This Week in Coverager (8/7/2020) w/ Special Guest Assaf Wand, CEO of Hippo Insurance

Shefi, Avi and Nick are joined by Assaf Wand, CEO of Hippo. Discussed:

  • ADT/Google Partnership
  • Progressive testing the Root telematics model
  • Assaf opens up about his view and Hippo’s bet on smart devices and other technologies to form deeper and more meaningful relationships (and differentiation) with customers.

Watch here:

 

 

Transcript

Nick
And we're live This Week in Coverager for the week of August 6. I'm getting better at this August 7, because this is a special edition of This Week in Coverager. Instead of our typical early Friday morning, this is a late Thursday evening recording and then broadcast on Friday. And, as usual, I have my two co hosts Shefi & Avi Hello.

Shefi
Hello.

Nick
Hi. And and we have a special guest. So this is going to be a first for This Week in Coverager. Assaf Wand, CEO of Hippo. Welcome.

Assaf
Thanks for having me.

Nick
And you're coming from Tahoe?

Assaf
I am coming from Tahoe. So if you're going to find random people coming in or the connection is going to be a bit shoddy then I apologize up front.

Nick
That's okay. We were hoping for a background of like a vista with the lake in the mountains. But next time

Assaf
I'll get I'll give you a sniff kind of later when we finish.

Nick
Okay, okay.

Shefi
Was going to Coney Island last week, so I'm super jealous under the COVID circumstances and being in New York City so

Avi
Well, what did you do at Coney Island? Why did you go there?

Shefi
I first time trying the beach. I don't think going back

Avi
Last time, let me tell you when I walked to the beach in Coney Island, I almost passed out. The distance from where the sand starts to the beach. I saw someone like faint there was like an ambulance. It is so far and it's so hot. I don't know why they did it like that.

Nick
Cuz

Shefi
back the telematics...

Assaf
You guys are New Yorkers. You should rough it up. What are you talking about...this is not for wusses. This is Coney Island. This is make it to the beach. You earned it.

Nick
It's a short walk from the subway to the to the beach. So no problem. No problem. This is the podcast where we look back at the week's events, we pick a couple of the bigger topics that have gotten hits on the Coverager page. So I'll kick it over to Shefi. To talk we're going to actually group two topics into one and get everyone's opinion on it. So Shef...

Shefi
Yeah, so I guess by luck or by circumstances, the first we started the week covering the news, the partnership between ADT and Google, basically Google purchased at 6.6% stake at ADT for $450 million. And basically they want the rights to distribute their Nest or Smart Home products to ADT's 6.5 million policyholders. So a lot of millions right here. And this isn't the first kind of, it's the first kind of partnerships at this scale. But ADT has partnered in the past with Ring. And, and, you know, everybody can understand why they're eyeing the smart home space. Yeah. On a different topic on auto telematics, we picked up the news this week, that Progressive is basically getting closer to Root's model, in which they're saying that with our Snapshot deal, they're going to first collect data upfront from customers in order to show them a premium. So there is a test before you buy, very similar to what we're seeing with Root. And obviously if the price is right, and if the driver is a good driver, then there's going to be a marriage of some sort. As you know, if you read the earnings call of Progressive, you've seen that they talk a lot about increase in shopping. And that's just a testament to how the how the space is competitive and getting even more competitive. And it's not new, because if you think of the new entrants that are entering the space, a lot of them center around making it really easy and convenient for people to shop. So Progressive is talking about experiencing this basically on their own because quoting is up buying less so and so they're basically anticipating a lot more competition and we always talk about moves and countermoves, Root does one thing, Progressive does another thing. You know, similar probably with Hippos and home insurance based, you've got one big player versus the other and that's what makes the space so interesting. So telematics...my personal opinion, is that with home telematics is a long tail. So it's really hard to measure or play around with that data in terms of mitigation. Auto telematics...you know what also kind of there's a black box? It's called the black box for a reason, even Progressive when asked, What is the factor of that usage based insurance data when pricing their auto premium? That was a simple question, rank it to me from one to 10. They're not going to either ready to say, well, it's based on a lot of factors. And it's based on the demographics and it's based on income, and it's based on education. And it is also based on how somebody drives...from a marketing angle and I'm a big component of marketing and this is my, my comment to Hippo, which we'll get to in a bit smart home insurance, sounds great. So from a marketing messaging standpoint, you're getting the customers that you want to get on the backhand. How much of that is, you know, how much does it cost versus the revenue that you're getting? That's still a question mark. So let you guys chime in.

Avi
You know, Assaf, and this is something that you said I think when you announced the recent funding. I think the timing of Google and ADT is interesting because Nest has been out for a while. And you know, Google has been in the space for a while, but I just saw a tweet from the CEO of Zillow. The real value of home has never been clearer. We're grateful to post record q2 results today. So you said people are buying homes like crazy. And I wonder if Google is seeing all the tech people and kind of like their audience, moving to homes and they're saying this is the time that we need to kind of follow them into their next phase of their lives. So I wonder if it has any relation to that.

Assaf
I'll give you my view. I don't think it's tactical I think its strategic. Nest being acquired several years ago hasn't been doing too well. Too expensive a product. Some products are really really nice, but hasn't really moved the needle for them. Amazon is doing aggressive moves...acquired Ring. Trying to get into the home, trying to add all kinds of other components, which are monthly, basically monitoring. And I think this is the platform for Google to do that. Google would not compete with Amazon on something that requires a lot of headcount. And they need to offer it via someone else. And I think this is a ADT is the largest player on that space. And I think this is a, it's a logical move it's a platform for Nest is a subscription based monitoring. And it's probably the best alignment they could have found. It's just expensive, but it is what it is, and it makes sense to me.

Shefi
So two follow up questions on that because I'd love to take to get your perspective really on Smart Home telematics in terms of consumers, right. It's really hard to get data on the subject. One, my understanding that in terms of priority, the policyholder first values, the safety of at home, so video, what do you think about that?

