Transcript:
Patti Harman (00:06):
Welcome to this edition of The Dig-In Podcast. I'm Patti Harman, editor-in-chief of Digital Insurance. The adoption of AI and other technologies are creating new opportunities for insurers as they incorporate them into their processes and procedures. Legacy carriers in particular have been keenly focused on adoption and integration of AI and other technologies, raising the questions, what pain points are these technologies solving for insurers? How are they integrating them? And what benefits do legacy insurers have over some of the newer companies entering the insurance space?
Joining me today to discuss all of this and more is Bill Martin, president and CEO of Plymouth Rock Home Assurance. So thank you so much for joining us today on the podcast, Bill.
Bill Martin (00:54):
Good to be here.
Patti Harman (00:55):
So the insurance industry has had a reputation of being maybe a little bit slow to integrate new technologies, change how it underwrites risks, or even to update its processes to modernize them for today's consumers. So how would you address those perceptions?
Bill Martin (01:15):
I'd say it's bunk.
Patti Harman (01:18):
I agree.
Bill Martin (01:20):
The truth is that we experiment all over the place where one company might not, another might, and we'll watch. And if something is working well, the industry adopts it, the process or the technology relatively quickly. And frankly, they're making smart decisions. Sometimes a particular process doesn't work for one channel versus another or one product versus another. And many of the startups only find that out after they have actually tried it and it doesn't work. So there's a lot of people out there talking about, "Hey, I'm not going to use credit." They try not using credit. It doesn't work. We've tried it ourselves too, did a long time ago, made that conclusion long before anybody else did.
Patti Harman (02:00):
It's been interesting to me. I've been covering the industry for well over 30 years now, and I'm amazed at how quickly some areas have evolved. With the rise in insurance technology companies, as well as insurtechs that sell insurance digitally, is the pressure to adopt new technologies and practices changing how insurers and brokers sell insurance then and serve their customers?
Bill Martin (02:26):
Well, I think it's changing their customers and what their customers might demand. So they might see a feature or a process with a startup that they want from their larger company. And the larger company will say, "All right, in the past when I've tried this, the customer didn't expect it or want it. Now they do. It's time to move." And sometimes they're already on it. So I think it's definitely changing consumer behavior in some ways. The Amazon experience, for instance, has changed the expectation of the buying process. The claims process has become still a little bit opaque to most customers because most don't go through it in any one particular year and most don't go through it over 10 years. So that one is probably still ripe for a lot of invention and differentiation. It's often hard to sell that differentiation at the point of sale though when you're just comparing theoretical coverages and real premiums.
Patti Harman (03:20):
Very true. Are you seeing more collaboration then between legacy insurers and insurance technology companies as both entities are just really trying to increase their technology adoption and improve the customer experience? As I'm talking to companies, that seems to be the number one issue as they're looking at a lot of the technology adoption.
Bill Martin (03:43):
Well, it's hard to make a blanket statement here because some of the startup leaders are using the drum that these are old people who don't change type of thing to try and get investment and say, "We're going to disrupt the industry." I know one in particular that said that there won't be any agents when we're done, and now they're using agents heavily after only five years. So there's a bit of hubris for a company that has nothing to be confident about in some places. In other places, they're being a little bit more of a servicing and eventually maybe even putting themselves in a position to be acquired strategically. So they're a little bit smarter to say that the legacy industry might buy us rather than try to adopt our tech, and thus what their build is will eventually be part of that and will succeed because of it in our exit strategy.
(04:33):
But there is kind of a difference between the full stack insurer, the people who are actually issuing policies and handling the claims as opposed to using little pieces of everybody else's companies and those who are actually selling pieces. So they have one particular tech that works in one particular part of the value chain and they've got a better way of doing it in a way that will save the insurance company money. And they believe if they add profit to the insurer's savings, that's the value of their product. It doesn't kind of work like that. It's a lot of profit margins to serve for an insurance company. So a lot of times all these little pieces have to come together into a bigger type of organization or be absorbed by a company who wants to be the best at it. So I see some cooperation in that area as people say, "Hey, this is good tech.
(05:19):
You go out, run it, develop it, and I'll buy it once the actual math works." And a lot of times the math doesn't work. Probably the biggest critique I would have for startup techs and insurers is they're really good at losing money and just about anybody can grow rapidly by losing money in this business. We reward a lot of companies that are underpriced.
