buy as much insurance. And what the technology that's out that's out there allows you to do is understand your risk to a level where you can make more targeted decisions, you can start saying, you know, I don't think we need all of these different lines of insurance. So I don't know that the insurance industry necessarily understands what the implications of that are. The other thing I figured out is, and this is looking at databases, like crunchbase, only about 2.5% of Insurtech investment goes into commercial lines, most of its personal lines, because it's really easy when you got big pools of risk of drivers and homes and all those kind of things I used to insure the world only billion dollar coffee plant, you can't AI your way out of that right that the risk of that plant depends on a lot of manual factors that you would have to account for. Same thing for universities, right Butler has the world's only university run insurance company by students up the road Purdue as a nuclear reactor, they're very so it's very hard to bring that kind of technology into bespoke risk. But here's the funny thing. There's a lot of technology out there that could be put to that purpose. There's drone mapping companies that can read manhole covers from space that don't necessarily understand the insurance implications of what they've done. I've met a company that developed a smart cargo container hooked up to the blockchain and telematics, you know, to allow them to ship cargo further with less handling of it. Well, guess what if you have that kind of technology, that sounds like a really cool Inland Marine product recall ocean marine type insurance product that could never have existed in the past. And so all these opportunities are out there. And what the pandemic has really done is poured gasoline on all this innovation. I mean, it's it's, you know, things that people maybe would have considered in the past or wouldn't have considered as quickly are now on the table. And so yeah, you're right, there is a huge learning curve. And I have been gobsmacked by with all that you could do with the technology to the point where I think that the insurance industry is about to fundamentally change in ways that most people don't really understand. I think the legacy insurance industry is going to start to be supplanted by what I call new hybrid insurers like Tesla, Google, Amazon and others that are forced to monetize risk in order to be able to cover the things that they have like pandemics intellectual property.

David M
into one of the interesting things that you mentioned about Zach's learning curve is we we view this to be one of the more beneficial parts of the relationship to Sunlight and that is that we're gonna have a like I mentioned before, we're gonna have an audience of, of people who are well educated and hungry but aren't entrenched in the type of software that carriers maybe have been using for a long time and were culturally they often have a hard time being able to break away from the day to day systems that they use to run their business today. I look forward to getting all sorts of really interesting goofy ideas from Zach students about how they want to engage, you know, they're going to be future purchases of I'm sure you know, of insurance, how do they want to engage their insurance company? How do they want to be treated, what type of experience they want to have as policyholders what their expectation of, of engaging technology in this way is either as a potential policyholder in the future or as an underwriter in Zach's class, and one of the really interesting conversations I had Is with one of our one of our new clients. And I said, you know, this is we're going to be working with Butler. And this is kind of how we're going to be working with them. They said, well, man, I feel great, you know, your products never going to get stale. And I said, that's a really, that's a really interesting way of looking at it, whether it's to support some of the new and innovative things Butler wants to do, or whether it's from just the traditional product loop feedback of working with really bright, intelligent, energetic kids who not really kids, I guess, anymore, young adults. But again, people that haven't really been conditioned by a system or conditioned by a corporation, and they haven't really had to fit within a box yet, we think that'll be ultimately really valuable to the growth of our software and the longevity of our software, too. And we got really great feedback from our insurance carrier clients on that. And and I guess that was a little bit, that was one of the things that we didn't necessarily anticipate.

Nick
And that's probably a big benefit. As you as you mentioned, the students that would come through college and our all digital natives. And so a lot of them have had coding sometime in the back. And I know, David, one of the value adds that you talked about when when I when I interviewed you a little while back was the whole, we want to push the push the work down to the boots on the ground, like if you know allow, if the underwriters realized there needs to be a rating change or something, push it down, so they can make the change. Like there's no reason why it has to route through, you know, some IT person that may not understand it, put the power in the fingertips of those folks, it seems really interesting that what you're what you're doing here, you're going to have digital natives that know how to code. So my expectations are sunlights going to be like really busy. Because they're gonna Yeah, you know, hey, why why do I have Why are you doing this, like, give this to us? You should be giving this to us, like, let us do these pieces. And it could be very enriching that way. That Yeah, you would be on your toes, because they're going to force you to do that by poking holes.

