Profiles in Risk – E137: Building An Insurance Company On Technology with Guest Werner Kruck, COO of Security First

Back in late 2018, Wesley Todd of CaseGlide and I were discussing the state of the insurtech world. We decided how interesting it would be to discuss building a tech-centric insurance organization with people who have decades of experience actually doing this. So, in the first of a many part series in 2019, Wes and I co-hosted an interview with Werner Kruck of Security First. Werner is a veteran of Florida insurance, perhaps the toughest insurance market in the world. He is part of a team that has built Security First. We discuss technology (the good, bad and ugly) and the Florida insurance markets.

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Nick: Welcome back everyone to another episode of “Profiles and Risk.” I am your host Nick Lamparelli. I’m very pleased this morning to have a cohost, Wesley Todd, who’s the Co founder and CEO of Case Glide and he’s probably one episode away from getting the fiber jacket, which is what they hand out at to SNL guests when they’ve been on the show for five episodes. I think this is your fourth. So we’re one away from getting you a nice fancy jacket with the big number five on it. So, welcome, Wes. And we are very pleased, Wes and I to have our guest today, which is Werner Croc. Werner as the coo of Security First, which is a leading provider of homeowner’s insurance in Florida. They are based in Ormond Beach, Florida, and they are nationally recognized for developing award-winning technology. And they are a great place to wor: three-time Florida trend award winner for best companies to work for in Florida. They must be doing something right, which is why Werner is on this show. Werner, welcome to Profiles and Risk.

Werner: Thank you very much. Pleasure to be here.

Nick: So, Wes and I had this image of expanding the podcast because there’s a common problem that we feel that the Insuretech community is not resolving, which is you have all of this great technology coming in, but they don’t really understand the insurance industry. And so as a COO and someone who a quite a bit of experience in the insurance industry, it is awesome to have you on here because I think it’s going to be very helpful for the Insuretech industry to get a glimpse of how complex the industry is but also how complex it is to run an insurance company. So to get started, why don’t you give us just a little bit of an elevator pitch for Security First?

Werner: Well, Security First, we’re a 15 year old company roughly in Florida, and we have grown from nothing to be second largest provider of homeowner’s insurance in Florida. We have about 350,000 customers. We have grown. We have just under 350 employees. We are shortly moving into our new home office, which we’ve built a four story, 36,000 square foot building and we have built it to Miami Dade standards, so it has nothing on top, everything is in the core, can withstand sustained winds of 165 miles an hour. So we don’t want to have…I don’t think we could have a hurricane come and say, “Well, we can’t serve our customers because we didn’t know what happened.”

Nick:  Yeah, that’d be embarrassing.

Werner: Two of the last three years we’ve had to evacuate our home offices because of the hurricane, both and Matthew and Irma. Unfortunately, a lot of it has to do with our technology. We’re able to continue operations by setting a team to work out of Atlanta. But certainly, what distinguishes us, I think is two things: one is more than half our businesses generated through strategic partnerships with companies like Allstate, Geico, USAID, Farmers, and so those are strategic alliances that we have, strategic partners. And the other thing that sets us apart I think is that we have invested an awful lot in technology. So we have starting with 2008 when we had our first iphone application and our VP of marketing went into the APP store and typed it insurance and only five apps came up and we were one of them. So have history in our DNA of trying to innovate, trying to use technology. Because our focus is really on improving the customer experience. And we fundamentally believe that as an industry, we can do better, we can deliver a much better experience. And I think we have to because we don’t set the expectations for our customers. People like Amazon are setting those expectations, and while it is a heck of a lot easier to do it with books, we have to figure out how we can simplify our business and deliver a better product and better experience. That’s what we’re doing at Security First.

Nick: Lots of directions we can segue there. So we’re going to touch all of those. I think first off, I think it’s important for those that are listening, as the COO, to understand from an insurance carrier perspective—you already talked about having to evacuate. What are some of the other things that someone who is a fairly new, someone who has business savvy but fairly new to this industry, what would you tell them are the things that keep you up at night, that should keep any insurance company up at night?

Werner: Well, in Florida in the last couple of years it’s really underwriting and loss experience. We’ve incurred a fundamental change in our loss cost for a couple of reasons that happened fairly suddenly. And so these new challenges that we’re looking at, it doesn’t seem to me that we can expect to do the type of underwriting and risk selection and pricing we’ve done in the past and expect to address some of the new challenges we have in that regard. And one thing about sort of the Insuretech universe is you could reinvent the business and a lot of ways, but someone in the value chain somewhere has to know how to quantify risk and price it without making an underwriting profit somewhere, you don’t have a business.

