This Week in Coverager (8/28/2020)

FinTech startup Revolut is hiring a VP of Insurance signaling their entry into insurance. This week, Shefi, Avi and Nick discuss the implications of this to Insurtechs, Insurance incumbents, and even to other outsiders such as Amazon and Google. With so many different business models being introduced how should we all be thinking about our strategies? As usual, we don’t always agree, but we debate the pros, the cons, the tradeoffs, and the implications.

McKinsey/Allstate article

 

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Transcript

Nick
And we're live! We're back This Week in Coverager. It seems like every time I close my eyes on a Friday, it's the next Friday. So, the week of August 28, the week ending August 28. I am as you can tell from my view, I am in podcasting headquarters in Naples, Florida...survived hurricane Laura.

In Coverager headquarters in New York City. We have both Shefi and Avi...good morning.

Shefi
Good morning.

Avi
Good morning.

Nick
So, this is the podcast where we discuss topics of the week, things that were on Coverager or news items that were of particular interest and Shefi, Avi and myself, digest them and give you our views and so I'll kick it over to Avi who will talk about topic number one.

Avi
Thank you. So the biggest topic by far in terms of clicks Revolut wants to create an Insurtech business they specifically mentioned in the job board "Insurtech". So people don't get confused. A big story, of course, not surprising. They have over 10 million customers in different parts of the world. They're losing money. Like any like most fintechs I would say lose money because when you offer fee free banking, then you know, your revenues are kind of minimized. And we actually, we recently did a report about FinTech in general. It's such a natural synergy with insurance. And you know, people they fear I mean, they used to talk about Oh, and Google is entering insurance and Amazon's entering insurance and yeah, Google will talk later about their entrance into insurance...fintechs are a way bigger threat for the simple fact that they have data that both Google and Amazon do not have. They know how much you're paying for car insurance. They know how much you drive based on how much you will fill up your tank. And they can tell you hey, Nick, we saw that last month you paid $140 for car insurance, we think we can get you a better deal. You know, that resonates? Because it's relevant. There's context and why not do it. So yeah, it's a very interesting story and looking forward to hearing your thoughts.

Shefi
So the commentary that didn't make the email or the newsletter was...so side story, I was speaking to an individual that is going to launch a startup and one of the things that he was, you know, most fascinated by was his ability to shorten the application process for small business and somehow that got me thinking how FinTech, it's all about knowing your customer and Insurtech you know, you're you haven't solved for the fact that most people still don't know what they're buying. And that's sometimes it's on the customer. It's not always on the actually, you know, the broker or the carrier. But there isn't, there is an issue here because we're talking about instant and fast forward. And what Avi is basically saying is, here are companies that actually do no really important aspects of the customer. Right? So it makes sense for Revolut to enter the Insurtech space again, because they're not profitable in one area and they can be profitable in a different area. And I think that if there are net naysayers about the whole FinTech/Insurtech synergy is because they have some reference of a bancassurance model that didn't work. Now, I know insurance has borders and I know that our strength is analyzing what is happening in the US clearly and some you know, in India, bank insurance is a really big deal. You know, here when I think about, you know, early 20s how I looked at bank insurance I think of Wells Fargo selling insurance products. And that to me is you know, isn't a positive, but that's different. You know, the past is the past, you know, the The present is different. These are different players. These are players that consumers talk about, go to for their financial product. So you know, obviously one to watch and yeah, another commentary when I was reading when, Avi was the one that picked up the story, and that was Sunday, so I didn't talk to my brother on Sunday. But I saw the story. And I was thinking to myself, because it got so many hits. My comment was like, I was like, oh, gosh, you know, maybe you've picked the wrong Avenue Shefi. Because if you would have went to FinTech, just judging by the interest that this article has compared to all the other Insurtech articles, and if that that, that doesn't tell you something about the consumer sentiment, by the way, I don't know these people, right, because if typically we reach directors and executives, the folks from Revolut, were all over and obviously Who are these people? I don't know. They're consumers. That's the thing. That's the beauty of it. But just measuring by the amount of clicks, but anyway, we're sticking to Insurtech.

