Profiles in Risk – E143: Building A Florida Insurer From Scratch with John Jerger Jr.

In this special episode of Profiles in Risk, my co-host Wesley Todd and I spoke with John Jerger Jr. We discussed the challenges of starting a new insurance carrier from scratch in the toughest insurance market in the world. We discussed natural catastrophes, assignment of benefits, one-way attorney’s fees, the challenges of incorporating technology into your insurance operation and more.

Connect with John Jerger Jr.:
LinkedIn – https://www.linkedin.com/in/t-john-jerger-jr-65962725/
American Traditions Insurance Homepage – https://www.jergermga.com/

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Nick: Welcome back everyone to another episode of “Profiles and Risk.” I am your host Nick Lamparelli. We’re mixing it up a little bit today on site down in Florida. My cohost, Wesley Todd who’s the co founder or founder and CEO of Case Glide. And today, we’re very pleased to again have inhouse John Jerger Jr. John is the president of American Traditions Insurance Company. He’is also the COO of West Point Underwriters. And the Jerger Family has been involved in Florida insurance since 1946. It’s basically in his DNA. And so if anyone has a lot to talk about and can really describe the in and outs of an insurance operation, it’s this guy. So John, Wes, good to talk to you today,

Wes: We’re reporting live on the scene here. We made it in the office. Luckily it’s right nearby.

Nick: That’s awesome. That’s awesome. We should do this more often. Actually John, we were talking to Warner who was the prior episode and saying we should do it on the deck with a Margarita somewhere warm in Florida.

Wes: How awesome would that be?

John: Well, it’s not warm right now, but…

Nick: Yeah. Well I watch the pro bowl yesterday and it was raining.

John: Yeah.

Nick: How disappointing is that?

Wes: Pro bowl by itself is going to be disappointing. But then that…

Nick: I know. I wonder, do you think it was the players that move it to Florida? Because I would have thought that they would have preferred to go to Hawaii

John: Yesterday they would have definitely rather been in Hawaii.

Nick: Yeah. Absolutely.

Wes: So, I wonder if the [inaudible 04:58] even remember or even found out that the pro ball is in Orlando, because they haven’t been in the pro ball in 10 years since [inaudible 05:06] They haven’t been pro ball in 10 years but [inaudible] SuperBowl.

Nick:  That’s true. That’s true. We don’t even know what the pro ball is.

Wes: Nah. We definitely think it’s still in Hawaii.

Nick: It is, yeah. John, welcome. I appreciate you having you here. Wes has been very high. You know, our goal for this…Wes and I when we were first talking about this last year was, you know, there are all of these marvelous insurance executives in the state of Florida. And that’s because Florida is probably the most challenging insurance market in the world, definitely at the top, right? And the Florida insurance companies sort of fly under the radar. They’re not the AIG, these are the Chubbs, but they’re like phenomenal in their ability to navigate the minefield that is Florida. So I wanted to start right off and just say American Traditions. Should we start there? Should we start with West Point? You know, out of these entities that you’re working on, what’s the one that sort of makes you the proudest of like what you’ve been able to accomplish?

John: No, I think I’m proud of both companies, especially in this industry. West Point was started as an MBA back in 2000, with the idea of working in niche markets. And the family had this backed down with mobile homes and manufactured housing. That kind of morphed into the back end processing over time. And I think it would because we saw the need for technology. We saw the need for more automation, and back then the Internet was still fairly new when it came to insurance. So we kind of automated the process and try to make it as simple as possible for agents to process some businesses as quickly as possible. As we grew, we saw a need after the storms of 04 and 05 that there was a need to start a new insurance company for manufactured housing because the only really at that point was Citizens Property Insurance Company.

Nick: Yeah. And so for anyone that’s listening, Citizens is like the—I don’t think they’re state owned, they’re just state run.

Wes: Yeah. State run. Correct. They’re basically the government entity for insurance when there’s nobody else to write it. At least that’s the idea. That happened after Hurricane Andrew back in 92, and it’s kind of morphed into what it’s called today, which is Citizens Property Insurance Company. Part of the reason I think there’s been so much growth with so many different insurance company in Florida is because of the fact that there were so many who pulled out after 04 and 05 and said we’re really interested in writing in Florida. It’s a dangerous place to write because of these hurricanes because of the litigious nature. And so then citizens made it so [inaudible 08:18] for folks to try to pull business out of them because they gave them premium to do so, they gave them commission to do so. And so you saw all of these new companies start to morph out of that. What I’m proud of from our perspective when it comes to American Tradition is we did it all the old-fashioned way. We didn’t take out from the citizens. We wrote everything through agents, through retail agents, from cradle to grave.