Wes: Yeah, I’d like to just hop in here real quick. I’m going to tell one of my favorite story and say, Hey, you know, so people that are listening, if you’ve got a lot of insurtech people and you have a lot of younger people at insurance companies, and probably one of the greatest days of my life was when I went into Security First to talk to them about Case Glide and it was a –I don’t know if Werner knows this, but it was a drawing…It was a drawing, Nick, that’s what it was, you know, was my… But I did have a big, you know, I did have a lot of documentation, things like that, but it just a drawing and I get in there. And here’s a company that even at the time was still top five in Florida, you know, hundreds of millions of dollars. Werner’s got 25 things to consider. And litigation wasn’t even nearly as bad as it was in the industry, and I could have gone into a thousand companies across the country and either of the 990 of them, the person either wouldn’t have understood the issue or didn’t think it was their responsibility to think about solutions, and I’m telling you that from experience. And I get in there and I talked to Werner, and he has his litigation and claims executive there, and I kind of pitched the whole Case Glide thing and he’s got a couple other people in there and at some point one Werner just – thisis before anybody had ever used it, Werner gets in there and he says, “Oh, I’m in,” gets up, walks out, walked out of the room because it’s on you, Walter. And he was talking about Walter Alexander, he goes, “It’s on you. It’s your problem.”

So greatest moment in an Insuretech’s life happened right there, but it’s the idea. So when Werner’s talking about these things, you hear him saying these things about Amazon, you hear him saying these things about technology stuff, you can hear that on any podcasts or blog posts you want, but keep in mind that Werner is actually running a company with 350,000 customers, hundreds of millions of dollars at stake. And so it’s just a very unique thing here that is just a story I had to share. I shared kind of often, Werner, but I haven’t gotten to talk to you about it in awhile, but it’s something really important for the Insuretech listeners to understand and the millennials. It’s like it’s going to take people like Werner, so what you’re hearing from him is, you know, he’s going to tell you the truth, but at the same time this is the person you actually want on your side because he’s the one that if you have the…

Nick: Yeah, that’s a great way to kind of extend the conversation here, right? Werner, when you’re hearing pitches about technology, you’re sympathetic obviously. I mean, look at Wes like you just aqccepted it. I’d probably jump through 10 hoops before buying anything, but you’re a fan of technology. So when you see new technology, what’s the calculus that’s going through your head about how you’re thinking about whether you should take advantage of a specific type of technology or not?

Werner: Well, fundamentally, we’re not looking for toys to play with. We’re looking to solve business problems, real business problems, and we know that we can’t solve all the problems on our own. So what’s important is that we have a network of partnerships and talented people outside of our company that we can work with on our problems. So when I hear somebody comes in and they tell me, “Here’s what we do and here’s our technology.” I’m looking at it saying, “Okay, is there a problem that I’m concerned with that we need to solve? And is there an opportunity through this technology or this firm to address that problem?” And we have on more than one occasion has been the first customer of an Insuretech firm. If we’ve seen that, okay, they’ve got something, we’ve got an issue there and the problem has to be intense enough or compelling enough for us to say it’s worth to throw some money into this and see if we can develop a solution.

So we’ve done that many times, but it has to be…And to your point earlier, sometimes the pitch we get is we got this technology and here’s what we want to do with it. And you say, “Well I liked the technology but would you consider doing this with it? Because I think that would address the problem? So sometimes the Insuretech firms, they don’t understand the business well enough, they see it from a distance and they make the assumption that this is how we work or this is how we view things and so some of the early pitches become refined over time when they start talking to insurance companies, and if they listen and understand what we’re, what we’re saying and they listened to…Because their opportunity ultimately is we have a problem we have in the needs, and if it’s a big enough problem and a big enough people we’ll put money into it and that’s what they’re looking to do is a viable business that generates money.

Nick: So Wes, what was the pitch on litigation? How did you frame it?

Werner: He actually lied to us. That’s a good case in point. The pitch he gave us was that he was going to save us money on legal documents because they will be reused and that could then— because we’re paying attorneys each time to develop a documents from scratch and he would provide templates and you have this big book of documents that show that he’d already worked this all up. Well, in fact, I don’t think we do that in Case Slide, we do a whole lot of other stuff, but we don’t do that.