Nick
My first comment is, as Avi was describing it, and like that feels creepy, you know. So they have that advantage, right? They can comb through your credit card statements and use predictive models to basically say, Okay, this is they're spending this much on gas. You know, they can make decisions about who you are. They have your credit rating, so that you're right. Avi, they have a lot of information going into what would be traditionally the application process for an insurance company. It's likely, in a lot of those cases, they would know enough that they could, they could get a quote, like they could just say this is, this is the price. We think we can save you right now. Press this button and lock this in. That is that is a huge advantage. And Shefi to your point, as Avi was describing this particular entry, and all I kept thinking about was Citibank and Travelers, and what a fiasco that was. And so it's like everything that we discuss week after week, it just boils down to execution. It's what are you trying to accomplish? If you're just trying to make a quick buck, it's probably not going to work. If you're actually trying to deliver value and you have a passion and a mission to solve that problem. You'll figure out a way to do it. So it's there's definitely advantages but I can also see them tripping over themselves and not executing correctly because it's almost too easy as you know, there's just so much information it could be almost too easy and they trip over them just trying to make a quick buck. So,

Shefi
however, so this is the other side of this, right? Because what tends to happen is that the you know, the FinTech giants typically attract the incumbents. So if they get a strong insurance partner on their side, and I'm sure people will line up to work with Revolut, because of, you know, the insights of consumers that they have, and you are already seeing where there is a, you know, a digital insurer and Greek right saying, hey, you get a Revolut account, I'll give you 10 bucks. Do you buy home insurance? For me? There's all sorts of these partnerships that you can create, right? So it does, it boils down to execution and creative to your point. But if they can secure a strong insurer by their side, then why should they trip over themselves? I hope they don't. Right. But I think But to your point, right? There is Travelers and Wells Fargo behind you know that we're thinking about.

Avi
So I you know Did these models and I mean the owner of Travelers and then Citibank, they made a lot of money. So I'm sure they're happy. But that's a manual process. Like you're dependent on the banker to mention, hey, Nick, we offer insurance, you know, we can help you. And that to me, like you really need to kind of have like robots, everybody on repeat, say it for it to reach the potential. But with FinTech, that's not the case. And I think for example, if, you know, like, to me Revolut doesn't have to work with one company, they need a model like Gabby, like Jerry, even Policy Genius to say, we have the data. Let's see who we want to target. We know this person is a homeowner, and they have a car let's put our efforts there. We know this customer is price sensitive, because he's cheap, and he doesn't buy coffee. So we know they will care about price and they can do things that others cannot. And I think it's huge. advantage. And again I would pursue the model of Gabby or Jerry. I don't think any there's like the one of the most successful insurance companies out there is not instant it's over the phone. It's PolicyGenius. Gabby is over the phone, you can't buy immediately on Gabby online, you'll put in your information, you get a few rates, they have to make sure everything is correct. Then they approve. So it's not instant.

Shefi
So it Cover, Right.

Avi
So it's over over the phone. Most of it. Yeah, even Metromile a lot of it is over the phone because people don't understand what they're buying. And they have a lot of bugs, but it's not about instant.

Shefi
He let that slide.

Avi
Yeah, you know, but the thing is consumers, you know, they we talked about this years ago. There's convenience, and there's price. Convenience doesn't shine when you don't do it often. Like Nick if I would pay you and say hey, give up your laundry machine. You know, wash your clothes by hand you say you're crazy. I'm not doing it, because you do it a lot. But for insurance, you tell someone to wait 24 hours hours or to hop on a quick call maybe if they need to sure if every six months I'll hear for you next. And there's the advantage of fintechs. You know, and this is a model that's been done in France, they want to be the broker of record for their users. We'll monitor your insurance, we'll see if there's better rates better coverages. You know, they'll know when you buy, you know, baby stuff, and they'll know Okay, the time for life insurance is probably no so customer acquisition cost, it's a dream come true. And data is a dream come true. So I think it's gonna be a big deal. And, you know, depends on the execution like, again, if revolute ties themselves to one insurer, that's going to be a big mistake.

Nick
So isn't that Clearcover's model to locate or discover life, life changing or life affecting events like Oh, you're getting married, you know that this is a good moment to sell you...

Avi
In theory, yeah, but the problem is that they don't control those interactions. Like they have to go and tell a platform that has that data, let's work together. Revolut is coming and saying I have that, who wants to work with me. So Clearcover that's there. And everybody wants, you know, to be relevant. That's the idea. When you're relevant, then you reduce your customer acquisition costs, you increase conversion rates, because you know, it's relevant. But we always said, those that own the platform, those though, that owns these interactions, they're going to be successful. And you know, they could, it's just natural, because Don't forget, like, if you look at Chime, in the US, their whole concept is financial wellness. You know, we won't take fees, so you'll have more money at the end of the day. So for them to help people save money on insurance. That's part of their mission. Of course, it's part of the way to make money, they need the money, but yeah, it's inevitable and it's going to be very, very big once the first company that gets it right, the model, others will follow. And I feel like companies like Cover, and even PolicyGenius that, you know, has great organic rankings, they're going to struggle, because these fintechs are going to prevent people from even searching for insurance because they know everything is in the app accessible and available.

