This Week in Coverager (week ending 11/6/2020)

This week, Avi and Nick discussed the:

– 4 year anniversary of the launch of coverager.com
– 4th consecutive quarter of Assurance IQ losses at Prudential
– Reef Technologies fundraising round and the business model impact of ghost kitchens

Watch here:

 

Outro music – Gathering Crowds by John Scott

Transcript

Nick
Aaand we're back. This is, This Week in Coverager, for the week ending Friday, November 6th, I am Nick Lamparelli. As you can tell, I am in podcasting headquarters in Naples, Florida. And in Coverager headquarters is my co host for this episode, Avi. Good afternoon.

Avi
Hello, everyone.

Nick
So Avi just dropped the bomb on me before we started recording. And let's see if I can do this right share the screen. Here it is. So Coverager is about to celebrate its fourth year as an entity. And, man, that's, that's unbelievable. And the first thing I noticed of a when you sent me this email, you can see the date here. Right? November 14 2016, the email has changed so much. I was actually commenting to Shefi this week, and just like, wow, email looks really good. And she had mentioned that there have been some changes. How do you feel about being four years old? What is it? Is it as Time flies? Does it feel longer?

Avi
So you know, it's I mean, Coverager goes a little further. But in 2016, November 2016, we, we rebranded and, you know, change the name belt, the website database. I mean, four years. Time goes by fast, but then I feel like it's a you know, feels like a century. But what's interesting is if you scroll down, and there was actually a tweet that was featured in the email by you the Lemonade story. And what is interesting to me is four years later, we're still talking about some of the same companies.

Nick
Yeah, I see Metromile there. It's, it's a it's amazing. It's like, I've had several conversations this week about Insurtech. And how it's not really Insurtech anymore. It's something you know, it's it's been co opted and everything and I can't believe that article is four years old.

Avi
Yeah. still relevant. That's still relevant. Still. Yes. still relevant. And yeah, I mean, for years, looking forward to four more years. Maybe. But

Nick
yeah, I mean course for what are you talking about?

Avi
Yeah. It's amazing how time goes by fast. And yeah, I mean,

Nick
so. So here's, here's a little here's a little story. You know, our journey began in May 2014. With a 4am, alarm, coffee and daily email with the unusual name of insurance, entertainment. I remember that.

Avi
Yeah. That was a big day for Coverager. Yeah.

Nick
You know, yeah.

Avi
I still couldn't believe that we were able to secure the domain. It was available. coverager.com I mean, come on. That's a great name.

Nick
Yeah. So just scrolling up. This is like a who's who? Here? We got Jay Farber, Michael Albert, Alan Egbert. So I remember this. This is where...this is this event in Boston, when I first met Shefi, because Shefi presented here. I came to this event because Shefi...I was living in Philadelphia...I came to this event because Shefi was presenting...I drove up.

Avi
Yeah, I remember she was in Boston. She was like, will the email go out? Will the email go out? And the email went out. Yeah, so I was long distance email. But yeah, yeah. Yeah, Time Time flies. Yeah. And there's so much there's so much stuff. One of the things that I think is truly separated Coverager from a lot of other attempts at trying to do something like this is notice Filipino based, right, you guys were global. Right from the start. You weren't xenophobic and kind of stuck with, you know, the US or the UK or the European markets. You were you kind of focused all over the place right away. And here's Metromile. Like, listen, I'm a I'm a part of the Coverager family now, but it's one of the things that's like really separates Coverager is the how in depth you go through this the type of insights you bring. You don't stick with the traditional us stuff. Hats off, really.

Thank you. Thank you. It's, I mean, again, a lot more work to do, but yeah, celebrating for a moment for us. Okay, well, congratulations.

Nick
So for those listening, this is This Week in Coverager. This is the podcast where we try to do it on a weekly basis depends on the news cycle, but Avi and myself and sometimes a guest sometimes Shefi, we get on and we talk about different news items of the week. And there actually happened to be a couple of really interesting ones that kind of hit this week. So I'll kick it over to Avi. What was the first topic for the week ending November, Friday, November 6.

Avi
So the first topic is not surprising Assurance IQ continues the losing streak, ever since that being acquired by Prudential last year. So this is the fourth straight quarter that the company is reporting the loss, this quarter was 30 million overall, if we look at all the quarters combined, we're looking at 78 million in losses for a company that was acquired for 2.3 billion. So I mean, I'm sure Prudential is not happy. They're saying that they're happy. They're still saying that they're happy. I'm sure they're not

Nick
They kind of have to...