Wes: Yeah. I mean to Werner’s point, you know, you got him in and then what did I do? So I thought the automated illegal documents and that 40 percent of the work that lawyers do and well, the people that were in the business unit weren’t as comfortable with that. But what they were comfortable with was eliminating emails in Word Documents, was capturing financial data. We’re capturing key demographic data and feeding that back to, you know, Werner’s warehouse as we call it. So, the only way I found that out by going into the department, but I had to have my experience being a lawyer to think about all those other things, doing claims litigation, thinking about all those other things that, well, the documents are important, but how do you get the data that goes into the automated document? Well, somebody types it in. And when you really have been in those people’s shoes and then you start to think of that workflow, you know, and then you go with whatever the customer’s going towards and you start solving their pressing needs and you know, at that time that was, hey, we’re trying to get a grasp of this litigation’s spikes and we have very sophisticated technology and all we needed to take all the data that our lawyers are typing to us and just get a lot more use out of it and digitize it and keep it out of emails and Word Documents. So I did not intentionally lie to you, but at the end of the day it was a lie. It was a lie because that’s not what happens. By the way, that technology is still there, and some people are using it, but it’s not a pressing problem like some of the others.

Werner: That’s true.

Nick: Well that’s an extremely important. Well, let’s touch on that. So, Wes, as the entrepreneur you’re trying to read Werner’s mind, you’re trying to say, how can I link this technology and create some sort of value, what are the top one to three things that weren’t or might be interested in. Then you go and you pitch Werner and it’s something completely different. So Werner, how valuable is it for the startups that are created to be basically more nimble than, I don’t want to say entrepreneurial, but not focused so much on “here’s the value I think the carrier wants” and be a little bit more nimble to try to allow you the flexibility to be innovative in your mind about how you might potentially use it?

Werner: I think the ones that we’ve had the most success with are flexible and they listen and they asked questions, they don’t assume that they understand, they seek to understand which is much more important. You know, there’s a lot of talk about disrupting the insurance business, which is in the insurance business is very, very complex and partly because of its nature, partly because of the regulations. And so I think what more happening is that if I look at our, our business in total, it’s like we’re running a whole bunch of businesses. I mean we have all sorts of vendors, we have all sorts of processes. Just in the claims area alone, the business partners, vendors and the complexity is huge. And so what we have is we have people with ideas and they’re sort of disrupting all these little things that we do. So if there’s 200 little things, there’s 200 areas of disruption, it’s not one thing. You do have a couple of Insuretechs that threatened to change, change the world for distribution, product delivery, and they’re finding that’s a little bit tougher than they thought. They originally thought that all I had to do was form an MGA. Great. You can form an MGA quick, but if you can’t an underwriting profit, you will have a company to support the MGA

Nick: Yep. And I think alternatively a tech companies that come in, from what I’ve seen, pitches that I’ve gotten are, “Hey, well you’re going to be able to make a better underwriting decisions so you’re going to be able to like take these two risks and say this one’s high risk and this one’s low risk.” And then I always go back to him. I say, “Well, everyone’s going to want the low risk stuff and there’s no margin there. That doesn’t necessarily help me. Like they were more decisions that have to be made after you decided that, you know, you want a particular segment or whatever.” So, what moves the needle? What do you think? How much does the needle needs to move in your mind for you to pull the trigger? So there’s the expense side of stuff, there’s the claim side, there’s the underwriting side, there’s the distribution side. In your mind like what do you need to see that moves the needle enough that you’re going to say, let’s at least play with this to see if it can deliver some of what it’s promising.

Werner: Well I think it depends…It’s all relative to whatever the problem or the opportunity we’re looking at is. A part of what we’ve done is we’ve engineered our technology in such a way that we don’t have—it’s not a big deal for us to work with people. What we’ve done is we sort of isolated our base policy and claims administration building, and over the top we’ve built an enterprise service bus or an API layer. And because of that we can quickly work with folks like new data, new technology. If they have an API we could hook up to the API, we can bring data in our services a pretty quickly. So you look at what’s the cost of being able to do the proof of concepts and how big is the problem and what do you think about the competency and the ability of the technology company to deliver. So you look at all those, but we experiment and our company is—we don’t have a problem with change. We have changed so much that our people and our culture are happy to experiment, they’re happy to change, they like new ideas and they like being innovative. So we don’t have any resistance, really. A resistance is futile course, but we don’t have any resistance to innovation, we don’t have a lot of legacy thinking which tends to be worse than legacy systems.

Nick: Wes, how’s the AOB? Assignment of Benefits. We did a podcast last year on Assignment of Benefits explosion. First let me get an update from you on Assignment of Benefits, then I’d like to hear Werner’s a take on how that affects a Florida specific insurance company.

Wes: Yeah. And then I’ll also let Werner know that before he goes too far he’d better give an email address because I think all the people listening to what he’s talking about is a lot of people that want to sell to them apply at Security First, right? I mean, how often are you hearing that stuff?

