Let's try it out. Tell me about your rubric. We'll see if it's boring.

 and this really applies to both InsureTech and FinTech, which is, we think about companies who are in the engagement layer. Really that can be engaging consumers or B2B. Other companies are really primarily focused on risks. and obviously risk is a huge issue within insurance.

And either you get it right, or you don't, and it really has a lot to do with your ultimate profitability and then there's infrastructure which is some of it is incredibly boring.

But you can make a really good living out of boring companies. on the infrastructure front, average Cortech for an insurance company is 14 years old. They literally are employing people to fix cobalt. then we also invest in disruptors. And these are the kinds of companies that we think of All of those other layers for example, full stack carriers, or even managing general agents, MGAs, will most likely in the current environment ultimately become full set carriers, even if they aren't yet.

 And actually, Can you explain MGA's cause that comes up a lot and like even pitches that I see, they'll say I'm coming in, I'm going to disrupt this part of insurance and I'm approaching it as an MGA.

 Absolutely. a managing general agent essentially a business before they really have a product. So they go out and they borrow the product from someone else. And when they're borrowing the product, there are a couple of different that can be involved.

There's definitely a carrier who is providing the paper. There is also a reinsurance company. In addition, there could even be somebody on the front. Who is imaginably referred to as a front.

 And so is it a good thing? I'm like, When you look at someone coming to pitch you, and they're saying I'm starting as an MGA do you think while you're starting before you really have a business or is that they're innovating maybe on the engagement side of things?

 You nailed that. There are a lot of areas to improve and innovate on in insurance. And honestly, if you can just deliver insurance in an easier way, and it's the same boring insurance, you're still ahead of the people who are offering just the boring insurance in an annoying. And I, don't think that I would ding it. The other thing I would say is I know this will shock you, but when you employ a fronting carrier, and a re-insurance group, when you engage those people, have to pay each one of them. But nonetheless, a good MGA can be getting margins 25, 30% the commissions.

So you can definitely make a good living. And in the insurance world, there are MGAs who lived their whole lives as MGAs. They do it really well, and they trade for excellent multiples. so think that it is an area that in another startup area, you might say, what are you kidding me?

You don't have a product and you want to sell it. How does that work? But here in insurance, you can do that. Um, can you explain how lemonade came to be in what you saw in lemonade and what they were doing? Cause it sounds related to a new form of engagement, right?

It is. and interestingly enough, lemonade is one of the few InsureTechs that has recently gone public. That was never an MGA. They committed. I wanted to start out as a full stack carrier. think that really what they started out with was very much the front facing how you interact with insurance. But I think that the real story with lemonade is a lot of what happened in the background.

 Instead of just re skinning an old process, they went and created their own policy admin system. embedded AI in everything that they Do whether it's fraud detection. Or even whether it's how they manage claims the claims, I think at one point they had a, world record for a three-second insurance claim between the time that someone made the report and the money hit their bank. The other thing that they did that they said. We are going to change the economics.

So instead of starting at the top of the PNL and company keeps what's at the bottom of the P and L we're going to align ourselves with the consumer by taking fee in the middle, and then anything that's left over from the fee in the middle. Is available to be given to charity, people really did feel an alignment with lemonade and there were stories early on where. File the claim got paid, the claim found the laptop or whatever it was. They put it in claim for, literally wrote a check back to lemonade because they didn't want to interfere with the charity availability.

 so interesting and I didn't know that at all about lemonade, do you think there's a lot to be done on the engagement side?

I think so. I'll give you an example from our portfolio. We invested in a company called hi Marley and their best known product is actually a multiperson text capability, which I know probably think sounds pretty boring and humdrum. But. When you have a car accident and you call your insurance company, often the next day, someone will call you back and they'll ask you for all the same details all over again.

you were already upset about your car. You're upset about the money. You're upset about all these things. And then someone's asking you annoying. So what high Marley does is they come in and basically insert and engagement layer so that the customer service claims person is picking up the conversation immediately and saying many I'm so sorry to hear about this.

 So on one hand, making it sound probably almost trivial. On the other hand what high Raleigh has found is they actually have. Insurers who are attributing a 10 point increase in their net promoter score the fact that they have this tool.

 the nicest thing I heard was that the claims customer service reps are happier. And one of them said, is the first time in 20 years that I have ever been through.