Avi
They have to Yeah. I mean, it's just an amazing story. Because if you look at the signs, and we've covered this story very closely, the company has a new CFO, new COO, new chief legal officer, a new Chief Compliance Officer, now they have a new president. So most of the leadership of the original leadership of Assurance IQ, has either left or change titles to make way for mostly folks from Prudential. But what is the biggest mystery to me, the biggest surprise is...why Prudential has turned Assurance IQ into a Medicare business when originally when Assurance IQ was acquired, the biggest product, it was Term Life and final expense insurance. It wasn't about Medicare, all of a sudden, they turned the company to a Medicare company. And now, you know, you just so you understand how it feels like one company knows very well what they're doing another company doesn't then we have to bring up Willis Towers Watson, they've acquired Transact for under a billion dollars, a company that is known for its Medicare practice. And they're competing in the space for a while. And it's worth going to just recent earnings calls of the two companies of Willis Towers Watson and Prudential just to give you a sense of how one has some clue of what they're doing, and the other has no clue. So we'll start with Willis Towers Watson. So there's a question. And they're asking, John Haley, can you give us an update from where you sit on how the business looks to grow in the fourth quarter this year, the first quarter, the open enrollment, which started in October? So this is the the answer. "Well, I mean, it's too early for us to say anything about what the fourth quarter is going to be like this year. I think that's really just the beginning". That's that's the answer of for Transact by Willis Towers, Watson. Now we move to Prudential. Robert Falsen, is being kind of asked a similar question. And this is the answer. "In preparation for the Medicare annual enrollment, or enrollment period, in the first quarter, we accelerated our agent onboarding and training processes. While we are only three weeks into the Annual Enrollment Period, we are pleased with the customer demand that we're seeing, which is driving considerable sales growth. So one company is telling you that it's too early to know and this is a company that's been successful selling Medicare. On the other hand, you have a company that has no clue about Medicare, Assurance, IQ, which you know, Prudential decided that there'll be a Medicare business, and they're very pleased with the demand. It's not easy to just go into Medicare, all of a sudden, there are big competitors in the space, there's e-health, there's Select Quote, Transact, of course, of course, Health IQ went into this space. So I wonder why I wonder, what is the reason behind this? Why is Prudential turning Assurance IQ into Medicare? Did they want to go away from the final expense? I don't know.

Nick
Yeah, I don't know, either. And I'm with you in that. It the Medicare piece is a completely different piece, completely different expertise. I'm not sure if they thought that the the the business model, the lead generation element of Assurance, IQ would translate well, I mean, that would be my guess, is that that, that there would be some sort of synergy or overlap with the with the lead generation. But it's, it's curious to say the least.

Avi
Yeah, and you know, it's a it's very expensive to onboard these agents. Now, keep in mind, this is a seasonal business. So you bring them for the open enrollment. And then really, there's not much to do. And let's not forget the Walmart that entered the space as well. And you know, Walmart is a big name and what I think, and this is my opinion. So I think ever since Prudential implemented all these new compliance procedures, into Assurance, IQ, they've been losing money. Because a big part of Assurance IQ was running loose, doing whatever the hell they want. And you know, moving forward, then you have a company like Prudential that cares about its reputation, they can't just do whatever. And I think that's really hurting the company. And I was actually speaking to a founder in the life insurance space. And they were very impressed with Assurance IQ with their growth, they thought it was organic growth, they'd had great SEO or something like that. So whoever is new to the story, that's not the case, Assurance IQ has no SEO, they don't have any organic growth, it's all phone based, they generate leads from different sites, not great leads. But they really had that one product, mostly that final expense, some term life. And that's what gave them the success. But obviously, we're seeing this is a company that is losing money. And this is not what we envision, at least what I envision as Insurtech, someone that's appealing to the modern consumer, the digital consumer, so don't get too excited, they're losing money, of course, they're not losing as much as Root. So we have to put it that, you know, they're, they're not losing as much as Root. But still, they're losing a lot of money.

Nick
You know, it's, um, you brought up something good, which is the cultural aspect Prudential is a very conservative company...would be very concerned with, you know, their brand reputation, and all of that. This would be a big, feaux pas, right? If they did this transaction, and no one thought through like, okay, we made the numbers work, right, but no one thought through, but the culture doesn't fit. These guys are, you know, more tech ish, in what they're doing. And if they come in here, we're gonna have to chain them up, and they're not actually going to be able to execute on what they're doing. I don't know if that's the case. That's sort of if your description holds. I don't know, at 2.0. It was a 2.5 billion

Avi
2.3. Yeah,

Nick
yeah. Yeah, that's like, that's like a fireable offense.

