E39: Thinking Outside of the Box – The Art of Product Design Within Insurance with Surround cofounder & COO, Kate Terry

Building and selling new products for which no market exists in insurance and finance is incredibly difficult? Why? Partially it is the same reason why any new product is difficult (recall the Henry Ford quote – “If I had ask my customers what they would have wanted, they would have said faster buggy whips”)

Consumers don’t always know what they want…they just want the problem to go away and they don’t have the mental energy or time to devote to solving it. In steps the entrepreneur who can see an underserved problem and attempt to fix it creating value for the consumer and themselves in the long run.

Our world is rapidly evolving, mostly due to our transition from an analog world to a digital one. People’s behaviors and the general arch of a lifestyle is very different today than 50 years ago (does anyone have family dinners any more? Landline anyone?) Kate Terry from Surround Insurance was unsatisfied with how legacy insurers were trying to shoehorn analog insurance products to consumers. She and her partner (Jay Grayson) realized that the modern young professional does not have the right risk transfer solution for their lifestyles. Young professionals still have lots of exposure and risk and are choosing the standard risk management techniques of avoidance and mitigation to handle it without having the risk transfer tools available. So Surround is intent on being a platform where new and creative products can be spun up that reduce the fuzziness and gray areas for young professionals so they can continue on with their lives without having to worry about potentially life-altering, financially devastating events happening to them.

Watch here:

Connect:
Kate Terry (LinkedIn) – https://www.linkedin.com/in/kate-terry/
Surround Insurance (Homepage) – https://www.surroundinsurance.com/

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Transcript

Nick
And we're back. This is the Coverager Podcast. Happy Fall everybody. It's getting chilly in some parts of the country. And such a wonderful way to end the evening, here talking insurance with one of my favorite new people. We met online. I swiped right...is that the right way. idea, I swiped the correct way. So we became friends. Kate Terry from Surround Insurance. Welcome to the Coverager Podcast.

Kate T
Thank you. I'm excited to be here. And you're one of my favorite insurance people Nick, so this is exciting.

Nick
We're, you know, we're going to talk shop today. And I'm really looking forward to this conversation because you are, I consider you a legacy insurance person who thinks outside the box and we're going to be thinking outside the box. This whole episode is about out of the box thinking. And what's I think what's the most exciting part about that is that 10 years from now, we'll look back at this sort of stage in insurance and realize like this is when it's happened. This is when people like Kate Terry and Surround Insurance kind of planted a flag and said, we're going to change the way things are done. That's what this episode is going to be about. So I'm looking forward to it.

Kate T
This is the messy adolescence of insurance, right? Like we're all overgrown limbs and awkwardness, but we'll get there right?

Nick
That's so funny. Yeah, my when my wife sees like, those geese that have like, they're part white and part gray, she always calls them teenagers. Just all awkward looking and stuff. So but I think we're a little bit more than that. So let's consider this, like, not the prom, but maybe the formal you and I will we'll have a formal conversation. So Kate, I start all of these by allowing my guests to have a little bit of a soapbox who is Kate Terry, and what do you do?

Kate T
Absolutely. Okay. So yes, I'm Kate Terry. I'm co founder and COO at Surround Insurance. And what I am is a legacy insurance person, as Nick said, and I'm here because I think this is the best industry in the world, right? We get to stand with people at the worst moments in their lives, right? Like, I have this thing about fairness, like I want the world to be fair, I never grew out of that, like five year old, but it's not fair mom and dad, right. And I've kind of felt the entirety of my career that every day I come to work, I make life a little more fair. I can't control who might get into an accident, but I can put them back together afterwards, I can't control you know, who might have something happened to a fire in their in their place of work. But we can fix that right, like so we really, it's a privilege to stand with people in those moments. And so I spent about 12 years in traditional insurance working my way up the ranks. I'm Product Manager by training, love talking insurance products, hope we get to do some more of that tonight. And then I just kind of came to a point where I just wanted to think a little bit differently, you know, there are a lot of highly ethical, well run large insurance companies. But the fact that they're so well run and so large means that it is very difficult for them to decide to do something new or put, you know, 5 or 10 or $20 million, or however much it takes a large corporation to do something entirely new when they could spend that same amount of money and improve the profitability of their massive workers compensation book by 0.1%. And it's a sure thing, right? Like you just end up in this divide where it's impossible to innovate because it costs you too much. And that just I kept butting my head up against that and sort of had enough. So I left my corporate career like up and left, started taking some some classes in unrelated fields and sort of like intellectually freed myself a bit and then started doing consulting for insurance firms. And also for some investors that were thinking about insurance a little bit differently. And one of my clients was Jay Grayson, who was the, at that point, we had just started Surround Insurance had a cool idea and some nice PowerPoints. And yeah, about two months into my consulting for him, he said to me, have you ever thought about starting an Insurtech? And I said, No. And he said, No, you want to start? You wanna start this Insurtech with me. And so I gotta tell you, this is the cornfield story, which I'll keep short. But I said to him, Well, I have two issues, one of which is that you and I scarcely know each other. We were actually former colleagues at Liberty Mutual, but we literally never met despite having been at many of the senior executive meetings, it was sort of weird. And also, I want to talk to some regulators first because I want to make sure that our new approache is something that's gonna pass muster. Otherwise we're gonna do a whole bunch of work. We're not going to get anywhere. And he was like, Okay, well, how do we visit regulators? And I was like, Well, why don't we start east coast and then Midwest? And he was like, great. So we're going to Chicago. I was like, Oh, no, we're going to Springfield, and places. And so I said to my husband, before I went on that trip, I was like, so one of two things is gonna happen. Either I'm gonna come back and tell you, I want to start an Insurtech. Or I'm going to call you from the side of the road in Peoria, because I can't find an Uber to take me back to the airport, after Jay throws me out of the rental car, you know. But no, we went, we had some great meetings with a bunch of different regulators who were very encouraging of what we had to say. And it turns out that long, long car trips with people you scarcely know are good ways to get to meet them. I, you know, after about hour four, I ran out of every story about my daughter, and then I kept talking. And eventually, we got to the cool insurance stuff. So that's literally how I came to be co founder at Surround. That was, I guess, almost two years ago now. And now we're like, on the precipice of finally entering the market here in Massachusetts. So it's been a journey.