Ooh, what a tough job zooming out. Can you orient me on the insurance industry because auto insurance, a big piece, or what are the biggest segments? Absolutely. uh, Auto homeowners life

then there's this other you know, property and casualty on the commercial side.

 So think that if you look worldwide the total amount of premium is for insurance is $5 trillion.

Wow.

So there's a huge number now. I also regret to tell you that premiums are not rubbing.

Right.

But nonetheless you start with that at the top of your funnel, there is a lot of money to keep going with. And one of the expenses of a premium dollar for example, the broker or agent. And that is generally about a third of the premium dollar.

So one of the things that you're seeing is. When you go direct to consumer, are you able acquire consumers? in a way that is cheaper than the traditional agent?

So in other industries we've really seen customer acquisition challenges.

What do you see in D to C insurance?

So I would say that there were a couple of things. Of course can buy the Google ad words and then the other thing that we're really seeing a lot of is embedding in other transactions.

And an example, and this is a really an old world example, every time you're on kayak or Expedia, Aliante asks, do you want to buy travel insurance? Now? that deal was struck at a time when the power was very much inexpedient court.

 And I think Expedia ended up doing very well out of that. but I, do think that There is a sort of building a parallel track embed. And so once someone has made a decision to by that ski ticket or uh, maybe even make a large purchase. Then can prompt them and ask whether they're ready to make another decision that relates to insurance. So I do think that's one of the ways people are using channels to go out

So like if there's simultaneously wildfires happening and it's flooding in my yard

Yeah, that's a trigger event, but unfortunately uh, uh, there's this thing called moratorium, but we won't get into that.

Oh man. But no, in all, Susan's, I'm interested in climate insurance I guess, climate change. And if I can pivot us into that subject and just, what are you seeing right now?

Yeah. And I think that one of the things that we're seeing there is that. Traditional insurers are taking this seriously. And. For example analytics, which is one of our portfolio companies has a wildfire model

And they're getting very good reception on it one of the things that's happened is if you think about property insurance really the way you ensure that is you look back at it.

 And maybe you look back at you know, is this on a flood plain, or you look back and say, what kinds of losses have properties like this or properties in this location? Sustain. But now what we're seeing is wow that wasn't even in a flood plain and that one was supposed to be in a low fire risk area.

And so we are seeing property insurance evolving more. Like cyber insurance, where the past is not a good predictor of the future. it's kind of depressing that it's cyber and climate, you know? It's too bad. We're not all, I don't know, doing something more, you know, getting pet insurance or something friendly.

And I will say that pet insurance boomed during pandemic. Well, great. Let's get back to the depressing ones for a second. So I mean, cyber, you touched on a little bit, but maybe you could tell me what are the innovations there and also maybe what are the implications what do we need to be aware of?

I think that is actually really big, issue, but, just to start with, are several, cyber insurance, companies, Right.

now. I think all of them are taking similar approaches which are very different from the way that the incumbent insurers have looked at, cyber insurance.

And the new way of looking at cyber insurance is really combining cybersecurity. And the insurance. So that would mean that, someone is looking to, understand, not just what you say, but what do you do , to make sure that your, data is safe and that you have a strong network as you can.

 The old way of looking at cyber risk was much more around the complexity of your business, the number of employees you had, maybe the number of locations, it turns out that windows 95 machine is, down near the loading.

That is an entry point

Right

cowbell cyber, which is in our portfolio at berlaine for example, one of the things that they can do is they do a continuous monitoring of something like 39,000 companies. so when solar winds happens, they can look in there. Database to understand sort of, which are the six people in their database who could be victims and they will proactively reach out

And then one of the other things that they've done is also put together an automatic recommendation of who do I want. Because, know, people don't know who to work with until something happens.

And as far as I can tell all cyber breaches and ransomware events occur over the weekend,

especially over holiday weekends, when they think nobody's looking.

interesting. Who needs cyber nowadays? So that's a little tangent, but like at what stage do you need cyber?

Yeah, no, is a good question. Cause , I do think that, most startups, should have some level of cyber insurance. And think that there's also an aspect of cyber insurance, which is part of DNO. you know, even small companies need cyber insurance. Absolutely. And I think that is a message that is starting to get out. But I think that probably something like two thirds of, companies, SMEs still don't have insurance or adequate insurance,

Well, good to get the message out. You heard it here. Folks, go check your cyber insurance. Um, let's switch gears and talk about it from the underwriter's perspective. And maybe you could talk some about innovations in underwriting.