Nick: Yeah, which is amazing because the…Again, for those that are listening, the standard operating procedure was you get a bunch of reinsurance capital from Bermuda and then you go to Citizens and just basically buy a book and you manage. So you actually did it the hard way one policy at a time.

John: We did. There’s nothing to say the other way doesn’t work as well. I mean, it did work for a long time. Now that Citizen’s about half a million policies verses million and a half policies, it’s much more difficult to get good quality business out of that book of a Citizens Property Insurance Company. But again, we’ve always spent our time on niches, niche products in the state of Florida and manufactured housing is one of those niches. I think we’re the leading manufactured housing writer in Florida. I don’t think there’s anybody bigger than us. And I think, you know, moving forward, one of the things that was most interesting, was most appreciative of my crew here and what we were able to accomplish is after Hurricane Irma. We’ve never been tested like that, that 19,000, almost 20,000 claims that we had to process. Getting through that is tougher than you believe.

Nick: So before we jump into the technology part of it, Florida insurance, but those that, you know, maybe underappreciate the types of things you have to worry about, why don’t you kind of check the boxes off, list all of the things that make Florida such a unique market. Now of course, everyone listening will say, “Well, hurricanes,” but it goes well beyond that, doesn’t it?

John: I wish hurricanes were the only thing I had to deal with. That’d be nice. And we were talking about this earlier. You said your co-founder was saying how hard can it be? It’s just a piece of paper. And I have this conversation with friends of mine all the time. They say, “How hard can it be?” I said, “It’s like a bank.” But it goes further than that. We’ll treat it like a bank when it comes to how we’re regulated in Florida. We have to look at, all right, how much properties can we write? In what geographic area in Florida? Florida’s unto its own. It’s the largest purchaser of reinsurance in t’s small capita in the world. We buy far more reinsurance than anybody else out there. And it’s much more expensive than anywhere else. So we have to look at reinsurance. We have to look at how we spread our risk. We can’t spread it in just one geographic area because that costs us more. Because then we have to look at what does the model say? We have these models. Two of the most prevalent are our AIR and RMS. You have to run your book through that model. Correct.

Wes: Wow.

John: He’s wearing the jacket. You have to run it through models and then it determines how much reinsurance you have to buy. And that’s the only guidance because AIR can be one number and RMS can be far different. It’s also what you put into those models is what ourput you get. So you have to look at what you’re putting into the model to see what you can get out as a result. You have to determine how much are you going to buy and what points in time. In Florida 6/1 is the beginning of the reinsurance seasons or hurricanes and it ends at the end of November. So you have to look at what point in that timeline am I going to buy my reinsurance? And you have to buy one in a hundred. So then we’re also regulated by the departments. We have what we call the OIR here in Florida, Office Insurance Regulation, we have to tell them, here’s what we’re buying and it’s one in hundread and we have to certify that. Once you get past that, you also have to go to [inaudible 13:00] or A.M. Best and you have to show them that you’re purchasing one in a hundred. A.M. Best likes to see two one in a hundreds. In Florida, we also have what’s called the Florida Hurricane Cap Fund, which is another reinsurance element that we have to fit into the mix with our private reinsurance model, and it changes and morphs every year based on how much business you write and what geographic area. Those are just a few of the things that we have to deal with in Florida.

Nick:  Florida, I believe is in the top five for the number of ground making tornadoes.

John: Yes.

Nick: I think it’s the number one state in the country for lightning.

John: Yes. Number one state in the world, I believe, for lightening.

Nick: I think it’s the number one state in the country for sinkholes.

John: Was. It’s not as bad now.

Nick: Okay. And what else do we have? So those are just a few. Hurricanes bring floods. So it is by far the number one policy seller of NFIP flood policies.

John: Correct.

Nick: Okay. And then to top it all off, it has a very unique litigation problem where lawyers have become very sophisticated—the assignment of benefits, which we talked about with Warner, again, causing all kinds of mayhem in the market where claimants can turn over their claims to lawyers and have them squeeze the living heck out of the insurance companies.