Werner: That’s another interesting topic is the number of a really bright young people we have working for us and how they’re changing our business and our company. But that’s a whole other thing we could talk about.

Wes: Yeah. They can find your email address, I’m sure, but that’s who’s listening to it is the best and the brightest in the industry, at least that’s my experience. AOB, a lot of people that listen to the podcast note from our previous podcast, just a quick recap, it’s kind of like when in any state we’e very common in the auto insurance industry where a chiropractor gets a contract from somebody and treat them and then they sue to bring a claim against the insurance company. Down in Florida, the same thing happened, the same assignment of benefits contract gets signed. but it’s for water remediation contractors, plumbers, other restoration contractors, people that come in after a water weekend. It’s a $5 billion problem the last time I quantified it over the last three years and for our industry, which is being born by our, you know, people like me and Werner that actually live here and have to pay the premium and thing. There’s no income tax.

But the problem, what’s very interesting because we had a real insurance event, Nick, in September of 2017, and then we had another one last year, Michael. So the people that were— the schemers that we’re creating a lot of the Assignment of Benefits claims, they’ve been a little bit busy with the hurricanes. So I think that as a, as an issue, as a proportion of concern in the market, I think it’s gone way down. It’s still at that level, but you know, it’s still at elevated levels, but in relation to when you have a couple of hurricanes not so, you know, it’s getting better but I think you have to wait and see to find out whether or not it’s going to continue to get that. I’d like Werner to speak on it too.

Werner: I think that I’m AOB is a flavor, it used to be, but there’s been a fundamental change in our, at least the homeowners and property and I’ve been doing this for 40 years and it’s only until recently you had litigation and you had some people that were examiners ahead a litigation but primarily, litigation was the occasionally disgruntled customer that did like their settlement and decided to sue. A couple of things have changed. One is a lot of our litigation now is organized by third parties that are actually organizing to create litigation. And what’s exacerbating this in Florida is our one way of attorney’s fees. We’ve had a law in the state of Florida for a number of years that if an aggrieved policyholders sues their insurance company and they get a judgment that’s greater than what the insurance company is offered by unit dollar, that they’re entitled to have their attorney’s fees paid for.

Now, on the face of it, this is a reasonable law, it levels the playing field so that the average customer, if they need to can sue their insurance company and get justice. What AOB does is these people are standing in the place of the policyholder. So now you’ve got somebody suing you that’s doing it on purpose because they’re shaking you down because they know that if they win a trial, then you’re going to pay attorney fees and you might even pay multipliers. And so AOB is a flavor of this. But the one-way attorney’s fees, what we’re not seeing the litigation getting better. We’re seeing systematic litigation, we’re seeing that plaintiff’s attorneys, they advertise, they just want to get people in the door, then they sit down with them and figure out what they possibly could do to sue.

And so we’re getting suits. For instance, we’re getting a lot of suits in westwood know this more than I would, but we’re getting suits and county courts where the largest uh, damages you can get, or $5,000. Who goes and sues you for that? Well, the attorney’s fees are not limited. So it’s not getting better. We think there might be some change in the legislature this year that might help a little bit on the AOB part of it, but that’s not going to solve the overall problem that our legislators don’t seem to think that so insurance companies is a problem. So our job is to figure out how to make sure that we can protect ourselves. Out of our 350 employees, we have about 25 of them that are in our litigation department.

Wes: I’ll just add onto that. So that’s why we talk about technology and all that stuff. The industry has this very pressing problem and needs solutions to it. And so if you’re not bringing something that’s addressing one of these things, I think this was when Werner was talking about the elements of potential Insuretech. And I think that there’s, just for people listening, if they are in the claims world, I think there are versions of this going on throughout the country. It may not be Assignment of Benefits, but litigation funding is out of control. George Soros, one of the richest people in the world, he has a $5 billion or something like that in litigation funding, and all that’s going against insurance companies and any major loss to [inaudible 33:30] So the litigation funding and just that kind of culture, and I think that the more and more elusive loosey goosey you’re seeing in the courts, this is happening outside in cyber security breaches.

Litigation is a major pressing issue throughout the country, and insurance companies outside of Florida really aren’t doing a whole lot to keep up with basically an opponent that’s more sophisticated than nine out of ten insurance companies when it comes to finances and operations so if you’re an Insuretech and you’re trying to think about problems to solve. Well, you know, if you’re on the underwriting side, first of all this as a challenge for you, but an opportunity. If you’re on the claim side, this is everything because the insurance companies have, like Werner said, not just one businesses to run, but a lot of businesses system run. So if you want to tackle this problem for them, you know, which was one of things we had, they’ll welcome you in the door.

