EP18 – Jeff Kleid of Elite Risk on Creating and Marketing a Pandemic Specific Insurance Program

In this bonus episode of The Coverager Podcast, Nick spoke with Jeff Kleid of Elite Risk on how they were able to get a pandemic specific insurance product to market in this environment.

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Transcript

Nick
We're live The Coverager Podcast we're gonna be talking pandemic. today. I have my good friend Jeff Kleid from SoCal who got all spiffied up and he's got his pandemic helmet hair on just like I do

Jeff K
Like that?!

Nick
Yes. Same. Same How you doing, Jeff?

Jeff K
How we roll....I'm doing great.

Nick
Good. Good to hear. You went you and I had a quick conversation a week...2 weeks ago and you dropped the bomb in the room when you said, I have a pandemic policy I just created and we're going live with and I was just like, what? what? whoa..., how's that even possible? No, that does that can't possibly be in this day and age. So I purposely decided not to interview you ahead of time and like get all the particular So I'm, learning with the rest of the audience in terms of the particulars, but spill the beans, what is this product?

Jeff K
Well, so I mean, I mean, the simple math of it is, is it's you know, it's a buyback, which now it's an exclude right now pandemic coverage is excluded, it's been excluded, but at the same time, even in certain directions, it wasn't always excluded. And in fact, I mean, I think we're gonna see a lot of stuff going across the board, you know, litigations already happening but you know, in certain what people don't realize since you know, in specialty insurance, there's always like, somebody always has sushi under the counter, right? Somebody always has something that might be a sushi. Yeah, like sushi under the counter, like when you go into a sushi place, like everyone gets the normal stuff, but then if you get to know the guy at the front, like, Hey, give me the good stuff, right. So, in insurance and specialty insurance, it's the same thing. So you know, we do we have we launched about two weeks ago, I would call it I would call it a hybrid. I would say it's a a parametric indemnity. insurance for business interruption/extra expense could be supply chain disruption. Interestingly enough, we've we've found a kind of a space within the film and TV industry because of my background. There's a few coverages specific in their cast coverage, civil authority, which is regulatory authority, right? And civil authority and then imminent peril, which is where you end up having to do things to fix the problem that might be bigger, but you cause another problem in the process. Yeah. So you know, if you're familiar with that term, but, you know, they're already they had the coverage, for example, but now they're excluding it as they're coming back to work to film so it's interesting like that industry was already covering pandemic for film shoots and things like that for viruses and things like that. Um, at the same time, you know, that I I've been working closely for a couple of years because of my hemp and cannabis space and with captives for, you know, for a good couple of years trying to figure out how to use them as traditional insurance for coverages that wouldn't exist normally. Right? So it just so happens that one of the captive managers I've been working with for, you know, going on two years now, we just were having a talk, you know, this is probably, probably eight weeks ago now. And we were and we were talking about, you know, business interruption, we were talking about all the all the stuff and I was, you know, eight weeks ago, I was telling all my, all my clients and friends, I'm like, Look, I'm not going to tell you not to file the claim. Most likely, it's excluded because it says it's excluded. But last thing I would want to do as an agent is tell, you know, don't move forward to the next step. Because I don't know what's going on. I mean, I said, and and sure enough, the minute I started saying that you start seeing the news, you know, states are getting upset, everyone's get upset. Anyway. I personally think that How do you not? How do you not create at least a solution that can help start to get to the next level so that the industry wants to feel comfortable of getting back. The difference is though, you know, we're a business interruption and extra expense was just like this throw in that was, hey, by the way, you have this and really didn't have any defined terms. That's where, you know, using a parametric thought process, you know, it's a fixed moment in time. It doesn't have to be a direct, you know, exposure. It has all these things. So if you use some of those markings, we decided that we would do it and so one of the things that my captive partner was doing already was he's already been covering supply chain disruption, business interruption, all these

Nick
for other perils?