John: An assignment of benefits is only one part of it. Really, another part of it, which is the one way attorney fees. I’m not sure what Warner went into. One way attorney’s fees is about 75% of the problem. Assignment of benefits is only 25% of that problem. And the reason for that is legislators wanted to protect insure against insurers that we’re trying to bully. Big, large insurance companies were trying to bully and claim settlement. So they created the ability for an insurer to sue their insurance company if they thought that they didn’t get enough money to put their home back in the place it was before the loss. The problem with one way attorney’s fees is if you go into a court of law, you have a jury and the jury says, “Well, I know you wanted to give them $10,000 but I think you should give me $10,500,” and it could be as little as $1 over what the insurance company wanted to settle that for. They then have to pay all the attorney’s fees, to the insured lawyers. And there are multiples on that as well. So that’s where it has become problematic because saying that $10,500 for example, they might get 40, 50, 60, 100,000 dollars on the attorney’s fees for that rather small loss. And that’s where it’s become very litigious because they know they hold on the cards and you really don’t have…

Nick: Wes, what do you see? Like first I’m wondering what do you see in regards to insurers looking to avoid that situation? So they’re padding the claims, one. And two, for those that do go to litigation or some sort of arbitration or however it’s handled – I’m not the legal person. What’s the split of insurer wins versus the insured wins, like could you kind of outline that for us?

Wes: Yeah, so you know, on the first question of just thinking of, you know, John mentioned five or six people involved and just figuring out if they can do business, and then when a claim is made, there’s another 10 people and some of those people are not on our side, like the contractor that will come in and try to make a repair or the attorney or the plumber and all these people are all talking to each other about creating that situation that John just talked about. So you think you’re an insurance company, if you go back to the first question, which is so good about, you know, what are the things you’ve got to look out for. And not only do you have to worry about all the things before you buy the house, you’ve got to worry about these probably 10 or 15 people involved at different stages in claim on your side and unfortunately on their side too. And so all of those people, when given the chance, they’re going to try to make the most out of the opportunity, not only to the insurance company’s detriment, but to the detriment of the homeowner and the plumber and whoever else.

So, in John’s example where if somebody, which is the most common example for when somebody says, “It was actually another hundred dollars you left out on my kitchen when I had that water leak.” That attorney, if they go to a trial and the homeowner gets a hundred, the attorney’s going to get more like $250,000 because they worked up $100,000 worth of expense because they get to charge $500 an hour here in Florida because of the rule. And because they also get to get two times that because they get a multiplier, John kind of alluded to that says, “Well you could have lost this case and you would’ve gotten zero. But since you took that risk, on behalf of company policy, we’re going to give you two times that so they wind up with $200,000. And so how often…? To answer your question about the trial, the problem in a case like this where it’s an insurance company, you know, this is first party, right? So it’s an insurance company and on the other side is the homeowner, it’s kind of an empty chair at the insurance company.

Now there’s been some things that have made the…People are very sophisticated now, and the insurance side now has a very good group of representative that would be the face of the insurance company. But in reality, it’s the company versus a person in a jury with a group of people, so just there by their nature they’re going to side with the people a lot more often than not, which goes back and puts us in that position of, well, you know, unfortunately, now it’s in our best interest, most of the time, not all the time—these companies still win trials and they win them often, but it’s in our best interest to make sure that each of those people get the fair amount. All 15 of those people hit some little fair amounts. They can give you that all they want. We’re going to give them a fair, you know, excess of what we probably could have prepare to sue them for if we’re dealing directly with the homeowner. Homeowner’s not going to get an extra ten. All these other people are going to get, because that’s just how Florida’s set up. So you know, that’s why everybody’s paying ridiculous amounts for insurance here, you know, because that’s tying it all back against together. It’s a very hard business to run. But if you know your math, you know what it costs and unfortunately, its the people that wind up paying for that bill every year.

John: And unfortunately, go into court on every single base, it’s very, very expensive from the defense costs and from the plaintiff’s side. So more often than not, we push it into the appraisal, which you have your appraisers, they have their appraiser and then there’s definitely an umpire. And most times the umpire splits the [inaudible 20:35] so something that should have cost you 20,000 and they’re saying it should cost 60,000, ends up costing you the 40,000. And sometimes the attorney’s fees gets brought into that equation as well. You have mediation. Tat’s another alternative dispute resolution. Mediation, again, gets into attorney’s fees and costs, and escalates the cost to defend these things. And unfortunately, at the end of the day, all of this gets pushed back to the insured in the premiums. That’s part of the reason we’re in the boat we’re in today where rates are just continuing to excalate. But it’s not because of the…Most people think it’s because all these hurricanes we’ve had. It’s not because of these hurricanes we’ve had. We’ve had  good years without hurricanes and we still had rising rates. And part of that rising rates back then was sinkholes. Once we fixed sinkholes through legislation, we moved on to what we have now, which is this nature with ALBs and with one way attorney’s fees.