Werner: Well, we, we attack it in a number of different ways. We attack it by making sure that we have a staff that’s proactive. We have our litigation, you know the results of that. We have higher staff, they have lower case load levels, you know, so it’s just common sense. It’s not technology. You got to get the right people and you’ve got to give them the opportunity to do what they do best, get their workload is reasonable, support them. On the underwriting side, where are working with several technology firms because part of it is we believe that certain people are more likely than others to cooperate in suits. So, we want to find people that have higher moral character, I guess, and that’s really what we’re trying to do underwriting and we have some ways were addressing at that. And then the other thing too is to have operational excellence across your organization. If your customers, when they call are treated well, if they have a claim, if we communicate and we treat them well, they’re less likely to participate or get aggrieved and say, “Yeah, these guys are a bunch of jerks and I should get some money from them.” So it’s all aspects of it.

Nick: I almost think that a Florida insurance…Werner, would you say Florida’s probably the most challenging insurance market in the world, one of the top most challenging insurance markets in the world?

Werner: It is one of the most challenging, I wouldn’t call it “the” most challenging. I think some places like California comes to mind as challenging as well, especially after the wildfires because that’s probably.

Nick: But it would be for a company that’s starting up that’s looking to take risk. It almost seems like it’s worthwhile to model a Florida insurer, especially one that’s somewhat tech savvy in order to see all of the different operational excellence is that they have to implement in order to become effective. I think it goes beyond just like we’re going to underwrite a risk. It’s like you have to think, you have to be nimble on your toes because these things, these fastballs get thrown at you and you have to duck out of the way.

Werner: That’s true. I think certain number of the Florida carriers whole share some common attributes there. They’re a young company, so they didn’t start with legacy systems and if they, if they continued to invest than they and they’ve grown up in an environment where you have different challenges and you have to figure out the solution, there was no set recipe. They’re a little bit more nimble and you can see a number of our competitors here are operating in a lot of other states that have grown quite a bit. So when you look at the homeowner’s market, if you look at the last 10 years, you can see the impact of the Florida market expanding if the rest of the country because of that.

Nick: How much of your technology expertise, you’re the success that you’ve had being able to implement it has to do with that Security First; it isn’t that old. It’s not State Farm or Aallstate and it hasn’t been around 100 years. You kind of cut your teeth in a more digital age, you’ve had to grow, you’ve had to expand. But how much of that has been an advantage?

Werner: Well, there’s an advantage that as a disadvantage, but we’re a small company, so I’m American Family—I was at a conference—American Family has 100 data scientists on their payroll. We don’t have any scientists, so being big has its advantages if you have the money. I’m sure if Statefarm has plenty of data scientists as well. But a technology I believe can level the playing field because we’re small, we’re nimble, as long as we don’t know ourselves with the wrong technology, the wrong implementation because we’re not big enough to make large mistake. If we use technology effectively, we can deliver the type of customer service, the type of operations that are commensurate with the big guys, and we do. We were the first insurance company, I believe in the world and certainly that added states to send people a link when they then their policy wasn’t forced to a personalized video that told them what their coverage wasn and explained their coverage insurance they could understand. We were the first insurance company to offer an endorsement for flood that’s full coverage, not MFIP, we’re writing flood coverage in Florida on 30 percent of our new business, and our average premium is $175 for full coverage flood.

Nick: That hits home here because I do flood for a living and it’s…I actually got an email this weekend. I’m going to be the Casualty Actuarial Society and the CPCU are doing their joint conference in New Orleans and I will be on a panel and my job is to convince everybody that I think flood should become a standard payroll.

Werner: We feel that because of the weight of the…Flood became uninsurable because of the individuals knew more about their flood risk for years than the insurance company did. But with the new technology that’s changed. And so it’s very interesting, we focused on… 80 percent of our insurers are not in the 500 year storm surge. And so most of our insureds have a small flood risks, but nevertheless they have a flood risk maybe from inundation and so they should have a small premium. So we have 60 percent of our business, I think is at our minimum premium $100 for full flood coverage. And it’s automatic, there’s no elevation certificate. And the other thing that’s interesting I think is, you know, the reason that people in Texas and Houston had a house inside a reservoir was not because they wanted to be really close to the water, it was because they didn’t know. So the average individual has no way to know if they have flood risk unless what they go on is [inaudible 41:23] is my lender told me I have to have flood insurance and that’s not a very viable or accurate way to know what your flood risk is. But if you go to and live in Florida and you have a house, you can get a free instant quote including flood. And so the flood premium could be $100. It could be $10,000 because we price it according to the risk. So we actually have an online, effectively an online solution right now that anybody in Florida can use to figure out what we think their flood risk is in terms of dollars.