Patti Harman (05:40):
Yes. I was at ITC earlier this year and it was interesting to see all of the different types of technologies and exactly what you said. There are a lot of companies that are out there and they might have good technology, but it doesn't always mean that they're going to be profitable or be around for a long time either. How has Plymouth Rock approached the adoption and the integration then of new technology across your company? And as you're looking at it, what are some of the key priorities that you're looking for as you're integrating those technologies?
Bill Martin (06:14):
Well, the first thing that I look for is not just the financial decision, but the differentiation decision. If this is a product that's going to be sold to a hundred companies, and I think it's likely to be taken up, there's a little bit of, if I don't do this, I'll be hurt. But there's also a little bit of, if I do do this, I'll be just like everybody else. And so there's no real differentiation in somebody offering a product to a hundred insurance companies. So we look for some sort of usually modification to the transaction. Sometimes it's subtle, sometimes it's not so subtle in order to make it ours, take advantage of the technology, but make it ours and fit into our system of trying to be uniquely better than our competitors. An example of that might be where a data vendor comes to us and says, "This data can save you a lot of money.
(07:04):
I've got this data. How about if I sell it to you and I'll sell it to you with a score and you'll pay for it for every quote or every policy." And our response is, no, I actually would like to know in advance what I should be charging somebody, not at point of sale. So that way I'm not marketing to people who can't afford what you've pointed out might be a hazard or who can afford, which you might point out the advantage. So I would like the whole database. By the way, I'll pay you more than you'll make in the transactional pricing, but we will do it differently because we want to pre-rate the market. So it's a very different approach than I think than others take. And if the data provider who has this great data and this great score won't do that for us in advance, then we generally will go and try and find a way to do it with our own raw data suppliers.
Patti Harman (07:54):
Yes, I know. I was amazed at the amount of data that insurance companies use, and that's an area that has really interested me a lot. How do you balance the need to innovate against the practical considerations like training or cost and customer service? Those are all important aspects that need to be prioritized. And so does one outweigh the other or how do you balance that in terms of priority for the company?
Bill Martin (08:24):
Well, for Plymouth Rock, it certainly is a priority to find technology that our customers will find compelling. There are plenty of things that are provided to insurance companies to help them do a better job of price, underwrite process. There's a lot of people out there marketing systems and tech like that, which helps the insurer, but it doesn't deliver anything particularly concrete, what we would call tangible to the end customer. And if the customer isn't being compelled to buy from this insurer for some reason other than just simply having a lower rate, then that customer will leave for a lower rate. So really what we're in a war for is getting the customer who isn't just going to leave for the next lowest rate, unless there's some systematic savings that have been invented. So for us, we take a close look at what might actually compel a customer to say, "I want to do business with Plymouth Rock rather than some other competitor."
Patti Harman (09:19):
Right. And you're right about finding technology that they will use because even if you have it, if they're not going to use it, there's not going to be a benefit to them then.
Bill Martin (09:27):
Yeah, right. I mean, most of the technology we are really good in our industry of pointing at ourselves and fixing our own processes and expenses and pricing accuracy and things like that. We're not very good at translating that into a consumer benefit that would change the math game of who has the lowest price to who has the best value and price and the best coverage.
Patti Harman (09:46):
We're going to take a short break right now. We'll be back in a few minutes. Welcome back to The Dig-In Podcast. We're chatting with Bill Martin, president and CEO of Plymouth Rock Home Assurance about how carriers are leading the industry in digital transformation and technology adoption.
So a lot of legacy insurers have a depth and breadth of experience that newer insurtechs lack. However, those benefits can also make it harder for carriers, maybe sometimes to be a little bit more nimble when implementing new ideas or technologies. How do you encourage growth and innovation and technology adoption to stay competitive in an environment where technology is changing almost daily? I mean, I'm covering it all the time. It makes my head spin. So from your perspective, what does that look like in terms of adoption?