Jeff K
for for other for other for accounts, he already has, yes, like, like he's already been paying it for this pandemic, no! for this pandemic! But so, like, I'll give you an example. Um, you know, take You know, most people, not most people, I mean, a lot of us did a lot of us didn't, some of us didn't. But the, you know, the, the PPP and the, you know, the SBA loan and all that other stuff, if you think about it, if you have pandemic coverage, or if you already had it in place, that's going to be a way to take away and knock down that claim. Right? So if someone Someone got PPP coverage, they're gonna end up, you know, let's say they, you know, let's say it's a medical officer lawyer offer multiple offers, and they got, you know, let's say they, you know, unless use a medical office, like not, not with what's going on, but like a normal surgical center, you know, someone has vanity work done, right. Let's say the surgical Center has multiple locations, and they, you know, already had this pandemic coverage in place. Well, you're going to look at, okay, how many clients did you lose? How many clients are going to reschedule? Right, because that's going to offset the amount of your loss for business interruption right? Do you have to keep paying your employees? No. So your extra expense is getting minimum, right? Minimized

Nick
But they should

Jeff K
Well, they should, but they're not going to and you and I are gonna lose that battle. So, you know, my, my people are also working. I've been trying, you know, because we stopped the service, even prospects that are trying to buy policies so we you know, we had to figure it out and I couldn't figure it out. I mean, I'm, I had to pivot, like along with everyone else. But at the same time, these are great. Like, we've created a band aid that we hope, if we do it, right, we have enough people insured to get the few things that they need. And we looked at it, you know, very uniquely, we looked at it and said, Okay. People are now in probably the best risk management risk mitigation space they've ever been, because they have to be right in order to open your doors. When you open back up. Here's the criteria for what you have to do. Right? Then if you're able to open back up Here's the criteria for how someone can come into your establishment. Right? That's another set of criteria. Now somebody says, Okay, we've got that down. But now, what happens if we get shut down? What is it really going to do? Is our reputation going to be penalized? Maybe because people aren't going to want to go shop there anymore, or people aren't gonna want to go eat there. So we threw in a, we created a throw in for reputation repair, as like a crisis response as an instant throw in, and you do it because yes, it's it's free money that you're paying, you know, for that part of the claim, but you're also hoping that it gets them back in business again. And we also then looked at, Okay, forget about what last June was, as it relates to this June when you reopen? Or August or July? What are your sales projected to be? And the good news is, is you can really figure out these things because people that are, you know, in every industry they're trying to figure out in general, right, so you'll have some good deadline, you won't have their specifics. But if you set parameters, so our coverage is range, the minimum coverage is 500,000 in coverage. So far, the maximum we're willing to go is about 3 million. We prefer multiple locations because it gives us a chance to both spread the risk and put a, you know, fixed number per location. Um, but at the same time, I think it has real legs. So that's where we're at.

Nick
So how does the parametric trigger work? What what actually what outside force actually causes it to kind of kick and start?