Nick: Okay. So two additional questions: how sympathetic are the regulators to this? I’m assuming these extraneous costs can be factored into ratemaking. Is that true?

John: They can, but if you took 18 months from today to realize that loss of income or that loss of premium.

Wes: You have to be really good at math.

John: Yeah, be really good at math and you have to be able to see how fast it’s exscalated. Thanks to Wesley, part of the ability to understand that comes from the reporting that he gives us so we can understand how fast it’s escalating and what we have to do to try to combat that. But it’s also coming in the way of forms. We’re giving less water coverage than we ever did before. We used to get more water coverage, meaning if you had a pipe breaking in your house and it costs $20,000 worth of damage, we would give you $20,000 to fix the house. A lot of companies, including our own, are going to a limited water exclusion damage or say $10,000 worth of coverage or no coverage at all, depending on the age of home. And it’s being driven partially by lawyers embellishing the amount of the loss. And unfortunately, we all use special software to determine what it’s going to cost to rebuild rooms in a house or rebuild a house. And depending on the quality of the materials that you say that house was built by, decides the amount of the loss. And on the plaintiff side, they embellish the goods that were in the house, you know, whatever flooring, whatever wall material, whatever cabinets, and that estimates the cost of what it may cost for them back in the same place they were before.

Nick: So then my follow up question to that would be how sympathetic are legislators? Wes, you and I did a whole episode last year on assignment of benefits.

Wes: Yes.

Nick:  I didn’t even realize this other a hangnail that it has causing so much pain to the industry. I follow John Rollins on Twitter. He’s always railing about this. Lisa Miller’s always railing about this in her newsletter and yet, it doesn’t seem like anything is being done about it.

John: It always takes about three to five years for us to get legislators to understand what the problem really is because they don’t want to believe that early on, like sinkhole. It took years for us to finally get meaningful sinkhole language or sinkhole language at all to fix the problem. We didn’t have a big sinkhole problem before Morris created it. And we don’t have a big sinkhole problem today. Yes, we have sinkholes, but they’re not—Florida’s not a big Swiss cheese and everything’s falling into the ground. Much ike today, we’re willing to work with companies to do water extraction, but we’re not going to be held hostage by water extraction companies to say that a room the size that we’re sitting in right now should costs two or three times what I can get five other companies to do it. It’d be like going to Home Depot and then going into Lowe’s and the costs for a product it’s two or three times in Lowes what it costs in Home Depot. Is the product made them much better? No, I don’t think so. Just like a home. Once you know what materials are in that home, the cost shouldn’t vary by much. Unfortunately, the way these other folks play the game, the cost vary drastically.

Wes: Yeah. And with the legislation, so you know, I remember the sinkhole was something like Citizens would spend 1.2 billion on sinkholes claims in the last year before they got to form and they only had 200 million in premium for it. So yeah, to John’s point, it’s going to take time. I think one of the major issues for Florida at least, and I think across the country is that—and this is for every company, not just Florida, but plaintiff’s lawyers, it’s that tipping point where they have more and more control of the legislature. They don’t have full control, but they do have a lot of influence in a lot of legislation across the country. It’s definitely in a lot of the states and they very well could be the governor here one day. And so the legislature will make the change, but common sense doesn’t prevail. It will take a while because there’s competing interests within the legislature where there’s…Unfortunately, even though there’s only 15 or so people benefiting from the whole thing in Florida, they have three, you know, they have probably representation of, you know, 30% of who has to make a decision on this, even though it’s 15 people versus 15 million Floridians.