Nick
So it'll be it'll be interesting to see what so I don't think anyone would deny that Revolut would have a somewhat of a data advantage. It's it's a different set of data. But with the right predictive modeling, they could really uncover a lot of stuff. But now you're what I think it'd be really difficult to sort of deny as well, that some another competitor coming in potentially another model of customer acquisition. And so just can't help but think...more shrinking margins, right? Just gonna price is gonna keep going down like it's going to be harder and harder to earn an underwriting dollar in auto it's just going to be so freaking competitive all over the place and obviously with Revolut not just auto but I don't think a lot of the insure techs that are in the business focus a lot of their attention on the margins. And just like how crowded it is how difficult it's going to be to differentiate yourself. I just keep going back to that because it's like, if you have trouble standing out, and you don't have some sort of unique advantage, you won't even be able to survive like you're just going to languish in mediocrity for a while. It's you know, in these auto homeowners, man, it's getting crowded.

Avi
Yeah.

Shefi
No one will deny that there's going to be A lot more insurance shopping in the future.

Avi
As people get younger, I mean, you know, you look at the demographic of who uses, you know, a FinTech app, and mostly young people that don't have much money and a few investors that invested in these companies, but I'm sure they have their Wells Fargo and Chase account on the side. But these are the modern consumers that everybody's talking about the struggle for insurance companies to to reach those consumers. And, you know, it's really interesting, because as you said, like, it's going to be about price and then insurance companies will know like, Okay, I'm on Revolut, I'm on Chime, I'm on Starling bank, I need to have the best price to win. That's that's how I will probably win. And as I said, you know, the, the margins will go down, but it's going to take out a lot of middlemen like insurtechs because they can't afford to lose money. I mean, you know, they rely on the commission. So it would be interesting. I mean, if I was really Revolut, with the money that they have, I would just look at acquiring, because they won't be able to do it online, no way that they will be able to do it online, completely. I don't care about what technology they have, it's not up to them, it's up to the insurance companies, are they willing to work and if again, they will come and show two, three options, that's not going to cut it. So that's why they'll need they'll need phone support, they'll need people. And a lot of it goes against their model, like Revolut is a digital only, like people still complain about trying to reach their customer service. So will they go out of their way to do more?

Shefi
Or they will take the products, the easy products that it's both like there's going to be an element of convenience and confidence, right. There's a reason why we're not seeing PolicyGenius play in the auto insurance space.

Avi
Yeah.

Shefi
So it doesn't necessarily mean that they have to go directly to that product.

Nick
Sure. Auto is so big auto insurance is what 280 billion, right or something like that, like just the ridiculously big number that they only need a small market share for to make it completely worthwhile for them.

Avi
Like I would do if that's the case, then I would present the options. And when Geico is not there, I'm going to leave kind of like a text boxes and say, Geico does not want to give their price because they want you to call them and try to convince you to buy so it's up to you. That's why they're not here. And maybe then you could say, you know, what, I'm forgetting about Geico, or State Farm. And that, you know, like, Travelers is the most competitive on Gabby and Jerry, at least in my case. So I went for Travelers who would have thought, Travelers for car I mean, for me, it's the first time with a car. So who would have thought, but it's that's going to be the game. And again, if you do go online, you'll have to kind of have a sophisticated approach. If you're willing to have that phone support. And I know some of them do not want that. Because they want to be digital, but you need to get dirty to get insurance to work and you look at PolicyGenius you know, they have a lot of salespeople. A lot of salespeople, And support so,

Nick
so it just, it sounds like for those that are, you know, listening, the strategy of how it could not like we're well beyond the tech, right? It's tech is just a piece. Well, one thing FinTech and Insurtech are like merging, right? It's it's going to happen. We knew it was going to happen. There's a lot of synergy there. So I don't know what we're going to call it. Finsuretech???

Avi
We're going to call it FinTech.

Nick
I'm playing around. But I think more importantly, it gets to strategy. Right. So what is your product or what is your what is your go to market strategy, so I just can't help but circle back to like a Branch. Where Branch could counter move? Right or counter market? With? Well, we can save you on the whole bundle. Right? So auto/homeowners/umbrella. I, there was one other thing that they did but anyways, so we can save you on the bundle, right and they can target a different kind of audience. And it's a much more complex sale that a Revolut would really struggle, I think trying to compete with that, that there's a convenience in getting the bundle. And then also Hippo, which is, you know, the whole laserbeam focused on the homeowner with the warranties with the smart homes, again, that Revolut strategy wouldn't probably work against the type of customers Hippo is going after. So it's really critical for the leaders of these companies as they think about not only their technology, but how it gets positioned and what's the overall strategy because I just there's not going to be a winner take all. And so they just have to decide who's who are we going after. And let's build an entire framework, marketing, product, everything around that particular customer segment.