Wes: So I’m going to get Meta after listening to that. So Werner talked about problems and Nick and I wanted to do this podcast, we were talking about people and so look like you’re an insurance tech, you got Blockchain, you have Chatbot, you know, you have, you know, you name it and you’re talking about this thing that you’re trying to use to change or control or disrupt the industry, but what you really got to be doing and you’ve got to be listening to guys like Werner or be somebody that was in the industry or lives in the industry because you gotta know that flood is…Flood is the tipping point…I mean, talk about where billions of dollars can go in the next couple of years, it’s flood. 15 years ago it was the Florida Homeowners market. So you can say you want to Blockchain, Chatbots, whatever, but the smartest entrepreneurs that I’ve met in my 10 years in this industry, I’ve been the people that started Florida insurance, is the most innovative people ever. It’s not about the technology, but the problem you’re solving there was, you know, tens of millions of people [inaudible 43:19]

Werner: You mentioned two things there; Chatbot, we are actually aggressively developing Chatbot with one of our partners in the hurricane Michael. Thirty one percent of our first notice of loss were actually handled by the Chatbot, and we have a Chatbot taking payments now. We just implemented and it’s taken about 100 payments a day. It’s sort of an MVP. So we’re, we’re working on it. And we have, we have people on a Chatbot team now. They’re doing Chatbot development. And blockchain is interesting too. I’m actually on the board of AAID, which has a blockchain initiative. I was in Chicago for a workshop two weeks ago developing a blockchain approach for statutory reporting. So we’re doing a lot of fun things

Wes: It’s about like the, you know, Werner finds the people that actually are insurance people at each of those things or claims or litigation people. I mean we just talked about like three or four major trends that are going to be responsible for billions of dollars going into someone else’s pocket that’s not currently in and you know, you just don’t hear that, you have them either have been in the industry for decades or immerse yourself in the industry. And this is what Nick and I, this is what got us going on this podcast because like you don’t hear these types of things in any of the news or any of the articles and thought leadership pieces. You don’t see it. You hear about just the technology itself. You don’t hear about the market opportunity. And I guess that’s because everybody who’s doing that lives in insurance, they don’t live in media. And I just think that this totally fits with why we wanted the exposure to someone like you Werner to provide, hey, this is the real world and either you’re in it or you’re not, and if you’re not, don’t even bother trying to serve insurance companies if you don’t know and love insurance companies.

Werner: Well, I think we like to talk about our company and our culture and say that we’re a technology company that uses technology to help finance personal risk because that’s essentially what we’re doing, and we do that because we want our people in our culture to think like a startup, to be looking for the change because fundamentally, we’re trying to build a business for the long term. So you’d ask yourself, you know, if you do design management, design thinking, you say, well firstly thing you’d say, “Well with all the things that are going on, if we’re going to be in business in 10 years, what will we look like?” And then you start working. You don’t know for certain, but you start to identify the driving forces of things that are different than you say, “Okay, we might not everything figured out, but we might need to do a little bit more here. We might want to have a technology basis that’s different so we’re totally cloud based. We don’t have a data center, a physical data center. So the things that you identified…And you have to play with some of these technologies too, when you see that they’re relevant and they can address a business problem, you have to get involved with them on the front end so you can figure out where they are play and how that’s going to change your organization. And then part of that culture that’s important to is that we look ahead and say, “Well, what kind of people do you know?” The average insurance companies, even us, we still have underwriting, claims, we’re structured like, like an organization hasn’t changed in 40 years, but when you look underneath the covers were hiring very different people. And so one of the things we needed to do and we continue to do is we want to hire more young people because they are comfortable with the technologies and the way of doing business that we have to become.

