Q&A with John Swigart, Co-founder & CEO of Pie Insurance

Transcript

Shefi

Okay, so Hi, everybody. My name is Shefi. And I'm the co-founder of Coverager. And with me today I have John Swigart, co-founder and CEO of Pie Insurance, I have no doubt that you guys don't know who he is. Because it seems to me that
everybody in the crowd is Coverager reader of some sort. But we're lucky to have him today I reached out to him after their Series B round. And it was mostly because and kind of expected in the sense they're going to be assuming some of the risk right. So there was a there was an interesting funding announcement where 100 m will be allocated to either acquiring or starting insurance companies. And I've had a few questions of my own that been that I wanted to go that are below the PR that we tend to see out there. So there is a q&a chatbot, you're more than welcome to use it. I'll start with questions. And John, thank you so much for joining us.

 

John Swigart

Thank you Shefi. Thrilled to be here.

 

Shefi

So first question. When I read an article in which you said that the distribute distribution and insurance isn't broken, but really the opportunity is on the insurance company side, and this was in light of the recent funding and your new strategic view, can you share just the current events of where Pie's at following recent funding? And what does that mean to the company going forward? And obviously, how come distribution isn't broken?

 

John Swigart

I'm happy to so my background before founding Pie is I was in personal auto insurance, ahead. I was at Esurance for 13 years, from 2000 to 2013. So my experience with distribution insurance spans a lot of direct distribution, and now at Pie. We sell for multi-channel. We sell directly to small businesses, we sell to in through independent agents, we use channel partners as well. And that was part of our strategy from the very beginning. In personal lines, you have direct distribution, you have captive agents, you have independent agents, you do have a broad suite of, of distribution options. In commercial lines, it's much more heavily focused on independent agents, certainly, and direct is emerging. And I think direct will grow substantially over the next decades, frankly, and potentially even grow faster than it grew on the personalized side. But it is very, very, very small today. The reason I say that I don't think distribution is the broken side is distribution is more about customer preference. And by customers, I mean the actual buyers of the insurance. So even in today's world of 2020, you still have a meaningful chunk of personal auto insurance, it's sold through independent agents because there are customers who prefer that path. What you don't have in commercial lines, as much of a bread and so everybody's buying three independent agents and independent agents, I think are a key element in the commercial lines, space, they it's a slightly more complex set of products. And certainly the products that you need and what the coverages are, they're offered. And I think the independent agent can provide a lot of value in commercial line space, and frankly, in a personalized space as well, if that's what the customer wants. What is the bigger difference actually, that does we really looked into is the players in commercial lines being the carriers themselves are operating frankly, massively differently than sort of the personal lines carriers or the personal lines arms of the carriers that do both. So classic examples of this are average expense ratios. So average expense ratios in commercial lines are when you aggregate everything together including LAE are pushing 40% averaging ratios and personal lines are more high 20s around. And you have players like Geico, in particular, that in the USAA that operate in a sort of low 20s and total expense ratio. And so fundamentally, when you have customers paying premium and a lot of its going to expenses versus returning to them in claims, you have a less efficient process and less value being derived by the customers. And so I think that's one of the broken elements and commercial insurance and incumbent carriers is their inability to operate efficiently such that they're returning more and more value to customers. Pricing structures are another area that I think is more broken broadly. Listen there are very sophisticated prices and commercial lines, but it is a much more fragmented market and it is not significantly sophisticated along the lines of personal auto insurance, for example, or homeowners insurance where there's very data driven highly sophisticated algorithms identifying risk across the whole spectrum. That is not as evident in commercial lines. And a simple example of this is, in my view, many commercial lines carriers are looking for the right customer to fit their price, rather than looking for the right price for the customer. And so you have, whether it's in workers compensation, you know, sort of underwriting appetite. And one of the big value propositions that Pie brings to the table is we have a broad underwriting appetite. Most private carriers and we're in workers comp will only underwrite around 50%, or less than 50% of the classes. It's not all the same 50% obviously, you have different folks serving different markets. But that's just not the case in sort of the best-personalized companies there. They're writing 90 plus percent of all folks out there and I think the similar to the existing.

 

Shefi

so two follow up question You talk a lot about appetite and you talk a lot about the right customer. So who do you have a, who's your sweet spot in terms of who are you reaching Pie Insurance currently, if you can describe that market for us, and in terms of the appetite, I understand there is some there been some changes because of COVID or because of the pandemic and you touch a little bit about that?