Jeff K
And so that's where it's funny because I again, I don't want to get, I don't want to get pigeonholed as a parametric play. I want to explain though so. So clearly, if they have another civil civil authority or regulatory authority shut down, once they're reopened and that business is able to be doing what they're doing based on the criteria they've met. That's a trigger a valid trigger. Now Where it differs from parametric and this is why I don't want to have a conversation idle ideology wise with a bunch of Insurtech people. At the same time. I don't want to have an ideology with a bunch of insurance brokers, because because the brokers will say, Well, how can you use a captive model? No, we can't do we're not gonna do that. That's, you know, we don't make enough commission we don't. I'm like, Look, you want to help the client? This is what you're going to do. And you want to focus on parametric No, we can't there's no true. You know, I've had people say to me, like a couple people say, well, there's not a book, you know, it. It's an indirect loss for parametric, it shouldn't be a trigger. Like there shouldn't be a real loss. It's just you know, if it damages because of this, then we get paid. I'm like, Well, we've been doing it for a couple years in the hemp space, where if you get hail and it's this big, we then tell you it was that big, so you should get this payout. But you still have to tell us, yes, we really have that loss. So it's a little different than a true parametric. You know, play Then take, you know now Take, for example for entertainment, take cast coverage. All right? Cast coverage is a direct loss because you lost somebody, but it's because someone else got sick. So it's because one of the key members of the cast get sick. So there is a direct loss. But indirectly This is why it's a parametric play the trigger is someone got sick and they can't come back. Because they can't come back. These guys have to shift but here's the other side of why it makes sense. Because that film company I mean, think about it this way. And this is this is the way I think it's gonna happen in every industry. Like I had a conversation in the event space yesterday because I think the same, you know, each industry is really looking at their stuff going, Yeah, this is what I need to do. But so for the film industry, just as an example, you've got, you know, you've got sag, you know, Screen Actors Guild, you've got AFTRA, you know, then you've got the extras you've got the you know, I'm sure you know You've got the state, or you've got the municipality, you've got the studio, you've got the country rights, you've got all those people putting criteria on these guys. So I've got to believe, and in a perfect world, I would never believe this before but, but in the film space, they've always been very intentional on how they're going to shoot each day. So I've got to believe, and I do believe this to be true, that they've figured out okay if this that mat, right? They're doing that because they've gone under the assumption that this coverage no longer exists. So now that they've gone under that assumption, now they decide, okay, we do want the coverage. Yes, it's expensive. It wasn't really a throwing like it used to be now it's an exclusion that we're buying back. But we still like to have it especially on the smaller stuff. And this is why it works for for that space. This is why I think it's going to work. For example, we have a couple of hotel chains that we've just presented quotes on And then there's small closely held hotel chains. One happens to have they happen to focus on they're like, I don't know how to explain it, but they're, you know, on the highways, the hotels on the highways, and they're there and they have big government contracts for people fixing the roads and stuff. Right. So clearly they lost a lot of business. If they still have their contracts in place, once that deploys, we'll have an accurate assessment as to what they'll have to lose if they have to get shut down again. Will we have a fixed understanding of what the extra expense would be to clean the hotel if there's COVID again, right if that if the relapse happens, at the same time, everybody has to manage their you know, expectations and you know this with your heart, hard place insurance background and what you guys do you know, with with your flood, like you have, you're basically giving them a fixed moment in time you're like, Okay, so we're going to give you $2 million in coverage to cover your 20 hotels were to give you 100,000 per location and you If you've got five locations that do better if you want to do, you know, 100 on 10 of them 50 on five of them and 200 on the other ones, we're customizing each policy. Okay. So it's a start. It's a start, though.

Nick
I mean, I mean, and that's, that's when I did a couple of episodes on captives. And I specifically talked about captives. In regard to pandemics. I saw this as a very unique opportunity, because, obviously, the demand is going to be there. Right, right. And so with that much demand, you can craft your capacity any way you want to manage the risk. That's the beat. That was the beauty of it. You don't have to specifically make it this all encompassing thing. As you as you decided, you, you know, you went the tack of it can keep our policy limit to a certain window. And even in the policy limit, we can have per risk limits, as well so we can you can do a lot too. Have to manage the risk and tally all that up to say, okay, we sold 100 policies, here's our overall aggregate exposure. And with to top it off, that's the cherry on the cake here. With all of that demand, you get your rate you can get, you can actually do the modeling and get the price that you think or more that that you want or need to actually make this successful.

Jeff K
Right and and the other side of that is what's unique about this for us is because I've been working with this captive manager for a couple years, we're actually offering it also as a as a first dollar insurance policy. So we have both we have both sides, the words we're using the captive to kind of build around it. But the unique beauty of of this captive system is first of all, it's based out of North Carolina. And so it's admit, you know, it's admitted it's just domiciled here in the states and it makes sense, but it's also pooling a bunch of reinsurers together and the way they're doing it is no one reinsurer is on the hook for more than a couple to 3%. So it allows us to take on these risks, but also, it allows somebody who's who's bigger and stronger that wants to go into the captive space. They don't have to put up their own capital, what they're doing is they're putting up capital and premium, but they're putting it up as if it's premium, because it's because it's a fixed amount, so they don't have to come up with more capital on the backside with the way we've set this up. Okay, so

Nick
since it's a capital structure, captive structure for those that want to participate in this, and they have good claims, because it's captive, are they now participating in the ownership of the captive?