And so what we did, you know, we have had two problems: one is we’re in Ormond beach, Florida, and there’s no other insurance companies here for us to hire from. And the other is, you know, insurance is not exactly viewed as a sexy place to work by young people. That’s not their life’s ambition. So what we did is we created an intern program. And the one thing about interns, uh, college students when they’re home for the home for the summer, if you give them an air conditioned job and pay him $17 an hour, they’ll even work for an insurance company. So we could hire many more applicants than we had to select, although we’ve got as many as 21 interns for the summer. But what happens is they come in, and we’ve hired really bright people and they’re all departments and they contribute and they learn, they make relationships, and then we get to know them, they get to know us and we, look at them very well. We spent a lot of time with them and we find somebody has an interest or an application like their quantitative, okay, why don’t we bring you over to our analytics department, and then those people will show all the toys, all the data things, all the development we’re doing, all the analytics, “That really cool stuff.” I didn’t know insurance companies did this and then if we liked them and they like us, some of them will come back, but then they graduate and then we say, “Hey, you like to come work for us?” And at this point it’s a different conversation because we know them, they know us. And so we’ve hired, I think we’ve got about 20, 25 people that we’ve hired. So we’ve got a whole cadre of people…I think the average age on our fifth floor is 26.

It’s amazing the contributions that these folks that have made. We have several of them now that have been with us a four or five years that are changing the organization, they’re running our product area because the other thing we do is we give these new folks a lot of flexibility, a lot of training, a lot of support, and a lot of responsibility as fast as we can. So they’re not sitting around waiting for a manager to retire. In a growing business, we have plenty of opportunities for contribution. So you have to have an organization that can use technology. You have to have people in your organization that are comfortable with technology and you have to have a belief that technology is a fundamental part of a growing and longstanding business in the insurance business

Nick: Completely. You touched on so much there, all valid. It’s something we’ve talked about on this podcast forever, which is if you want to reach out to young people, they think insurance is either immoral because they don’t know it or they think it’s boring. And that was the whole idea Werner, for this podcast to get it started two years ago was if we can interview people like you— we interviewed Thomas Jennings of AAIS, you brought up the blockchain initiative. He’s running that over at AAIS. Just to show—and Wes of course—just to show like, no, I mean it sounds boring. Stereotype is a bunch of old white men sitting around a Mahogany table. But the reality it’s incredibly complex, which is something, you know, you hear Insuretech companies say, “Oh, every industry has balked that technology wouldn’t disrupt them that their industry was different.” And I go back and I say insurance is different. You’re not selling anything except for a promise. Every other product you ever buy, you’re getting something, you know, a thrill, money, a loan, phone, you know you’re getting something that you’re willing to spend the money for. Insurance is not so you need sales people, you need to make the ability to take a boring product and make it sexy somehow, and that’s like extremely missing. It’s a highly complex, not just in the underwriting, it’s a highly complex industry controlling who’s going to sue who and how do you manage that and natural catastrophes and analytics and trying to find, trying to weed out moral people from immoral people like it’s just super complex with a shrouded in regulation.

Werner: Well, I absolutely agree with that. And for years, the way I’ve looked at it is, if you innovate in a simple business, it’s easy for everybody to copy you. If you can figure out how to innovate in a complex business, you’re gonna have an advantage. That’s really at the core of what we do is try to figure out how to innovate…No matter what you do, like our flood program, it’s going to be copied. We think that’s the way flood needs to be sold and there’ll probably be a couple others, you know, working with Swiss like where are a couple of years. So your innovations are always temporary, but the one innovation that’s not temporary, that is a competitive advantage is building a culture of innovation.

Wes:  Yeah. And that’s the idea and it’s hard. So, I mean, I can’t tell you how long it took for Nick and I to find each other, right? And need to find out about their world. There’s just not a… I mean, there’s a lot of people…And it’s hard. I mean, you know, Werner you think you’d find yourself in a situation with a lot of the people that are actually doing the work, but if you go looking for this stuff, it’s very hard to find people that actually fit that culture. It’s so much noise and so much, you know, people that within…You see a nice little tagline or a nice little ad, nice little idea and you’re excited and you go look at it and you realize, “Wait, this has no chance.” And that happened 100 times in a row and you’re just—it just becomes very hard for anybody in this industry. The nodes are not connected very well. And yeah, the only way you can do that is through these people network and is through a culture, because there’s no possible way to reach everybody. There’s no way to be reached. I mean, it’s just s pure numbers game of people, of likeminded people that live, breathe and die insurance all day long. And that’s what in my experience I’ve seen. I mean, there’s people at insurance companies don’t even live… In fact, I’d say most people at insurance companies don’t live, breathe and die insurance, right?

Werner: Thye’re missing a great life.

Wes: I know. I agree with you. The last couple of comments you guys have had have been dead on, and thank God there’s people like Werner and there’s people like Nick, I mean people don’t really like to look at. They are there. This stuff isn’t happening elsewhere. I mean if they give me 2,500 hours a year for five years to find these folks. And if you’re listening to it, you know, not only do you have an obligation to try to help other people reach these people, we got to help Werners and Nicks in this industry. I’m just dealing with the litigation issue so I’m not nearly as…

Werner: There are more and more, and I am encouraged because as I go about and meet people, there’s a lot of good people that are bright in our business that are thinking about things that do understand the complexity that are making change. It’s never been a more exciting time to be in the insurance business, at least in my perspective.