Avi
Now keep in mind that it's going to get really messy when Chase and Citibank decide to take similar approaches, and they've been copying fintechs. Like if you now go to the Chase app, amazing what you can do, budgeting, and set money aside, like things that a year ago, you could not do and who would have thought. So once they go into insurance, and they obviously reach a very different, you know, customer base that has different needs, they are going to get it right and again, as you said, for those sophisticated customers that Branch targets and Hippo, they would be very happy to again wait 24 hours beyond the phone if needed, you know, once every six months, once a year. So then it's going to, again be a big problem. And you know, we're talking about distribution like insurance is people think it's about technology, customer experience, it's not, you need to get the client first, then to sell all the other stuff. It's about distribution. And these companies have the better data. And again, they live on your phone, like Chase can send you a notification saying, Nick, it's time, it's that bad time of the year, you need to look at the difference. Yeah, but you know, but that's what it is. And it's funny, because when we used to do with Google and Facebook, and advertisers would go after them, because Google said, Oh, people come to search here. And Facebook said, well, we'll tell you what they like if they like tacos, or pizza, and if they're part of this group or that group, but let me ask you this. What's the most, you know, compelling data for insurance, financial data, and that's what it is like, that's what really moves the customer because at the end of the day insurance is insurance. It doesn't matter if you like tacos or pizza. You need insurance, but find out how much Having the bank if I know how often you switch ensures they have the history saying that a year ago, they were travelers before that they were progressive. So you know, they like to switch. That's a big deal and and you know, at the end of the day, they have no choice like we saw the report of Citibank saying how fintechs are going to shrink revenue for traditional banks because no fees like discover eliminated their fees because of you know, the whole mophie movement. So they said, while, you know, you'll see a reduction there, you'll have to create other products to try to make up for it. So they're they're going to do that because they don't want to give up their money.

Nick
Yeah. Yeah. any last comments on Revolut Shefi. no?

Shefi
We said it all.

Nick
Okay, let's not beat a dead horse on it. And this will be a topic that comes up often, I think, both the FinTech and Revolut. So we'll we'll get keep an eye on that. And what you

Shefi
know at the it just from I'm from insurance employment standpoint, if it means you may have a better career path and go for it. Let's not forget that the insurance professionals that have a shot that working at Revolut, although I think their culture is a little bit problematic, but it's a stepping stone.

Nick
Okay. Okay, so so let's keep beating this dead horse then let's not transition...

Avi
if I was an insurance professional, yeah, if I was an insurance professional, okay, so out to these FinTech companies and say, let's build an insurance unit.

Nick
Let's expand it beyond insurance professional, let's expand it to some, you know, county Podunk mutual, in the middle of the country. This is an opportunity for them. This is an opportunity for them to look at the advantage that they have. They have paper, they can issue a policy in a particular state. They have an entire back office system. They have reinsurance. The likely thing that they're missing is that they can't differentiate their product anymore. Right? And they struggle with distribution, right? The product almost is irrelevant if they can get the distribution. So this is an opportunity not only for insurance professionals for a career, but these companies that have been languishing in play have plateaued decades ago, and are just basically on life support right now just waiting to merge with some other company in the next 10 years. This is an opportunity for them to think outside the box a little bit and maybe partner with one of these fintechs and, you know, allow, allow their assets to be used. You have a license in a state issue a policy we pay claims, right, right. You can white label your product and make it available to the one of these modern, what's called a FinTech. But it doesn't have to be fin tech. It could be Google or Amazon or whatever. And just say, hey, you want to write in Illinois If you want to write homeowners or auto in Illinois, we have a license that will allow you to do that. No one even needs to know it's saying like in fine print, you know, insurance backed by Podunk mutual or something.

Shefi
This is a super solid point simply because you know I I barely wrote about Spinnaker insurance still Hippo partnered with them right so you've got a lot of Mutual's that you sometimes they don't even have a newsroom page or a PR page that you can track in order to see what has changed with the company. So there's definitely an opportunity for these companies to shine. Yeah, they have the basic necessities for revolute to offer insurance.