John: So going back to your question, the legislative body that we have in Florida today knows and understands the problem more so than they have in past years. They understand some of the key drivers, they’re more focused on assignment of benefits because that’s what we’ve been complaining about most for the last three to five years. But they also understand when attorney’s fees is impactful as well. We haven’t even done, we’d get off first base before we have attorney’s fees in the past, whereas this year we believe that not only will we find some meaningful legislation that occurs as a result of some of the legislation that’s being proposed out there today by Senator Broxton and others. But we think we can get something done meaningful on one way attorney’s fees with wealth to try to kind of even the plane. We know that the governor’s behind it. It’s one of his biggest objective. We know the CFO is behind it. Again, we have many senators and representatives are behind it. And of course our commissioner is behind fixing this problem because they know it’s raising rates. They know that it’s causing grief for homeowners all across the state. And the only way to fix it is to fix the underlying issue because we haven’t had much success in the course, where we were hoping we would have success. So we have to fix…

Wes: Yeah. Just to add real quick, you used the word “niche” and you know, that’s one of the things that we thought about Nick, is if the insured pack and the people in this market could understand that insurance is nothing but a bunch of niches, right? No matter where you are, if your worker’s comp’s up  in New York or you’re  in California or whatever it might be. And that’s like what you have to understand. So when you think about all these problems is $100 million to billion dollar problems just in Florida, this exist all over the country in different forms or fashion. It’s not always big, but this is what like the market has to understand. They’ve got to hear out these details and [inaudible 29:31] you can’t solve the problem for these people. And so well we’ve done what a lot of, I think successful companies have done and like what your company is doing.You just zoomed in and locked in on some individual problems that may not be easy to figure out, but once you figure it out, it’s a billion dollar problem or a multi hundred million dollar problem. And the solution is worth a lot of money and worth a lot of time and worth a lot of effort. And so to our discussion earlier, you know, this is right in line with the notion that I think insurance nerds and Profiles and Risk are speaking about, you know, nailing a niche, really understanding one specific part of insurance before trying to understand everything.

Nick: Yeah. We’re going to transition over to technology and talk about that. But I’m always reminded of a saying from John Rollins is like, it doesn’t take long before as the rates get up, the peasants with the pitchforks show up in Tallahassee and they make the difference. Like ultimately, if this problem keeps existing, the rates are just going to keep going up, and the solution will be to make a change because the peasants with the pitchforks are going to want rate relief.

John: Yup.

Wes: Yup.

John: And people just don’t understand.

Nick: Yeah. So John, it’s a fascinating story with American Traditions because you sold your…You started from scratch, zero policies. My company started with zero policies. I don’t think people recognize like how problematic that is for someone that’s starting, like problematic to get reinsurance, problematic to get brokers to take you seriously. Like you’re starting from scratch and nobody really…In insurance, no one really wants to start from scratch. Reinsurers or  people that are going to give you capital, they want a book that’s in place so they have a little bit of certainty about, you know, what kind of losses are you going to be sending us? That kind of thing. And brokers want to know that there’s the capacity behind it before they start selling, you know, pitching their customers to buy your product. I got to believe technology played a big role in helping you kind of roll this up to what it is today. We already talked about AIR in RMS and CAT models, can you sort of talk about with American Traditions—you can talk about West Point as well. Specifically like how has technology helped you? How have you been able to layer and implement it over time in order for you to grow your book to where it is today?

John: Well, like I said, we started West Point in 2000. And part of the reason we did that was for technology. We saw a big need for agent’s job relief because the old way of writing policies, it took them 30, 40 minutes to write a policy. Our objective was to get them from cradle to grave, done and have that policy back on their lap within five minutes. And I think that made a big difference, especially when we started in 2006 with American Traditions. We wanted to make it as simple as possible for them to tell us what park that policy is in. We already know all about that park because we have a database that lets us know everything about a certain park anywhere in the state of Florida. then you know, how many units are in that part. So geographically, depending on where it is, depending how big the park is, we can only take so much business in that one park because then we’ll get into a situation where you could have a localized tornado or localized hail storm that could cause you grief, not just the hurricane. So we want to try to limit the amount of business right now in the geographic area or geographical park. Those pieces are really big. And then part of that is capacity. We used to use a map back in my early days before I started West Point or American Traditions back in from my family’s insurance shop, they would use thumbtacks on a map to give us kind of an idea of how much we were writing. Now it’s kind of a simple form, but when we wrote the new system, one of the things we wanted was capacity constraints. So we wrote a part of the system that basically allows us to say how much capacity we want in any geographic area. And that goes down to the park level and mobile homes cases or a zip code in the form of homeowners because we have to buy reinsurance and we know if we concentrate too much in one geographic area, it’s going to cost us more. So we also need ability where we could grow geographically at kind of a normalized pace so we weren’t growing all in one area where it was needed most of them say Tri County, Miami Dade, Broward, Palm Beach, you know, you could open up that tomorrow and say I want 25 million of exposure this year, 25 million in premium this year. We can write out 25 million in five minutes down in the Tri County area because that’s got a great need and that’s where you have the most litigious issue in Florida. So we have to kind of be able to normalize that and make sure that we spread it over time as well as geographically.