Assaf
Okay, well, it's a so let's be very specific what customers want, what end customer wants and what insurance companies want are two very different things. The things that we care about, has to do with water leaks, smoke, fire, and only, you know, very, very low on this list is breaking and entry and you know, burglary and stuff of that sort. Customers care about that component, which is usually burglaries and breaking and entry. Anything that has to do with breaking and entry has a very, very low frequency, and a very low severity, hence why insurance companies don't really care about it. We can have a side discussion by the way burglary is almost gone from the world. In a world where nobody keeps money, everything is credit card, and you have cameras everywhere. There's very, very few burglaries the kind of thing. Commercial burglaries is a different thing which is another topic. So it's not very it's not something that happens too often. You're trying to align what the customer want and what you want as an insurance company. And make sure that you know, you get the benefit of reduction in losses as well as all kinds of other benefits, the marketing, the perception that the safety and these kind of things. So there's a very fine line, we realized that we can give a very, a very broad offering. So what we did is we're trying to find well the best of breed to give a simple offering to the customers. We have two offerings in Hippo, we have the basic home, basically their basic home protection, and advanced one, the basic one is self monitored. And we partner mostly with Notion and with Kangaroo. We'll then test. It's two different things. One of them is a company that offers a multi-sensor so you get water leak, motion sensor, smoke and stuff like that all embedded in one sensor, and its Notion were acquired by Comcast. And the other one is a company called Kangaroo, which brings you a bunch of basically, specific, targets specific kind of thing. Motion sensors...so you get six motion sensors, small one, and you can put them. So instead of having one big multi sensor, we have very specific one. And we're testing both of them. Our clients love them. We have north of 70% installment, right? Yes, you're

Shefi
still saying testing? Yeah. How long have you been testing them?

Assaf
It's probably gonna be another three years until we can have it definite numbers. This is think about this way.

Shefi
Because there's less claims?

Assaf
Because because of the frequency of claims, because let's say we have 100,000 customers, the frequency of claims in home is around 5%. We're talking about 5000 claims per 100,000 people, then half of the claims are as to do with catastrophes and has nothing to do and I have failed to find the IoT devices stop a hurricane and a hail. So you're left with significantly lower than that and then even on that component, not everything can be stopped or mitigated. So in order for me to have a very concrete number that, you know, is not sporadic that we stopped water leaks, and people loved it and stuff like that, I need to have a statistically significant number. So I can go to the regulator and say, listen, if you put this product in, you will see a three and a half percent deduction. And in order for me to do that, I need to collect more data over a significantly longer time, hence why it's still testing. It's been used, and we have you know, we, distribute hundreds of thousands of these products, and I have a ton of sporadic numbers on why it's been efficient, but for me to come and say, listen, and I'm telling you, there's a "6.3% deduction"...I don't have that conviction, but it's a process and hence why but the testing is not I'm giving to 5% of the customers I'm giving all across to all of the 100% of Hippo's customers are being offered that component and north of 70% are installing it. So there is a significant number and which time we have more and more and over a period of time, I'm starting to see now he's getting clearer and clearer by the day. And my conviction on the benefit of that is is very high. Let me actually take it even a step further. There are three reasons to use the IoT devices. It's marketing, so people have an alignment, but the marketing is actually broader than that. It's the fact that I want people...insurance doesn't have a touch point with the customers. Insurance company don't want to touch the customers, because they're afraid of there's going to be dislocation, my aim is to have positive touch point for the customer. So Shefi at the end of the year is not saying I just spent $1,000 and didn't get anything from the insurance company. I want to have positive touch point with a customer and remind him of the value that they get. That's one. Second thing is reducing churn. If I gave you something and you actually got a benefit for that, because we have a we file and got got an endorsement for a smart home coverage which you give you a discount, I'm still sponsoring and you're getting this product, but you're also entitled to depends on the state between 3.5 to 8% discount. This was a battle with regulated after regulator to explain that this is not an inducement, I'm actually not benefiting from that, I'm giving you something which is very tightly linked to reducing losses, and I'm giving you a discount for that. Hence, when it comes, if it was beneficial for you, the chances of you churning is lower because you're going to waive this discount, and you're going to you know, you're going to enjoy this product. So though, the self install and self monitoring, so I'm not you're not sending them back to Hippo, you can still enjoy them. And then the third one is the reduction in losses. All of these things work together to make the economical benefit that we that we want to get. The reason that we're using these self installed products are also the price point, because if it's $300 then it doesn't make sense to me because you know, that's a crazy CAC and a crazy churn. But if it's $50, it makes a lot more sense. So my aim is to find the best of breed hardware out there, which the hardware provider is a lot more sophisticated than me in doing what they're doing. And then try and test whatever is the most beneficial for loss ratio and for customer. So that's our, that's our strategy for the IoT devices. And now we have a very high level of conviction. We work on the smart home, also with Simplisafe, with XFINITY Home with Vivint and several others over the providers in order to also get their customers and basically supply them discount.

Avi
So I have a question Assaf, and this is actually something Allstate said today in yesterday in their earnings calls, and I'll read the quote by the CEO Tom Wilson, "it's always hard to tell what customers will do. We've always found that precision works for us on the long term and those people who rush to grow and not have precision to it, end up having to fix it later. So if you look at homeowners, people trying to grow in homeowners are taking huge losses, like we just don't think that's the right way to build business because you get the customer for a price that's not appropriate. And then you either have to lose them or manage them at a much higher price". And, you know, I've been speaking personally to some of agents that sell Hippo and they have great things to say. And one of the biggest things the good things they say is, the price point is so competitive. So where do you come with a really competitive price point and you're talking now that you're getting to a place with conviction and the Smart Home is helping But before that, the prices were really good.