David M
Absolutely, we imagine that they will, they will completely poke holes in some of the experiences that we have as users and for all different domains. And we we expect them to be to hit the ground running, because even though what you talked about is more of our business user configuration, I think it's I think it's fair to say that the overall tech savviness that comes in through Zach's class is probably higher than the average user at, say, a carrier that's working today, and just their fundamental understanding of technology. And, and, yes, they're so well versed in some of the other services and Insurtechs that are out there that provide tremendous value, that we imagine getting some introductions into functionality and services that we can incorporate into our clients in Sunlight that will ultimately be very valuable. And we talked about our API's and web services that are today used for, you know, some system to system integration, but also for, for really unique data services that act as great underwriting tools. And if there's a companies out there that Zach says, Oh, you know, like a Hazard Hub, oh, there's this new version of something out there, that's really easy to integrate with that provides some unbelievable data. And that's being pushed on us by an audience like the one that we have to work with, with Butler. That speaks volumes about things that are going to be happening three, four or five years from now that we don't want to then incorporate that we don't want to then see three years from now once it's too late, and it's no longer sexy or fresh or cool. And so we just yeah, we we imagine that our our product really does stand to benefit from from having a different type of eyes on IT, then traditionally, in Insurtech, the eyes that would be on it.

Nick
yeah. Be careful what you wish for David?

David M
Yes. Yeah, as I say this, my the the team of business analysts at at sunlite, who will all have to be responsive to this are all curling up in a ball. But...

Zach F
yeah, these students could do amazing thing. You know, a lot of times I'm prepared for everything except for our schemes to work. And they always work because the students are incredible.

Nick
Zach, I'm curious, Butler University is in you know, high class institution of higher learning. Right. So probably have a significant tech program at Butler, I would guess. Were there any discussions or any thoughts on your part to Hey, let's just build it ourselves? We have students....

Zach F
You know, it's interesting, because we do have those elements within Butler. We have a computer science program that's in a different college that I'm in and first we have our management information systems major here at this college. And you know, No, we didn't I mean, I think that one probably lack of understanding or communication between different areas of what about what everybody's doing. You know, one of the things that we've tried to do with our student run captive is make sure that it's a toy that other academic programs can play with. So for example, we work with Dr. Dan McQuiston in our marketing programs and his marketing capstone class, they actually had marketing, so you do market research for us on what products we might want to offer. You want to sell insurance to bomb sniffing dogs, or, you know, for example, one of our original ideas was to insure all the live mascots at universities well, and we and there's a post on LinkedIn, we had a zoom with all the dogs on it, like 40 dogs on the call, they all said with their calls, no, they don't want it, they want to buy that insurance. And so that product died on the vine there. And that was an example where we came to that through a partnership with our marketing department. So that's not to say that we couldn't do with our MIS folks or computer science, folks, but what I think, you know, what I envision happening is us getting far enough down the road to where I'm made, you know, I have the, I don't even know what to ask them. Right. I mean, that's part of the journey is for me, I don't anything about coding. Last time, I took a coding classes in junior high on like C-dos or something. And so, you know, I like this, because I don't want to go stale in my skills, I've had more than one person around the world say, to me, the future of underwriting is being a coder. And and so I'm interested in learning how to do all this stuff. And what I suspect is, as I start to learn more about it, and how it works, and start to ask more important questions of my peers and those other areas, we'll find those natural places to start working together. And, continue down that road.