 

John Swigart

Yeah. So we write a broad spectrum we write over 80% of all classes. It doesn't mean we write every business within each class, but we write a very broad spectrum of classes there are depending on the bureau 550 to 600 plus classes in
workers compensation. We as a sweet spot, we serve more so, not because of any strong preference of ours, but more of this a strong preference of the customers today in what I call kind of the blue and gray collar lines. So I would say 80% of our customers, our classic sort of hourly wage businesses, contractors especially trades, janitors, truckers, landscapers, restaurants, retail, we do write our share of offices and accountants and stuff like that. But frankly, we tend to write more sort of the middle ranges. And we write all the way up to roofers, we will write roofers, under certain circumstances and so forth. We write a broad range of contractors and construction as well, and especially trades. So that's the bulk of what we see coming through and what we end up do writing but we do right across on the COVID question, we actually do write in a fair bit of home healthcare and healthcare-related stuff we did pause the home health care new business, sort of in the beginning of March when we started seeing things emerge there. We've done a tremendous amount to try to work with our customers, small businesses. are at the Nexus are sort of the core, you know, pain point in this crisis with that they're struggling, if you're shut down for a long time, most small businesses just do not have the cash reserves to be able to handle that. And so we've reached out proactively to our customers and encouraged them to be in touch with us if they've had to layoff workers or reduce payrolls anyway, we want to make those changes mid term, so that we can reduce the amount of premium that they need to pay right away, to give them some of that immediate relief. And we've had great success and great feedback from our customers through that proactive approach to taking so we've reduced eligibility only very slightly in that one class. Otherwise, we're Open for business.

 

Shefi

Interesting. So in terms of endorsements, if that's something that you guys do digitally, you handle that within Pie Insurance?

 

John Swigart

A request for the endorsement?

 

Shefi

Yes.

 

John Swigart

Yeah, well, the endorsement, we need to have a conversation with the customer in order to understand sort of where they are and prefer, prefer to do that, you know, on the phone with them right now. But we're reaching out to them obviously, by email and other means as well. So

 

Shefi

Sounds good. So in terms of marketing tactics, right. Right now this audience is being challenged, right? It may be hard to reach in for a sale, right, more from first service element. Have you have you factored that in in terms of how
you're going to market going forward? And this is for the sake of the audience, guys, I think Pie Insurance in 2019 launched a series of TV ads. Right. Are you planning to continue on that path?

 

John Swigart

Yeah, so we, we have a range of marketing approaches and campaigns on the direct side. We did see the declining response to the advertising, not just television advertising, but digital advertising as well as COVID really started to emerge in March. And we pulled back on that, in response to sort of that declining response rate. So we're doing less direct marketing now. We think we saw the bottom of the trough in late April, May, and we're starting to sort of spool things back up. So will you'll see our television ads, again, modestly in the summer. What we are seeing more of and actually saw not much of a decline was on the agency side. So the interesting thing about agents, independent agents are small businesses, and they are fighting for their lives. their customers are fighting for their lives. They themselves are, are sort of, you know, working hard to make sure that they support their customers that their business is viable. They've had to go to work from home. We did see a decline in our submissions through the agency channel that definitely bottomed and is climbing back up. And we're now back up to the levels that we were seeing in the first quarter of 2020. So the agents, frankly, are working very hard to try to save their customers' money to try to get them into policies that are going to save the money that reflect new realities of their business and so forth. And they've just been tremendous partners in this crisis. And we do think and we hear anecdotally, that our all of our systems are cloud-based, right? So agents that have struggled to go and work from home because of various agency management platforms or other things that really only operate within their office. We're seeing increased submissions to Pie because they can do that. Basically just through an internet connection and do all the work that they do with us. So and we've worked from home since the middle of March, and but all of our folks are 100% work from home capable the day they start with Pie so we haven't been able to we haven't missed a step and I think that supported us on the agency side.

 

Shefi

So I will share an anecdote because I think that you know, if there is an opportunity for renewal and our for just pricing coverage again or just checking out cool, which is what some are doing in order to get a better deal for these customers. So I was telling John before we started this broadcast that I really had this on my to-do list to reach out to him a while back ago because when we were covering Hourly, which is distribution partners are theirs, and what they do is basically, you know, payroll software providers for hourly workers and as John mentioned, that's their sweet spot as well. I was kind of a poking him in to understand who else is Hourly working with in terms of work comp insurance companies, and you know, he says, he's not gonna name all of them but he said there's a mix of six and Berkshire Hathaway included Amtrust included and obviously Pie insurance included, but nine out of 10 times Pie Insurance wins the business. And of course, I asked why. And it was very simple. He said it's pricing and technology. Right. And I think that's probably what is attracting agents to, to Pie insurance, right? Because at the end of the day, when people talk a lot about customer preferences, and you can't ignore the fact that customers want to pay a competitive price, even though I don't think small business (insurance) is a commodity business, I don't know if you agree with me on that or not. I think it's just fragmented business and really hard to move to apples to apples. So in terms of distribution, I'm curious, do you feel like the businesses that you're getting through the agency channel is different than the businesses that you're getting through direct or the business that you're getting through maybe a TV ad if you get to that measure of tracking?