Wes: Hundred Percent agree.

Nick: Werner, what are your plans for Security First? You going to go outside of Florid?

Werner: Well, we’re approved in 37 states, so we have…The bedrock of our business is Florida and it’s working with our strategic partners. So we’re not going to do things to compete with them because once we cross the Florida border, then we don’t want to compete with them to the extent that there are new emerging channels of distribution that we’re looking at. That’s one opportunity. And also areas that we can help our strategic partners outside of Florida because the way we look at the insurance business, you have to decide if your insurance organization, whether your distribution or manufacturing. If you’re distribution, your objective is the customer, your objective is to capture the customer by selling two or three products so that they stay with you. In order to do that, you have to have a lot of products.

Now, the common problem that most people in distribution have, even if they’re an underwriting company, is they can’t manufacture all the products, they need to capture the consumer, so there’s a market for people that are just manufacturing that’s manufacturing the special products. So we designed a homeowners type products for companies that are focused on the customer and we’re focused on delivering that customer experience, but we’re also focused on systems integration with them and being able to make sure that for our partners that they have high service levels that when they saw our product, those service levels are not compromised. And also because some of these system integration you’re looking for is they want a singular customer experience. Even though there’s multiple companies involved and increasingly that’s the demand to. Because you have to have the technology to come alongside and work with their systems people to make that happen. So we’re looking at things and we’re positioning ourselves to do some things outside of Florida, but those are sort of opportunistic and opportunities to leverage our existing platform. But Florida is our main focus.

Nick: Well, out of respect for time, I think we’ll wind this down. God, I think we could go for another three hours, honestly so we’ll have to continue this down in Florida if I can ever escape this winter and get down there. But I think what I took away from this was that technology is alive and well in insurance. They’re so many entities in it, and I think we get bogged down with the companies that are struggling with a lot of the legacy stuff, but there are a lot of positive things that are going on. And actually, I guess one of the big things I’m going to take away from this, Werner, is that if you’re entrepreneurial, there’s a home for you here. There’s so many opportunities, even for a legacy insurance carrier, you listen to Werner’s very last answer is “we’re thinking about the things outside of Florida in an opportunistic way while balancing the business that we have now,” and there are pockets of that all over the place. It isn’t giant homogenous market. Hey, it’s a $5 trillion global market. I’m going to come in and take a one percent of it and become a unicorn. It’s a lot more complex than that, but there are so many opportunities. That’s my takeaway. Wes?

Wes: Yeah. I mean, my take away is why would you want to disrupt something like that? Why wouldn’t you want to just learn as much as you possibly can and then find solutions to problems that have already been identified? Why do you find a solution? And I’m guilty of that. I did that. I just got lucky that I had the solution was very good, but I could have easily been back pushing paper at law firms. There was a lot of luck and that’s so much skill. And that’s what happens when you try to get an insurance defense lawyer in the business world. But yeah, my takeaway is why all the hype and hoopla, just do whatever you can to listen to folks like Werner and Nick and all the other people in this ecosystem you mentioned, you know, and do whatever you can to bow down to get them to talk to you.

I learned a bunch of stuff. I’ve known Werner for five years. I learned a lot. I didn’t know about the intern program like that and I feel guilty that, but I need to be listening to this as much as possible and I never need to ever utter the word disruption or what’s the word they always use? Incumbentm about the people that are running successful businesses. My take away is simply, “Hey, let’s serve those folks. Let’s not trying to bother them or lie and tell people that we’re gonna somehow replace them.” It’s not happening. And today was clear evidence for that.

Nick: Yep. Thank you so much, Wes. Thank you as well. Next time, let’s do this with marguerite is on a deck.

Werner: Sounds good. Awesome.

Nick: So to everyone that’s listening, like the podcasts, hit the subscribe button. Do whatever you need to do to be reminded that these are coming because Wes and I are going to have more awesome folks like Werner coming on. So again, thanks everyone.



About Nick Lamparelli

Nick Lamparelli is a 20+ year veteran of the insurance wars. He has a unique vantage point on the insurance industry. From selling home & auto insurance, helping companies with commercial insurance, to being an underwriter with an excess & surplus lines wholesaler to catastrophe modeling Nick has wide experience in the industry. Over past 10 years, Nick has been focused on the insurance analytics of natural catastrophes and big data. Nick serves as our Chief Evangelist.

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