Avi
Yeah, be the enabler. Yeah,

Nick
I don't. I'm not gonna name names, right. I'm not gonna pick on any of them. But there there are. I'm from the northeast. So in New England, there are Mutual's everywhere. There are small towns with a population of 10,000 Have a mutual in there and those Mutual's can never bust out of that little bubble. Right? Because it's like if you know I'll, I'm not going to name a mutual but I'm just going to pick a town. Athol mutual, Athol Massachusetts, Athol mutual, I don't think one exists but like they can't do much, there's no brand new opportunity for them. But if if they have 100 years of history, and a license and an A rating from AM Best, and they can do auto or homeowners or something like that, they have an asset that's just sitting there not getting any value. From that they can make that asset available to a third party that can then pretty much deliver a ton of business to them and all they have to do is, is reach out and think outside the box. I know it's really difficult, but I'm kind of sticking to my guns here. I just they see these ads assets and it's like what are you doing? Even Spinnaker so Spinnaker gets purchased by Hippo. And Spinnaker sort of struggled to Spinnaker. You know. Spinnaker is traditionally like a front end company. So their business model was you will you can use our license and as long as you bring reinsurance to the table, so we're not taking any risk, we'll you know, carve off a five or seven or 10%. Commission for the privilege of doing that. Like, why the Mutual's could do that, like, there's so many opportunities to have a hippo or, you know, a kin or some someone like that, that wants to expand into a new state. They should you should make your paper available to them just create so many more opportunities to partner up and create a new distribution opportunity for yourself.

Avi
Yeah, and that's where I think state national staff stands out. I think they completely No, they took that approach. And but you know, the problem is with that model, I mean, not with FinTech, but with State National Insurance, you'll only be as big as your partners. And I feel like when you get to a place where you grow to be really big, then you start to say, well, do I need State National Insurance now? Like, I'm big, I'm powerful. Maybe I could short No, bring it in house. But that's a problem. But it's still it's a great place to be in. Yeah, but

Shefi
you know what? That's a really good point. We were I mean, it's hard to give it full coverage, but we are seeing insurer attacks that are swapping underwriters along along the way. So it's not that big press release, or they're coming out and saying, Hey, this is the insurer that we're partnering with. It's kind of it happens quietly after a while and you never know. If there's some blaming going around or what happened if it's in it's in a positive or a negative context, but it's happening.

Nick
Well, yeah, you know, when when James River resigned From the Uber account, right, it was, we can't we can't have these losses going on indefinitely. And so there's probably an underwriting opinion that it's like they're they're not going to be able to get their losses on the control. Like, we can't make this profitable, because they can't. So it goes both ways, right? Shefi like it would be if someone partner with a FinTech, though the issue with the underlying carrier that's partner with them is like, can you actually make us money? You know, are you just going to sign up everybody? It's, it's the false positive effect. Distribution is only concerned about the transaction, they will sign up anybody, if you

Shefi
well, and there's another there's another point to that, right. They will sign up anybody but you have to always remember who has more control. And it's sometimes it's the one with distribution. So I'm not going to name names, right. But what we've learned this week is that There is a you know, a big consumer facing giant that is working with a life insurer and the distribution the dish distribution space but they have no problem shopping around for different life insurance partners to see if they can earn an extra revenue right earn an extra block once a consumer signs up with life insurance and I you know sometimes from our perspective so I think we do we have and I am probably the one with more emotions and passion but I was I was a little bit disappointed because you did you did go or and put out press releases promoting a partnership but you have no problem doing something in the back end that probably the other the other side doesn't know. So it's an obvious point and to your point, you're constantly on your toes, you're constantly need to make sure that the partner that decided to partner with you last year wants to partner with you this year because this isn't this isn't this isn't a Catholic marriage.

Avi
And I think i think i think VCs have like a big role to play here because you know, some Have them invested in both inshore tech and FinTech. And obviously, they could make the connection or maybe they're working on it. But you know, the distribution is going to get solved. Right now, it's a big mess. It's going to, you know, kind of be in order. And as you said, Nick, it's the want to be the enabler. There's no shame in saying, enough is enough, like, let me do something different. Let me help this company. And, you know, there's too many middlemen with insurance right now. And for if consumers really want to save money, if that's the goal, then you have to cut back some of the middlemen. And that

Nick
Happily! just mean, Avi, they've been saying that for decades, there's there's too many middlemen in the transaction. It's a complex transaction. And so and

Avi
imagine how much money Google is going to lose, Google and Facebook are going to lose out of this fintechs becoming more dominant insurance players because again, no need to go in search and pay for expensive

Nick
Different model though. I think it gets back to I don't think there's going to be a winner take all I think they'll I think a lot of these strategies can be very successful. But there is no there will not be there will not be no no Google of insurance like they will not be someone who's going to take like 50% market share. It's It's literally impossible. And you try to have conversation with someone describing this. And I it's so difficult to overcome their inability to view all of these other industries where there are winner take alls...it's predominantly tech. And they can't quite seem to fathom that, well. Why wouldn't tech have the same effect in insurance with the with the single big problem that insurance is a leveraged product, you're paying a small amount of premium for a potentially gigantic payoff if something bad happens. If you if you add up all of those bad payoffs there's not enough money in the world to pay them off. You know that's like, you know, my my day to day catastrophe insurance like you. There's even Berkshire Hathaway that has two or $300 billion of assets. A large category five hurricane that makes landfall in Florida is easily $100 billion dollar event that's like it'll it'll it could not destroy the company, but it would be it would be a balance sheet affecting event for someone like Berkshire Hathaway, if they had that sort of exposure. It can't be winner take all the the, the exposure is too big. The product is leveraged.