 

John Swigart

Oh, there are differences we see larger businesses, higher payroll amounts, and therefore higher premiums on the agency side, and we see on the direct side. So we are, different than many insurtechs we actually have pretty meaningful average premiums. So our average premium across the entire company is about $8,000 a year, per customer. And so that's a meaningful expense for a small business. And so, their, you know, their incentive to shop into sort of look around is pretty significant. You know, if a small business that can save a few thousand dollars a year, that's, that's a meaningful chunk of money, especially we, you know, our average number of employees and our businesses are, you
know, right around 10. So it's, these aren't significantly sized businesses. These are your classic you know, use the term mom and pop I'm not a huge fan of that term, but, but classic sort of core small businesses. You know, form the primary sort of backbone of most local economies and so forth. So we see that difference, we don't see a tremendous difference Shefi between like classes that show up versus, you know, direct versus agents. It's just there slightly more mature businesses, a little bit larger businesses that are coming through the agency channel, which is frankly not that surprising because they're the ones that sort of have some insurance already. Because of commercial lines and the nature of the distribution of commercial lines, they're likely to be with an agent already. Where on the direct side, we do see more, I'm starting my business up for the first time. population. We see more of that in the direct channel that we do an agency.

 

Shefi

So I have a question Who are your insurance carrier partners currently?

 

John Swigart

So we have one we and they are an investor in Pie as well. So we sell all of our policies on Sirius America Insurance. They, they have all the licenses, they're an investor in Pie, they support us. We're somewhat unique in that our insurance partner also takes all the risks. So we have XOL treaties, which are an important part of a worker's comp program because workers comp policies are uncapped. So we have excess of loss treaties that sit on top of that, but other than that Sirius takes all the risk today. And we've designed the rating and the underwriting, all the programs, so we do all of the program management for that whole thing. But they provide the licenses and the ratings and in our sole risk-taker, you know, other than that as well,

 

Shefi

and your plans with Pie Holdings?

John Swigart

Yeah, so Pie carrier holdings is something that we've had in our roadmap conception from the beginning. And Sirius was involved in incubating this business as well. So this is this is something that they've been on board with from the beginning. We think it's important for us to control the policy issuing companies that we use from sort of, you know, maximizing the opportunity and having that full sort of umbrella around the customer experience to have that single place for that. And so, what Pie carrier holdings are going to do is own the insurance companies which we will form de novo as well as purchase shells and then capitalize them, that will eventually issue all of the policies that Pie assumes. We will heavily use reinsurance on the back, Sirius will be an important partner in that mix. I don't think we'll retain more than 30% of our own risk and it will, you know, potentially be less than that. But retaining some of our own risk is an important piece in maximizing the economics that you get from reinsurers. The way the reinsurance market works is they are much more likely to sort of give you the benefit of the doubt on what you say your underwriting results are going to be if they feel like you are taking a meaningful chunk of that were and you avoid you know, all the fronting fees and inefficiencies that come with if you're not taking any of your own risk

Shefi

Another question from the crowd How do you find high premium paying customers isn't that the million dollar question especially among Insurtechs

John Swigart

How do we find them? You know, it's about the breadth of underwriting and appetite and having, you know, quality processes. So basically, we have kind of an appetite approach that we use with our agents that tells them, you know, again, it's broad, but these are the areas where most likely you're to find opportunities for your customers. And frankly, workers' compensation is not a very cheap coverage, right? I mean, honestly, it's on average, across the entire class space, it's 1.6% of payroll. That includes accountants, and, you know, general office workers, like many of us in the Insurtech space that are paying basis points where my paying, you know, 50 basis points or, or less for our worker's compensation coverage on a percentage of payroll. When you get into specialty trades, you're in the 2/3/4 or 5% range. When you're in the contractors, you're in 7/8/9/10/15 20% range of payroll. So it's an expensive coverage. We think it's a great beachhead product because it's required, so the small business that has employees has to buy this coverage. They don't have to buy cyber insurance.
They don't have to, if they have autos, they have to buy commercial auto. Most businesses don't have vehicles. So it's a broad, required coverage that has enough unit economics to build a business around. So I think one of the ways we find that is we find those higher premium customers is we're just in a market that has higher premiums.