Assaf
Too good! Let me be very upfront, they were too good. And...I'll take a more extensive actually, I'll give you my my five year learning as a founder in this space. You start as a technology founder. And when you start as a technology founder your entire hypothesis is it's not the price. It's about growth. And price is something that you haven't decided because you don't really associate price with losses and with loss ratio, and things of that sort. Hence your focus on basically the growth component. And then what happened is you push a product into the market, there's crickets, nobody buys it. And then you have signs of life. And then you're trying to figure out what's the signs of life, and then you open the crack and you double down and you focus small, and you extend, and that's how you build the product. And then you find what's the similarities? What's the commonalities, and you start extending. In insurance, It's almost at 180. You launch a product and then the first people that buy it, you need to ask yourself, why the hell did they buy it? Why the hell did they buy that all of the other options, but they bought for me, what have I missed? Did I miss underwriting? Did I miss pricing? What have I missed? Okay, so that's the first question. Then, because you'll count it and you start to actually work and push a lot more products, you don't even have in the back of your mind this entire notion of diversification. And then you'll find yourself that you were super good in selling your home insurance product in a specific area in Texas. It comes to reinsurance. Are you freaking crazy, you are not diversified, you're too concentrated. So there's no doubt that component is also lacking. Then you enter the market and you can never really find the right pricing and the right quotes, and it takes you quite a long time. If you if you f'd it up on pricing, it's not that, okay, I'm just going to change the prices. You need the regulator, you need to approve...he doesn't let you increase for more than two, you know, from too much. There's a process you can only change the prices in the renewal. So it takes there's a long process. We realize in any in Hippo, we think that Insurtech is made out of tours it made out of insurance and it's made out of technology. My goal as a CEO is to manage that balance and that friction that we need to have best of breed loss ratio, as well as utilizing all kinds of technology and ease of use. We erred at the beginning that in some areas, we were too cheap. And we had to take rates and you know what and and customer hated us for that. Because for people which don't understand how insurance work, they think it's a bait and switch, I got you in for a cheap price and then in the renewal, it was a 15% increase. And I can tell them listen, prices and reinsurance happened, my loss ratio has increased. I had a gap in underwriting, it's not a discussion, nobody even understand how pricing happens that it's based on loss ratio. So in some areas, we'll stick to cheap in some areas will not. Don't forget that price the way that we're doing it, so we're using the latest and greatest in by-peril and all kinds of, you know, the latest actuarial kind of stuff. My aim is to shift insurance from a game of big numbers, which is averages, to a game of big data, which is basically pricing correctly the right risk. And what happened is it's cheaper for the right risk that we want to take the risk of actually subsidize the bad race for the carriers. This is the rick that is probably going to be the cheapest. And for that, they're still going to get the right price and the cheaper price. Lastly, to just to finalize that, we still might be too cheap in some areas, we're still taking a rate. We're still finalizing, I do think that probably we're not a price game. Our aim at Hippo is not to be you know, the cheapest price you can get. We think you can get the most amount of coverage because it can never really it's never an apples to apples. You can get service line and water backup and Equipment Breakdown and the lowest amount of fees and if you pay with credit card, it's going to be you know, the lowest fees and all kinds of other benefits because we actually changed the forms and the coverages it's a modern coverage. It's the most comprehensive coverage for the right price. Hopefully we we are cheaper, and you know, it helped us convert and get more customers, but it's not always the case.

Nick
Yeah. I would say having watched the Insurtech field kind of evolve over time, specifically the ones that have come into the property casualty space. I see two I seen to kind of splits. One is the Insurtechs that come in, and they don't understand insurance. Okay? And to them, it's it's more of a technological problem, the way that you described it, it's, we're going to make it easy for them to buy, reduce friction and all that stuff. You obviously have learned that particular lesson one thing I find, especially interesting as you're describing it, because it's sort of ringing all the bells that I think about in in my day to day business, is that you don't want to be in the pricing game. So you're readily admitting there, there could be pricing issues and may take little bit of time, but you've done a certain number of things to sort of differentiate yourself that I think a lot of the other Insurtech have not done. Right. The actual product design, I think is always on the, in the back burner. And I remember my first conversation with Rick Mcathron when your insurance guy and he was saying how we redesigned the policy form. It's going to be more modern, we don't going to cover furs and stock certificates. It's going to be reflective of a modern home that has electronics and data and different kinds of risk. And I said, Okay, that's, that's really interesting. In swinging into the telematics, I think what you've brought up I think is just like almost like a classic business, MBA 101 type of thing, which is like, if you don't want to play with the price, differentiate your product. And as far as homeowners go, that's the one thing I've appreciated most about Hippo over these years is like I feel like you're on the boundary of really making it different, like the contact points, the telematics, the coverages, but yet still in a in that digital form, so it's true. It's using that technology to be able to do that.

Assaf
So let me I'm going to lay you the strategy. I don't find it. I don't think it's focused science. I think strategy is never the complicated thing execution and delivering on what your promises. That's the hard thing. So we had similar thoughts. And the thoughts is if I asked you Shefi, what's the difference between Travelers and Farmers and State Farm and Allstate and we say they have captive and now they don't have captive and then but what's the difference in the product? It's exactly the same isoform it's exactly the same product and it's a question puzzle and I don't think that's a good differentiated aspect. I want to change the customer experience. And what we're covering in that was the first kind of discussion that we have. The second thing is if I'll give you over five years basically what happened with Hippo...there was three points. The first one, we started to build the Geico home insurance. We're going to build a direct on one insurance company. That's how we started the company. The average age of an agent is 58. Now it's over 60 and it's still there, nothing has changed. What we realized is that while that hypothesis is there, the actual product was supposed to sell, we were set up as an MGA and we were supposed to basically sell someone else's product until they actually let us change the product. that the product is, as Nick was saying, was obsolete covering you for furcoats and pewter bowls and China and silverware, mausoleums and Crips are covered, but my home office is not covered and electronics capped at $2,000, and bicycle and camping and I can give you a massive list, exorbitant amount of fees, initiation fee, policy fee, cancellation fee, inspection fees, tons of stuff like that. Not a lot of variety on other stuff that you can actually change with payment terms and things of that sort if you pay monthly or quarterly or yearly, you're going to have latches of all kinds of extra cost. It was just a very different experience. And we said, listen, the benchmark is not what Allstate and State Farm is doing it's what Amazon is doing. That was basically the benchmark that we put to ourselves. And that forced us to start changing the product. And if we change the product, the changes is not just uncovered in the forms, it's in the actuarial table, it's in the fees, it's the fact that the problem is that you don't have any intelligent discussion with your agent. And then you see that the problem is that nine years down the line, you have a tree that lifted the sewage, and you're calling your agency's...Nick look, it's an $11,000 damage for my sewage. And so you never bought service line. And you're like, what the hell is service line and now you need a full lecture. And you're like, why nobody talked to me about that, and you're really, really pissed at them. So the problem is not claims is the problem is that Shefi thought she's covered for something that she's actually not covered. And we thought we by reducing and changing what kind of coverage we need to lift up the coverage to make sure that you have the most comprehensive coverage. You have service line, water backup, equipment breakdown. All kinds of other stuff that we have in every policy every customer has to got. So you have the most comprehensive coverage. By the way, it has some benefit and loss ratio, because some other partners are covering Hartford steam boiler, Mutual Boiler Re are covering some of these components, and we transfer the premiums to them. So you then, yeah, just one, what and then came the last phase of the company in my mind, which basically comes from the following point. Think about your current touchpoint with an insurance company, you have a crappy experience at day one of onboarding takes you three days to get all of the of an agent, you need to jump through the hoops of 70 questions...fine. There's a lot of people that focus on that side. And then you have a crappy experience at the other nine when you have a claim. We spent three years changing the entire claim. And Nick by the way, one of the things that people don't, we don't use a TPA. We're doing all of the claims in house we have a massive call center with claim conceirge, 24 seven available over the weekend. You name it, they have an NPS score. 70 on the claim side, yes,

Shefi
it was actually something that you haven't changed because that was your mantra from day one humans doing claims. I remember that.