Bill Martin (10:44):
It means when you build your system and you want to be a billion dollar plus insurance company, you really can't just think about the functionality that you're adding to it. You have to think about how it connects with the rest of it and imagine the day when you need to separate it from the rest of it and have it replaced. You have to build a system that is somewhat modular so you're always replacing small systems in a plug and play type fashion as opposed to having to change millions of systems at once. So there's an old book out there that's, I think it's 40 years old actually, and it's called the Mythical Man Month. And it's an attempt or a critique of people trying to measure productivity of a program or a coder by saying, how long does it take them to produce a result in their company?
(11:33):
And the problem with that, of course, is that larger companies have many more systems that interconnect and they're much more complex and are trying to do things that maybe are even more ambitious than what some of the insurtechs do. Whereas the smaller companies are just trying to do one thing, often for one product and one state sometimes. And so it's really not as complex for them to make a change or build a system as it would be for a large integrated insurance company. And so it's mythical to say that somebody at the big company is less productive than somebody at the small company, they have a lot more to do there. They have a lot more functionality to deal with. So you have to think really hard about tech debt and every single project that you put out there and whether it will slow down the pace of innovation and presentation to the consumer for benefits to them rather than speed it up and just address one kind of 10th of the market or one 15th of the market and say, "Okay, we've improved this for them, but now it's going to cost all of my future system changes a lot more money just to make sure that works when I make that change." So you have to think hard about a modular system.
(12:35):
These well-integrated, comprehensive claims and policy processing systems are making us a commodity. We need to stop buying from large software providers, off the shelf systems that do the same thing for every company they buy it off of, and end up doing the same thing for the customer so that there's no difference between company A and company B because they're both using the same platform. This is how we deliver our product. You have to differentiate. It'd be much better if tech went to where its promise was, which was the ability to mask customize as opposed to make everything the same. We need to differentiate these days in order to make our value proposition better for the customer. If we continue to commoditize, they will continue to regulate and that's just not going to work for us all.
Patti Harman (13:18):
You're right. Plus when you consider how much of a relationship industry insurance is, if everything becomes commoditized and everything is delivered in the same way by every company, then you lose that individuality and that relationship that you're developing with your customer and your policyholder.
Bill Martin (13:35):
And we're doing it to ourselves. Our customers are willing to pay an extra premium for convenience, for fast, for better coverage, for a better relationship. The commitment to some of the exclusive riders where they're offering one company is coming from the relationship between that company and that customer and the experiences they've had with them, not from a lower price. So we're discounting our own value when we make it all about price. It doesn't mean we shouldn't be sophisticated enough to price at risk, but it does mean that we're missing the opportunity to earn more than what we otherwise would get.
Patti Harman (14:08):
That's very true. What are some of the greatest challenges you see for the newer insurtechs that are trying to change how insurance coverage is purchased and really trying to automate more of that going forward? And I think we've touched on that a little bit, but it's just interesting when you look at it from their perspective. So what are some of the challenges for them?
Bill Martin (14:30):
I think some of the more inventive and creative people out there who are doing the startups also think they can apply a similar creativity to the whole infrastructure of work. And maybe they can and maybe that's cool, but it's really not the priority. The priority is the product you deliver to the customer, not the shuffleboard table in the break room. So yeah, you can do that. It'd be fun. It'd be interesting. Maybe it'll attract some talent, but the truth is if it doesn't change the product delivery to the customer, there's an ultimate lack of success. So what if you did something really disciplined and took everything off the table from a startup that has anything to do with running a company other than deliver value to the customer at a price that generates a profit? That's the only thing they do. Nothing else. They don't worry about paychecks.
(15:19):
They don't worry about the scent in the bathroom. They don't worry about things that the big companies have a department to worry about. You probably wouldn't have a startup. You'd have a legacy company because that's what we can do. We can put somebody in charge of a particular delivery of a particular product to a customer and we don't have to do anything to change the payroll, the evaluation system, the legal, all the work that's done in the infrastructure and the shared services, and they're focusing on the right thing. And this is why I say legacy companies have an advantage over startups because they're not worried about everything but the product delivery. And it's fun to be creative with all those other things, but it's also a distraction from the thing that really should make a difference, which is selling something of such a value that you will make a profit at it.
