Uncaptive Agency: The Future of Insurance, Ep. 13

COVID is accelerating change, and the insurance industry is navigating choppy waters and asking itself some very serious questions. While the agent and the relationship are still going to be key now and in the foreseeable future, there are other major considerations to get ahead in the industry.

Insurance carriers and insurtech providers must work to increase ease and speed for all transactions, and significantly reduce friction, if they want to stay relevant instead of going the way of the dodo. 

Join me as I talk about reimagining home insurance: product, process, and customer experience, with Bill Martin, CEO of Plymouth Rock Home Insurance Group.

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Tony Caldwell:

Welcome to another episode of Uncaptive Agency. We're talking about the future of insurance, specifically the future of insurance distribution. Today my guest is Bill Martin. Bill is the CEO of Plymouth Rock Home Insurance Group based in the Northeast, based in Boston.

Welcome to the podcast.

Bill Martin:

Thank you. Thank you, Tony.

Tony Caldwell:

Really appreciate you being on. Your company is doing some really remarkable things with technology in underwriting, pricing, selling and delivering homeowners insurance and auto insurance in the states you've operated in. I think you're showing the rest of the industry the direction in the future that we're all going to be headed in. Would you talk just a few minutes about what you're doing?

Bill Martin:

Sure, sure. I think we have a lot of people talking about it, and the time you spend talking about it takes away from the time you spend doing it. We hear a lot about insurtechs these days and the fact they're going to make things easier and better and more consumer friendly, but they're out trying to raise money. Some of what they're selling is what they themselves will call vaporware. They certainly aren't selling profit at the moment. They're in that thing I just heard called the valley of death, that period before they actually get profits, whereas the established insurance companies have way more resources to put at it.

Should they want to, and should they be willing to let their product and sales and IT teams do it, they can get to work. They can do it tomorrow. There's nothing preventing the biggest companies in our industry from doing what we've done, which is we said, "What is the ideal customer experience that we can create?" Rather than try and shoehorn it somehow into an existing structure, let's build the entire organization and product design, that second being very important.

You have to change the product in order for it to be underwritten and priced and delivered differently. You can't just take an old product and try and make it work with new technology. You actually need to change the product. It takes a lot of bravery to do it, because you're working outside of the bounds of what has been established and what has been proven to work well, and what has been the profit delivery mechanism for this industry for a long time.

You're taking a risk, and that takes some courage that maybe the big companies don't have and insurtechs do, because insurtechs have been given a pass on profit, and most of us in the executive roles have not. Our investors expect us to deliver it. We've spent a lot of time in the home insurance business, and you can play with the tools on our website or wherever you might see it, saying, "Let's deliver the ideal onboarding and build a product around it."

What everybody's been saying is coming is actually here. We haven't spent the money that maybe some of these insurtechs have of their capital providers to promote it, but that's because our biggest distributors are ones who will recognize and use it right away and don't need promotion to learn about it. They have our product already, and so they have access to it. This is the long claim to be happening, but has not happened in the top 20, 30. You give me an address and I'll give you a bindable rate.

Tony Caldwell:

Right. That's just really remarkable. I saw a demonstration of something very similar to that with BOP about three or four years ago. I'm stunned that that's still not commonplace with the carrier that demonstrated it. Obviously they're having issues - maybe it's courage issues, maybe it's technical issues, but you're actually out in the marketplace, selling insurance to people with an address. I know you've been doing this for a few years now. I mean, we talked before about your experience in Florida, now at Plymouth Rock. What I recall from that conversation was that your underwriting results are actually pretty good.

Bill Martin:

They're very good. This is a tribute to our agents themselves. They can choose to reward us or abuse the discretion we've given them, but really they're very good, because we spend all of our time trying to figure out what we need to charge, prior to bringing the customer through the process. We're doing our homework. That's how you earn your profit. You work harder, not less hard.

Tony Caldwell:

Yeah. You know, agents are still, I think, struggling with a 1920s mindset, that you're open from nine until five, maybe six, Monday through Friday. Even banks, which I don't consider to be particularly innovative, have been open six days and seven days a week for a generation now. Agents are still trying to force consumers to do business their way. Your point is, so are insurance companies.