Avi
You know, it, it, I think you're like,

Nick
I've gotten fired for less.

Avi
Listen, it's really interesting. And again, I mean, they, I think they're too deep into it. But on the other hand, as he said, their reputation is worth more than 2.3 billion. So clearly, yeah, they're actually investing more money into business, bringing all these compliance specialists like things that, you know, Assurance IQ didn't really have in place to begin with. So they want to clean up the business. But but this is the problem, like a lot of I mean, it'd be real, a lot of the Medicare sales are not 100%, you know, pure, we'll put it that way. And, and when you want to go with compliance, and you want to go by the book, then your sales are hurting. And you know, they're not fulfilling their potential or the potential that maybe Assurance IQ presented originally to Prudential. I mean, I thought it was a bad deal there again, they're still happy because they say, well, it's not a business that's dependent on interest rates, and you know, life insurance, investment income, and all of that. Now, the, the market is not doing really well, in that case, but I think they could have used that 2.3 billion for something better.

Nick
Yeah, as a shareholder of the company, they could have used that for a dividend. Just saying, but but you know, listen, I don't I don't know enough about Assurance IQ to know what the culture is, and whether Prudential acquire them and then started to realize, holy crap, this is Zenefits all over again, we're gonna have regulators breathing all over us. But like that, if that's the case, then that's a there's, listen, if this doesn't work out, it's they're there two like, potential big problems that are kind of hanging over a lot of other potential acquisitions. One is Assurance IQ was the Wild West, Prudential acquire them, they didn't, they couldn't get the culture to work. Right. That would be very bad for future Insurtech acquisitions simply because most of the legacy companies would be in the Prudential camp, you know, legacy brand oriented reputation, you know, risk tolerant regarding that and they don't want gunslingers coming in to doing that, or Prudential really screwed up, right like that they they they misjudged the the value of Assurance IQ, and they screwed it up, brought it in. And now we're just kind of like quickly, you know, trying to clean it up. So either way this, it's not good.

Avi
You know, it all comes down to basics. And what we heard is that Prudential acquired Assurance IQ for the model, the Uber of insurance, they called it and what is the Uber of insurance, it's mobilizing a workforce that is able to sell from anywhere and you know, obviously life insurance companies, they struggle, recruiting financial advisors, agent, no one wants to work in a commission these days and Assurance, IQ prove that they can do it. But they've done it with a very specific product that caters to a very specific audience. And we talked about this, people that buy final expense, or people that missed the boat to buy life insurance, they're older, lower income, they'll answer the phone. This is not a model where you could do it with millennials, or with car insurance or home insurance or renters insurance. So I don't understand how they how do you not see the correlation between the business model and the product? It comes together, I mean, you really need to look at both of these things at the same time. And I think that's where they failed, they fell in love with, again, the flexible workforce, commission base 1099. But again, you can do it without expense you can do to very specific products, you cannot do it with car insurance, you know, regular life insurance. So bad for them. But that's it, I don't think it's good. mean, what's 2.3 billion for Prudential?

Nick
I would still prefer the dividend. Did you say it was three consecutive quarters or two for four consecutive quarters? Oh, boy. So I was listening to a podcast with john chambers, the former CEO of Cisco Systems this morning, and that the conversation of acquisitions came up, you know, and he, he talked about how, you know, how difficult acquisitions are like, just just amazingly difficult, and how, after a certain period of time, if they don't work, it's not going to work, like after a certain period of time, like, you're gonna write it off. And so that's probably what we're gonna have to look for on the Prudential balance, even if they don't announce it, we're probably gonna have to look to see if they write off elements of this, and that would that would basically put the nail in the casket.

Avi
You know, it really is alarming to see the leadership changes, like, you know, the president now that is now only a co founder. So you assume that he is not involved in the company anymore. And you know, that's not a good sign. It's one thing to replace the CEO Oh, you know, CFO, we get, but one of the cofounders of President kind of, you know, so I think it's, yeah, it doesn't look good.