Nick
Yeah. For those that are listening, it takes that long, like

Kate T
it does.

Nick
That's part of the problem that I hope that I hope that we can solve at some point. Maybe we'll team up and do that. But yeah, like even now, it took two years for you to sort of get get to that particular point. But before we jump too far in how about discussing? Why, does surround need to exist? what's what's the Yeah, what's the cool what, what makes you different? What's the cool new thing that, you know, the incumbent insurers can't already offer?

Kate T
Yep. Yep. Good question. We get that question from investors a lot. We're like, well, can't incumbents do that? I'm like, Well, do you see them doing it? I'm so so here's the thing. So I'm going to go back to that fairness thing. Right. So one of the things in my career that has really been an area of interest for me is how do you serve underserved populations. And there are a lot of populations that are underserved by insurance and others that are over served, unfortunately. But one of them is sort of young adults, right? So insurance used to be the kind of thing where you it kind of tracks that traditional American lifestyle, right? You graduated from college, you finished your military service, or, you know, you finish high school, you bought a car because you were now independent, and you went to your parent's insurance agent about car insurance. That was your first purchase, right? A little while later, you decided to get married, you bought a home, you bought homeowner's insurance. Few years Later, you had a baby, you got life insurance to go with it. So there was this traditional trajectory to people's lives. And the insurance products were really mostly about things, we'll put the life insurance aside for a moment, but you know, the car, the home, the engagement ring, maybe whatever else, they were all about things. And there's this, you know, enormous population of people who are living in a world where they don't want to buy those assets anymore, at least they don't buy them as early as they used to. Right. So you've got people who are car sharing as a way of getting around the city. They've got Zipcar memberships, whatever else, instead of owning a vehicle, you know, they rent apartments for much longer homeownership has been delayed for economic and cultural reasons. Both right? They put off marriage, and it puts off some of the decisions that might have been part of that traditional lifestyle as well. But they're still exposed to risk, right? Like, what happens when you borrow your roommates car, and you're not sure if he or she has insurance, and you get in an accident on your way to IKEA, right? Like they're coming after you like maybe your roommate, but also you, you're the driver. Yeah. And that liability is outrageous, right? There's no real

Nick
it can ruin your it can ruin your life.

Kate T
Your whole life, your whole Yeah. Aside from like your life and the people you love, the most important thing you have is actually probably your future earnings. worth a lot more when you're 20 than when you're 50. Right, right. You're

Nick
20 you unfortunately, kill a family in a caravan. Right? And you can't dig out of that. Like, even if you don't go to jail. You financially can't dig out of that.

Kate T
No, no, you can't. And so then you say, well, as an industry, our job is to give people the tools to protect themselves in those situations, but like what tools do we give them? Go try to buy a non owned auto policy right now? How many phone calls does it take? And how much time does it take to find somebody who's willing to sell you one? And not? Just because it's not interesting to be?

Nick
I'm an insurance professional, I honest, I wouldn't know how to I'd have to ask someone like you. Like where I'd have to go to the insurance nerd Slack channel. Like hey, where do I find? I wouldn't even know.

Kate T
well, there's that and then like, here's, here's a really scary one. I can't tell you how many times I've heard people say to me, oh, well, you know, I don't drive, well. Actually. I do rent a car. Sometimes when I'm on vacation. You know, sometimes I'm the driver with all my friends because I've done a lot more driving. My credit card will cover my rental car insurance. And I'm kind of like,

Nick
Uuummmm.....

Kate T
of them only cover the damage to the vehicle and the damage to the vehicle is limited to well, the price of the vehicle right and you're probably not driving a Ferrari. You're the

Nick
one that whenever I At a rental desk, I always have Bill Wilson's voice kind of coming from behind where he's just like, he's like, will the will the Platinum card cover it? It might. And so Bill, what do you do I buy the insurance like, he's just exactly even he doesn't know if it's gonna cover it or not?

Kate T
No, no. And if you don't have car insurance of your own that again, it's a liability. Right? You're driving in an unfamiliar place, probably like, yeah, so that's all of these are scary. And then if you start reading, like, like we do, the, the releases that some of these services like, you know, the the bike shares, and the scooter shares and the car shares, you read the releases, like they're not picking up any liability. And most of the car share services, many of them, when you're driving, the ones where you're driving, I'm not talking about being an Uber passenger. If they they generally do have to include some insurance, but it's usually at state minimums. So in some states, that's as low as $10,000 of liability. Like I'm sorry, if you hit somebody you're in.

Nick
No, that doesn't even cover like a few hours of lawyer time.