Assaf
We agreed. And we thought maybe it's going to be bought and maybe, but but we realized that the scenarios that people have when they have home, and you know, you have a burglary at 11pm when you came from your friend, or when you have water leak in the basement or when you have fire, God forbid, the last thing I want to talk to you a bot, this is not a $700 iPad that was stolen. This is a $17,000 thing and I need someone to come and close the water shut valve now. And then take a look. So does the experiences that are different. And what occupies my time is this nine year timeframe. That Shefi is a Hippo customer, which the insurance don't go to your customer go to policy although and and in between, how can we align the interest and we shifted in our mind we call it being a proactive insurance company. Not in the idea is how do we align interest, you don't want to inform me too much. I'm your insurance company, you don't think I'm not your best friend, and you don't want to you nudges and all kinds of stuff like that. So the way that we found, which has been efficient, is if we help you with reduces losses to the minimum amount possible, because the best claim experience is avoiding claim from happening in the first place, and not giving you a check on the spot when happened. Because if you have a water leak in the roof, giving you a $17,000 check, and the second that it happened for three weeks, you're not going to be at home, and you need to find a service provider and stuff like that. So this is what we're doing with proactive with IoT device with ongoing underwriting with with Shelter acquisition, we don't tell tele-maintenance, keep supporting our customers in that nine year timeframe and adding value to them.

Nick
So my expectations, my expectations will so your vision and my vision completely aligned, so no smoke blowing here. I've been Hippo fan for a very long time. So just kind of disclaimer. Lay that all out. My expectations will be with that kind of product Assaf, it'll be, the rates will go up. I don't think that's a problem I think the way you're kind of laying it out I think people, people will appreciate the the product that you're giving them. So I'm now thinking, Okay, what about the what about the customers you don't have yet? How are you going to sell them when insurance has this particular stereotype and a lot of people that go and buy it and shop for it? They are they have trouble you know, with the with the commodity aspect of it and they may go for the cheaper price. What's what are your thoughts towards the distribution aspect? How do you get it in front of them and educate them so they understand the quality of the product?

Shefi
I'll add to that so you can answer the you can answer it together because everything you're describing, well, not everything but three fourths of it is aspirational, meaning you're still have to you still have to deal with home insurance on their a catastrophe loss or wind and hail to your point, as you said, a lot of the telematics the tele-maintenance, their roof, the water leak, we still don't know what the mitigation number looks like. And what I find interesting, it's not really a question is actually you're going the route of having two customer bases, a customer one customer base that said, I don't want the product that you're sending me the other customer base said, Sure. Assaf give it to me, I'll install it. I want the engagement. So one, what is that engagement look like? And obviously the bottom line, where is the retention is the retention differ between these two groups because the market is competitive. And at the end of the day, it is going to be Hippo, maybe Hippo versus Branch, maybe Hippo versus Progressive, pretty sure you're running into that one already. And you you do depend on agents to sell the product and the extra coverage which the Joe Schmo on the street may not even know To ask for it, but you've already done the research to to differentiate between you and a different carrier, I see that as a plus. And as a minus unless you don't charge a premium for it.

Assaf
So every point of benefit on the loss ratio enables me to overpay for all of these things, which are not that costly. We don't have to customers, we have one customers, around 80/90%, of basically opting in, and only 90% of them are installing hence why it's north of 70%. It just for some people, this it's still sit on the mantle, but a very, very, you no small amount of customers are choosing it, or basically opting out. There's always a bunch of people that don't want to have monitoring and things of that sort, which is fine. We treat all of the customers the same. And we don't even do an adjustment on insurance and stuff like that. The numbers on the churns out are very similar between these two hoops. Churn in home insurance in general is not that significant. Not it's not our focus. I think there's a basically two main things that we need to put on the table in it one, home insurance is 100 billion dollar market. So am I running versus State Farm? Yes, but they have a $25 billion book. And I have a $300 million book, I have so much more leeway to keep on growing and my aim is actually not to kill Allstate and State Farm. But I think I can I can grow into a $5 billion carrier, you know, premiums as a carrier in I don't know, 5/7/8 years, and that's completely fine. I built a really, really big company. The second thing, my all of the choices that I make are not short term. We think there is a place to build a new franchise in insurance with a very different customer centric approach. And you know what, and we might end up at the beginning on giving it cost us too much on the IoT or we gave the wrong IoT, or we over treated the customer or we did we bought this company Shelter and the idea was to do home inspections and things like that. And then COVID happens. So I couldn't send you anybody to your home. So we shifted them to be tele-maintenence. And you know what another customers love it. And they're calling us because they have a DIY project. And because they want to install a shelf, and some of them have a problem with the leak and someone walked them forward this entire thing and book this stuff for them on Home Depot. And it's massive. And was it intentional and strategic? No, but it happened and things happen. And if you making choices that are not just about what's the expense ratio for me in the following week, which is one of the things why I didn't think that we're ready to go public right now, although there was no lack of opportunities to go public because we haven't brought our self to the right conviction that we have de-risked all of the components that we wanted, will definitely in the right direction, but choices that we're making are long term or not short term, are not, you know what I overspend this and it's on the CAC and...fine then we did that we know what we're testing. We had the hypothesis set up front and then we tested after six months, 12 months, 18 months etc

Avi
I have a few questions and one we'll start with the easy question is how did you become successful working with agents and saying successful because a lot of Insurtech companies, startups are trying to get agents to sell their products and they're they're not seeing success in that area. What's your secret?