And those are kind of some of the things that we did to try to differentiate ourselves. We continue to try to find ways to differentiate ourselves with the agents, both at West Point and American tradition. And West Point develope something, we try to develop it for all clients, not just one client and want to try to make it simpler and easier at all times for an insurance company to be able to manage their risks and manage their portfolio so that we develop a data warehouse using excel, which everybody is familiar with in the insurance world. It’s easier than something like say a Cognos where you have to have very specialized individuals to write those risks or to write those programs. In our case, excel is more end users, a little bit more flexibility so they can kind of play with the report more so than somebody that was trying to do with Cognos and having to go to a third party and say, hey, can you write this report for me every time they want to drill down one more lap. So those are the types of things that we’ve tried to create in West Point and American Traditions to kind of make technology work for us.

Nick: I think there are some lessons here. Wes, we talked a little bit about this last week—around the concept of niching and how you do that, and for like folks that are creating startups and they’re coming in you know, like let’s go outside of both of our realms. Let’s say like earthquake. Well, do you want to do something around earthquake? You should be in California. That doesn’t necessarily mean you have to be in San Francisco and it doesn’t necessarily mean you have to be in Los Angeles. You can create your niche, you can stay away from like the areas where it’s going to be really—like in your case, Tri County, it’d be really difficult for you to get significant capacity. It’s going to be expensive capacity. So just to get started, yeah, you can get a lot of business there, but it’s not necessarily going to give you a good start to the business. You might be better off going up to Jacksonville or over to the Panhandle parts and start there and then slowly work your way down. And I think that’s a very important concept when it comes towards niching, is that you can keep shaving that down and you should, you know, as advice for those that are listening, keep shaving it down so that you can prove your concept but also get some traction at the same time.

John: Correct. And that can come in the way of products as well. We saw a need for DP1 products for mobile homes, for manufactured homes in Florida. There are a lot of Canadians that come down; they have a second home here. They don’t really want to buy a ton of insurance for that manufactured home because they don’t really need it. They just want it in case of say you have a hurricane and the manufactured home gets completely destroyed, they want debris removal so that they can get it off that leased lot or that random lot or their own lot, for that matter. Say they want a little liability because somebody might slip and fall so they want to make sure they have a little bit of liability so that they’re not worried about those kinds of issues. It can come in product as well as some of the other things that you’re

Wes: I just want to chime in here, so one thing that I heard…It’s almost been 20 years since West Point up and running. This is kind of crazy when you think about all this stuff Nick and I hear about everyday day— stuff that’s been around for 20 days, you know, so 20 years is kind of crazy.

Nick: Yeah, you know, like the big things like chat bots and like that. But you had been building technology for insurance…

Wes: Twenty years.

Nick: …Forever. And I think it’s because it’s not mainstream, people think it doesn’t exist.

John:Yeah.

Wes: Yeah. And another thing just talking about nailing a niche, John’s technology was so good that everybody else in the state was using it. Everybody else in the state and outside of the state were using it. So we talk about nailing a niche, it was so good that you can take the technology he built for his own company and share with other companies [Inaudible 39:28]

Wes: And just continuing to morph into the newer technologies, I’m going to try to stay up with the newer technologies. Those are all things that we continue to pride ourselves and spend money on. Because what I was talking about before with the data warehouse with excel, most companies won’t try to move forward with that type of technology because there’s not a lot of folks that are experts in it yet because it was a more Microsoft product because they saw a niche that other companies were successful at and said, we need to try to find a way to jump into that niche. And that’s kind of the thing that we’ve prided ourselves in over the years is finding niches and trying to be better, best in class at.