David M
I know before we really get into like the the meat of what it'll take to move the Davey RMI and take their products and move them into Sunlight and behind sunlight, one of the things that we're excited about is getting Sunlight more involved in the in the curriculum itself, and to be able to support some of the exploration that they're doing as part of the master's class. So you know, I know, Zach and I have been looking at the curriculum a little bit and kind of what modules to slot Sunlight into, and where we could best support conversations. And that'll really be where we hit the ground running, where their students get their hands on the software for the first time, probably use it to support a couple of different case studies that they're looking at, and where you can use it for more a specific targeted purpose. And then as the familiarity grows, and as their conversations within Butler continue to extend on what their plans are for, for the captive, you know, will will support each other and either getting those products up and running in Sunlight and and of course, finding different ways of, of, of extending the use of sunlight as a teaching tool in the classroom. One of the things that I think we were talking about a little while ago is, Sunlight has like a rate analyzer tool that we can use to forecast retention. And so we can go and play around with if we were to change different rating factors in Zach's product, and the rate were to change at different levels based on some of the retention data that he's can make available to us that we can put into Sunlight, we can start forecasting retention for some of the various lines, should they take him outside the Butler community and potentially charge more of a premium for that. So we're starting to look at kind of more narrow use cases like that initially, to where we can see Sunlight being of support and things that they would otherwise just be doing as part of the curriculum. And then again, as we as we go further down the path of the RMI itself and of the captive group, it's okay, how can we how can we best use Sunlight to administer these products? And how can we best use Sunlight to maybe scale what they're doing now to other universities that potentially want to put this type of model in place? Because it is repeatable. And I think very, very, very highly of Zach, and for what he's been able to do to do at Butler, and from our conversations seems quite keen to make this something that a lot of universities benefit from, especially as we mentioned, as we talked about, at the onset, universities look for other revenue sources, potentially, that aren't just tuition and room and board, which I think in the current state that we're in right now, I think that sounds attractive for the majority of of non $15 billion endowment universities that are out there. So we see ourselves playing a critical role in that.

Nick
Yeah, that's really interesting. And so let's talk about that traction. Right. So when you get to that point, one of the challenges of course, as you introduce technology into something that's already running is that thing's running. You can't disrupt it. You don't want to disrupt it. It's, it's got a purpose, a reason for being in so could you, both of you, if you I don't care doesn't really matter how you guys want to answer this, but how do you envision the potential traction on how do you change a tire when you're when you're going at 65 miles an hour?

Zach F
Well, you know, I'll I'll tee off on that because I think the great thing about this is we're able to segregate the different parts of our captives. So we have actually you know, the one MJ student run captain, but we you know, we we don't Have to disrupt the lines of coverage that we're currently providing for university, we could continue to run that through Excel and, you know, make changes to the policy in a Word document and sign it and all that kind of good stuff. We don't have to change anything with the undergraduate program, what we're actually looking at is, do we become a commercial, you know, we talked about class two and three and sorry for getting in the weeds there as a geek in me, but that you've you hit right on the head, do we want to become a commercial insurance company want to start selling insurance to other people. And fortunately, we've, we've been through this before, there's a process to how you do this, it means really like how any startup would would would set off. But we have, you know, because of the parameters that we're falling as an educational entity, we have a little bit more latitude. So the way we typically do this, we're in what I would call the ideation year, we need we need to understand what products we might potentially sell. We need to understand what the ramifications of selling those products are and what kind of underwriting risk, know what kind of capital is going to be required. And and when you do something like this, and this was true with the MJC, run captive the first time, you really have to understand the expense side of it. That's the most important side, I mean, I'm not a for profit insurance company, I don't necessarily have to, you know, design an insurance company that's going to make the most amount of money humanly possible. Now, David's right, we do want to actually try and make some money from this captive and help contribute towards Butler's bottom line and subsidize the cost of residence, residential education. But But frankly, for me to have something that provides a really kick ass educational experience, and just breaks even, is fantastic. So the you know, the undergraduate program, we make about five/$7,000 a year, it's not a ton of money. But for us, you know, what we need to understand through our master's program, and what the students are going to be working on this semester is, we're going to be analyzing the risks of Butler, but we're not looking for the most serious risks, we're looking for the most monetizable risks, what are risks that could be monetized to the captive, either risks of Butler, or risk that could be tried, you know, perhaps we offer pet insurance for employees as a proof of concept, the non ERISA benefit, and then we decide that works, until we go to David to build a pet insurance, you know, platform to be able to offer that to other universities and other institutions. And so for us, it's really about understanding, you know, before we can even start selling an insurance product, I need to understand I needed a Sunlight Solutions, right, I had to start and that's what really created that epiphany is like, and I got the I need a back office like what does that mean? Do I need HR, do I need legal, what do I get, I need to run an actual for profit insurance company, one of the first things that really came to mind is the technology side, we can get the technology, right? And then we could figure out what's left. And then we can, you know, all we do at that point then is need a product that can cover our expenses, isn't going to bankrupt the university, and has the potential to generate profit. And that's one of the reasons why we like dogs, and we might we're probably you're probably like likely to see us do you know, bomb sniffing dogs or care dogs and dogs are only so expensive. It's like dental insurance. There's only 32 teeth in your mouth, I think you really lose your money or but I would like to hope that dogs have the same kind of same kind of approach.