Jeff K
They can. So there's two arms so so so absolutely, they can the problem. The problem for most people is, you know, our minimum, you know, our minimum starts at $50,000. Okay, um, and we're able to afford $50,000 and I shouldn't it starts at 50 bucks. You know, we could be talking about coverage between anywhere from, you know, 450 to 600 $700,000 for that 50 grand, right? But the reality is we want to, we know that people are gonna be more in the one to 2 million range, right? It's just, it's just how they're going to do it. But at the same time, they can either with those dollars that they put up, if they have multiple locations, it makes sense because they're putting up the premium. They're there. They're either forming a captive cell where they're participating, but they're not but but their participation is built into what we've done with our actuaries to figure out what the pricing is. So they, you know, the expense setup expense and all the other stuff is included is not outside of it. And then basically, they're just buying insurance. And it's been, you know, their, their portion is the first amount that goes in if there's a claim, but that portion is part of what they've already paid. So that so it's different than a traditional captive where you normally you put up you put up a deposit you then you know you Then go through the process you get you put up your premium, then you have a claim and then you're responsible for half of it, right? So it's usually reinsured in half and then you're responsible. Now it's different than that it's truly dollar one coverage. And it's truly based on that. And then we were also with all the quotes that we have out there right now that we think are going to close. And we've only been up and running for about 10 days. I mean, honestly, like we, it, it took us about, like we started talking about about eight weeks ago. I was and here's here's the funny part. I'm a blue state guy, the the person with the money is a red state guy. So we had we had a great chance to meet in the middle and actually figure out what's the best for underwriting rather than politics. Right? So it was a good, it's a really good fit for how how we're doing it. And we came up, we started coming up with all these criteria for when it was going to trigger like, how is it going to happen? And you know, like, for example, you know, we were originally thinking okay, when everything opens in in August or September it's going to be the relapse. Well now you know, everything's going to be up And running in 30 days. So there's the relapse. Right. So, so so we went through a whole bunch of stuff. And it's only been, you know, about 10 days ago that we finally fine tuned it with each, you know, because it's still custom, we fine tuned it with certain directions. So we feel good about the hotel direction, the retail when they reopened direction, and the film and entertainment direction, and I think we're going to get into some other I shouldn't we have other directions that I'm working with, but I don't want to say because they're from specific agents, right.

Nick
Um, that was gonna be like, my next question was, how do people get in? Is this going to be a DTC or you brought up agents is that the model that you're going after is expecting that agents and brokers would bring are going to bring you the business

Jeff K
so so we're you know, I'm you know, me I'm a hybrid right so I I've always been a retail guy, but I launched elite risk again a couple years ago after after my non compete was up with a on from the from the last person sold them as a, you know, as an intermediary as an mga that was, that was where we set ourselves. The problem is I want to get coverage to the end user client. Yeah. And a lot of cases without offending my fellow agents, their agencies are restrictive in letting them do things if they don't make enough commission, right. And so it really causes a struggle because there's not we can't build in a lot of commission for everybody, because if we do, the price is already starting high. Like we're just trying to get them sold. So that makes it tough. I do have a few select agents that understand the terms. they've embraced it. Um, and I and quite frankly, I could probably like, like, specific to the entertainment space is a perfect example. You know, this. I mean, that's my background. I know a lot of entertainment people. A lot of entertainment insurance agents worked for me over the years and they still like me. So I could go to them. The problem is, is the agencies they're with. They're not flexible, they're not bendy, they're not whatever, they'd rather sit and complain about what, you know, what's what, what isn't available, then give something and it's always been the case. That's why we were so successful when we built our my first agency into an entertainment agency. So yeah, I'm open to whoever whoever has a need for their client. We are we have limited capacity. I will tell you that right now. And we don't know. We don't know what that capacity number is. I do know that I have

Nick
basically saying first come first serve. Like

Jeff K
it's kind of like that.

Nick
The the the the barrel could run dry.

Jeff K
Yes. But here's the best part, I think, and here's here's where here's where we really benefit is my captive manager has a really unique structure that allows us to scale up in a unique way. And so you know, really, if there's anyone out there like if you know any if there's anyone out there that You know, is multiple reinsures like, here's what I see beyond Jeff. Okay, I'll tell you what I see for the fix for this industry. And it's and it's funny, I'm going to throw up Patrick Kellihan's name because Patrick saw one of my posts and you know, Patrick clearly So,

Nick
Insurance elephant.