I'll be curious. You talked about the customer experience. My point is that everybody's competing with Amazon and companies like that, because that's the point of comparison. If they don't understand that, they really have a limited future. How are you looking at the customer experience? Have you re-engineered? You said you maybe changed the product, and you've also changed the way in which the customer's interacting with you, the carrier, and also the agent. What does that look like?

Bill Martin:

Well, it's interesting that you bring up banks, because they're a good example of selling an intangible. The difference with Amazon, of course ... and they've shied away from intangibles ... is that something gets delivered to your door a few days after you make the order. They make that process extremely easy. We essentially try to do the same thing. We said, "All right, let's make the process extremely easy, and do what it takes on the product and pricing and underwriting and IT side to support that."

I wouldn't give too much critique to the agency system, because I don't believe they've been given this product. When they do, they will respond generously. We're seeing that now in our results, that if you give the agent something that a customer wants to buy and has an advantage, whether it be by a price, which is way overestimated, or by process, which is way underestimated, or by generosity, meaning extra coverage if that's what they want, then the agents will be very anxious to sell it.

The agents go where the customer goes. If we let the direct writers jump ahead of us and go to where the customers were going before us, shame on us. We need to catch up and maybe leapfrog them, because you, the agent, have an advantage over the direct writers in that you do have the local option. I think a customer prefers the local option, even if they never meet you. When's the last time you've been into your local bank branch, other than maybe to use the ATM?

I live in Boston now. I used to have Wells Fargo for my bank, and there are no branches here for Wells Fargo, so I no longer have Wells Fargo as my bank. Shame on them, but I haven't been to a bank, so why did I make that choice? That doesn't make any sense. It did make a difference to me that the local banks here who I might meet at an industry meeting or a business meeting, or even in a gym or out at a game, I'd rather spend locally. People like to spend locally, even if they don't use bricks and mortar. We need to give you those tools as an agent.

Tony Caldwell:

You know, this whole thing, this discussion, especially with banking, resonates with me. I'm a chairman of the board of a small community bank, among other things, and it seems to me that what we really have is a classical nor'easter storm that's brewing. The storm is coming and everybody's a little afraid, and you don't know what's going to happen and how it's going to affect you. Then the storm comes through and it's scary, it's violent, it breaks things. What comes after the storm is calm, peace, clear air, a view that you can see 50 miles in front of you. It seems like we're entering into the clouds a little bit.

You mentioned banks. It's interesting. COVID caused my wife, who has always done banking not just with a branch in the community but it was in her office building ... she couldn't go to her office building anymore. She figured out how to do deposits on her phone and all that stuff. Well, now she's changed banks, because it doesn't matter that they have a physical location.

It's also a little bit redefining, because the whole nature of community, I think, is up for grabs right now, given the fact that people are interacting all over the country electronically in a way that they've never done before. For banks, branching and locations and personalized service, I think that's a question mark for them, certainly a question mark for agencies.

I gather from what you've said that you really feel like the agent and the relationship is still going to be key to the transaction in the future, but that ease, speed, lack of friction, which is going to have to be created by the carriers, is going to be the key to the transactions. Is that right?

Bill Martin:

I think that's right. We needed to do our job. It's amazing how often the new technical entrants to our field, the tech companies, insurtechs (which I kind of think of us as one) say they're going to not use the agent, and you just kind of chuckle and say, "Well, how are you going to afford to bring the customer to your door if you don't have a network to work with?"

The truth is, as far as the function goes, the ability to provide advice and to answer questions and to do the work that customers outsource to you, every company has agents. Everybody who's technology-based has an agent behind it. It's just a matter of how you're interacting with them that might change. You still have to be pretty good at it. I actually believe that in terms of human interactions, relations, sales, service, that our local agents are way better at it than some of the sweatshops that they're competing with.

If you make it about rate, if you make it a commodity that's all self-service, then it will be about rate. I think our customers want self-serve, but they may be willing to pay more for better coverage, better companies, better service. They really care about what happens at claims time. They really care about what happens to the billing process, and they really do need our help to be guided through it.

The truth is they really need us at a point they don't recognize, and that is to advise them on coverage. In home insurance in particular, there's only one piece of our coverage which is required, and that's what the bank requires you to buy if you have a loan. Everything else is optional. You don't even have to carry home insurance. In fact, I think I read recently that 12% of homes don't have it. It might be really cheap homes or really rich people.