Kate T
I know, wait until you see the ambulance bill, right? I mean, yeah, so you asked why the Surround exists need to exist. And this is why it needs to exist in the world just isn't defined by kinds of property anymore. But insurance is and what legacy carriers can't do is reach across that and say, How can I fit my product to people's lifestyles, right, and some of it is siloed thinking and siloed training, and some of it is like legit, old ecosystems of like auto insurance where you got like 150 systems attached to each other and replacing one means cobalt someplace else. And so maybe you don't even know who has an auto and a home policy with you forget about life, and like how you thought you're gonna figure out if they were business customers as well, forget it, right. So that piece of like cutting things the other way and not looking at them on the basis of a court case from 1930. But like, you know, looking at them how people live their lives, like how can you be compliant within the regulations, which do exist to protect customers, right, and still design a product that meets people's needs? That's where the industry is missing right now. And that's what we're building. Okay.

Nick
So basically, it boils down to fairness. Got it?

Kate T
life is unfair, Nick, one step at a time!

Nick
I know, I know. It's just it's so the things that you sort of touch on are kind of things I hammer home, which is even in a mature insurance market, like the United States, or like the UK, some other areas of the world, my guess is that they're probably more exposures that are uninsured or under insured, that are actually insured like, we are actually on unsafe ground, we're on quicksand, when it comes to insurance, like we, Oh, I got my auto covered. I got my homeowner's covered, but it's, you know, I go to the rental counter at the airport, I have to buy insurance, because I'm not sure. And I really don't want to put my family at risk and that happens all over the place. You know, is is my is my computer, you know, all of these people who are now working from home, is my computer equipment covered? Partially, you know, and they're all there. It's, it's, that's one of the things where the incumbents, I think struggle as well is that the their products themselves don't go take you over the finish line. They're fuzzy gray areas all over the place where they don't provide full coverage. And it's really not fair to the consumer, because they're just at a complete disadvantage, right. They don't read the policies, they have to rely on agents, and there's nothing wrong with that, you know, but if the agents don't understand either, and I think the bulk of them are also in a gray area. What are what are we to do? Right, you know, and so I think there's a definitive need for companies like Surround to come in and kind of make make the fuzzy area less fuzzy. Did I described that correctly?

Yeah, I like that. It's make the fuzzy area less fuzzy. And then it's also like, de Fuzz for people who just don't fit the traditional insurance No, generally right like because for those folks it's even patchier like yes. There are gaps that are critical and crucial for people who fit that more slightly more traditional molds but my goodness, if you don't fit the way we've defined auto and the way we've defined property you're out of luck, okay.

So Surround get started. And so let's let's walk through low rewind the tape and kind of walk through, you're starting to think of like, Okay, this is who we are, right. Now we have to build something, do something. What do you build? What do you do? What do you How are you? How are you guys processing through because I want to give a everybody have flavor of, there's a lot of Venn diagrams, that you're kind of throwing on this, this isn't about picking the first thing that's fuzzy, or the first thing that has is warm to your heart, you're also going to be, you know, either raising money or having stakeholders who are going to expect that you're going to deliver something to them. So part of that Venn diagram you have to throw over is, you know, we want something where there's some relevancy, you know, a TAM, and addressable market, that's a good enough size that makes it worthwhile for us to kind of kick this off.

Walk me through how you and j are thinking through this?

Kate T
Yes, absolutely. So everybody says that going from zero to one in terms of, you know, selling your first whatever is the hardest part. And I actually think that's true. But I actually think going from like zero to point one is also kind of the hardest part, because you're sitting there with a blank sheet of paper, and you're like, well, shoot, we have this fancy PowerPoint now what right? And so there were, there were a few things. So we're managing general agency, just for people who might not be familiar. And so that means in terms of structure, we needed a few things we needed funding, which you mentioned, we needed systems, and we need systems that basically work like a carriers, right, like we have a policy administration system like a carrier would. So it's a fairly complex set of systems.

Nick
Let me just stop just for for the audience sake, just and I'll let you carry forward. So MGA managing general agency, there are different terms for it. But you're essentially, combining several units, you're responsible for finding the business, you're responsible for underwriting the business, and or some combination of you're responsible for the claims element. If for all intents and purposes, you are a carrier, you're just not a carrier. You're just You're acting like a carrier, you have a relationship with a carrier. They're they're trusting you with some element of a combination of those things.

Kate T
Exactly. It's a capital light way to set up where you transfer the actual insurance risk, but in many ways you function like a carrier. That's absolutely right. Yeah,

Nick
you need the systems, you need to know how the whole thing works like a hub and spoke model.

Kate T
yeah. Oh, yeah. Yep, absolutely. I mean, the only piece that would be different between this and building, the carrier would be the licensing for a carrier, as opposed to a license as an agency. And then the amount of capital you need, you need a vast amount of capital to start a carrier. And then there's the question of whether it actually makes sense as an investment in terms. So yeah, so. So we've got, we need systems, we need investment. And we need paper. So since we're not a carrier, we need somebody else's license to borrow basically, an issuing carrier and reinsurance behind that there are a few ways to structure that that's how we structured it. So you know, you got that. And then you've got the whole piece, which is like any startup is you get to spend time with customers and build the products they actually want. On top of all this infrastructure. Right now,

Nick
there's so much going on, you're building, you're essentially building an insurance company, right? And then you have to build the product too like, every almost every piece of it, you're, you're literally starting from scratch.

Kate T
Exactly. And it's kind of weird, because it both has to work as a system, right? Like a startup has to like the decisions you make about what you're actually selling to consumers do drive some pieces of how you're going to set up the underlying system. But you also have this like insurance piece that you have to do regardless of whether you're selling drone insurance or Non-owned auto or, you know, massive, some kind of

Nick
flood insurance!