(16:06):
And you'll find that a lot of people will celebrate making 100,000 customers or $200 million in premium or whatever, or X amount of EBITDA, which by the way, is not the same as profit, it's a way to hide profit. And so you need to say, "All right, look, great. Will it ever make money? Whatever make money." And even Amazon eventually made money and they couldn't help themselves. They had to actually make money, but it's because they delivered something of significant value to the customer that they were willing to pay more for. Today, you don't know that you're getting the lowest price from Amazon. You know you're getting the lowest price on the 30 in the screen if you want it, but not whether one's lower if you walk to the corner store. And so there's a good chance it won't be because there's delivery costs.
(16:47):
But the point is that they have created something that's of value to us. It makes it easy to shop and we're paying them for that and they've done great things with the supply chain to make it cheaper as well. So you have to give a little bit of credit to the profit mode of Amazon as opposed to just the eyeballs or the dollars or the number of customers because that was the end game and has become the reason why they're one of the most highly valued consumer products companies out there at retail companies. We need to think of it the same way, think of our own product as how do we do something that's so valuable that we become profitable? Well, one way to do it is not to worry about where you put the shuffleboard table.
Patti Harman (17:26):
Yes, very true. Have you been surprised by the way legacy carriers are working to streamline their operations and to be more open to adopting digital technologies, whether it's embracing AI or other technologies as part of their operations?
Bill Martin (17:44):
The InsureTech event, I think you referred to earlier, there would be nobody there if legacy companies didn't appreciate it because the vast majority of the attendance is coming from what we'd call legacy companies. So I think they're all over it. I think they're jumping on it. I also think that they're smart about it. They know, as I mentioned earlier, that you can't add together 50 vendor profit margins and come up with a profitable company. You have to figure out what to focus on and what will actually move the ball even though something might be of value on a single analysis. I noticed recently there was an industry association that confirmed the value of a particular safety device, which is great, but that particular peril in the home insurance business makes up less than 5% of my premium. So if I save 20%, maybe I've given a 10th of a point of a discount to somebody.
(18:37):
So it's really, or even one point, and that's just not going to move the ball. Nothing that I shouldn't do it, but there might be something that moves 10 points a ball rather than one point a ball, and I can't serve the profit margins of both. So at the end of the day, it's probably a silly thing to say, all right, everything that makes money on its own balance sheet I can buy, it's actually a lack of focus in that case.
Patti Harman (19:00):
Are there any technologies that you think hold a lot of promise for the insurance industry across the ecosystem? And it's really hard to narrow it down, but whether it's AI or digital mapping or some of the new claims estimating programs, is there anything that you think will really either show a lot of promise or is already starting to have a positive impact on the insurance industry?
Bill Martin (19:25):
Yeah. I went to a school named after a guy, one of the big four successes in California of creating the California rush and they call it the gold rush. But the funny thing about the four guys who really made it big is none of them dug for gold. One of them supplied shovels, one of them ran a bank, one of them did the transportation. They all kind of gave everybody what it would take to dig the gold. The guys who dug for gold really didn't do that well. So if you think about that, there's a couple techs that are more fundamental than one small end delivery, and AI is an example. It's kind of the sinew between the different things you want to get done, a way you can do multiple different things and have that mass customization I talked about earlier. If you want a certain customer experience, you can tell AI, give this particular customer experience, and it will consistently and probably with less training than some of the humans that might want to do it, even though a human's going to have to be there for judgment and that sort of thing.
(20:25):
So I do see the artificial intelligence world as being more like selling shovels to the gold miners than trying to dig for gold. So I think that's one big technology, and it's a broad enough name that some things are being thrown in there that shouldn't be like machine learning, I don't think that's AI. I think it's not artificial at all. It's actually quite structured and it's been out there for 15 years. We've been doing it over 15 years. So really it's this idea that something can absorb massive amounts of unstructured data, give you all the knowledge that's available in the public world and synthesize it in a way that a human would take years to do if they could do it at all. That's a huge, powerful tool that brings a lot to bear for the consumer if you use it and can be used in many, many, many use cases, including some complete changes and processes, and thus has a lot of promising technology.
(21:21):
I also think these folks that are beginning to consolidate data from various inconsistent sources, a good example would be home inspections. We inspect for loans, we inspect for real estate sales, and we inspect for insurance, among other things, and we inspect for construction. All these inspections are done in different formats by different vendors, with different contractors, but people are beginning to consolidate them in a way that makes some sort of consistent source of information that is much richer than in one individual inspection, and thus has a lot of potential to really streamline and make more accurate the underwriting and pricing process for our customers so they're not going through the pain they go through today when they spend their $2,000 on home insurance.