Assaf
Hey, there's no secret. One of the things that you learn in insurance is that it's hundreds or it's a very hard work on dozens of things. There's no silver bullet. It's not Oh, we'll wait ship or it's one click, it doesn't work like that. Hence why I don't like when someone said we're disrupting insurance. We're not disrupting, we're improving it and we're working diligently on 5000 different points for us. Just like we have a customer which is Shefi the end customer we have a customer which is the agent we keep on interviewing them and what do they need, and what do they get, and a quote one and a quote two and an easy bind, and differentiation and we give them the talking points, and we help them and we give them support. And if they need help, and if you know if the beginning of this COVID, agents were under fire, and we, compensated them more than we do, because we figured that a lot of them are mom and pop, and they would need the extra cash because they're understrength and stressed and you know, it would come back and going to be beneficial for us because we treated them well. And we constantly think of them as our partners is not as someone you know, contentious. We were also very honest with him that there is one price. will only channel it doesn't matter if you know if Avi comes from hippo.com or it comes from First Connect agent, or former Liberty Mutual agent or from Simply Safe, you're always going to get the same price. It's my problem, how I manage my profitability, but for you as a customer, enhance the agent as well, because he knows as opposed to what Allstate just did that if you go to allstate.com you're going to get a 7% discount, what so all of the agents need to think about that deal. So we don't we're agnostic, you're always going to get the same price, we treat our agents exactly the same as we treat everybody else. Their our customers, we have PM's, to take care of them, we have, you know, think about as an enterprise sales kind of channel with SDRs, with the entire frontend to help support them, product marketing to take care of them. They are partners, and it's a significant part and we treat them like that. And if they need a tweak in the product, because they said, Listen, in the northeast, there is a problem with this and we need to change the water, you know, the flooding kind of thing, then we'll Okay, fine. Let's implement it, test it. See, do you like it? Can we tweak it again, and we work with a lot of these guys as partners. And I think that it's, It's not a direct versus non direct. It's, it's, it's treating everybody fairly and again, I might leave some money on the table. But if I'm building a franchise over the long term, and to treat, you have to treat agents on a long term kind of basis, you can't like this week, I'm going to give you this and next week, I'm going to change your Commission's and then they're going to hate you. We treat them as partners. And that's how we I think that that's basically the secret sauce if you ask.

Avi
So if you go for an IPO if you go for an IPO, and I'm sure if someone will come and say, here's a big chunk of money, we want to acquire the company, you're probably depending how much or you're not going to say no, we're going to we're going to go be public. Do you think working with agents and I'm saying this because of Lemonade and because of Root which they don't work with agents, do you think that's going to hurt you in the public opinion I that you are dependent on agents?

Shefi
I'll give you some more context around that because we've got the VCs chiming in in the back of our head saying agents don't change and you work with agents we deduct the point has has have they shifted their mindset because more and more Insurtechs are working with agents and obviously you're waiting

Assaf
I don't play the VC game. I play what we think is the right thing to build a franchise over the long term. And having agents is helped us a lot. And they've been great partners of us and the right agents are working very well with us. But I'm also doing direct. And it gives me diversification of basically revenue sources, though there is a massive benefit to working with agents because most of the costs are variable costs. So cash flow wise, it's way more beneficial. I don't need to spend CAC, but my LTV is lower because I need to basically share it with someone and it's fine. We made this choice. And we know how we're managing that...

Shefi
Your otherwise sharing it with Google and Google ads, right. So that comment actually is something that I always disagree with when people say it's not necessarily the most expensive channel, but there is a management aspect. And I'm so curious, the makeup of Hippo in terms of service, engineering, technology, marketing, what is it? Can you can you share a little bit about how Hippo is built?

Assaf
Yeah, so we have, you know, again, as I said, it's an Insurtech. So it does like there's a significant tech side with dozens of engineers and superstrong that are based in Palo Alto. And, you know, people that came from the best companies and the product team, but also an insurance product team, which is very, very different. And the marketing team and all of that and the finance team and all of that the standard technology kind of company, just beefed up by insurance thing. We need someone who understand how to report insurance accounting and things of that sort. And then at the same time, there is a full insurance operation from a bunch of underwritersand actuaries. I think we probably have the best, the best Chief Risk Officer in the industry.

What's her name?

Yeah, Nicole Perrault, okay, she's the smartest person in Hippo and she you know, and she has a crazy strong team of actuaries who keep on fighting and underwriters and things of that so at the same time, we have a full massive center in Austin and sadly, some of the some of the insurance operations on growing linearly, in some of the other stuff are going exponentially. Because if you have a 5% basically losses, then for every 100,000 customers, you have 5000 claims. And even if I'm you know, our guys are managing 60 claims or not 40 claims, which is 50% better than the industry, I still need to have more people on the claim side to keep on supporting and I have a call center and have a service and a billing and that so there is the insurance operations as well. At the same time. We treat everybody, everybody are part of Hippo. It's not the A people or the B people, it's just not...they're the frontline of people. Hippos NPS and customer centric approach needs to come from the people that actually touch the customers, not for Assaf, who sits in the back and then you know, wave his hands. It's the fact that you're calling a billing, you're calling a call center, you have a claim, God forbid, these are the people who actually have the most touchpoint and this is I think, you know, another secret sauce like that's how we raised them. That's how we choose empathetic people and these guys are the most amazing people. These are the guys that are doing the hard work.

Nick
So I want you to, since we've occupied your time for a considerable amount I want to ask, you know, one more additional question, which would be...fantasizing. So, you got Shelter, we're dealing with IoT, my sense is that there's a view that insurance is going to dramatically change, you I think you've talked about that you said, a different kind of franchise, so fantasize with us. There's Is there any part of you that's thinking Hippo will go into other lines?

Assaf
It's not my focus now. I think,

Nick
fantasy?

Assaf
Yeah, my fantasy is to actually move a lot more you know, deep in the home, I want to be your one 800 number. Every frickin thing that happens. You're locked out of your home. Don't call a locksmith on Yelp. Call me. I'll send someone to your home.

Nick
Okay.