Shefi
Insurtech has introduced this kind of a they're trying to make a Happy World out of insurance. We're talking about the delighting the customers and you know, trying to always pay claims as much as possible, right? The whole fairness and convenience, right all those fun stops but nobody fun stuff. But nobody's talking about the other side. And the other side is that not all carriers care about retention. So some people would want to have a company, a customer with them for two or three years because to them, there's going to be a claim happening and let me get the client before the claim comes. There are different aspects of the business right for underwriters, for instance, do we really want to write the risk, right? So they have this authority and responsibility to make sure that the book is clean? So different segments within the insurance business have different goals and these goals sometimes don't align but the overall messaging of Insurtech is that you know, where the where the better part of insurance. Sometimes it's exactly the same.

Nick
I can't even overestimate how important what you just said is it's there's so many different areas. So, Avi when you were talking, so there's that conflict, what what, what is what drives? Who has the leverage the distribution, or the capacity in these relationships...

Avi
Distribution!

Nick
It depends it depends on what Shefi said, it depends on what your what you're doing. I can tell. So I was in a business meeting last week where we had this philosophical discussion, right, where the one side was, distribution can really dominate and kind of have the upper hand in it. But I think there's a line where, you know, especially in my field, which is catastrophe insurance, I disagree, I think for enduring value, capacity controls, the it has the upper hand, if you if you if you're just selling stuff and you're creating these gigantic losses, you're not going to have capacity, you won't be able to create any enduring value, you have to show that you can keep the losses under control. Whereas they think on like auto and things like that distribution, it swings over to the distribution side, because you won't have those massive event losses. It's much more transactional. There's a lot of friction in the, in the process. So convenience and reducing that friction can carry the day. But I think the Shefi's point, it really depends on what are you trying to accomplish?

Avi
It's an interesting debate. And I remember when Lemonade said that, oh, we hundred data points, a million data points, whatever that is. And they said, they'll know how to, you know, analyze risk better. Now the problem with knowing risk is that it could, you know, kind of, paralyze you saying, Okay, I'm not taking on these customers. We can't, it will but,

Nick
but by understanding risk more as you segment it, the it reduces your total addressable market because decision like, okay, everything below this line, we're not going to even go after, right? Whereas prior to that exercise, you would have gone after that.

Avi
Exactly. And that's the thing. At the end of the day, what do you do with that data? And I feel like for some companies that are desperate, you know, how humans we like to take risks, right? So we're going to say, you know what, let's eat it, let's take that chance we need to grow. And then you you may lose your pants that could happen or not, or you ride the wave, but I think, you know, to me, especially with simple products, like we when we shopped for our media liability, you know, coverage, then some insurers didn't want the insurance because they thought we were I don't know, provocative, so I understand and we had limited supply, not a problem. But for car insurance. You know, the simple products and in some what degree depends where you are home insurance. You know, I think it's going to create so much pressure on insurance companies because there are so many, and someone is going to make a mistake. It's inevitable that someone is going to make a mistake. And at the end of the day, the distribution partner is going to say, Well, I don't care. I mean, as you said, a broker will write any business. Yeah, they want to write business I don't care about. So it's going to put a lot of pressure. But I think at the end of the day, distribution will win because I don't think especially when customers are not coming in knowingly, like, oh, boy, I'm going to make a claim. This is what I want. Everybody talks about insurance as a social good, right? I mean, Lemonade talks about it. So where's the social good, help find a different model? I don't know do a crowdfunding 50% insured 50% crowdfunding like they do in China? Maybe it could work but but I think again, the distribution they're going to win and we know why. final expense, it's worth referring to us you know, Assurance, IQ and lumen co if the amount of chargebacks that limit go is dealing with is incredible, but they still work. with them, you know what, because they're happy to find a partner that can sell their product. So they move on.

Shefi
I think that the bottom line here is and we said this last time, and it's really important, even though not everybody agrees with us, you have to start with a product and different product will lend to different tactics and strategies. And with that you're going to determine, because not every product has the same risk exposure. But almost every product obviously, is entirely dependent on distribution. Now, now let's figure out what's the right distribution, whether it's a partner like Revolut whether it's, you know, still your friendly broker.