Shefi

What are your thoughts on payroll and benefits platforms such as Visto and Just Works in terms of workers comp? Do you currently partner with such platforms?

 

John Swigart

So payroll platforms are phenomenal partners for workers compensation companies because payroll is the exposure base for workers compensation. There is already you know,

Shefi

Isn't the market saturated in that regard is there's a lot have partnerships already in that space?

John Swigart

Yeah. So you know the 800-pound gorilla in that space or ADP and Paychecks which are pushing hundreds of millions of dollars of workers comp premium. Even so their penetrations into their customer bases are not terribly high. You know, it's less than 50%, 25 to 35%, depending on which one you're talking about and the penetration they're getting. They're growing them. But it's, it's there's still opportunity within them. They tend to work with not many companies, we do have conversations with, with payroll companies, we will work closely with payroll companies, both in their own agencies to the extent they have them, or if they don't have them, we could work with them directly. Our vision is to be able to offer a solution for payroll businesses that is essentially a few clicks add-on of workers' compensation because they have almost all the data that we need is already resident within their, within their, their systems to be able to underwrite using our algorithms. So I would say stay tuned. That's an area that's going to be coming pretty aggressively. That's great partnerships. And frankly, I think the partnership can work both ways. So historically, payroll has been used as a distribution point for workers' compensation insurance. I think some of those payroll companies are finding that that that you can switch it and use workers compensation insurance as a distribution mechanism for payroll. And we certainly see that, frankly, when you think about what people pay for different things, they pay a lot more on average for their worker's compensation insurance than they do for their payroll service. And so there's some potential to switch that as well.

 

Shefi

So a question to you about I think with payroll services with you a lot of times they want a few options to compare, or is that not a must-have from the end-users perspective?

 

John Swigart

You know, it totally depends on the customer what they ask for. Right? So, you know, in many cases, usually what we hear from customers is what they get, whether it's from their payroll company or their agent who's helping them as they say, this is the company that I found for you. It's the best one. They're willing to offer you coverage. It's the best price and do you want this one and I can tell you just from our own anecdotal experience of Pie, having different insurance coverages, we’re not getting like a spreadsheet of these are the options...pick one. This is the one that we're picking for you.

 

Shefi

I do feel like small business has a lot a game of curation more than anything, which is, you know, a quick one yes or no, but do you see Pie Insurance participating on the SEMSI like platforms where you're being spreadsheet So I know these are agency facing platforms, whether it's Attune or SEMSI, or Bold Penguin, what do you think about these companies? And obviously, everybody's different. So don't you don't have to comment about specifically each one.

 

John Swigart

I won't comment on any specific ones. But our goal is for Pie to be available wherever small businesses are shopping or may be inclined to shop for workers' compensation insurance. So my broad answer would be yes. You know, in order to be in those environments, where you're being spreadsheeted, which I have a lot of experience in auto insurance, you have to be very confident in your, in your ability to price the risk because, you know, that's where it gets exposed if you are mispriced, and it's risky both ways. If you're missed priced on the high end, well, you don't sell anything but you haven't taken any risk. And if you're mispriced on the low end, you're going to find out and so you have to be confident in your ability and that's fundamentally what we think we're best at. So yes, we will and would be happy to participate.

 

Shefi

So that's a call to action to some of the attendees. Here's an interesting question, best way to onboard mortgage brokers on an Insurtech platform, Mortgage brokers?

 

John Swigart

That is an interesting question. I would I don't know specifically about mortgage brokers because I haven't worked directly with them. But I would say the best way to ensure to onboard distribution partners is start small, and get a group and build champions within the broader sort of building a group of champions within the distribution partner, who can then be your sort of evangelists and your sprinters, whether you want to call a train the trainer, or a group of champions or whatever, but where I have seen these things fall apart is where you don't actually invest in getting those early wins that people can demonstrate and share, oh, this actually does work. Because people are really only going to have an attention span and a willingness to try something once or twice. And if they weren't properly trained, or they don't see examples of success, they're going to try it once or twice, it's not going to work out for them, and they're never going to try and sell it again. So it's that that would be my generic advice on that I don't actually have direct experience on the mortgage side.

 

Shefi

Who picked out the name Pie Insurance?

 

John Swigart

So Pie was a name that was developed...we actually had a marketing consultant early on a woman I've worked with a lot and took us through a naming exercise and I will say more broadly, you know, I spent a lot of time in marketing, naming is my least favorite activity. Because everybody has an opinion and it's very hard to choose a name for new business and harder are all the time because there are sort of no names available left. It resonated with us because we picked it from the standpoint of Pie...pi, which is the mathematical, you know, constant in geometry, and to sort of symbolize analytics and, and sophistication around that. And the notion of making things easy as pie as an idiom. And so it was that combination, which is why you get the logo with the elevated E and sort of separated and so forth. And then we wanted something different. Frankly, we wanted something that kind of left you feeling a little bit warmer and friendlier than traditional insurance approaches. And I could buy the URL, so you know, the final.