Yeah. So I think that, There are a lot of innovations in risk and underwriting. One of them is, literally having better information. isn't always about better analytics. Sometimes. It's about, know, the garbage in garbage out thing. So, there are several companies in this area, One of them is Kadakia ISO,

And one of the things that could Oxo does is actually go in health insurance filings and, use machine learning to extract patterns that for all. And the way that health insurers have traditionally worked is they know about recent 15 schemes that people have, and they program, those in, on a rule basis.

And they're really good at catching those. But what could Oxo is doing is saying, yeah, that's true, but there are these new sneaky people and they're doing something else. in order to keep health insurance affordable for all. You have to keep down the level of, disgorging, , fraudulent, you don't want to be rewarding, fraudulent claims.

, and so that's one of the things I find really interesting is that , you can use machine learning both to underwrite better to, contain risk that you've already underway.

 interesting. So I think in both of your examples in cyber and health insurance, the InsureTech was underwriting and containing the. Yes. and in fact, I would say that, all of the cyber InsureTechs are essentially

the risk in, that they're doing their best to reduce it upfront by doing , the, analysis. But then it's the continuing. Analysis that helps contain it. also, you know, to some extent the network of other providers who can come in and fix it quickly because, if you know, you have a problem and it takes you a week to find a vendor a lot can happen in.

 Right. And I hadn't thought about it, but it makes a ton of sense. And, and let's say that I have a startup that's innovating in underwriting and I come to you. How do you judge, if my new underwriting algorithms are going to work

No, is so hard to tell. And I think that, insurers want to feel and touch the underwriting. Uh, risk analytics in order to see whether it really affects, whether it, predicts claims. so you don't necessarily have to take time to do that and run it through actuaries, which is one way? of doing it. you might very well, work with insurers who already have,

Um,

that happened and they know what the property looked like. what they can do is go back retroactively, apply your underwriting solution and say, well, if we pretend we had underwritten it, would it have told us we should underwrite it or not.

Because it turns out that, you know, that one had a claim oh, lo and behold, this start-up underwriting, was no don't underwrite this, or, you know, only underwrite it. If you ask for these mitigations, one of the mitigations was roof repair. Oh. The claim we had was a roof plan. And, and so I think that an insurers love to do that.

They really want to make better decisions because when you asked, How do you make money and insurance? know, , you make money when you are able to charge. A premium that the market accepts because of the market's view of risk, you have a different view of that risk. And what you hope that your different view is informed by more than just, you know, a rule of thumb

Yeah. And then keep going with that thought. I mean, familiar, you make money when you're collecting premiums, right. And not having claims.

yes, essentially. I thought it was the way the insurance market works. But the other secret of insurance is a lot of the way that an insurance company makes money is by investing, the premiums, during the time when they don't have claims.

So there's a long period of time,

for example, I think. You know, the average homeowner has a claim every nine or 10 years. so there is a fair amount of time that ten-year period where you as an insurer are not in fact, paying claims.

Interesting. Right. And then there's also the re-insurance piece, which I only have really learned a little bit , when I was looking at cattle. In fact, how big is that business? And maybe you could just explain a little bit, if you think there's interesting stuff to explain there.

Well, I think that really the key point to remember is that re-insurance is insurance. For insurers. So if an insurer writes a policy, there are now holding a hundred percent of the risk. So if anything happens on that policy, you know, they're the one that has to pay the claim, maybe, you know, they really like California risk.

So they look around for a reinsurer and they say, Hey, would you like some of this risk? And there are multiple ways to structure those relationships. But essentially what you're doing is it is a risk scaring situation for a fee, the reinsurer will share some of that risk. And I think that those, companies tend to be huge, and have a very high degree of capitalization. And really, I think in some ways it is re-insurance that makes a great deal of the insurance market, able to exist because it's, hard to imagine, for example, you would insure catastrophes without re-insurance because a catastrophe is a sudden big event and, you know, maybe you only started insuring that property this year.

Right.

How concentrated is the industry? I mean, I think you just said re-insurance sort of almost by definition has to be these huge entities. How about insurance today? Um, Yeah. What does it look like?