Jeff K
Yeah, the insurance elephant. So, so he saw one of my posts, and he literally He's like, Jeff, here I am, like, you know, working like a madman on this white paper and doing all this stuff. And it looks like you did it. And so we started this great conversation and, and because of you I met him and because I you I met him in Hartford when I was there. But he was like, you know, we were talking about it and and, you know, he's looking at the macro scale, and I'm looking at the, you know, to sell in policies, boots on the ground doing what we need to do, but really, they're but they're the same logic where I where I see this playing so so here's how I see this playing out. And, and I don't want to get caught up in Insurtech or You know, sales guys or whatever but, but this is truly a blockchain parametric hybrid indemnity play that if there's enough either reinsurers or private equity that puts a certain amount of fixed funds into a pot of their choice, and then that pot has the and then they have the ability to say yes or no automatically to whether they want a certain risk based on certain criteria. And I'm talking about this in in real time, not necessarily like having to think about it right. There is truly a way to create a quasi IMLS play for this using blockchain and, you know, basically creating, you know, a digital ledger that that people can put in as much as they want, you know, and I always explain it to people this way, because I've talked about blockchain for a while, even though I'm not. I know, it's sexy, but it doesn't. It's not functional for most stuff in insurance. So let me just say that it's not functional for most things yet. But it does have to function for this. Because if you can visualize a Brazilian steakhouse when they cut the little meat, right, and they come and then they come back with another piece of little meat, and then they come with another piece of meat. If you think about it like that, if you created a component where even if if we created something to give someone who wants to take a little risk, let's say it's a million dollars, let's say it's just a million dollars, right? One reinsurer wants to take a million dollar risk, but have that million dollar risk, they want it to be spread out to 10, you know, 10 different risks. Okay, so they're like, okay, we agree to put $100,000 into this, right. And I know it sounds silly, but if you have 10 of those, and you now have $10 million, and each one of them is willing to put $100,000 to eat into any one of these COVID relapse policies, that client has a million dollars, and quite frankly, they you know, the the investors only taking 10% of the risk, right? It's a very simple model. As simple mechanics, simple dollar, and you can start working through Main Street USA that way, because we can get lower numbers, we can now, you know, through through my and that's why I say they can go and get a captive started. But we also have, I have the ability I've been given the ability to sell these directly, where it's just them paying premium and they don't have to get caught up in it. Because some of these guys, like, for example, on the entertainment side, they don't want captives, they just want to get insurance for that one three week shooting period, right? So they don't want to deal with Well, I'm not going to spend it next year, I'm not going to manage a captive, I don't want to pay captive fees, I just wanna pay my premium. So we have that ability. We've set that up for me to have that ability. But but I see this as a totally scalable thing. But I say that, but I also don't want to be the guy that spends the next three years talking about this scalable thing. So we're just selling insurance. Like that's what we're doing. But to make sense if you think about

Nick
it, yeah. So is it Where can Where should I direct people to for Elite Risk? I know. I will have connections to you in the show.

Jeff K
Email me.

Nick
Should they go to elite risk as well if they want to learn more with without the pressure of salesman, Jeff selling to them.

Jeff K
So I mean, this is how, again, this is where I'm different than some people like we don't even you know, I've got I've got two flyers I put together that are like, literally it's one flyer, and then I ran out of space. So it's the second page. It's nothing sexy. Like, I haven't stopped the bus to market it. I'm no boots on the ground, grassroots. You know, I've done 9 quotes, as of now,

Nick
In 10 days

Jeff K
and well in 10 days, but but but and, and there is some there's some big players that are that are like, it's not even that they're saying no, it's that. Well, you know, we're still in the middle of doing this. And we're doing you know, we're doing that So yeah, I mean, I just, I haven't had time. And I don't want to take the time to go put it out there and like I pop it on LinkedIn, you know me, I kind of just I, you know, I'm your marketing. Yeah, no, you're doing a great, no, no, you're doing a great job. And so that's why I say just come to me, okay. It's not that I'm trying to sell you. It's really and by the way, I'm not even trying to sell anybody. It's simple. It's, it's expensive. It's for multiple locations. It's for someone who is okay accepting that their expectations are they don't get free business interruption and extra expense anymore, because think about it. They had free business interruption an extra expense, How'd that go? So it's not cheap, strap free, but it's gonna pay out. So that's what you want. Right? So yeah, it is it is about coming to me. And it's not about me trying to sell you on it. If you call me and you say it's too expensive. Don't call me again. It's really simple. Like I can't make it any easier.

Nick
So I will have your connection information in the show notes. So for anyone that's listening, you don't have to scribble it down. Just go to the show notes. You can get the transcription of this conversation. You can watch, listen, check out Jeff's helmet hair, and all of that. Hey, Jeff, congratulations on the product. Thanks for making a dent in the insurance universe and luck.

Jeff K
Thanks, man. Thanks, I appreciate it.