I don't know which, but I could say that the point is that you don't have to buy it. It's not the auto insurance game, where you have to buy it in order to be licensed and put a plate on your car. You need to advise people what they should be buying, and it might not be worth the extra $10 of savings to not buy something that is pretty common or pretty well needed in a lifetime of home ownership.

Tony Caldwell:

If the agent of the future's role is increasingly relationship and solid advice, which is really what it was, I would say historically, probably at least in personal lines until the advent of the comparative rater, which began to destroy that value proposition in favor of price. It's really a pendulum, moving back to where perhaps it was 20 years ago.

Bill Martin:

That's true. I mean, my job was to beat the comparative raters' experience. If I can't do that, then I'm just another price on a list. While I have very sophisticated pricing processes and might win some share there, I don't understand why a customer would come to me for anything other than price if it was being bought through a rater.

Where's the opportunity on that screen to present a substantial coverage difference? It's actually in the back of the agent's head. They know the differences between the companies, and don't read all the prices on the screen. Even if I compare in a comparative rater, even if I'm on it, I want the agent to be thinking, "Yeah, but Plymouth Rock provides this thing, and I've got to present it even if it's not the lowest rate."

Tony Caldwell:

Yeah. If your underwriting model is based on an algorithm-driven pricing model, and your results are based upon that algorithm, and all that work is really done at the carrier level, other than just giving you the business, what's the role of the agent for you in the future? I mean, what makes an agent valuable in the future to an insurance company, compared to today?

Bill Martin:

It's the delivery. It's absolutely the delivery to the customer. I am not trying to make all of our agent relationships, everybody, amateur pricers. I'm not trying. They don't have the data that we have to work with about customers just walking into the door. We have lots of data that they can access, but I can't say they would absorb it and analyze it as quickly as we can. That was never of massive value. That just goes to the biggest players.

If you're just competing on data and shopping, you're really there to tell them why they need service line coverage or this level of sewer backup, or whether this deductible is too high or too low in your experience. You really need to talk about the coverages that they are buying, so that they actually feel like they're buying something tangible, as opposed to just putting money in a black hole they may never get out if something bad happens.

It's a difficult shift, because we've shifted so far away from it on the auto side. We've shifted so far to being personal shoppers for our customers. When you don't ask the question about how old your roof is and what percentage of your floor is linoleum versus carpet, you're not losing value to the company yet by any means. The value you have is in telling the customer there's options available to them that are worthy of them and of this company to sell. That's the real value in an agent. I'm not saying there isn't any underwriting value. I think there's things you know about some customers that we don't, but I am saying that it's not as important to a company as your ability to create that relationship and that dependency of advice.

Tony Caldwell:

Well, I think in fact, the statistics bear you out in that regard. There was an article in the Insurance Journal about a year and a half ago, that the author looked at the underwriting results for the direct marketers in auto insurance compared to the agent-driven carriers. It was clear that those people, without the use of an agent, using their algorithms, could do a better job of predicting risk or predicting loss than the agent-led carriers were doing. I think the agent, increasingly, the agent of the future is less responsible for the loss ratio, because again, the carriers are much more in charge of driving that.

With that, I mean, that's one of the things. That and volume and size always, over the last two or three decades anyway, have determined what agencies get paid and what their ultimate value for many carriers is, which is, "Give us the business, give us the volume," which is driving agencies to get larger, along with the whole acquisition boom that's been going on at a really unprecedented rate over the last five or six years.

What we're seeing is a hollowing out in the middle in the insurance agency force. You have a lot of agencies getting really large, and then you have a bunch of agencies, driven really by people fleeing the captive agency channel, creating new agencies, but there is a hollowing out in the middle. From the carrier perspective, with the technology that's here today and coming over the next few years, does it matter if an agency is a large agency or a small agency in terms of their value to you? 

Bill Martin:

Yeah. No, that's a great question. Some of the reasons for creating large agencies is to get negotiating power with the carriers. Unfortunately, like it or not, that adds cost to the transaction. Not that it isn't earned, and we wouldn't pay it unless it were earned, but it does change. If the ultimate goal for both of us is to deliver more of the premium dollar back to the customer and still make more money ourselves by doing so, then we have aligned interest with the customer.