You know, this is a really interesting question because I think that, there are hundreds and thousands of insurers and one of the things that's quite interesting is that even the large insurers, often don't have more than 10% market share.

Hm,

it is still a very fragmented industry, even though probably the average lay-person can only name, , probably five insurers and part of those would be Geico and progressive.

each spend over a billion dollars a year average?

Wow.,

but also they have their own niches in terms of, where they have gone after. And I think that, In homeowner's insurance, market is definitely much more dispersed. Um, I think car insurance is more concentrated But I thinkis a, an industry that has a lot more players than probably most of us ever think.

Hmm. And is there anything else just to make sure we cover the other part of your investment, which is sort of like the infrastructure piece? So anything else interesting about how tech is kind of coming to these players?

Well, I think that the real thing is, that it's essential. We've gotten past the point where. Insurers could say, well, I've had the same, policy admin system for, you know, 10 or 15 years. like, I look around the team and nobody is willing to go through the process for a new system.

 But then what happens is that business units come in and they say, we want to, offer digital insurance. We want to deliver in a different way. We are getting hurt in the market because our claims processing isn't fast enough. And then I think very often the technology team is standing around saying, well, Our core tech can't support the business changes.

Hm

what you're really seeing on the infrastructure side is that the business changes are coming in and, making the old Cortech look bad.

So there's still plenty of room to build really interesting InsureTech focused fund is what you're telling me.

Absolutely. Absolutely. I think, there are a plethora of opportunities.

Yeah. Martha, we really didn't talk about who you are and how you became such an insurance guru, but like, here's the big question, like, quickly give me like, who are you, Martha?

Yeah, I, I kind of fell into insurance. A lot of people say that. But yeah, I I've been investing in data and analytics, companies, that , tend to be SAS based, for over 25 years. And one of my investments was a risk management solutions, RMS, which is in the catastrophe analytic space.

It actually just sold to Moody's for $2 billion.

And, really opened my eyes to the opportunity in insurance. And when I, connected with the, former CEO of that business, when he was launching, XL innovate, we happen.

Who start that fund really in 2015, which was really the beginning of InsureTech now I brewer lane, I get to invest in FinTech as well.

I didn't really realize that InsureTech didn't really exist. Pre 2015.

Yeah, there have been other runs at it. So if you look at, companies like, there to Fort, and Majesco those. Our insurance technology companies that have been very much trying to deliver, better technology into the insurance industry. But what you really saw 2015 was people who could be tech entrepreneurs in any subject matter, turning their attention to insurance.

Interesting

back to that 5 trillion.

Yeah. That 5 trillion that's that's trillions.

of catches your attention.

yeah, it does. And how about just on the more personal side of the, who are you, like, how do your friends describe you?

 Yeah. I probably, as, as the person who is, always out for a hike or a talking your ear off about the books you?

just read. , , More they've you could start a company. What company would you start?

Whew. Well, I think it would be B2B because I love B2B companies. I think I have a better understanding for companies than I do for consumers, Yeah. I liked the way you said that actually you understand businesses better than consumers. Did you say, do you want to tell me about a book? You said you like to talk about books. Do you have anything fun to talk

about? you know what I have, I also have a fantastic, app called the reading list. So I, have been, uh, enjoying that and, the book I actually just read back to the consumer topic is, I just read the final edition. Of nudge by Thaler and basically, about how, people can be manipulated.

It's there's no better word for it, but people can be nudged in certain directions. And it also covers , the ethics of nudging and, , you know, where do you draw the line between pushing somebody into something that shouldn't do, but nonetheless, most of the time, things like governments, want to nudge you, for example, to consume a five or nine fruits and vegetables or whatever we're up to these days.

, and one of the things they talk about is How you organize the cafeteria people make their best decisions without, you know, standing over their shoulder and saying, you really shouldn't eat that.

 Yeah, we should all nudge our own lives. Right. Did you take away like, oh, I need to manage my own

Actually, they talk about that. They talk about self nudges or Snuggie.

 Okay.

one of the smudges, for example, is making things easy. So keeping your gym bag by the door.

Okay, good. I like that note to end on. That's a good motivational one. thank you so much for coming on the show and for this wealth of knowledge.

Well, this was really fun. And, I'm so glad that you invited me and I'm looking forward to, uh, you know, listen to your other more interesting guests.