Assaf
You want to do a renovation in the house will take care of it, your home appliances, we'll take...I want everything that, I think that people have a tendency to, you want to live your life. And there's some components that you want to put on the back. And you don't want to take care of it and it's a mess. And it's a game of trust insurance. So I want to be your trusted partner that if anything that's wrong in your home, we'll help take care of you. And then

Nick
service so your your product ultimately isn't insurance. Your product ultimately, is something more lifestyle oriented, I don't know, risk management scheme,

Assaf
it's a risk management kind of thing. Some of them are well funded service, some of them this design is like you know, warranty, but all of that kind of component layered into one. I just want you as the customer to have one go and then just go and we'll take care of you and I also think that there's going to be a massive debundling of insurance, which is what starts to happen mostly because Geico and Progressive debundle everybody but it's also because that's what happened in banks. You used to go to a bank used to be, you have an account in Chase, and you used to take the mortgage, the credit card, you're saving your money market account probably trade stocks in that kind of thing. And that's not how it's done today. It's completely debundled, you take your student loans from Sofi and your mortgage form Better. And you know that you just it's all in your credit card from United and the bank is just one kind of thing that gives you a certain services. But insurance companies have this entire belief that it's not going to happen in insurance. And I don't view it this way. We have a saying that if you if you tie two rocks together, they don't float. So if you get a crappy home insurance and a crappy auto it doesn't make them a better product if you tie them together. And I think people are going to move to best of breed products to bundle them. It can be a Root and a Hippo if you need that kind of component, or Progressive and Hippo and Geico, Hippo or even a Liberty or a Hippo, it's completely fine and you know, it might be that you're going to buy a mix of product that fits exactly what the customer needs. And not everything one size fits all, which is how the industry is is basically running today.

Avi
You know, I have one more question that I'm interested in a strategy question and we often see and this is from the incumbent side so they look at Insurtechs they say okay, we like what they're doing. They try to copy it but they don't go all the way and I'll give you the example today with Progressive and Root. So Progressive did this in the past, they did the dango 2012. They sent it to someone's home, they put it in the car, went for a test drive, 30 days, maybe they get a good quote. Now they go with a smartphone. So basically, you don't need a device, you have a smartphone, you can do it. But unlike Root, which comes and tells you Hey, from day one, you'll get the insurance like don't wait 30 days here you can buy Progressive and saying wait 30 days, if you get a good price, you get a good price. It feels like and again, this could be from different reasons. But Progressive doesn't have the confidence to come and say to you, hey, Assad, for the first 30 days where you're going to drive like a grandma, while we test drive you, you're going to cost you know, $60. then a month later, we'll tell you what the actual quote is. The This is probably a reason why they don't want to do it as maybe you could say lack of data, but maybe they don't want to upset the customer. Because if I give you a good price, first month and second month, and Root is willing to do that, and there's a lot of customers that are happy, a lot are unhappy, but but it gets them to like the second phase, which eventually again, you talk about long term vision. You'll all need to raise more capital and somehow to be here for nine years or 10 years or 20 years. So do you would you say for an incumbent go all the way or they're finding you,

Assaf
You cannot compare these two beasts in the same sentence. I used to work with McKinsey in New York and the financial institution group, and serve a lot of these guys, Progressive is one of the better run companies. It just a very good...the expense loss, the loss ratio, every component, they know how to manage auto, probably the best in the industry. Now for them, it's a trial. It's a hedge. They have, I don't know, $30 billion book of auto, they're not going to waive this entire thing. But I want to test whether it's interesting, it's not interesting. Let's do an innovation kind of thing. We learn from it, we're going to see what's going on. They don't need to go all out and fix some maybe there's a subcomponent of customers that that's what they want. Maybe they should target them in this way. This is not Progressive's business. Progressive's business...this is a $30 billion auto business. And this thing is a way to spark the entire organization with some innovation. Let's learn some stuff. Maybe we can take a 2% improvement to the big organization. That's a massive benefit. We learn from it and stuff like that. Don't forget that Root also didn't start with giving you an insurance at the beginning. It took him a while at the beginning it started with you just drive around, and now you're expecting Progressive to give it?? So they did come in from a very different point of view. Now, on top of that, it's also really, really important. I think it's almost impossible for big carriers to compete with startups in what startups do. I breathe, sleep, 24/7, whenever I take a shower, that's all I think about is how do I change and what do I do and in companies, you know, in big companies are not set up this way. We have passionate people that thats all they think, and it's very difficult to change your DNA. And I'm not even talking about legacy system and politics and all of that kind of stuff. It's just a different, it's a different beast. And to compete head to head in the same game as a startup who moves way faster. And you know, have the technology stack and all of that company is just not the right kind of thing. With that being said. I think big corporation, should test, should you see if it works if it doesn't work you can in in strategy, copying someone else's strategy never works. It needs your Facebook

Avi
unless your Facebook

Assaf
unless your Facebook and usually what if it doesn't work at you buy them. Which is fine that's another

Shefi
okay I'm gonna stop you here because it's a bit to your to your printing are such a pink world and you know what it's it's not exactly like that because what you're saying is okay incumbents can't compete with startups because of their mindset, startups want to innovate all the time you want to change, I actually get that. But that but that you know that line about going in all out or not? This is tricky because this is exactly what is happening in smart home. You've got so many carriers that are just doing a pilot, a pilot in two states here, a pilot in California. So if if you're talking about it's going to take you three years to really understand to really be able to say with conviction, this is a percentage of loss ratio what's Travelers getting from, you know putting smart devices but, but

Assaf
to understand whether it's interesting,

Shefi
but they're confusing the customer, the same customer that wants to buy Hippo is being confused by Travelers is being confused by American Family so you still have to play you also have a game to play.

Assaf
Listen it's a tiny component. most there's a certain book that actually moves most of the customer stays for nine years with their insurance company and do not shop around all the time. When was the last time you checked your home insurance. As long as it's fine and you didn't have a claim there was no reason to check the latest and greatest just not and it was also not possible because

Shefi
you're winning by old metrics. We're getting even Hippo is winning by old metrics, you're winning by the fact that the customer is indifferent to shopping around.