Nick
Maybe I'll tell you my experience of having gone through this for three years and having spoken to capacity providers, distribution, VCs about this, it's and sometimes it makes me feel like I'm I missing something, but to your point Shefi it's it's balancing trade offs. There's there's no perfect answer that just it I don't want to downplay distribution, I think distributions critically important for all of it. I'm just you know in the sequence of how how do you strategize this through. I think depending on the product depending on what you're trying to accomplish. Often you have to start with the product itself. In other areas, I think you, you know, you may want to start with the distribution and then work backwards to figure out what's the product. I think there are different ways to do that, but there's no perfect way. And I think the quicker we all realize that there's no winner take all here. The market is just it's the exposure is more...the exposures that we have are more than the GDPs. So they're definitely more than the investable, you know, economics, that that could potentially exist, the markets bigger, it can't be a winner take all the markets plenty big for everybody. So I think it's just critically important to decide what are we trying to accomplish here. That's what makes Assaf's commentaries just so important because I from as I was questioning him, I was assuming that he was going to pick up his model and say, yeah, we're going to do auto and we're going to do umbrella and we're going to do you know, life and, you know, like, no, he he knows exactly who his customer is, and how he's going at it. That's the most impressive thing... impressive thing about what I heard because it's like he, he's taking the risk like he knows I'm, I am going to put blinders on and just really focus my opportunity costs and I think that that's where I think part of the execution fails and is failing for a lot of Insurtechs is they're not connecting enough of the dots there. So the strategy has too many holes in it. And I it's I think they're trying to satisfy too many stakeholders like the VCs want the big, big, big you know, you know, moonshot type of thing and, and but in order to get that you have to sacrifice a whole bunch of other stuff and nobody wants to sacrifice anything. And you get stuck like you're doing too many things. And that's why I like that. I think the the models that execute you can sort of look in and say these, these companies are laser beaming in to specifically who their customers are and how they can serve them.

Avi
It could also be another like a plain strategy, just like Lemonade did where all these years and how fast they were and they still stuck with renters and Assurance. IQ. I feel like they did that to come in for an IPO say, but look at the potential. We're just getting started. No, but you know, so I think that could be also a good way for Assaf to say, look, maybe I'll go into car insurance or going to life insurance. And that would be a big selling point for you know, if they go for an IPO.

Nick
Wouldn't you say, though, that Lemonade knows who their customer like their target customer is?

Avi
Oh, they know. They know. But But you know what, I'll give you the other example. So I was talking to a former employee of, you know, very, very big consumer facing life insurance brand. We call them a brand but okay, and their investors came to them and said, Look, this is not working. Life Insurance, just life insurance is not working, go into Medicare, go into auto do everything. So some investors are saying, take off the blinders. Let's look sideways. Let's diversify. So I guess everybody has a different approach. I mean, if If really Hippo is doing it, be laser-focused and try to get it right. And they come down and say, we have a better loss ratio, better customer acquisition strategy. That's a big deal if they can come and show that. But, you know, the easy thing to do, like when something is not working, is to look at other places. That's the easy thing. You look at other places. And that is, as you said, it's a trade off for like, right, maybe you'll get it right. Maybe it'll be huge all of a sudden, but maybe not. Maybe you'll make a mistake, and you know, you'll run too thin and you'll go bust. But it's a it's an interesting debate.

Nick
Yeah, I almost think that you know, it's, it's a it's a kind of like a mini game of chess. Right. So it's something you know, something to the effect of, I'll hypothesize. Imagine myself like in an Insurtech that's bearing risk and the you know, the loss ratios aren't good. Well, say that, you know, there are traditional strategies to potentially lower those loss ratios. And I think the, what I liked about Hippo is that there's like, okay, there's probably some lower bound that we're going to be able to get these loss ratios to. And it's like, what else? What else can we provide? Well, let's think outside the box and think of other other non insurance ways we can drive down these loss ratios. Oh, and there are other ways we can service the customer at the same time and generate another form of revenue. Like it's that is more strategic like there's there seems like there's a strategy of moves here where Yeah, things are gonna fail, but that you can you can do the appropriate testing, to to experiment to see what's working and what's not working. Give yourself enough time. And I think with a lot of these other insurtechs they don't have that strategy in place. It's if the like, the first thing fails, they're dead, you know?