Kate T
Yeah, for example, there's people working on flood insurance I've heard. Exactly. So So what did we do? So we raised some money. You know, it turned out that our sweet spot was really with insurance people, right, like many of the venture capitalists are sort of like you need to be direct to consumer like Lemonade. You know, the direct to consumer thing is the bandwagon that a lot of people fell on, obviously, Lemonade had a, you know, a financially, very successful IPO and all of that. But trying to push a new insurance product through the direct to consumer channel, when the cost of customer acquisition makes absolutely no sense to begin with, let alone for a product that you didn't have to teach people about. Just didn't make any sense. So we also had a distribution piece that we had to add all of that to all of this, right. We are distributing through independent agents and we're really excited about that. But that's not something that like any straight up venture capitalist who doesn't know insurance wants to...

Nick
Yeah, exactly. times I heard that like, Oh, this is there's too many pigs at the trough.

Kate T
Like so. One thing I do remember reading some time back is if you disintermediate a channel, you still have to pay the costs of what people were doing right now kind of like independence agents are $350 billion channel of property and casualty insurance, the United States and their shares held roughly steady over the last few years, right. And many of them, the larger ones, in particular, are incredibly digitally sophisticated. And we pay a flat commission rather than an uncertain cost of customer acquisition. And they have this burning need, right, which is they used to have this intergenerational handover where you know, their clients, children would age off the family auto insurance policy, and then they would buy their next vehicle, you know, they buy their first vehicle, and they come into the agent's office, right, well, that purchase is gone, the burning platform is gone. They don't want to compete with Geico, and Progressive, you know, 10 years later when like, Jr, finally buys a car, right? So we're like a starter pack plugging that need that they have, right, so like, it just kind of works that way. But it meant that for investment, we were much better off with people who knew insurance, our earliest investors were like retired C level executives from big insurance companies. Now we have some Insurtech funds on board and some very sophisticated sort of insurance type investors. So that was the investment piece. Not easy, right? Like raising money, like people talk about how easy it is. I think that's true. If you're like already in Silicon Valley on your fifth startup, you know, other than that,

Nick
yeah, that's the only way like, I actually was talking to someone and we were talking about, they were potentially there's conversations of being acquired, and then they're getting conflicting information, do we get acquired? And I said, you know, you're young person, that exit looks really good. You know, if you get a successful exit, yeah, you can now use it, you can swing again. Right? Like, that's extremely powerful. So I'm, I'm with you, like, my, my experience raising money was that it was extremely time consuming, it was difficult to focus on the actual building of the business, because we were spending so much time trying to raise capital. So those that do raise it easily, I think that they fall under that category.

Kate T
Yeah, you know, yeah, almost entirely from what I what I can see, right, which is also why we have so many tech people who are coming into insurance, and they've got a very particular view of the world in their problems that are accessible to them that are different from the problems that are accessible to insurance people, right. So there's that. So that's the investment piece, then the longest pole in the tent is actually reinsurance and fronting, like, I know, people, like from outside the industry, like, What are you talking about? First of all, are you talking about do those words mean anything? Right? But then second of all, like, How can that be? It's just a contract, right? Like, yeah, but it's a reinsurance treaty and a fronting agreement with massive multibillion dollar carriers and first, you have to convince one or more that you're worth taking a risk on when actually would might be more profitable for them to go try to like get another piece of some large insurers, you know, book, right.

Nick
And it's just, it's the same level of work right as raising, raising your capital. So and So, in that part is not one process like you, you you ended up settling on, you know, you or you end up, you end up settling on one or a handful of reinsurers one or a handful of fronting companies. But that is the the same level of effort as if you were raising capital, like you're almost having the exact same conversation, except they're going deeper into this product that you haven't built yet.

Kate T
Last summer, we were negotiating with the reinsurer that we ended up going with with a very large, highly, highly rated European reinsurance that we think the world of, but I ran the gauntlet, they would laugh at this too. I ran the gauntlet last summer where there was like their product, their product development team, their underwriters and their actuaries. And we actually have three products in our launch product. It's a non owned auto or renters and a miscellaneous professional liability for a side gig like three minutes to quote super quick and easy. But it meant that there were like three teams at the reinsurer. Yeah, so get fascinated back and forth between personal lines and commercial and it's basically me these days doing a lot of fundraising, I was doing a lot of the the reinsurance and the fronting, and you have

Nick
no choice, you have no choice but but to do it that way. Because it is it's not prudent, right? For you to decide, like, you're gonna get a lot of advice, like you got to Kate, you got to focus on one thing, right? But the thing is, like, that is so long into the sales cycle, so time consuming, to get to that, that if that fails, you're dead. You can't get that. So you have to start like okay, well, how about three products? How about multiple reinsurers that we have to talk to? Because if one backs out, then we're dead. You know, we went through the exact same thing. And so it's, it's actually I think it's easier to raise capital than to you can do it in little chunks at least. This part is so complex and you have to have yours. There. The layers that you just described. Not only did you have to talk to multiple reinsurers, but you had to go through various teams to discuss different products, and how you're going to structure those. So it was a conversation, it was a, it's a Russian doll,