Nick
It's the it's the broad base change, right? It's you expect in an acquisition that different, you know, some people will leave once the, you know, the handcuffs are, are lifted. But it's, it's more of the broad base like it's there's all different a lot of changes. That's probably a bad sign.

Avi
And, what we need to remind everyone is that Prudential is fixing the mistakes. So last enrollment period, they acquired a company around October, that's when they've sealed the deal. They said that they had such great consumer demand on the platform, but they didn't have enough agents. So this year, they're fixing it. And they're saying they've started onboarding, they've on boarded. They're doing well in that area. We read it there. There's consumer demand it's met. This is next quarter is going to be the real test. Because if Assurance IQ doesn't make it doesn't make a profit, then we know, they don't know what

Nick
it didn't. Yeah,

Avi
yeah. So so we're going to keep an eye out. And we're going to wait for q4 and we'll see what happens.

Nick
Okay, we have our second and final topic. What is that?

Avi
Reef technology? So, an interesting company, the history is a company that started out as an app software to help parking lots manage their spaces a little bit better. What happened later, they raised a big chunk of money and they bought two of the largest parking lot operators in North America. And the vision was to reutilize or transform parking lots and incorporate businesses that will take advantage of the proximity to urban areas and why One of the good examples and this is something we've talked about, in our reports about about the topic is ghost kitchens delivery only restaurants. So basically you look at the picture. It's kind of like a trailer, they prepare the food there. And they list the restaurant, the menu items on the most popular delivery app, Uber Eats Grubhub, Seamless, Doordash and delivery guys come in, pick up the food and they deliver. And you know, you're a risk professional. And you have to look at the implications when you compare it to a traditional restaurant, where you have diners, and you have waiters. And you have busboys and the accidents of slip and falls, and you know how it gets busy. And and now you have this model where there are no diners. It's a very small space. And it's delivery only. How do commercial insurers look at this model? Who do you think is the in the right position to take out a master insurance policy? And you know, make sure everybody's insurance? Does it reef technology? Or is it going to be one on one, they're going to underwrite specific business? Oh, this,

Nick
this looks like a very interesting model. Honestly, like there are economies of scale all over the place. For, for us, a society and culture, especially after the pandemic, that's very, very much open to a delivery, much more open to a delivery system. I think the insurance related to this, if Reef can get insurance as well. Like there's another revenue source for them. I see all sorts of economies of scale here, including insurance and finance, that they can really leverage is this looks very interesting.

Avi
Yeah, it's, you know, it's really is. And we it was picking up before the pandemic, of course, because restaurant owners were saying, wait a second, I mean, people are ordering delivery more anyway, I think it was 2019 when off premise dining, surpassed on premise. So the trend was happening already. Obviously, now with a pandemic, more people are going crazy and ordering in. And if this is the future, then you might look at fewer traditional restaurants that require a big space and you know, the fire department coming in, make sure that everything is working properly. And, and don't forget, also the Workers Comp element, the hospitality, and its restaurants they employ so many waiters, and that is going to go away a big part of that, and it's going to be a big deal, it's going to be a big deal for commercial insurance companies. And because from the workers comp, obviously, they're going to have fewer claims, I assume, because of you know, the nature of the business, but revenue is going to go down as well.

Nick
This is a very interesting model and really fits, you know, where we might be in a post pandemic world. There are all sorts of economies of scale here, they'll still be I think you'll still be a desire, but it really this sort of thing really changes the dynamic of on premise eating. Right? significantly, like, how, how do you make the numbers work? It'll be it's going to be a challenge like for, for especially places, Avi that you've that, you know, you frequent that might be like a small restaurant, just a few tables. I'm not sure how they make the numbers work and compete with something like this, I could see the more luxury restaurants where, it's an event, it's an entry, you know, it's an experience, and you know, people want to get out. But as you said, like this is going to be this, this has already surpassed on premises. And I don't see that that trend diminishing at all, and, and having empty space parking lots that may not be used significantly, because people are going to be working from home. This is really interesting. I can't believe how much money they raised. That is an amazing amount.

Avi
Yeah, well, when when you think about, you know, the operations that they offer. So for what they do, one of the things that they do is they come to a restaurant owner, and they say, well, let's do a revenue share model will give you the space will do even the food preparation will take on the food preparation. You give us the concept, you know, you give us the directions.

Nick
We'll put your name on it.