Nick: Yeah. And that reminds me of a tweet that I saw this morning. It was from a VC and it was basically the startup and the VC. So the startup gives his pitch. The VC says, “We’re not interested at this time.” The startup says, “Oh, we were thinking about adding AI.” The VC immediately responds, “Ooh, that’s interesting.” And then added like one buzzword after the other and the VC’s like, “Okay, how much money do you want?” So I want to dig in a little bit. I think this is probably a good way to kind of round out this particular episode, Wes, is to talk about John, how you contemplate technology because the buzzwords, right? There’s blockchain and chatbox and drones and all of this stuff, and it must become overwhelming. For one thing, I think you’re just large enough that you can remain nimble. But for a lot of insurers, they can’t do that. And for a lot of startups that are coming in, they’re going to want to implement all the technologies. So how do you successfully contemplate and evaluate? Can the technology bring value to the company and how do we implement this?

John: That’s a good segue. I guess the biggest thing seems like Blockchain. Everybody says Blockchain’s going to be the biggest thing in the next five to 10 years, but I already kind of taking home the banks. So of course, we have to look at it and see what it brings to the table. How much better is it, then how hard is it going to be implemented and what kind of experts do we need in this field? I would say Blockchain’s a perfect example. You need a different caliber of persons to handle Blockchain appropriately. I always look at it as put five developers in the room and say, “Here’s how we’re going to develop this code,” and you get five different answers as to what the best way is to develop that code. Everybody has their own little nuances. There are best practice that everybody believes that their way is the best way.

So we have to look at what’s out there, what are people clamoring for and which route is going to be the best route. What do we take on first? We talk about automation and Bots. There are pieces in that realm that are very important. One of the things that we implemented was a thing we call stop and fix where we can run scenarios for system using automation rather than giving them input and very quickly you can find out whether you have a problem with something, some piece of code that you develpoed. In fact, years ago it was a much different process. We didn’t have all those automated tools that you could use to get to the answer very quickly and feel more comfortable with it. You’re running more scenarios, if not hundreds of scenarios. When we’re looking at what pieces are going to continue to evolve, it depends on what pieces we’re talking to our clients about that have the most need.

So wherever that need is, is where we kind of try to work with them to bring it to the table and get it implemented. I don’t know that there’s any right answer as to what the next greatest and latest is going to be. Everybody has their weaknesses; everybody has their strengths. I think at the end of the day, it’s about the customer service; it’s about making sure that you’re trying to take care of that client at all possible times, it’s trying to understand the business needs that they have and make sure that you can fulfill that business need. And a lot of times, developers and companies that are more automated driven and technology driven, they forget about the client and forget about what their needs are and only think about their own needs. What we try to do a West Point is think about the client’s needs, understanding that you have a business need, and that business will not only revenue for them but generate revenue for the technology as well.

Nick: It’s so subtle. I was listening to someone talk about a calling center where they were talking to a chat bot that sounded human. And the whole system, it unnerved that the person a little bit because he could hear fake typing in the background. And it’s true, right? Like it’s, you feel as though it’s phony.

John: Yes.

Nick: It was counterproductive, and I can understand like how you would want to automate that process, but they pushed it so far that it’s phony and the person that was describing this was unnerved by it. Now, maybe that’s something that we humans just need to get used to, but that’s the day and age that we live in, just being able to interact with that and being able to figure out whether that provides value or not or whether you just want a human being, a real one for the extra costs that it’s going to take to make someone feel better.

Wes: And anybody that’s trying to make it simple and say, you know, blockchain in five years and the bot…Anybody that’s trying to bring me things that tell you that, “Oh, you know, eight out of nine people aren’t going to be working in the calling center anymore. I mean, they obviously don’t get it because to your questions and John’s point, there’s so much to do and it’s not like one company as less thing to do than the other, they all have a million things to do. There’s absolutely no way that they’re just going to lock in on one and ignore all the other ones. And then to go in and say something like, for example, that you have to have the bot. I mean, of course that would help, right? I mean it could, maybe, but…Or you have to that blockchain, because it’s going to be a lot easier to track all the transactions. Of course, but what do you say no to? What are you ignoring? If you act as an outsider or somebody that, you know, marketing in this industry are bringing technologists into, if you act like there’s a sure thing and answer all these things, then we know that you don’t know what you’re talking about because it’s just so much more complex than that. You have to ive in the company…

John: There’s certain software systems that are out there that you can buy for tens of millions of dollars and they tell you they can do everything. And it could be a very robust system that can do a lot or do most alignes with the products that they have. The problem is that they don’t tell you is it takes five to seven years to develop it to get it in place and you have to one of the big four to develop the plan in order to get it implemented. And then that cost you tens of millions of dollars. So now you’re $100 million for a system, that’s going to take you five to seven years to implement.

