Key Takeaways:
- Why a disproportionate number of immigrants and working class individuals are rated as high-risk policyholders
- How to design an inclusive, mobile-first, end-to-end customer experience
- How partnerships with other organizations and platforms can help access "hard to reach" and often overlooked customer segments
Nestor Solaro (00:10):
Going to see some of you. Thanks for coming.
(00:14)
Figured. I will go through my introduction and tell you a little bit about myself. I do not know exactly, this is kind of awkward to stand up front here, but what I wanted to do today is just kind of tell you guys a little bit about my journey over the last couple years going from not working in the insurance industry at all to doing a couple million dollars in premiums and still learning. And kind of wanted to walk you guys through some of those learnings. So who am I? My background is primarily in finance. Spent my whole career in investing in banking, parents of Uruguayan immigrants. Grew up in an immigrant household in New Jersey and kind of stumbled across insurance as I am sure most insured professionals tend to. When I realized some family members asked for help getting auto insurance, I did not realize that it was not a hundred percent of people, it just went to Geico, progressive.
(01:03)
And that kind of got me to start thinking about this and more from an entrepreneurial angle. Started an agency in 2019 and started selling insurance over the phone. And from there, now we are we are Sigo, which is the organization I founded is at 30 full-time professionals and kind of wanted to run those parallels through our learnings and how I think this can be maybe applied beyond auto insurance. But I think this is really what I would like to talk about. Talking about how we learned about our customer and starting it from a customer angle, which I think insurance is maybe guilty of ignoring. Sometimes you have a lot of regulation, you have a lot of kind of direction, a lot of guides on how to put pricing together, how to distribute. I mean a lot of times it is easy to just default to the common knowledge, the common kind of wisdom if you will.
(01:57)
And so starting from a customer angle I think will be a very helpful way to start framing how we approach building and seeing the success we have had here. So who is our customer specifically? When I started Sigo, I saw particularly an issue for Spanish speaking immigrant and working class communities in the US to access auto insurance. Some personal experience came from, kind of sparked that, but I started looking deeper and kind of why is that the case? Why can not everyone just go to Geico and Progressive? And for those, I do not know anyone working non-standard auto insurance here. Awesome. So this will probably be funny to you, but when I started selling insurance over the phone, our first couple of appointments were MetLife and Travelers and can imagine trying to unbundled auto insurance to an unlicensed immigrant from Travelers or MetLife. I did not understand why my thousand dollar a month quotes were not converting.
(02:54)
And so one thing that I started really looking into is, okay, what are the challenges here? What are the challenges from the customer viewpoint? And when we are thinking about working class communities, really getting to know the breakdown. Obviously when you talk about immigrant communities, the US Hispanic immigrant populations, the largest immigrant population in the world, not just the United States, but really when you are talking about serving immigrant populations and think about things like income levels, think about the way people are consuming. So I think this is something that is really changed over the last 10 years that has really informed how we decide to deliver our service to our customer. Kind of what we are looking at here is smartphone penetration by ethnicity and particularly we can see that across the board since 2011, this is more than doubled, which has completely changed the panorama, which we have seen kind of rises in business models that are mobile first. And we have seen some Insurtechs over the last couple years. But I think particularly when we look at working class communities and how they are accessing services, this is one thing that really jumped out at me that had not reached the non-standard auto world quite yet.
(04:04)
And then this is also something else, but really the parallel here is get to know the customer you are serving, the market you are serving. Obviously serving the Puerto Rican and Dominican communities in New Jersey and New York is different than serving the Haitian communities in southern Florida and different than serving the Texas border communities in Mexico. And I think that nuance and that difference is very important, especially when you start talking about non-standard auto. You start talking about the products reaching kind of communities and why the markets have developed the way they have. So this is something that really jumped out at me as well. When I was looking overlapping with income levels, mobile smartphone penetration language, these types of things popped up to me and we started thinking, okay, where is the gap between what this customer seems to need and what is out there in the market? And then let us deconstruct why that is the case.
(04:58)
Why is it that 90% of Hispanics are accessing mobile internet more than any other ethnicity buying things online, more than any other ethnicity yet they are not buying auto insurance online even though it is a compulsory required and it is kind of oftentimes the first financial product people access even before bank accounts. And that is why you have a lot of brick and mortars popping up, taking cash payments. How can we solve that and understand these challenges and do a better job? And so that is kind of what we got to look at the other side. Okay, so maybe before moving to the other side and the other side being kind of the carrier side, this is something that jumped out at me as well. And so one thing about Sigo is we only advertise in Spanish language and one of the things that jumps out to me is the brand loyalty that is perceived by just doing things in native language rather than maybe just translating or paying certain lip service.
(05:58)
But I think that the unique part about the insurance industry is that you kind of have a bunch of different stakeholders. It is a bit easier in the venture capital model to just subsidize losses in insurance and sell something for less than a cost. But the real complicated thing is you got a lot of different stakeholders and insurance. You have your insurance, your capacity providers, your fronting your claims, you have a lot of different moving parts and ultimately the almighty dollar is going to decide which business models are last and which do not, right? Which, how can you make something sustainable? And so I think the challenges part is really fitting it into the existing landscape, these deep hundreds of billion dollar markets in auto insurance. The nonstandard auto I think is right here. What I wanted to talk about and specifically I think when we talk about immigrant and working class communities, a lot of people are accessing require insurance products, auto insurance life thing that could really benefit communities, but is it required?