Nick
Yeah, plus you have the you have an expertise, you know that that always helps.

Zach F
When That's right. That's what we're actually covering with care dogs and animal mortality dogs and bomb sniffing dogs is the actual cost of train the animal not necessarily the animal itself. And we do have a lot of expertise here about how you train and run those kind of programs.

Nick
So going forward, how do you know if the, you know, let's talk about success, what success look like,

Zach F
Success to me is we get a product that we can sell. So we've already we actually are having some conversations with the Shriners about maybe ensuring the care dogs at Shriner Hospital. And so you know, if we're able to identify a product that we're able to sell, and we're able to set up the back office to support all that, and we're just kind of off to the races, you know, running our insurance company and using it to teach students I think it'll be success, I think it'll I think it'll look a lot like what it looks like now, in the undergraduate program, the difference being we're hopefully turning a profit and we hopefully have the type of program in place where, you know, we have reinsurance, we have the kind of things we you know, at the end of day, we don't want to bankrupt the univeristy. You know, you have to you have to mind the core mission of anything you're doing. And the core mission of this university is to be a world class academic institution, it doesn't make sense to jeopardize you know, those that hundred year plus heritage, just to make a fast buck. And so we want to be very thoughtful and very prudent about what we do and how we do it and always err on the side of, you know, making less money in favor of more education and more prudency.

David M
I think on the on the sunlight side successes have a few different dimensions, one, you know, always the success of our client and in this case, that's Butler. So our partner is Butler and this and the success of their Rmi. And their of their being able to achieve that and scale the program to the success that they want is ultimately what will be successful for Sunlight. I think getting them into a self service mode will be successful being able to cleanly deploy it and get a solid knowledge base about Sunlight within Butler, I think that will ultimately make this more successful. And then I think there's a tail to the success to just like in your your insurance coverage. And that is You know, two, three years down the line, I think we'll see if there's success. if, if, you know, someone sends me an email to my inbox that says, hey, David, we're starting to explore this that so and so insurance company and I really thought Sunlight may have been of service and and knowing that that person came out of the Butler Rmi. And that sunlight was in mind because we had worked together in the classroom and work to get the Davey the MJ, captive up and running. And so that kind of return as well down the road, which is when we talked about kind of having these little sunlight evangelists out there. That's certainly something that we hope to accomplish some

Zach F
And for me, really, honestly, just quickly, I would like to see Indiana/Indianapolis become the center of Insurtech. Innovation. Right, Indiana is one of the highest concentrations of insurance programs in the nation with Ball State, Indiana State, Ivy Tech, St. Francis, Butler University, I mean, my peers at the other schools in Indiana do an excellent job, we have also the best talent here in Indiana. And and you know, with everything that's happening in the large cities, and if you're going to be an Insurtech, why not do that in Indianapolis, why not do that at Butler, why not come where the talent is. And so for me, it's it's not just about the partnership with Sunlight, although I'm really looking forward to that it's creating an ecosystem where, you know, are the drone mapping company, perhaps we project a product, you know, we talked about, do we use a drone map of campus to put a geo fence around campus and then RFID chip all the fine art that we insure. And if someone tries to steal it, it automatically sends a text to BPD. And, you know, they're there with the monsters and big dog and the students and classic Scooby Doo, right, they would have gotten away if it hadn't been for those kids and their dog. But But is there other opportunities like that, where we can use this campus as a small city, and this insurance company as a laboratory for further innovation, and really make Indiana home for Insurtech? And, and insurance values for other businesses?