 

Shefi

That's important!

 

John Swigart

The final decision. Yeah.

 

Shefi

So when did pioneer as a this is how you call your employees. So we'll talk a little bit about culture and the makeup of our company. When did that begin?

 

John Swigart

Early on. So we love pie puns, right? So, you know, to the extent and we have some of our team that really invest heavily in that. So pioneer does a way to describe our team members. I personally don't like the word employee, I think that sounds like a very transactional relationship. I like team member. That's why I like pioneer because you're, you're more of a member of the organization that's building the value. And you know, we have other examples. So my co-founder Dax and I, we give Pie-rside chats. And you know, there's a ring of pire outside our sales organization where it depends how they how they choose to do it, you either if you're the winner, you get to go in the the pie, the ring of pire or if you didn't actually, you know, make the goal you have to go in and like read some poem or something like that. So we pie puns.

 

Shefi

So side story, but I work with my brothers and you get a chance to see how they feel about you when you work with them outside of the family, of course. But my brother was just describing me to someone else. I think it was someone from the zebra, they were talking and he basically said, you know, with Shefi, it's just it's all work. So that's, I told you when I read pioneer, I smiled. And I think when I look at Insurtech versus insurance, I know that blurred lines, but hopefully, with Insurtech, there is more focus on culture, which oftentimes sounds fluff but sometimes you do see a company that actually say it and mean it. And it shows in Glassdoor reviews. I have another question from the audience. How do you okay actually have a lot? How do you balance a desire to grow fast? And just in the slow play, pace insurance industry, specifically, customers that aren't excited to think about insurance? Well, you kind of answered that in a sense that work comp is mandatory. So yeah, be right. You don't have To convince them and work comp, but. Yeah, go ahead.

 

John Swigart

Yeah, no, I think, listen, our view is that there hasn't been a tremendous amount of innovation attached to more broadly than insurance sort of the required services that small businesses have to use. They're kind of using a lot of sort of the, you know, things that have kind of been cobbled together from larger companies or things that serve larger businesses and get pushed down. They often have to overpay for this stuff. Listen, I mean, you know, it's hard if your only distribution channel as an agent and the agents gonna make you know, 10/12% worker's comp commissions or you know, sometimes on the lower end of commercial lines commissions overall and you've got a couple of thousand dollar policy. I mean, there's just not a lot there. And, and so, it's practical for the agent to not be able to spend a lot of time with you that makes sense. I don't blame the agents for that, right? And so how do we make it better for the agent? How do we give tools for the customers themselves be able to do some self-service on their own and be able to do some things on their own? And if people want to do that, that they can do that, and not everybody will. But some people, you know, will want to avail themselves of that. And so I think it's, I think it's important to be able to see things from the customer's perspective and try your best to deliver things that are going to be
meaningful and valuable to them. So.

Shefi

So on that topic, I think, no, it's somebody asking about if you had, how did you find the right beta users? Did you start with beta users? I know,

John Swigart

We didn't start with beta users. We just started selling. Yeah, I mean, we were 10 months from founding to starting to sell, and we had to, you know, cobble a lot of things together in order to hit that goal. And we've done some early marketing before we were actually able to sell to sort of in so we had built up a small amount of customers that we could reach out to. And I tell the story sometimes. So our very first customer this is actually a great example of one of the things that's broken in the insurance
industry. Our very first customer, who is still a customer, by the way, was a small flatware concrete contractor, that's somebody who like lays driveways or sidewalks flooring in and so forth. And he was shopping because he had gotten a non renewal notice from his insurance company because his policy premium was less than $10,000. So there are many companies there are 345 companies that sell workers compensation insurance. It's a quite fragmented market. The top 10 only control about 39% So it's not nearly as concentrated as auto insurance or things like that. There are many companies that have that either won't write small business at all, or have thresholds, we won't write a policy below 5,000 or 10,000, in this case, or we don't do schedule rating below certain amounts and things of that nature. And so this company, this customer, was basically getting thrown off of his policy, and shopped for Pie and, and bought a policy, right. And so the early customers that we wrote were all direct, because we didn't didn't have any agency relationships to stand up in at the very beginning. We added agency distribution in the summer of 2018. And then, you know, from that standpoint, it was just sold as many customers as we could, right expanded distribution. The notion of beta customers, I think, are important when you're doing a technology project and you're trying to sort of figure things out in Insurtech, if you don't have a base of data on which to build your pricing algorithms like we did have in many companies don't, then you have sort of, you have to write some customers with your best guesses and how to do the pricing. And then you have to adapt and adjust to that. We were fortunate in that we had a massive set of data on which to build our pricing algorithms that had been proven and tested over time. So in that sense, we weren't starting from the start line, we're more so starting from the Midway line in the in the marathon, which is proven out in our underwriting results that have been very, very strong.