Kate T
it is, and then you're trying to do something that's a little bit different. And you know, the secret sauce in what we built is that we can swap in and out tiny bits of insurance that fit through the regulatory and the reinsurance and the back end just fine. But you, we basically pull them together in a beautiful digital front end. And we have the ability to do that in our platform with many kinds of insurance, not just the launch ones, right? But you're doing this and so you're because it's new, you're also talking to actuaries where you're like, well, so there really is no loss data that's available in this and we have no last history. But you know, I've got these examples of competitors who are kind of quoting some piece of this sort of the same, but not really. So here's like 10 spreadsheets, that explains right at I mean, we, you know, we picked a market that is a market that is underserved, and therefore not competitive in the way that like, you know, owned auto is right, which is like the most competitive insurance market. So, so there's some room to experiment and try to get it right you don't need, you actually don't need super sophisticated rating, when there's nobody else going after a market, right. So you can collect the data and then fix your pricing. And then you've got something super sophisticated. But those are just they're way more complex conversations than they would be if you're at a carrier where you were like, Here's 10 years of our personal auto data, let's argue whether the trend is like, you know, a 1% increase in in losses or a 2% increase, right, like you're really creating it from scratch. So, you know, without a lot of support, so that, yeah, that reinsurance and French thing piece, like we ended up with partners that we are so excited to work with, like, it's kind of unbelievable that they're working with us, right for us, we're so grateful and excited to work with them, they have the capacity on both sides to sort of support us for a long, long time to come, right. These are, these are going to be long standing relationships. But Gosh, getting there so hard, like the funnel is broad. The timeframes are very, very long. It's a very complex process. That's actually the long pole in the tent. And then the third part was sort of the actual product itself in the systems. That was a lot of interviews with customers, with agents with the parents of young consumers because they paid the bills for a pretty significant portion of young adults. And then you're sort of like just building rinsing and repeating. And I have to admit, that part was really fun and exciting. Next, as a product manager, I've been used to dealing with very old systems, sometimes like cobalt, still under the hood. And so in this case, you know, we've got like a policy administration system that's all in the cloud, and it's low, close low code, and we can configure it for any kind of insurance, not just like, it's like one auto ecosystem or whatever. We've got our own platform on top of that, and everything's in AWS. And it's just like such a luxury, like you're so free of some of the constraints that that you just can't avoid dealing with. We're on the carrier side.

Nick
Yeah. And so what's interesting is for like the tech folks that are listening that come into the space, you can't, you can't bring in like a real strict adherence to like agile development or, you know, the Lean Startup minimum viable product doesn't exist, you can't do it. Like you're the minimum viable product is an exquisite piece of work. Like, if you if you can't get the paper, you can't issue a policy. You can't get the reinsurer, you can't get the paper, right. If you

Kate T
can't get enough money to build enough out that the reinsurer believes that you actually can do the work, then you can't do any of it. And if you don't know what statutory reporting is, you haven't done enough research.

Nick
On my side, we talk about that all the time. And, and I would say that, like, I think like a lot of our relationship going forward, we're going to be talking about that the minimum viable product like agile development in insurance, because I think that's what, to me, when I see what Surround is doing. It's like, that's what excites me the most is your ability to potentially roll up or spin something up, probably faster than like what anyone else is going to be able to do. So new, but new product, new markets, right. And the way you're thinking about it is really clever. I think. And I think that's what excites me the most because I I have full I've full respect for like the way you and Jay sort of thought about like your initial products. But I'm thinking more of an abstract thing like yes, I think I think what's this product that's Surround has brought to the table is this potential solution to the MVP, like how can we get how can we get a product to market faster than what others do and others are have tried to attempt this. I've seen how they've done it. And I'm hats off like because even we've tried to do that in this way. But Surround has been one of the first and listen in the comment section you can yell at me all you want. Maybe there are others. I'm not exposed to all of them. But this is the one that I've seen. I sort of laser beam on is just like, you guys have connected a lot of the dots here, which makes it very exciting.

Kate T
Yeah, so I'm gonna go like really big narrate, like we talked about this particular underserved market. But that's not really what we're building. That's the first thing we're building. Yeah, we actually built is a platform that lets us create personalized insurance subscriptions for the hundred million people in the US who buy more insurance than is legally legally mandated, right? Because what we built is this ability to like create some on our own, you know, MGA platform, we can also take in products that our partners have built and redistribute them and wrap them all into the same bundle. And no insurer cares. And I mean, no, no customer cares that you've taken like 17 different bits and pieces and put them together right now, so long as they're the right pieces. Like they don't care at all that that's also why fundamentally the approach of like, Oh, I'm gonna write one insurance policy for all the exposures in somebody's life, like, it's just a waste of time, typically comes from non insurance people who think that's the solution. It's not right. You can you can fight the regulatory regime all you want, but like, why bother when you can actually work within it and make all of this work? Right. So yeah, like, you know, we're we're thinking we're already thinking ahead, like, what our products four and five, because I don't know if this combination of three products is the right start? We believe it is the research supports it, but who knows, right? It might be that pet is the right for thing, it could be the light disability product, like a catastrophic disability, which never has never been sold on its own before. Because it's so inexpensive. It doesn't actually make sense. Yeah. 30. But Gosh, what a great product, right? Like, if you're totally catastrophicly disabled at the age of 30. Like, gosh, you'd love that coverage.

Nick
I don't I don't think people like if it even insurance professionals, I don't think they have grasped, like how important that is. So I'll give an example from my side. 90% of property owners in the US have no flood coverage, commercial and residential. 90%. Right. And, and so the mission that we have, and the mission that like I've, I've kind of that we've talked to investors and gotten our reinsurers to buy into, is that our goal, our immediate goal, our near term goal, because we're already selling flood, but it's not adequate enough. Like there is no product for that 90%,

everyone we talked to will say, Oh, well, you know, they can go to the government product, or they can there's private writers it's like, but these are low to very low risk people, they will never buy it because the minimums are too high. So the overhead the overhead to run, this is too burdensome. To create a product, our goal is to create $100 product. Like we have to we have to drive towards that. And it takes a while Kate, but when it when it finally when someone finally connects the dots, they're like, whoa, whoa, that means you would be able to sell to the whole 90%. Exactly, yes. Like they don't have they don't have a product. Right? And like your your customer base and this hundred million, like I don't think people have connected the dots. Everyone's just like, well, there's auto insurance. And there's no, no you don't understand. They don't literally have products that will solve their problem no one has addressed them.