Nick: And you don’t even know if it’s going to work.

Wes: In my opinion, it’s crushing the industry. I’ve seen so many companies where I’ve gone in and said, Hey, let’s snatch 25% off your legal spend.” “Oh, okay.” “Let’s snatch 5 or 10% off of some of the extraneous cost.” “Sorry…Blank. This is launching in 2022. I can’t do anything else until then. And I’ve seen these companies almost go under.

John: We’ve got companies that are in that boat today that come to us and say, “Can we do a three to three to five year deal so we can put in new products for our company so we can continue to grow while we wait for our just doing our new system.”

Wes: It’s unbelievable and it’s pervasive. You can go to 10 meetings, particularly in claims, I don’t know if policy has it, but you can go in 10 meeting…I guess it’s a thing same thing.

John: It’s the same thing with policy.

Wes: And seven out of 10 these guys are in the middle of this thing that started in 2012 and you know, it’s supposed to be done this fall.

John: And typically with our systems you know, if we’re going to put up a product for somebody, we tell them typically 90 day. That’s just not heard of the industry as a whole. If they tell you 90 days, just figure twice that or more.

Wes: That’s a whole other thing. It’s a whole other podcast because yeah, that’s where this technology evangelism and you know, that’s where it really crushed so many companies. A lot of people need to be very careful about who they’re listening to. In a lot of the companies that—like, we know, Nick—in a lot of that companies that are marketing insurance, need to be very wary that they have to deal with that issue when you go into a company, be prepared that a lot of people had very bad experiences and they’re living in right now.

Nick: Yeah. You know, when it comes down to it, if you’re a startup coming in, you have to take one of two paths. You’re either going to take the risk path and become, you know, like American Tradition; start zero and sell risk, essentially take on risk, sell policies as we discussed. That’s a minefield of its own. But then if you’re on the other side and your building technology to sell into the ecosystem, this problem, you have scars, you have implementation. I always talk about just how difficult it is to get on budget. These tech companies, the founder is usually the salesperson and they struggle to open doors because they’re not salespeople. They don’t feel the need to hire them so they can’t manage the process. And then next thing you know, they missed the budget deadline and they  have to wait a whole other year before they’ll get another chance to pitch at it. There’s just so many minefields as they come in. It’s like it’s not about the technology. Technology is great; there are all of these other things that come into play that are actually much more important than the technology itself.

John: Yeah, you’re right. And I think one of the things that also play into that is what experiences the people at the companies have had in their prior lives in other companies, and how does that play into the technology that they decided to move forward with? Because, you know, they’ll say, “Yeah, I want to buy yours off the shelf,” but so many times they want to buy yours off the shelf, but I want to change this, but I don’t want to change that. And what they don’t understand is you have to learn how to kind of leave your experiences in the past to some degree, and realize that maybe this new technology is better than what you had before if you just give it the chance.

Nick: Don’t want to be in the cloud.

Wes: Yeah.

Nick: So we’ll end this session with what’s the future hold for American Traditions or West Point?

John: From American Tradition, I think we continue to bring out new products that are niches for us. Flood is one of them. I try to find new ways to write it, not the same old way and moving into the future, looking at other states that may have a need, not necessarily just move states that offset the cost of the insurance in Florida, but new states that have niches that have a need that we think we can do it appropriately and do it properly.

From West Point’s perspective, we continue to develop the platform. We continue to look for new clients that have a need for a company that’s not just going to say, “Take it or leave it. Here’s what you have.” We look for companies that want to form a relationship and we are very relationship driven. We do believe in that whole family atmosphere, but we also look at the technology and saying, how can we help you better manage your business going forward? And I think that’s so important. And I think that’s what our companies are really looking for. So we’re looking for technology companies that doesn’t only produce new technologies, but also pays attention to your business needs.

Nick: Can’t say it any better than that. Well, we’ll end it there. Wes, thanks for cohosting.

Wes: Awesome. Thank you.

Nick: Thanks for driving down the street and getting John on the show. And John, thanks so much for coming in and giving us a bit of your wisdom.

John: Thank you, sir. Okay,

Nick: So until next time, for Wes, for John, Myself. Thank you 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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