I think whether bigger or smaller, the reason I say it's a great question is because maybe it's shoveling a little dirt against the bulldozer. I don't know, but I believe that the tools that the large carriers and the large agencies have used to compete with the small ones are now being democratized, for lack of a better term, and more available to the small ones at a cheaper price. A company like ours, Plymouth Rock, will give agents all the tools to compete, and even some that they don't have, to compete with the big guys.

That's where we get back into the game. We say, "All right, if we let direct writers get ahead of us, let's make our agents capable of delivering every service that the direct writers deliver, from online interactions to self-serve to streamlined processes and easy, better customer experiences." Let's give them everything that the direct writers have, and I believe that the independent agent will win, both big and small.

Tony Caldwell:

Yeah. Changing the direction just a little bit, let's talk about the carrier situation, because what you're doing in your company... and admittedly, you're a smaller carrier, regionalized in the Northeast. That, just by definition, means that you don't have, I wouldn't think, the financial resources that some gigantic national carrier has, and yet you're able to do things that they cannot do, at least today. That implies a disruptive force in the marketplace.

I mean, it implies that, just as smaller agents perhaps have power advantages compared to their larger brethren because of all of this, perhaps smaller insurance carriers do as well. I mean, admittedly there's surplus in capacity and licensing and other issues, but it seems to me that this technology and this democratization that you're talking about really applies to carriers too. How does that play out over the next four or five years?

Bill Martin:

Again, a good question, but what's happening here at Plymouth Rock is that there isn't any aspect of the business that we do not want to be good at and thoughtful about. This is a really well-run company. What you might have in smaller startups are really well-run experiments. This is a really well-run established company. It's more than a billion dollars in capital, almost $2 billion in premium, leader in the six states that it chooses to do business.

Why only six? Well, we'd think about it, expansion, if there was some advantage we could bring to the other states, but even more important, some knowledge we could bring. We know our states better than any of the national carriers would, and the people who are involved in the distribution in these states. The result is that we have a little bit of a leg up on them by vis-a-vis this specialization, and it's rewarded us. It's rewarded us with being one of the really, truly most successful and consistently successful long-term regionals.

Now, for me personally, I’m more of a startup kind of guy. I've been around the industry in big and small companies, but most of the time I've thought of myself as being a sponsored startup serial entrepreneur, meaning I'm not going to worry about things that some startups have to worry about. You know, who the banking relationship is, who's going to get out the payroll checks, what the scent in the bathroom is. I don't worry about those things. I worry about delivering a customer experience, and bringing the resources that the bigger company has to bear to that focus.

I first learned this when I spent some time on the number four carrier in personal lines out in the West Coast, that they're just thirsty for people who can figure out how to make their organization work like a startup with regard to specific product introductions, and not like the old bureaucratic high-process, low-delivery organization they are. Maybe that's a particular set of bullheaded ideas or a personality that can deal with the slings and arrows or whatever. I don't know what it is, but I've had way more success with sponsored startups than with individual startups, at least in my world.

I believe that anybody can grow by losing money, and anybody can make more money by shrinking. I don't really think those are very hard to do. I do think it's a little bit hard to do both, shrink and lose money, and the ones who are should probably just try something else. This is, I think, one of the more successful ventures that has happened in the industry, Plymouth Rock Home, because we've done both. We've walked and chewed gum. If there's anybody attracting capital, it should be companies who do both.

Tony Caldwell:

You've said a lot that we could unpack, but I want to come back to something you said at the beginning of your answer, when you talked about the fact that one of the things that's making you successful currently is your knowledge, your deep knowledge of the markets that you're actually in, compared to the larger carriers. I think conventional wisdom says that technology levels the playing field from a knowledge perspective, because everything is either known or becoming known, right? This idea of specialized knowledge, many people think, is an outmoded strength or value. Yet, you've just made the point that what's driving some of your success is that, and I think that's interesting.

Bill Martin:

What's also interesting is that some of the biggest carriers and the biggest growth success stories since 1985, let's say, all started in a single line, a single distribution channel focus specialization, and even to some extent regional. In my earliest days in this business, I was introducing what is now, I think, the third-largest auto carrier into Montana and Wyoming, the last few states they didn't have. As far as Montana or Wyoming was concerned, the independent agents there, we were a startup. Maybe that's aging me a bit, but we were a startup. Everybody is a startup at some level.