Kate T
And then when you say like, you probably have heard the same thing like oh, well, they don't buy flood insurance. So they won't you're like, well, when you're selling them a product that has a you know, minimum premium of $525 or something like Well, I'm not gonna buy it if I were, you know, living where I live. Now, I'm not in the floodplain. But I just finished my continuing education for my producer license for flood. I remember, I don't remember the numbers, you would know. But an enormous percentage of flood damage does occur in areas that are not floodplains, right? It's average, it's not a lot of damage per person. But man, if that's your house, it's like catastrophic, right? A lot of people would pay $100 a year to not worry about that, right? That would be a small chunk on top of my homeowners insurance, you know, 500, not

Nick
everybody in the goal is not to get the the goal, the immediate goal is not to get to get the 90%. To buy. The goal is to get the number from 10% to 20, to 30, to 40. And then to revolutionary, revolutionize the product that they currently have to just say, Well, you can't buy this product without flood. That's the goal. Then we got 100%. Now everybody has it. Because the START/STOP element of you know why, you know, the question, why it well, why haven't carriers done this? Why would they? They're not going to add flood to their product, because they don't want to jeopardize what they currently have, it's what you said, it's easier for them to invest in lowering the loss ratio on the book they currently have than to try to build something new, so they won't do it.

Kate T
And it may even be the right thing for them to do at least in the short term. I don't know. Right? We got to see what how how that all plays out over time. But certainly they have a difficult decision to make that startups don't right. And the other thing is to like I hate that like well, what if nobody will buy it? Well, yeah, obviously if you're building something Nobody's gonna buy you have a problem, right? You do a lot of research on that. But also as a startup, if you guys got 2% of those, like 90% of people who don't buy fled to buy your product, you can be massively, massively successful because it's a massive, massive market. Right.

Nick
And so, so I, if we can spend a few times so then I don't want to take you past the time allotted. Yeah. That gave you because your background is product development? product? Yeah. Product Management and product development in insurance? Yeah. Which has been, when I think of product development insurance I, in my mind, I've always been thinking of like, Wow, what a boring job, right? Because it's like, you're gonna make another homeowners product, like, you know, what, what kind of Bell and whistle can you add to that? But yeah, I think we're simpatico and we're a little bit different in how we think of product design. There's, again, there's a lot of Venn diagrams that you're kind of throwing off. And you you your whole, what you just said, of there, what if nobody buys it? Right? Yeah, like that puts that puts a lot of strain on you. Right, there's a lot of pressure on you to design something that they're going to buy. And I always feel like, well, I'm up for the challenge of doing that. But we need to, we need to kind of get that started. So can you maybe talk a little bit about designing a product that doesn't exist? So there is there is no, there is no distribution for it? Because nobody is selling it? You don't know if you think someone would buy it. But you don't know if somebody? Would he talk a little bit about that. Because to me, if that's the nut that we have to crack, we can't if we can't find new premium, then it's I'm creating a product where I'm going to steal some of your business and then three years, you're going to steal some of mine. And we just kind of swap back and forth. And who wants

Kate T
to do that actually is Yeah, exactly.

Nick
So the home the homeowners market today is, you know, a new company comes in, they create something new, they get a buzz, they might they might buy some business by charging cheaper, they get a portfolio and then someone else says, Well, I want a piece of that. So then then it's a race to the bottom, and they're just swapping business back and forth. You created something new. How you talk about talk about how you did that?

Kate T
Yep. Okay, I'm going to give you two answers the first time to talk about customers. And in second, don't let me forget to talk about regulations, okay, because that's the part that I think people over people with a traditional product management background outside of insurance overlook. Um, so customers, so we talked to customers, and you can't ask them, like, what insurance doesn't exist that you want to buy.

Nick
Like every arrow, I don't want to buy any of it.

Kate T
Right. But if you go to a bunch of your target customers, and you ask them questions, like, what are you worried about? You know, like, when or like, you know, and then they give you some stuff or you say, so, do you have student loans? Like, do you worry about those? How did those influence your life? Do you ride a bike in the city? What do you worry about? Would you do anything different in a perfect world where you could create like a biking city of your dreams?

Nick
was any of your questioning in your your marketing effort there your marketing research? Was there any leading the witness? Did you? Did you have a maybe perhaps an inkling of a goal that you were you were thinking of getting? Okay, good. Go ahead. That sorry.

Kate T
Yeah, we had a we had some hypotheses from just like talking to people in our lives and what they were okay. Like, we had talked to some people early on, who are like, oh, gosh, when I rent a car, I always buy all the insurance because I have no idea what's covered, right. And we also talked to some people who had like, kind of, to me strange stories, like, you know, these massive private student loans, they're absolutely crushing. And my biggest worry, because they're private loans, and my parents cosign them is that I die in a car accident, my parents get stuck with my loans. And so I have term life insurance to cover my student loans, which like what, in some ways how incredibly resourceful and responsible right and yeah, but