Shefi

Did you know, going into Pie Insurance chairman's that you will end up working or creating an agency channel as distributors?

John Swigart

Yeah, from the very beginning. We Yeah, we knew it. Because all of the markets is in independent agent distribution, right. So it's one of the key things that I learned at Esurance and that is, is a lesson that sort of carried me through here is one of the biggest evils in building an insurance business is lack of scale. You have, because it's a relatively complex technical infrastructure that you have to build. And you can either sell one customer or hopefully a million customers through that technology. And but you largely have to build most of the pieces, whether you know, whatever size or whatever you're
going to be, and that takes time that takes money. So you have to get to scale in order to actually achieve what we all say we're going to deliver, which is more efficient cost structures than the incumbents. And so in order for us to get to that scale, we have to play in the part of the distribution market that, where all the business is already and so and, you know, as I said at the
beginning, we think independent agents actually are an appropriate and meaningful distribution channel, in commercial lines and so will continue to support them forever.

 

Shefi

You're certainly not the only one. Why?
Well, somebody is asking why are commissions for agents lower for work comp?

 

John Swigart

Because the premiums are bigger, it's just the market. Right. And so you got Bop commissions that are often in the 20s, GL Commission's that are very high work comp commissions can be 8/10/12%.

 

Shefi

So this is a question about talent. A founder of an insurance startup, valued at over a billion dollars said that attracting talent is challenging. Do you feel that finding good engineers and product people for insurance startup is challenging?

 

John Swigart

So I think attracting the best talent is always challenging. I think it's one of the most important things that we as founders
and as businesses have to achieve. And in the right talent can be hugely differentiating, especially, you know, I don't think anybody disagree within the engineering part of the organization and finding people that so you need to build your organization that has some insurance expertise, some noninsurance expertise. You need to make sure that you are not just rebuilding, you know, the same insurance company that already exists but on in the cloud instead of, you know, not in the cloud, you need to actually be thinking about how to do things fundamentally differently, and constantly looking to build the talents of the team. The one thing that I would say that we did, which I'm very glad we did, is we focused on the people's side very early at Pie. So interviewing, looking at resume and the I'm talking early days, you know, that can chew up mountains of time for founders and early employees. And a lot of times people are hesitant to add a formal experienced, high end talent function until they sort of reach a certain size. I made a bet and added that earlier than most and it paid huge dividends. And I think that's a leap of faith you have to sort of be ready to do that early on if you believe you're going to get there and you know, so we made that bet and it paid off it paid off for us.

 

Shefi

So describe a little bit the makeup of your team how many units, a claim side, a service side where is there a focus as their because they think it with insurance we tend to do a lot of things right it's it's we always talk about distribution,
but then claims is just as important and we might not talk about it then underwriting and pricing and actuaries and and of course now engineers, so what's Pie like?

 

John Swigart

Yes, we have about 165 Pioneers. We have always been spread across two offices and actually made it easier for us to go work from home immediately. And sort of have things structured that way. Because we've always worked via video and sort of having some part of usually it's there's some part of some meeting or group that is in a different place. We have about 125 in Denver. The reason that's a bigger office is that's where our product and engineering groups are. And that goes, that's our biggest part of the company. Our production roles are there as well, which would be sales, customer care and underwriting. So between those five groups, that's most of the 125 people in Denver. On the executive team, we have a balance of 50% of people have insurance experience with a 50% of people do not have prior insurance experience before coming to Pie. That wasn't intentional from a quota standpoint. I wasn't like okay, now we for this but but if there was intentionality around, you know, making sure that we had a balance on that, we get a lot of questions, you know, are we an insurance company? Are we a technology company? And that's where we sort of, like the term Insurtech. Because you have to be both. You know, I, I'm a strong believer that we have to be able to do the insurance side of this business very well. If we don't do the insurance side of the business better than the incumbents, frankly, we don't really have a chance to make and take advantage of the technology that we're deploying. And so you have to do both really well. And it's a balance and you're constantly balancing the team as well. It's, it's frankly, the whole thing's a balancing act, right. And insurance. You know, one of the questions that people might give you is, how do you balance growth with profitability because in insurance, you know, there's the old saying anybody can sell $1 for 75 cents, right? And so you have to be balanced and measured on your underwriting results and making sure that you, but you also need to grow. And so it is not easy, right? And the folks on this call, they're listening, they're trying to do it themselves. You know, we're struggling with it every single day, as I'm sure you know, many people are and it's sometimes in every balancing act, you're, you're always going to overcompensate one way or another at some point. Rarely are you going to be in that very perfect middle, where expertly balancing both ends. And so you've got to be able to sort of shift back and forth when you can course correct when you realize that you've shifted a little bit too much one side versus the other.