David M
Yeah, and I think if we're, if we're successful in this as well, I think other universities will take note. So I think, you know, ultimately, one of the measurements of successes in five years time, if we're still talking about Butler as potentially the only university that's out there with a student run captive, and whether you see some of some of our peers in the insure tech industry start partnering a little bit more with with academia, I know, that's a fairly unique thing that we're doing here, you're used to seeing it more on the vendor on excuse me on the on the carrier side. And I think there's certainly a vested interest that that firms would have and sponsoring and partnering with, with Butler, I haven't seen a whole lot of that from the Insurtech. And from the vendors going directly to academia. And my expectation would be that several years from now, we're likely not the only one and that that's okay with us, too. This is for the betterment of Butler students, this is pushing the risk management, you know, industry forward, and having Sunlight as a driving component of it. The competition isn't a negative, it's it's validation that what we're doing is working. So so we're excited about that.

Nick
very worthwhile. So, got a couple more questions for before we end this. I'm wondering if there's any advice. So you know, the, I wanted the theme for this to be how tech, and incumbents in the insurance fear how they can work together, like what that dynamic should look like. This is this is I think, encapsulates that. If we could like walk away with, like, some advice for me to you on how both sides should look at that particular relationship. As it's starting and maturing. You have any advice? You know, that you could probably speak to the incumbents, David, to the, to the tech companies, but how should those two pieces talk to one another? Because from what I see this, it still feels like a lot of oil and water.

Zach F
It takes it does take the right kind of mindset. I mean, you know, one of the things that attracted me to Butler University is we're a very innovative University, we have a big focus on experiential learning. And so, you know, when I went to set up the student run captive the first time with our undergraduate students, I mean, I expected to be laughed out of the CFOs office, like, hey, I want to take a quarter million dollars that was donated by MJ insurance, and I want to get a bunch of undergraduate students and we want to set up international insurance company in Bermuda to do that right now, during the 2016 election when you know, Trump's yelling everybody about staying on shore. How's that sound? And they're like, yeah, you know, let's see if it works. And and it was amazing. I mean, it was great. And obviously, they you know, there's certain parameters about how we do this, right. But the default position was, if this makes sense, there's going to be benefit to it. Let's let's see if we can find a way to Yes, before we start worrying about No, and I'm here to tell you that not a lot of corporations operate that way, let alone University. And so I think for you know, for Insurtech out there, I think it's important to partner with the right academic institutions. I think it's important to partner with Gamma Iota Sigma, the collegiate insurance fraternity. As a way to get visibility in front of all the other academic programs out there, but I think for, for both sides of the partnership, you have to approach it from, you know, everybody's got to win. Right? I mean, we don't want to commercialize our classroom, that's not the intent here. You know, we try to stay product agnostic, but at the same time, Sunlight's willing to offer very powerful software to us and, you know, reduce costs subsidize cost and, bring their expertise into the classroom, we understand this to be a benefit for them as well. And, and what does that look like? And so I think if everybody approaches it from the standpoint of, you know, students first, students always educate there has to be an educational mission there. But at the same time, is there a way to make sure that everybody is able to win, and if that's the case, it shouldn't work?