Assaf
No but again, I am not trying to get 10% market share tomorrow, but if I get an extra hundred million dollars, which is it's it's a sliver of this market, it's .1% but for me an excellent $100 million in premiums is not negligible. Because these are the people that want to do that. And these are the people that actually care about these things. And word of mouth is way better, and all of that kind of stuff. That's awesome. But they are catering to their own book first, and not to new. There's a reason why you think that Travelers don't know that they're covering fur coats and pewter bowls. That's crazy for them. No, but they're trying to look and conserve a $5 billion book of business, which is the current book. And if they're doing something, to change the forms, to change the rates, and all of that kind of stuff in the renewal, they have to be non discriminatory and apply it to all of their customers. They're scared shitless of doing it, so they can't do massive moves because they're going to lose a billion dollars in business, and the chance of potentially making over three years $2 billion. It's something that I have failed to see a CEO has been willing to do that and hence why they need to test and they need to check and maybe the organization is going to learn until they're going to get to the right conviction. What I'm saying it's very difficult to compete with someone that that's all they care about. If they want to have If I don't know Allstate want to have IoT devices, they would need to offer it to every customer of Allstate, which is 10/11 million homes, multiply that by $100. Basically kit, they need to spend north of a billion dollars in, they have to be non discriminatory and offer to everybody and all that kind of stuff. And then I'm telling you that the the admittance rate is going to be or the implication rate is going to be 20%. Because it took us five years to bring it to 78%! What we tell them...how we operate or schooling them, how you nudge, and then it's connected to the policy management system, and it's compliant and it actually tells the regulator if it's connected or not collected, there's so much stuff that we learn because we wake up and doing it. Companies. Okay, then testing, it's like,

Shefi
Well, you know, I know in terms of Progressive they did mention that transition into collecting data. telematics data first is something that they see on the horizon. So I think for pro and I, we have to respect Progressive to your point they're almost weighted everything but they're not wants to say okay, Root is small, we're not on Root. In fact, they mentioned Root mentioned Lemonade, not because they wanted to mention that because somebody asked, right so it was a, it was a response to, but I do think people are watching people are playing I think moves and countermoves right all the time I say that. But that's my only challenge is that again, the telematics because you on one side, you're mentioning the retention, people don't shop a lot you're winning customers, you're winning anyway, insurance, you obviously have really good distribution channel, you're working with agents, you're working direct. You've done support and service and we know services is key. So you've got all these things, right. Your your you will still lead with this a smart home insurance. Maybe Maybe in my mind, you lead with that. And maybe that's not actually we actually

Assaf
Don't lead with that. And we still tend to be fully frank, I still don't know what's the right kind of lead and what customers exactly want and we're still testing it and you know, which it's an early day. But what's the messaging and is that resonate or cheap, or innovative or modern, or what, you know, different customers, and you have different landing pages for different customers that come from different routes and different boards. And I don't need to tell you, but you know, we know how Google works and how to route these kind of things. We do think that focus on differentiating home insurance for that, that is not just about price is key. And we believe that if we can help you prevent losses, and keep on monitoring your home, you know, we haven't even talked about 70% of the US is under insured, because you never call your agent to say, Listen, I added the deck, I changed the kitchen, turn the garage into the living room. And that's a massive problem in my mind, because the basic contract is for Shefi to pay a certain fee. And if God forbid, shit happens, I'm going to be there to take care of you. It's a very simplistic product. However, if you are underinsured, because you didn't want to call me to say Listen, I added a swimming pool and then God forbid the next door neighbor, kid, jump in when you will await and now the liability is on you, you're going to blame me, although you never told me that there is such a thing. So we keep on monitoring and making sure that our customers are always insured for the cost they should be insured and by the way, it's not always upsell many times is Shefi, you replace the roof, because our pediments record, show that in our aerial imagery, approve that, and you're entitled to a 6% discount, and it's completely fine. My job is to make sure you're constantly insured for what you should be insured. So it's not it's about building a different relationship with the customer. Think about the relationship. You're buying the product now, shitty experience, and you know that the first sentence out of your mouth nine years when there's going to be a claim, are you guys gonna do it? for nine years? I've been telling you guys every month I knew you guys gonna do it to me. What kind of an experience is that? You know, it's gonna happen.

Avi
I have I have one one question and you know,

Shefi
I have 100 questions...

Avi
You talk about long term and you said you mentioned Amazon and you know, Amazon They've built their business. And now it's going to be very hard for companies to compete with them. Five years from now, 10 years from now, Hippo has proved that smart homes work. The loss ratio was better. Big insurance companies keep an eye they adapt your model, they catch up to you. What is the competitive advantage then?

Assaf
Because I'm always going to have the 15 other products in the works, because this is because I just live and breathe. I don't copy someone else. I have a full team that always think what's the next...I don't know what's going to be in five years, but I'm telling you, it's not going to be what they think it is. And we're going to be ahead of everybody because that's all we breathe and think. And it's going to come that's how this industry works. Not the industry insurance or the industry of stuff. That's why there is a place for startups to come up why there's a new energy and in you know, I don't view it as a negative I think

Shefi
I see that. We look at you Assaf and we don't see Assaf from five years ago.

Avi
I don't think there ever is going to be be a big, you know, kind of like, you know, like Google or an Amazon or Facebook, in insurance. I think it's going to be across a lot of companies and I you talked about telematics auto telematics, Honda today that launched the new app. You know, when you lease a car, when you buy a new car, one of the first things you do your download the car maker app. Now they'll tell you, hey, we'll take we'll see how you drive and a few weeks later, they're going to send you a message with a quote, because they have your credit score, they have your financials, they saw how you drive, they know if you're married, and they're going to be in the auto insurance space, and they have the distribution. I agree. Yeah. I don't think it's going to be a winner. Yeah.

Assaf
But I also think that there's a good chance that the company soon is actually not going to be an insurance company thinks Oh, yeah, we need a completely different company that is going to offer it also insurance. And again, this is not a winner take all industry. There are really, really big companies that, you know, home insurance is very, very fragmented. And you still have, I think the top 15 has what is it like a billion and a half $2 billion in premiums in the really big good companies. I it's not a zero sum game. It's not me taking over Allstate and State Farm. It's just not how we think about it, hence why we also partner with them. We never say, Oh, they suck. It's evil. It's just not our DNA. We think there's a lot of flavors. There's a lot of time, and there's a lot of competition in insurance. We offer we have an agency, and you know, what in Hippo we live at 29 states, there are 21 other states that will not live in, and I'm happy to offer Liberty Mutual. It's not a problem. It's like if a customer comes, I might as well offer them insurance. And it's not gonna be Hippo Insurance. It's completely fine. And you know what, just like when someone calls Hippo, they want to add an auto, I'm happy to offer him Progressive. It's because I think it's the right offering for him and we're going to have a partnership with several others in the offering. Customers simply it's what the customer wants. And it's not a zero sum game and it's not this verses that. It's how I view this entire industry.