Patti Harman (22:06):
And that's an amazing way to shorten the process for them and use data in just a really smart fashion, I think, too.
Bill Martin (22:15):
Yeah. And you have a lot of, can I call them troglodytes? You have a lot of troglodytes running around talking about, "Oh no, the data's not going to be accurate. You need to make sure the data is accurate." What we want to be accurate on is the price. So as long as we're seeing a systematic pattern in the data, which I would argue might be more common with collected data rather than self-reported data question answers, then you're actually going to get to a better, more accurate price. So I worry less about the pinpoint accuracy, the data than I do about the pinpoint accuracy of the price. And if it's driving a more accurate price, I'll use bad data. That's a way farther thing than anybody should probably want to say. But the truth is that sometimes there's some types of data that might be considered bad that's more moldable than self-reported data.
Patti Harman (23:06):
That's good to know. Is there anything that concerns you as you watch companies expedite their adoption of AI and these other technologies?
Bill Martin (23:15):
Yeah. Again, I want to go back to something we talked about earlier, which is it's really easy to do things that are good for the company and the company bottom line with these technologies. But if you don't do something for the consumer with it, then my guess is you're going to be left behind because I think we've discovered through the whole process of automation over the last 30 years that we're spending about the same amount, maybe we're 10% lower than we were before, maybe three or four points in our combined ratio, but we're spending about the same amount or in that range with automation as we did without it before automation. And so the savings for the customer has been wiped out by the inflation for the customer. They don't really realize how much we've automated and saved on their behalf. And that's sad because the customer should be the first to benefit from this tech, not the insurance company.
(24:10):
We're now spending five points that we didn't spend 30 years ago on IT and that five points might be maybe what we saved on IT in some cases. So if the expense ratio hasn't moved a lot and we're not giving more of the premium dollar back to the customer, you have to wonder what that's bought us. And I think AI, especially with the investments that have been made, is going to be expensive enough. We could end up in the same place. We could end up in the same place where we've actually spent more than we saved.
Patti Harman (24:39):
Wow. And I bet there are a lot of companies that aren't looking at it through that lens either are considering that possibility.
Bill Martin (24:47):
No, but that's because again, they're pointing the weapon at themselves and saying, I'm going to get rid of this useless appendage rather than at the competitors where I'm saying, I'm going to differentiate from everybody in the consumer's eyes. That's where they're going to make the big money because the consumer will pay them more for that benefit.
Patti Harman (25:04):
As a consumer, I can totally understand that, and that makes a lot of sense. As we close, what's one critical factor that you want our listeners to consider as they focus on adopting new technologies or digitizing their processes for the future?
Bill Martin (25:20):
There's a lot of places I can go here. One thing I'll throw out is that for startups, they haven't seen the full upside and downside of their tech. And so in a way, their naivete helps because they come up with something that is much more breakthrough and it actually is maybe more consumer-oriented because they haven't been jaded by years of reasons why you don't do that. But on the other hand, they also haven't been fire tested. So there's going to be some percentage of startups that don't make make it and that it's not below 50%. It's almost certainly above that. So you're kind of betting on an instable world if you're betting on that rather than a place that can fire test these things because they already have a large customer base and a large history of that they can test against it.
(26:13):
So that's one thing. And then the other thing would be back to what I would say to us overall is come up with things to deliver to the consumer before you come up with things to save the company money because you'll get rewarded to it for much quicker. We pay attention to how to build great things, but this is the old movie that says, if you build it, they still might not come. You got to sell it. You got to have something to sell and you got to have a way to sell it. And every great insurance story is a distribution story. So if you're just building something without thinking about how you're going to sell it, ain't going to happen.
Patti Harman (26:47):
Yes, very true. And you won't go wrong by putting your customers first either. Thank you so much, Bill, for sharing your insights with our audience. Thank you for listening to The Dig-In Podcast. I produced this episode with audio production by Adnan Khan.
Special thanks this week to Bill Martin of Plymouth Rock Home Assurance for joining us. Please rate us, review us, and subscribe to our content at www.dig-in.com/subscribe. From Digital Insurance, I'm Patti Harman, and thank you for listening.