I think some of the success you're seeing by some of the larger carriers who were specialists is because they are still dividing themselves up a little bit. They're still pushing authority down, doing the things that got them there. Trying new things, never taking any process or any product design for granted, always thinking there's a better way to do it and trying it out. The big companies act like a conglomeration of small companies by pushing authority down. I think that's a repeated success we keep seeing, and maybe more and more companies are adopting.

Tony Caldwell:

You know, there's no question that entrepreneurialism made America what it is. If you look at just the Fortune 500, it's completely different than it was 50 years ago, and it's because of those very things. I just finished reading a fascinating biography about Cornelius Vanderbilt. He's famous, obviously, for selling all his steamboats and going into the railroads and reinventing the railroad business in the latter part of his career, which was a huge industry already, and yet he completely blew it up.

It reminded me I had a conversation a couple of years ago with the president of one of the largest personalized carriers in the country, who was really almost head in his hands, trying to figure out how he was going to change 300 legacy systems and reorient 30,000 employees to a whole new set of realities in the marketplace. Yet, I think what you've given here is the key to this, which is it's not about size. It's about attitude and about the way you look at things, because if you're willing to blow things up and have the courage to do that, whether you're a carrier operating in six states or one in fifty, it can still be done.

Bill Martin:

Vested interests are very hard to challenge. It's easier to just escape them and go off on your own, but easy doesn't mean as successful. Usually the biggest successes are harder, not easier to execute on. All this work to make it, "Give me an address, I'll give you a bindable rate," is a huge amount of work in the background, way more than the average carrier does, I assure you, and a huge number of mistakes that we're quick to respond to fix and improve upon, and a huge number of successes that we seize and expand upon.

That dynamic is just a lot more intense, and it should be. It should not be easy to write a quarter billion in business or a billion in business. It should be hard, because you're taking it from an incumbent who's gotten good at it and has a reason to succeed, and has become an expert in the processes that they've created. The incumbent wins, absent giving somebody a reason to leave.

If that reason is price, all the incumbent has to do is match your price, so it's not much of an advantage. They might not do it through advanced analytics. They might just say, "Oh, look, that's what this company's charging. I'm going to charge the same exact price." It's really not much of an advantage.

Tony Caldwell:

How do you see this future playing out? I mean, I think of a couple of analogies, and I'm curious which one you think is more apt. You know, 20-some-odd years ago, everybody browsed the internet with something called Netscape, until Google came in and blew them up and they disappeared, and AOL and others along with them. That was a start-up that became, almost overnight, the standard.

At the same time, you have a little company called Southwest Airlines flying around Texas with a completely different model to the airlines, outperforming everybody, and in over 20 or 25 years, demonstrating that their model's vastly more profitable, more stable and more customer-friendly and everything else than the rest of the airline industry. Yet, 25, 30 years later, the airline industry largely continues to operate the way it always has.

With experiences with your company compared to the rest of the industry, how's it going to go? Is it going to be like Southwest Airlines and the airlines example or more like Google and Netscape, over the next four or five years?

Bill Martin:

It's an interesting thing to think about. I had a prior mentor, mentee, who said to me two things that I thought were very wise. One of them was that you cannot repeat the same success in a different time. The world changed around Blockbuster and Netscape and everybody else who were a great success in the moment, but somebody introduced something of higher value or more value and they didn't keep up. You have to reinvent yourself. You have to challenge yourself and say, "All right, I've gotten to this size. That means that I'm almost certainly going to be smaller, unless I do something extraordinary to earn these people back or to keep these people from leaving," and so forth.

The other thing he said is that every great insurance success story is a distribution story. I just heard somebody else repeat that for me. I guess that means I am getting old. I started a company in Florida called Neptune Flood a while back, and that company could have competed just like everybody else does in the flood business in this case, and tried to be NFIP, but instead we went three steps further. We said, "Let's create a platform that everybody wants to sell on, and let's make sure it's the easiest possible delivery," you'll see a pattern there, "of the product that we can."