Nick
how much range as a use case? Yeah,

Kate T
right. Like the strangest use case? Yeah, sure. Ever. Like, why doesn't that product exist, right? And then similarly, around the driving like, we were hearing a lot of people who were like, Oh, I try to avoid driving. Oh, I wait until my friend goes to IKEA. So I can like share a ride. Oh, I think Zipcar includes plenty of insurance, don't they? They must have to write stuff like that. That was just like a little, you know, so we had some hypotheses, we did some sort of like straight up ethnographic, like, tell us about what you worry about. Tell us about risk. Tell us about how you, you sort of protect yourself when you're out and about in the world. And then we had some hypotheses that like, people worry about driving people worried about getting dirt on a bike, people worried about their parents having to pay something off for them, that sort of thing. And then notice Notice how the pressure points really affected their lives? Like how much they rearranged things to, to kind of dance around risk. Yes, yes. It's like in the insurance space, we have this this really not very respectful opinion of younger people, which is that, oh, they don't manage risk, they think they're gonna live forever. And that's kind of true, but it's really kind of not right. Like, what we actually found was that they had very sophisticated strategies for risk management in their lives, right, like we wouldn't expect, you know, we give large commercial customers the benefit of the doubt, oh, well, they are mitigating some risks and transferring others to insurers, right. And, you know, the whole list is

Nick
now you, you found young young people are too, young people are too

Kate T
different, right? They don't have the insurance to buy, it literally doesn't exist for a lot of the things they're doing. And so they bike on these long routes around how do you know what the most effective way to go would be? Because the streets are less busy, and the wait for somebody else to drive a car, and they bought all of the insurance or they assume the insurance is included? Or they just worry, right? Like, these are actually sophisticated behaviors? We can't write this off disrespectfully, right. So it was listening to that, like, nobody's gonna be like, what I really want is a miscellaneous professional liability product at $100,000 of liability. Like, that's like not a thing, right. But when you listen for the needs, you can build to them. So that's, that's how we did that. I want to flip to the other side, though, because like the customer research, is what everybody talks about when you when you go to build a product. And I mean, it's like a critical piece of the product management discipline, obviously, right, from from ethnographic research all the way through, like wireframes, to high fidelity, you know, systems and whatever else all that is great. There are lots of books on that. Here's the piece of insurance that my entire career has been like a source of making changes, that made a difference for me. And it is to actually understand the environment you're playing in, right? So read the regulations, all of them, read the statutes, the laws, that's not actually the same as the regulations, right? Read some of the court cases, read the actual policy documents that you know, ISO and some of these other bodies put out as well as as well as your actual customers. And then, with all of that knowledge and information, ask yourself, are things being done a certain way in the industry? Because they need to be done that way? Or are they being done that way, because a vendor built a system in 1960, that all these carriers used. And so therefore, everybody learned how to be a certain way. And now everybody believes it's a certain way, it is amazing how frequently the ladder is actually the case all the time, all the time, all the time, much more freedom to do things then like the regulate, I don't have like a pro versus con for regulation. I mean, regulations are they do protect the consumer, sometimes they can they can restrain trade to to great extent, it depends on how they're applied. And whatever else. What they do allow is the little guys like us to get in to a market that could well be winner take all, you know, a good for the monopolies if they didn't exist, right. So you might as well read them and use them to your advantage. They're not a disadvantage, they're an advantage, right? So like really knowing that space, and then mixing that with the customer need was really the right way to go.

Nick
Yeah, I interviewed Lisa Miller, who's a former regulator in the state of Florida. And I think I termed it like, a cup of coffee with the regulator or something. And that was her thing. She's just like, Oh, no, it was regulators or people to write because she was like, because in the conversation, we were talking about how can insurance professionals interact with regulators to have more effective outcomes? And she's, like, take a regulator out for coffee.

Kate T
Seriously, it's

Nick
like, it's not that hard. Right. And, and, until I had started this, my experience with regulators always dealt with, you know, whatever legacy company I was working with saying, don't give them anything more than they asked for. Right. And it was like, Oh, my God, like this, you know, we can't Yeah, we can't get this through because of the regulators. And I have I'm nearly 100% 184 80 degrees on the other side, where it's just like, I've now seen use case after use case where someone that didn't have that bias with the regulator was able to say, okay, Mister missus, regulator, what, what do you need for me to satisfy? Okay, I'll go get Right.

Kate T
Right. And then I think we're just like, here's what I'm trying to do. I'm trying to serve an underserved market, can you? I can read your objections, you know, and I'm happy to respond to them within the filing, but like, Can you help me understand if there's a different way that is compliant with regulations that I could do this? And it's amazing how frequently they answer that they'll just tell you, right? Because Because to them think about the other side. They like don't get the information they need. They've got people like calling them up like have you liked it. Filing, if you looked at my filing, and they get these rigid things from the companies that are like we intend to do this, right, and it doesn't need to be that way, I'm not saying that it's always easy to work with the regulators. And not every department of insurances is as helpful as others, but many of them are actually just totally human trying to do the right thing. Nobody becomes a regulator, because they're not trying to do the right thing for the customers in the state. Right. And hopefully, it's like an ethical business person, you're trying to do the same thing, right? So yeah, do it together.

Nick
And in some ways, it's similar to how you would have a business relationship with any other stakeholder. It's like, what can I do to make your life easier? Exactly, exactly. And

Kate T
what can I do? There's like a piece of it, it's like, what can I do to show that I'm a human too, and that this matters to me a lot. And then I'm doing it for really good reasons. And how can we build a little bit of a relationship around that? Because I understand you literally come to work to serve the public good, right? Yeah, it's your job. Yeah. How can we do this together? Right. So yeah,

Nick
I want to I want to end with potential branding issues, right? So surround is going to come out, right, and you're going to have your first three products. I have found this in my personal experience, where all of a sudden, it's like, oh, next company, they do flood, it's like, Yes, that was the first product. And we strategically came out with that for a reason. We don't see ourselves as that we're a tech company, where, you know, we use technology to deliver complex capacity down to the masses, that's it, make it as economical as possible. Close that protection gap. That's our job. How what in you said that, you know, we had that in the middle part of our conversation, where I think I think I kind of nailed what your business model is, right? Like, you see, you have this audience, and your job is to spin up the appropriate risk transfer solutions for them. And you've built a technological backbone that will enable you to kind of take that two years and kind of shrink it down to something much more manageable. So you've just started. So I know you don't necessarily have an answer, but how do you avoid the trap of being branded into? Oh, that's the surround. That's the company that does hired and non owned for teenagers. Right.