Avi
Exactly. Yeah, exactly. And, and you know, this is we obviously we've been covering the gig economy and how that relates to insurance. I think obviously, this enables more of the gig economy because it makes Uber eats and Doordash stronger, more demand. Maybe you'll have now a new category of gig, you know, food, people or chefs, doing this type of food one day, that type of food another. So it really is going to be interesting. And really, it comes to the point where, who will take on, you know, the distribution of insurance because you there is no physical location for a place like that, like, if you go today on Uber Eats, you'll find ghost kitchens, and you'll try to look them up, there's no address, you can find it. So you talk about really identifying that these restaurants exist, I really think insurance companies will need to work together with technology to either offer policies, I mean, if someone is doing Thai food, and there's a lot of frying, you'll have a higher cup premium, but if you're just doing sushi, cold stuff, you know, the risk is not that great. So you'll pay less. But I do need to work with these companies to make Yeah,

Nick
The risk dynamic completely changes because at a restaurant, you know, there's a there's a big, there are a lot of insurance companies that sell property and casualty insurance to on premise restaurants. And there's a lot that goes around with that, because you have like you said the workers comp issue. I don't think the food liability issue generally will go away just kind of changes. But the premise, the fire related stuff goes away. I mean, there's a lot of effort put on loss control, you know, sending inspectors to a restaurant. Is your vent set up in a certain way. If Reef was bringing, like, again, economies of scale of loss control, like we're gonna bring the safest equipment and every, every one of those, like those mobile homes, those campers that house the restaurants going to be the best quality like they would be able to secure really top notch insurance for that because it's in a it's in a concrete bunker, right? Like, it'd be really difficult for a chain of events to occur to wipe out one little thing after the other, you could you could control that...the insurance should be cheaper. And they would be able to pass that along. Like they could really deliver economies of scale. And I think for like a smaller restaurants that better like they don't have to worry about the rent, lease. waiters lease workers? Yeah. You know, like they would be response for that, that this sounds like like a potential game changing type of thing.

Avi
Yeah. And there's other applications. Of course, it's not just restaurants, whatever you can do mobile, and whether it's a delivery point of some sort. So you could think of other business applications and use that. I think it's really interesting. And I mean, yeah, yeah, I think insurance companies will start will need to look at this, because I don't know how many are opening traditional restaurants nowadays. Who will take on such a risk, you know, how difficult Yeah, businesses in general.

Nick
But this is a way for someone to do it.

Avi
Yeah, with very little capital. Yeah, he did upfront. Of course, you know, there's that whole revenue share. But there's other options out there, not just Reef, everybody's gonna get a little different. They've they're doing it, utilizing parking lots. So very interesting.

Nick
Yeah, it's funny, because the conversation I had with Travis Hedge of Vouch when we were talking about the pandemic, and he, he said one of the more interesting things that he saw was, you know, with everyone leaving office space and other things, these, there, there's, there's two problems. One is those companies need to remove all of that furniture, and other items from the office and they need a place to store it. So they're sometimes when the lease is up, they're moving it out of one office, and literally storing it in another. So they're these like Uber storage in it like you could be in a skyscraper 40 floors completely open. You just pack your boxes there in a, in a walled space, like, a lot of like, very classy, very quick and creative. Things are coming up because of this pandemic.

Avi
Oh, yeah, yeah, yeah. I think there's a lot of trends happening now. And you know, some some people are very quick to adopt those and yeah, it's, it's really going to be I mean, I think ghosts kitchens, is going to be a big deal in general. And really, how agents I don't know if, you know, I mean, how would an agent even get to such a location and know but they wouldn't. Yeah,

Nick
it changes the game for them to like this is that Reef and companies like them are going to have so much leverage that they they can just pick like Three or four of the largest brokers and the largest brokers are going to get access to them because they're going to need a lot of insurance. Yeah, right. So the ability for an agent to sort of cold call or walk in or get, you know, the the, you know, I know the head chef of some local restaurant, like those will start to those will start to miss they won't completely go away, but it's going to change dramatically, even for a local agent. Yeah,

Avi
yeah, totally.

Nick
So, Ghost kitchens. Remember that? That's like, we got to, we have to put that in the show notes. But awesome. Avi, congratulations, 4 years of the true Coverager. I'm very happy to be part of what it is you're doing because it it makes such a big deal.

Avi
We're happy to have you and we're ready to go. Congratulations. So

Nick
For everyone that's listening. This is, This Week in Coverager. It's the week ending November 6th. So for Avi for Nick. Have a have an awesome next week. So Bye, everyone.

Avi
Bye

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