 

Shefi

I mean, it's kind of like cake, right? You need all ingredients if you want it to taste well or pie for that matter. Yeah.

 

John Swigart

We prefer we prefer to

 

Shefi

do you find that direct acquisition costs are more or less than agency channel?

 

John Swigart

This is a great question. Obviously, upfront, the direct acquisition costs are more expensive than agency, right? I mean, it's just you're investing in actual acquiring. If you could acquire a direct customer for less than you could pay for a first-term commission, you should do that all day long, right? That that is that that may exist in small segments, but you can't scale a direct acquisition model that way. And so what you hope is that your direct acquisition costs with retention and customer and building in customer lifetime value and potentially adding on other products, if that's something that you have, will then come down and everybody thinks that direct is going to be cheaper than agency. I will tell you in my experience, and this is primarily from Esurance that every time you have wins in direct acquisition and you say, oh, wow, we should do more of that. And you do more of that and you then expanding, you need to grow even more, you're invariably, you know, add on more expensive marginal channels which drive up your average cost. And so in reality, at a scaled environment, I personally believe they will be largely equivalent. And so that's one of the reasons we are semi agnostic about distribution channel is that we have a certain amount allocated and we don't charge different prices in our different channels. That's another, you know, key, right? So at a certain point, you have X amount of your premium dollar that you allocate towards customer
acquisition, and I believe at scale, they're going to largely be equal. That doesn't mean they're exactly equal. But there'll be largely equal across the channels.

 

Shefi

Do you feel that now that more and more Insurtechs are approaching the agency channels are there still an opportunity for new startups to work with them and create partnerships?

 

John Swigart

Absolutely. Yeah, we, we see tremendous reception in the agency channel, right. I mean, but you know, agents. I'm not saying this is universal, right? We certainly have agents that say, I'm not going to work with you, because you sell directly to customers. We have agents that we approach that say that and we say, Okay, great, and we work together and that's fine. So we're not going to work with 100% of agents. More so though, what we hear is, thank God I really need a company like you. And because they feel the same things that we see in terms of, the industry is not responsive. It does not have broad underwriting coverage. It does not have great prices, and so they're trying to deliver value to their customers
and they're struggling to do it every day. So we see strong reception from agents, working with companies like ours that are delivering value to them and then ultimately value to their customers as well. So I think there is absolutely, I think, in commercial lines in particular, if people haven't already started working with agents, and they're sort of going strictly, you know, the direct route themselves, I would expect that that will continue to evolve, where more people and more people will recognize that they're gonna have to work with agents. And they should, frankly work with agents.

 

Shefi

It feels like they are, it's really hard to find somebody that's online only. For sure, in the small business space, even if it's GL right, we've seen with Next and obviously Hiscox. I've got a universal question and I'll bring it home because there are a few more questions on COVID. So if you have to expand to a market outside the US, which country would you select?

 

John Swigart

That's a great question...

 

Shefi

Would you?? Let's start with would you? Would you expand outside of the US? We always say that insurance has borders and obviously we've seen, um

 

John Swigart

It's, I think property and casualty insurance...US based companies that get their start in the US, it is challenging to expand outside the US. That doesn't mean it can't be done. Lemonade has done it. And I think there are lines of business where that's more appropriate than others. What's interesting is our particular line of business is not very international. Because of the way our healthcare system works versus the world, you have different sort of structures for it. That being said, I never say
never to anything, and I think down the road, that's certainly a possibility. But not on our any sort of near term roadmap for us.

 

Shefi

Near term, are you contemplating going beyond work comp??

 

John Swigart

That is near term, but still, you know, pretty far out there. I mean, workers compensation, you know, you know, COVID, unemployment, all of that impact, you know, pre COVID Small Business workers compensation was a $25 billion premium annually. And we have a lot of room to grow in that market. I do think we will sell other lines of insurance, both as a manufacturer where we are underwriting & price them in ourselves, as well as we'll partner with other companies. In fact, we're partnering with other companies today to offer other products or direct customers. So

 

Shefi

yeah, I think Progressive is one is that a good example?