David M
I think on the technology side, on the technology side, it's just a willingness to understand that potentially, you know, returns on a partnership can come in a lot of different in a lot of different ways. And I think that maybe the reason why something like this hasn't been done previously, or you haven't seen more outreach is because that kind of mentioned it. And I don't want to get into the financials, of course, but we don't look at this as a traditional client, Butler's not a traditional client of ours. And I think other firms wherever they may have said, Okay, this is what we traditionally charge, or this is the type of arrangement that we have, knowing that that wasn't going to be something that was realistic for the model that we wanted to put in place with Butler may have scared some out of the room. I think, luckily, at sunlight, we've got leadership, and we've got folks that are forward thinking enough to realize that there was a lot of benefits of being able to work with Butler on this initiative, that, that where the return are felt beyond maybe just the initial dollars and cents. And so to have that type of wear with all is something that I was, you know, I was fortunate to have leadership, that sunlight that were that were very supportive, when I brought this partnership to them and said, you know, okay, here's the thing, we're, we're not going to charge them a lot. And this isn't gonna, you know, we're not going to be able to change the face of our company immediately as a result. But here's some really, really interesting things that we get, as an organization from working with Butler, here's the ecosystem, that Butler is already a part of which sunlight wants to be part of that ecosystem and make those type of friends, here's where we could see the scaling and kind of multiplying long term. And, and, you know, I think we've already started to see that come into place, Butler and Zach have been extremely gracious about introducing us to the ecosystem of partners that they have that support Rmi, and that and the captive. And we kind of all look forward to learning from one another and growing with one another. And who knows what this thing looks like, two or three years from now. So I'm so and

Zach F
that's why like, That's why, like, if I need to cut you off, but that's what I like about you, David so much is, you know, when I talked to him, it's never you know, who could we sell? Who's going to be introduced us? What can I learn? What can we learn about our product, what we learned about the way in one of the things I found Nick in, you know, in my adventures of learning about Insurtech, is Insurtech could be a little too cocky, they they're pretty heavy on the tech, not a lot of them know much about insurance. And you know, you can't sit here and tell me what the six tenets of Insurability are and how to form a risk pool without adverse selection. And these other things. I mean, I run into a lot of Insurtech people that really don't understand insurance. And I would hear a lot of anecdotes about all we've got this was bending technology, we don't need to know anything about insurance. And so I think for, you know, for the Insurtechs out there to understand that there really is something special about an undergraduate and a graduate education in terms, you know, with 82 programs out there, you maybe haven't run into someone with that background. But But you're starting to see the benefit of that of having that education. My friend, Brad Robinson, who was a former mentee of mine is the risk manager, the NCAA, he just they just confirmed $270 million worth of insurance for the pandemic. Why does Brad have insurance for pandemic when it's supposedly uninsurable? Because Brad has a wonderful risk management education with Ball State University, and he understand and what that powerful risk management education, you end up on the right side of history, you end up with that pandemic insurance. And what I want the Insurtech to understand is we make people just like Brad here at Butler as well, you know, people with the background that I have, and, you know, imagine how effective your products can be when you really truly understand insurance. I mean, that's why you only see two and a half percent investment in commercial lines. Because if you're not native to the insurance industry, that's a really complicated industry to try and understand without any insurance background. And by working with a program like Butler, I think we will enable that type of understanding for these companies to be more effective.

Nick
Yeah, it's one of the things that he brought up that I think is just so valuable for those that are listening on either side, is what the relationship part of it. I know. Personally, the two large reinsurers that I work with, one of the things that I think separates my business relationship with them is they flat out come out and say, we don't know everything and so part of why we want to partner with you is we want you to teach us. And it can go both ways. And I think I'm hoping that's one thing that can sort of come out of this, for those that are listening is that even if you're in an incumbent system, and you know, you know the very old legacy IT debt, or if you're a tech company that's coming in, you don't know a lot about insurance. There's, there's an additional element there, beyond the dollars. And it's the learning because we're all sort of in this together in a kind of a corny way. But we are in a lot in this together and going going back to Zach, you were talking about how, as new tech gets introduced, like how a lot of you and your students are thinking of Oh, we could use this to do this. And we can use this to do that. I think the takeaway from this, if you're an incumbent in either side, is that you don't know everything. And so if you come into it with something beyond, doesn't have to be like purely altruistic, you can be selfish, in your curiosity, selfish in your learning. You just don't just Don't be selfish in the financial transaction. I think that that's a recipe for success.