Shefi
It is a zero sum game when a customer has to choose a home insurance carrier because they're not going to choose Liberty and Hippo they're going to choose one and in the in the grand scheme of the products right now in the short term you can offer liberty and Progressive but the minute you expand to a seat, you become a competitor. So now it's kind of it's not it there's not it's not good or bad it's you're playing the cards to the to this point in time,

Assaf
But it is not so I try and do that call on the call center and try and run your Farmers Insurance policy with him. You know many times I listen to the calls every week for two hours and I always tell them I'm a you know our call center that if Shefi is calling them and say listen, I have insurance with Farmers. And this is the the policy I tell them spend an hour, explain to them all of the coverage, if you ask question, be super courteous. And at the end, I completely support you. If you say, you know what, Shefi I actually think your Farmer insurance is completely legit. People give you a slightly better coverage. In some sense, we're probably going to be more expensive. We think it's completely I think farmers is a good insurance for you. And you know what, and I always tell him kudos for that. And it's fine. I am not building a short term kind of Corporation. And it's not a venture, it's a business. And it's it's a franchise, and it's going to take us a while to build it.

Nick
How are you? Planning is, is Spinnaker being used or going to be used to help you get to other states?

Assaf
Yes. But even that will not it's not going to be our sole carrier. We're still going to use some other carriers as well. We we think there's a lot of benefits on the MGA and other some of the biggest benefits is the ability to actually offer all kinds of coverages by different carriers. So Spinnaker is going to be deployed over a book, but definitely not the entire book.

Avi
On a scale of one to 10, how hard is insurance?

Assaf
Oh, if I knew what I knew now, zero chance I would have started this.

Shefi
On No way. Oh, you're good. That's why that's why

Avi
that's why he wants to change. He wants to change. He wants to be a different company than insurance. That's what he's planning.

Assaf
It's fine. Listen, I love it. I grew to love insurance very much. I think it's a very, very interesting field. And it really brings a lot of benefits to the customer. It's one of the only things that you can really be there for the customer is really his big pain point. And I really appreciate it. And it's very complex every time that they think, Oh, I kind of mastered that stuff. And then I talked to Nicole and I get slammed that I don't know anything. And it's completely fine. And I keep on learning. You know, there's a point when you raise money and you start the company and you're in the rabbit hole, and now you need to figure it out and you need the smartest people and you're committed, so you need to make it happen. We didn't start with building a policy management system and a claim system and all of that can We'd never started. We didn't know what it what a frickin thing it is even. And I was certain it's going to be a TPA and I was certain, it's going to be a third party call center, and then you realize it's not the touch point that you want. And you kind of deepening up and underwriting, and actuaries is like, and now I have a team of, I don't know, 10 acturaies, do you think I had a thought that this is what's going to happen? Of course not. But you're committed. And then you find Well, the differentiation and whether you want to double down, and you find the strongest people, and you keep on focus on the customer, and that's what brings you value

Shefi
and conviction

Avi
with that

Shefi
commitment and conviction, and consumers will follow. That's my takeaway,

Assaf
I think, yes. You know, and independent thinking, which is our we believe and you know, we're Israelis, so it's a having a very tough discussions, which are a higher volume discussions, but we have just the there's something I took from McKinsey that we have an obligation to dissent. So the most junior person, if you don't think that something is right, you're obligated to actually dissent and raise it up. And we think that by having the right kind of balance around the table brings the best ideas to the forefront.

Shefi
So high value means passion. Speaking as an Israeli,

Assaf
yes.

Avi
I think I mean, I think it's, you know, you look at the market, you know, we talk sometimes we criticize startups and this and that, and it's not from a place of, Oh, you know, what are they doing? And we understand it's a step like if you look at Lemonade, and I spoke to someone earlier today, and he said, Look, you know, I bet you their customer acquisition costs now is better than what it was before because among some millennials and you know, I bought pet insurance from them.

conversion and they and they built an amazing By the way, they always say you know, it's Hippo versus...it's not listen to that.

Yeah, hold on, hold on. In the Calcalis least the Israeli websites they say it's Hippo versus Lemonade.

Shefi
That No, not weekly. Yeah.

Assaf
He said it said it. But the Israelis love that kind. No, don't even get me started on, on being on, you know, reporters on this thing. But I actually think that they build an amazing thing. They will they put that there is a place to build an amazing brand for millennial. And most of it is rentals, because that's what millennials purchase. And now pet and stuff like that. It's a very different strategy than what we'll focus on the home. And basically, our customers are very different. We want to give you the best home insurance in the world and take care of you while you live in it. That's a very different strategy and all of the choices that we make for that and all of the choices that they may have for taking care of a millennial customer and bring you know, they have to give away any it's not a bad it's like you can have more than one way to skin a cat. And we can learn from everybody. So that's why and actually really value what you know what you did in Coverager. When we started and you were started about the same time, I still remember this ITC the small one in Vegas, that one Like 150 people in like probably a booth or something like that going on there, and a random dinner, which was very quirky. It wasn't Insurtech it was very quiet like, yeah, insurance, it's VC aboard, it's not VC aboard and stuff like that. And by having more and more discussions in people like yourself was educating the industry, it becomes an industry, it becomes something it becomes. We work with, you know how many companies I probably talk to five Insurtech startups a week. Because most of them are not competitive. And I'm happy to go and share all of the the marks that I have on my back on what is an MGA and a reinsurance and Policy Management System. And when do you start the call center and how do you treat risk? And when you hire your first actuary, and what do you do with a call center and you shifted to there and whether TPA and you know how many lessons I have or scars on my back from that and I'm happy to share it. I don't expect them to to compete and if they can compete, then I haven't done a good enough job in differentiating and, you know, operational excellence in the company.

Nick
Wow. This is a first I have nothing to say.

Avi
No Israeli Israelis are honest Israelis are honest

Nick
that's what I have nothing to say but man this is gonna go

Shefi
so are Italians

Nick
quite quite the audio file to transcribe. So Wow, that was that was fantastic. We kill two birds with one stone we did This Week in Coverager. And we had Assaf Wand as our guest this week to give it was it was more than just like teaching us about Hippos like teaching us about business, and how we can think differently about insurance. So I'm my, I don't know what to say. Thank you.

Shefi
It's great to have you Assaf.

Nick
Yeah, no. So thank you, everyone. Have a great weekend. Shefi. Avi, thank you. Assaf...thank you very much. We really appreciate it.

Assaf
No, thanks very much for having me. Always a pleasure.

Shefi
Thank you.

Avi
Thank you

Transcribed by https://otter.ai