Avi
Yeah, I mean, not everybody raises hundreds of millions. That's the problem like you need, you know, a lot of money. And not everybody could do what Hippo or Lemonade or Root because they don't have the resources. But

Shefi
there's one there's another element here because Hippo's ecosystem of smart home players, allow it to play in and the cheaper side of the smart home and still use that as a great marketing and positioning and everything. I mean, he said, He's not sure if he leads with that, but his website certainly leads with smart home insurance. So

Avi
and they're looking for a marketer. Yeah, they're looking for a marketer that will actually be dedicated to that segment. So, you know, it is a differentiator because, you know, other insurance companies are not leading with that. But yeah, I mean,

Nick
So let me let me throw this out this way, right? For what I do day to day, are there things that we do or that like I've suggested, right that we do. Where I'm not sure of whether this is going to move the needle for like financial results. But there's a second order or a third order of thinking here because I'm, I'm, you can use like so Hippo uses the Smart Home, Smart Home may or may not drive down the loss ratio. Right, but Shefi to your point. It's a marketing tool. There's a, there's an added element to that that you can leverage. And that's where that's where I'm sort of going with the strategy is that, like, day to day we test stuff to that we're not sure we're going to move that's going to move the needle. But what it what it does is for like our stakeholders, it gives them a sense of comfort that one we're constantly experimenting, right and where and where they can see that we're we have a committed focus to trying to figure out how, how can we improve our loss ratio? How can we do that? And it might be another source of data, it might be something else, but we're constantly experimenting with it. And I would say most of the time, I'm like, I'm indifferent. Like I don't I just don't think this is going to move the needle a lot. But what all of us if you string together all of those experiments, what I found is that it's made us a better company, all of them, like, yes, even the failures stack on top of each other. And we're better off even with those piles of failures.

Avi
And you know, just I'll add one last point to talk about strategy. And if whoever's listening Google the McKinsey documents in reference to Allstate, I don't know if you know the story. But read that as a strategy, how to be a better company in terms of profits, whether or not the company actually adopted. This approach is still debatable. But the McKinsey documents and reference to Allstate a fascinating story

Nick
Is that available? Yeah, that's Can you find that? Can we put that on the show notes?

Avi
I think I can find the link and I think I can find

Nick
for those that are listening, well, we'll research into that. Find that and we'll tag that to the, to the show notes.

Avi
Yeah. Yeah.

Nick
Because I would, I would like to read that.

Avi
Yeah. It's amazing, amazing story. Really amazing story.

Nick
Okay, so, this was supposed to be a three topic episode, but I think we did one because that one was plenty to, you know, talk about the hottest topic of the week, but also go into tangents into other things that were very important. So, again, this stuff doesn't end if it feels in some ways, like we're talking about the same thing over and over and over, but one, I think those topics are just so important, but there's always a twist to it, you know, like, this one's the FinTech element that's coming in. And, you know, I think, folks that will think about this deeply, deeply, I think we'll see that their patterns emerging here. And you know, just stay tuned. That's all I can say. What do you guys say?

Shefi
Well, I think there's nothing new under the sun. So you're always going to be talking about the same things, but we aren't talking in terms of the same context. It's just different companies. So you've got, you know, in terms of Blurred Lines, right, a lot of people eyeing insurance lost the opportunity, vice versa, you can go beyond then maybe just a shout out to State Farm, who are launched Sundial labs and it's basically a different brand entity under the State Farm umbrella of companies. And their goal now is to focus on seniors and in the connected home space. So monitoring seniors and it's a substance product so they can make revenue outside of insurance. We always talk about going beyond insurance or just giving credit to those that do very early on. I mean, right now they're in the introduction, Introduction phase of where there's actually a promotion going on. So limit, so different pricing. But this is very nice because typically when when Avi and I read about seniors in the context of insurance, it tends to take the negative aspect and you know, this is this is a positive. So yeah, to add that a positive note.

Avi
I think it's all positive. I think I remember, in the early days, I was talking to Shefi, about Coverager and said, Oh, boy, what's going to happen when all these like other companies are going to enter insurance, there's not going to be any more Insurtech or, you know, we're going to see nor like the companies are going to disappear. But it's actually very interesting. Just this week, we saw that rivia and the electric car company, they've hired a new person to builder agency. So in a way I feel like like Insurtech 2.0 is just getting started. Yeah. And the question is now, do you still want to dedicate yourself to Insurtech? Because if so you know where you need to look. But if not, you look at State Farm, when you look at other companies really going beyond, then you know, the world is open, you can do so many things. And, you know, you don't just have to be an insurance. That's, I think, like the ultimate takeaway. At the end of the day, you're a company, you're in the business of making money. And there are different ways to make money and models change. You know, models change all the time. And you just as Shefi says, be on your toes, be on your toes.

Nick
That's a good way to end. So Shefi, Avi, thank you.

Shefi
Thank you, everybody.

Nick
For everyone that's listening. still stay safe, try to at least, and have an awesome weekend. And Shefi, Avi have an awesome weekend.

Shefi
You too.

Nick
Bye everyone.

Shefi
Bye bye

Transcribed by https://otter.ai