Zach F
I still remember when I got my first job it was with Jeff Hook is now Risk Manager, Honda. And I was interviewing with Jeff and he said, Zach, I like you, but I don't want somebody thinks they know everything. And I said, Jeff, I don't know a damn thing. I know one thing. And he said, What do you know that and I said, I know when to be smart enough to get somebody smarter than me. And I've lived by that my whole career. I tell students, that's the first rule of risk management, everything we deal with is I think about it COVID-19, who would have ever thought we'd be having a zoom this far into this. And all this stuff going on. This is, you know, one of those unimaginable Black Swan kind of, you know, kind of risks. And that's what risk management is about. It's about preparing for something that might have never happened before and might never happen again. That's a very unique skill set to have. Everybody has that.

Nick
So final question is would would this relationship have occurred without COVID?

Zach F
Yeah, I think? I absolutely think so. Yeah, because I had this epiphany that I can't run, I can't run, uh, you know, the powers that be here say, exactly, we really want to have a commercial insurance company, run by our master students and, and really do that. And so that was always going to happen. And I had the Epiphany Well, before COVID, like, I can't credibly run an insurance company in excel, and they'd be out there on LinkedIn, you know, tell everybody about how they should be in Insurtech. And so yeah, this was always going to happen, I would say, if anything, COVID is maybe slowing us down a little bit, because we were, we were in a position where we were potentially going to be selling insurance to an airport for foreigner think dogs and two ball enforcement for bomb sniffing dogs? And what are the things that are happening right now? Right, and law enforcement is having issues, you know, challenges about how they're funded and what they have funds available for, and airports don't have the kind of funds I used to, because I was traveling. And so, you know, from my perspective, before COVID we had two products that we reviewed already be down the road of designing, you know, maybe some systems for with David whereas now we're a little bit back to the drawing board. You know, what products makes sense in this new landscape that we find ourselves

Nick
same David??

David M
Yeah, I think so. I think it's slowing down.

It's given Butler a whole nother list of priorities that they didn't plan for back in February. Right. So it's just things have been juggled at Butler just like anywhere else, just like they have it sunlight. And so yeah, I slowed down a little but but still moving at a good pace. And you know, we're here, we're here talking about it publicly, which is great. And Zach's classes start soon, and sunlight will be in the classroom by the middle of October or early November. So slow down a little bit. But I'm, we're, we're still moving at a good pace.

Nick
Well, keep us in the loop. On this, this will be an interesting follow up. I think. This will be my academic thesis, a use case on tech and industry merging together to move forward. I think this is this could be one of those. I won't call it an HBS use case we'll call it a Butler University use case for your business school, we'll we'll rebrand it. But this could be one of those interesting things that we could point to and say that's kind of how you want to do it. That's how it's done. That's the you know, the the the scenario that you want to instill to have a positive outcome.

Zach F
Yeah, no, we appreciate that. I appreciate you helping to get you know this out there I mean, we're you know, that's one thing if you want to do at Butler, we want to be seen as a leading voice and what comes next and, and I have a lot of great peers, other academic programs. I learned a tremendous amount from them. And this is hopefully our contribution on what we can we can show other folks how to do something like this.

David M
Absolutely same same for Sunlight, we want to be looked at as a as a system and as a solution that helps push the industry forward and, and keeps them untethered from from legacy constraints. And we see, we see this as one of those rare opportunities where there's really no concessions. There's not a lot of give and take here. There's not a lot of Okay, you went in this regard, and we'll take one on the chin here. We just see this as being nothing but wins for everyone. And when when opportunities like that come along, you need to be savvy enough to hang on to them. So I think that's what hopefully what Zack and I have started here.

Nick
Yeah. Fantastic. Thank you so much for the conversation. We will I'm sure we're going to stay in touch for all those that are listening will have Zacks connections, you can link with David on the show notes, you can get the transcripts. Please subscribe to this for Zack and David again. Thank you so much. Appreciate it.

Zach F
Thank you so much

David M
Thanks for having us, Really appreciate it.

Transcribed by https://otter.ai