Kate T
Right. And suddenly your your non standard with the best of them? Right? Yes. Which again, we shouldn't be using the word non standard for people. But yeah, whatever. All of us are non standard. Right.

Nick
Devin, if you haven't seen me, Dr. I'm very non standard.

Kate T
Well, I'll just do it. Yeah, no, that's that's a good question. So it's interesting, because the people that we are positioning to first are the independent agents we're working with, right? We got something like 40, or 50 storefronts in Massachusetts, these are larger independent agencies, very preferred shops, and what they needed from us as we got closer to market, and they were really ready to dig in. And we had some that helped us develop the product itself. But like, really dig into the infrastructure of how we connect to the agents. What became clear was what they wanted was support with digital tools, generally speaking, so our positioning Actually, yes, you nailed it with all the product stuff. But the way we're talking to people is that we provide the digital tools that independent agencies need to reach modern consumers, right. So we've got like a whole bunch of different like UI front end ways you can connect from your social media, from your website from ours, you know, a more traditional quote, process, all of those, they're all slick and easy to use, and beautiful, only catch all the, you know, the analytics on the back end and stuff. So that's our first positioning. You know, obviously, we're really new, we're hoping not to get locked too tightly into a product piece, because pretty quickly, we're going to roll out some additional, like products into that bundle that are that you can then kind of customize a little bit without making it too confusing. But sort of, we'll see like, you're right, it's it's, but that that means

Nick
I think it follows that even though you have a lot of stakeholders, essentially the agent broker channel, they are your customer, they observe you they are the first customer. Yes, there are customers behind them. But that's the one just like on my side, I view. Even we sell to, too, we sell through the agent broker system as well. But I kind of view I lean towards my reinsurers or my customers, like my job is to deliver the capacity down. Yours. Yours is the other way. Otherwise, it's still but it's still that's the forward facing the first one. Like if we if we don't get them on our side, this isn't going to work.

Kate T
It is not going to work at all right. So what do they need? And how can we serve them? Yeah, that's I mean, that's what it's about. Yeah, it is. What I keep coming back to is that this is it just is a very complex landscape, right? Like the the startup world generally can be complex, but when you add in the insurance piece of it, there's just a lot of complexity to manage to manage, right?

Nick
Yeah, and so, um, I want to end with one more question that I've been asking my guests lately. But but this is what it boils down to it to me is I think there's, I hope what everyone takes away from this is the way you've in your special way, the way you've created like agile development in a particular channel and a particular product. That's the most exciting thing. Like for the long term sanity of society use, it became clear, as you were talking about teenagers who were kind of stepping out of the way of risk like, yeah, in a funk a society becomes more resilient when there's a functional and a robust insurance system. And it has to evolve like that, that pride that you had at the beginning, that kind of, I was losing my pride. Right, and I'm getting it back because of people like you. So

Kate T
what you're doing right, like, you know, taking care of people who don't have the tools to take care of them right now. Right, like, that's the honorable thing to do.

Nick
Absolutely. So, one final question. I know, we're short on time, is books. I've been asking people about books lately. Any books that you have found to be particularly influential, and it could be personal life, or business life? And it could be more than one book?

Kate T
Yeah. Yeah. That is a really good question. I just finished a book that I believe the title is, is it's luck and skill, skill and luck by professor at Cornell, whose name is escaping me right now. I'm gonna have to tell you, but it was basically about the contribution to your success that luck makes, like almost everybody who's successful is, is also hard working. There

Nick
are lots of problems that Michael mobis Mobizen No, no,

Kate T
no. Oh, man, I'm of no help. Right now. I'm gonna email you this afterwards. Um, but it was just a fantastic book. Because to me, it's sort of exactly what

Nick
you say the name was, um, I

Kate T
think it was risk and luck, risk and chance. I'm gonna have to find it for you. Okay, that's you're just retired from Cornell. But it to me it was like the encapsulation of kind of, like insurance, right? Like, you, you kind of set it but like the system has to work. Because if we live in a society where people get punished for think punished, severely and way out of proportion for things that are either not at all their fault, or maybe are their fault, but you know, not not not done truly negligently or with bad intent, you have a system in which people don't take the risks that we need to take to grow as a culture. Exactly.

Nick
Yeah. Which, which means there's a lot of responsibility on people like you and me, and those that are listening. We can't just, we can't just take our legacy thoughts, our legacy biases, and kind of transport them into the future homeowners has to change auto has to change. And in the right spot to be in is to be flat, to be flexible to be quick on your toes. Yeah,

Kate T
we write better and we can be better. And that's what we do. So Kay, Terry, thank

Nick
you so much. Because surround insurance is one of those companies that's going to make insurance nimble, we're going to be on our toes and being able to respond quickly as we evolve as a as a culture and society. And as a risk evolves as well, and how we interact with that. So, Kate, you're one of the good ones.

Kate T
Sorry.

Nick
Best of luck as you as you roll out. Thank you so much. For Kate, my name is Nick Lamparelli. Be safe out there, wear your mask, and just be good to one another. And so until next time, Kate, thank you. Thank you

Transcribed by https://otter.ai