(06:56)
And so this is obviously the market with the deepest penetration and where we decided to start, but I think that is an important lens to look at this through. What are some of the challenges here? Well, I think it is first of all, understanding that non-standard can mean a host of different things and is used interchangeably when you talk about customers with maybe a bad credit score or where progressive got famous using credit score and realizing one DUI drivers with a good credit score might be pretty good risk, but so is no US driver's license, so is lack of consistent coverage. And so there is all these situational things that maybe are not related to driver, driver risk, driving risk or collecting rare cars yet all get bundled into this non-standard package. And so you kind of have to go deeper and say, okay, who am I building for?
(07:46)
What is this product need and how can you fit into the existing landscape? And I think this is where one of the aha moments came for me when I was deciding to dedicate my full-time capacity to building Sigo. And there is a lot going on here, so I want to try to maybe break it down to the key point here. The key point is that lost rates among my target unity are not higher, which you would think an ID working class translates to higher loss rates and that just does not bear out in the data and hasn't consistently for decades. I think this is what a lot of non-state carriers understand and know that there is money to be made here. What they also understand and what Geico and all progressive and all the big guys also understand is that it is actually expensive to service this customer. And that is when you are looking at combined ratios on top where it flips from being a lower loss rate but to more expensive because you got to do things on paper, you got to take cash, you need brick and mortar.
(08:49)
You can not just swap out technology for real estate. Maybe like Amazon said they would, but I think that is really what we are trying to do. And so this was what really unlocked our business model. If loss rates are not the issue, you have proven underwriting models. Look, zip code leaves a lot to be desired when it comes to underwriting, but our customer does not care that we are using their zip code. Our customer, if they could get a cheaper price than we could use a credit score, they probably would not care either. Not that these things do not leave a lot to be desired. And I think part of understanding the product and what you are doing is understanding the structure. Is there, do you need a differentiated underwriting angle to reach this consumer? The prices is too far off or loss rates are out of whack or is it an operating expense issue?
(09:39)
And you do not need differentiated underwriting, you need to invest in technology and take advantage of the deflationary aspect of the technology. I think what we have seen really step into the spot to service the community because again, auto insurance being compulsory, everyone needs it to drive and go to the office and live their lives, particularly consumers that live outside of urban areas and independent agents have really blown up here. And you have regional carriers that have done a great job at servicing the community language barriers that get taken down. You can hire bilingual staff, you kind of solve the distribution challenges being in neighborhood where you have got the foot traffic, people see you, you can collect cash, but this is where the model breaks. I think I want to go back here for one second because also some hidden cost on top of that dark blue line that we are also missing because here in this segment in your big states like Texas, like Florida, like California, there is an added layer of operating expense at the independent agent level that requires additional fees to get charged to the customer.
(10:43)
And so when you realize that 50% of the cost of the customer comes out in fees, that is when you kind of start looking at this a little bit differently. And it is not the risk analysis, it is not the underwriting, it is the delivery, it is the servicing. It is understanding where it is expensive to service the customer and where can you invest in technology to lower that and hopefully get rid of a lot of those fees, which is exactly what Sigo is trying to do. Bringing some transparency into the space, going direct to consumer. There is still a lot of challenges by being mobile first. Fortunately there is solutions to collecting cash, but the real question here is how do we get there, right? We are doing we a profitable loss ratio, we are hitting scale. I think the real question is can we hit the enough amount of scale that we can kind of break this business model that requires a lot of additional fees in the space with scale and bringing that deflationary aspect of technology.
(11:40)
And so I think these are really how we approached it. When I was thinking about from day one, getting our appointments, making a thousand phone calls before selling my first policy, then selling a couple hundred before realizing that we had to build our own technology and then selling us several thousands to realizing that there is kind of where the leverage in this model and where the kind of historic business models are kind of broken and where really I think the solution to serving markets where you have tight margins or historically a lot of fees. I think this is a prime example of how it is expensive to be low income in the United States. It is expensive to be poor. It is not the first time you see it. You see it in lending a lot of times you see it all over the place. And so I think that that is where you need to take advantage of the cost reduction aspect of technology on number two, on diversifying your workforce.
(12:37)
I think this is so essential and one of the big legs up I have on most of the traditional insurance executives at big insurance companies, other than being able to move a little faster as a startup, but I was very familiar with the person I was talking to on the other end of the phone, which made it a lot easier for me to build. I think it was an Insurtech New York study, one of the nonprofits they posted on social media. Latinos are the most underrepresented group amongst insurance executives in the United States states. And so that obviously it is a lot harder to solve a problem for someone you have never met. And so that is why it is so key, not just language for us, I think language is low hanging fruit. It is understanding kind of culturally what is going to reach, what is react, and understanding how to interpret our data from a customer that we know.
(13:25)
And then I think that is really the last piece here is listening to the customer, building that in those feedback loops. I think it is so easy in the insurance business where there is this tension between profitability and customer service. It is a business where you can not say the customer's always right, because easy to get taken advantage of in insurance, but build in a feedback loop. What we have done is a lot of automated communications with the customer where we are interacting, where we have that saved in data, where we can analyze it. I think this is another place where a lot of the existing business models come up short. You lose a lot of stuff on the phone and between sale from click to sale in a way that we get because we are all online and the vast majority of insurance here is still being distributed through independent agents, which insurance is a product that still needs to be sold, right?
(14:17)
It is not something that is bought, it is something that is sold. And I think that is why it independent agents have historically been solution here and I think still play a core part, particularly when you are talking about more underbanked solutions, until there is clear solutions for things like cash collection and pay collecting those payments. But I will stop here. I wanted to run through this, share a little bit of my experience. Appreciate seeing all of you here. Would love to connect and speak with anyone interested. We are hiring across the board. If you guys know anyone talented, we are looking for people in a bunch of different roles. So sorry to plug Sigo, but wanted to make sure I dropped that for anyone. Anyone who knows, anyone that is looking. But thanks for the time and thanks for being here.