Someday, easy delivery is going to be the standard, not the unusual. That means that today, one of the big projects at Plymouth Rock Home is what we're going to do next. I don't know that we'll burn the ships and start growing corn or something like that, but we'll certainly expect to have to earn the customers by being differentiated in the same way that we're earning them today, and that's on us. Again, some of your biggest success stories you can point to today in the independent agency system are companies that have been the most bold about doing things differently and taking risks and basically providing some new reason, just another new reason, for the agent to do business with them or the customer to come to them rather than somebody else.

I don't really see Netscape as a... you can call it a mistake, I guess, but it was a success at one time. What it did not do was invent its next success and keep up. That's what Plymouth Rock is pretty good at doing. Again, it requires courage. It requires the pushing down of authority. It requires you to create systems that allow you to execute, rather than ones that build around the current execution and overinvest in the current execution, and create what is essentially a vested interest that's got no chance of success in a different time period.

Tony Caldwell:

You know, you mentioned burning the ships, and of course it's not Cortez, but when they burned the ships, the idea was, "We're going to go get the Aztec ships. We're going to capture everybody else's stuff." That'll certainly be interesting to see how carriers, over the next few years, if they decide to do as you have done, which is to create a new business model, do they burn their ships but go after other people's, and what does that do to consolidation and so forth?

I guess the last thing I just want to pick your brain on today is you've had this amazing breakthrough, I would call it, in how to underwrite and price a line of business. You've learned a lot from that. As you said, you're thinking about what you do next at Plymouth Rock, but where will the industry be, do you think, in five years? This, "Give us an address, and we're going to give you everything you need to make a buying decision," is that going to be commonplace in five years, or will it still be the exceptional thing that is causing great success for some and bedevilment for others? What does that look like?

Bill Martin:

I expect that more people will be doing this, that we have a closing window in terms of the separation advantage. I expect that of everything that we do that's unique. If it works, somebody else is going to adopt it, and probably the majority at some point, and as quickly as they can, because they see the result. Let's think back 30 years, when every auto insurer used to inspect the cars, and they don't today. Yet there is a good reason to inspect cars. That hasn't gone away. It's still a very profitable thing to do if you want to. It's just not profitable enough to get enough customers, I guess.

I think it will look like this, but I also think that we'll be talking about something else that's revolutionary and appears to be working, appears to be successful, and let's get right to the bottom line. There are plenty of people who are saying they're doing this, or saying they're going to do it or have made a big investment in doing it, and they're not making money at it. They might be growing, but they're growing at the expense of their investors. I don't really think a subsidized growth rate is a success. I think it's a sustainable program. The minute that people begin to realize that something sustainable has been created in our space, they're going to start to do similar things.

Now, that means I should be on to the next sustainable success. This is the power of creative destruction. It brings better things to the people who are enjoying the standard of living it provides, and that's my customers. My customers are happy that we've delivered this, and my agents are happy that we've delivered this. I think it will absolutely be adopted by others. Now we've got to figure out some more things to deliver.

Tony Caldwell:

Well, I'm going to be really fascinated to see what you do next. Despite the fact that one of the hallmarks of your success is regional knowledge and specialization, I suppose I'm hoping that maybe Plymouth Rock will decide to go west, young man, and come to the Midwest, because we distribute a lot of personal insurance in our organization. We'd love to distribute some of yours.

Bill Martin:

I'm from the West. I was born there. I went to college there. I spent 25 years of my life at different companies and places there. I believe that gives you a pioneering gene. We're the pioneers, right? I believe that. I don't think it doesn't exist in Boston. In Boston, they actually figure out how to do it and get it done. At least we have some ideas that crossed the Mississippi and implemented in a place that's as well-run as Plymouth Rock. One way or the other, it's going to hit Oklahoma and it's going to hit every place west of it.

Tony Caldwell:

Yeah. Well, I'm looking forward to it, and I'll be looking forward with fascination to see what you do next. I appreciate you being with me today. Thank you very much.

Bill Martin:

It was a lot of fun to talk to you. Thank you.

Tony Caldwell:

You bet. I'm talking to independent agency owners about this all the time. If you'd like to have a more personalized conversation, click on the button or the link in the description, and we'll make that happen. You can also reach out to me at tonycaldwell.net/contact.