 

John Swigart

Yeah, Progressive has a phenomenal commercial auto product and they offer other lines of insurance. We work differently with folks digitally in terms of online referrals off our website, and And then we have some other folks are
available through our sales agents.

 

Shefi

Okay, so questions about COVID.

 

John Swigart

Okay.

 

Shefi

Can't wait to get past this you guys any idea about the real estate market sentiments after COVID-19? I live in the city, I, you take this one...

 

John Swigart

being commercial real estate? Like I don't that's my own personal opinion. I don't have any sort of business professional knowledge. Yeah, no,

 

Shefi

yeah. Okay, what are opportunities for an insurance agency in COVID? I definitely heard you talk about the engagement and agents being proactive, you know, trying to help with prices, but you know, just picking up the phone and say, Hey, we're here. If you have any questions, anything else that stands out?

 

John Swigart

I think this is a window where insurance agents can really prove their value to their customers, right. So you know, I believe very strongly in if you have if you are an agent, and you have small business customers that are coming up on renewal for various policies and so forth, you absolutely should be shopping every single one of those policies because if you can reduce the, the amount that your customers have to pay for their insurance over the next stretch of time, that's delivering real meaningful value to them. So shop for every single one, that that's my advice.

 

Shefi

You may have answered parts of this, but I'll ask it anyway, just for the sake of the person that's asking how did you adapt to the changes business to the changes in business made during COVID that may have changed their risk profile, then do you think that will create a fundamental change in business operations?

 

John Swigart

So as I said, we were proactive about finding, helping customers off, you know, Interim endorse their policies for reducing
payrolls and so forth. finding other ways to give them payment leniency and so forth. You know, we are looking at our underwriting guidelines around, you know, businesses that have a predominant amount of their folks that are working from home versus in an office environment. Before COVID, we tended to not like that as much, because it's a less controlled environment if you have a lot of work for home employees. But we'll we'll look at that, as well. And frankly, there's a lot of articles that come out about you know, how much is COVID going to cost the insurance industry and work comp is going to bear a lot of the costs of that the places where those claims are showing up? I think there could be a lot of workers compensation expense, you know, in 10s of billions, potentially or more in the industry, but that's a lot. It's heavily first responders, hospitals, sort of things that we don't write because that's not really small business. We don't write municipalities. We write home health care, but we don't write, you know, healthcare. So, I think we're going to see structural changes in the industry broadly, I think we'll see some sort of pandemic response type, you know, federal backstop type thing, which
I think it would be a good thing. I don't think we can ask private insurance, the private industry insurance industry to pay for appropriate yet government-imposed shutdowns of the economy. I don't think you can underwrite that with private insurance, or should and, and so it'll be interesting to see where all of that shakes out. We are seeing the impact that we see today is actually frankly, lower claim frequency during this shutdown window because people aren't working. So it's kind of like the auto insurers are seeing lower accident rates. Because not as many people are driving, well, not as many people are working in the same environments where they were before. Now, if we get this recession that drags on for a while, potentially, then you might get some of that natural macroeconomic impact on workers' compensation, but the shock effect right
now is just lower claim frequency.

 

Shefi

Gotcha. All right. Final final question. It's a bold fact that tech hiring in the US is quite expensive. Would you consider outsourcing your tech to Asian countries? How do you say Pioneer in here? How do you say pioneer in a
different language?

 

John Swigart

Yeah. So we have not done that previously, because we valued having everybody together in our product and text team, tech teams. As we've been working remotely now. work we're going to consider that not as a way of replacement but as a as a way of augmenting our our teams and getting hopefully more for less dollars in those environments. I think that's a natural evolution for businesses. As an end, we're hitting that point as well.

 

Shefi

Final thoughts you want to share, you share a lot,

 

John Swigart

I really appreciate the opportunity. I as I said before, I really appreciate the coverage that you guys give to the it was a little bit of fun. There's a pilot coverage that Coverager gives to the industry. I read it every day and I appreciate the opportunity to share our story with you.

 

Shefi

Thank you so much for joining. You're welcome anytime I always learn something new guys, John is fourth fourth generation I didn't say that fourth generation in insurance and insurance obviously from Esurance to which gets to be confusing. The word on the street that you guys are going from growth. So we're happy to stay and follow you. We love that. Appreciate the interaction. And thanks, everybody, for joining us. So John Swigart our CEO and co founder of Pie Insurance. best for now.

 

John Swigart

Great!

 

Shefi

Bye everybody!

 

John Swigart

Thanks Shefi.