InsureTechGeek Episode 17: Machine Learning & Automation in Underwriting with Lance Poole from Juniper Labs
JAMES: On episode 17 of the InsureTechGeek Podcast, machine learning and automation in underwriting with Lance Poole from Juniper Labs.
The InsureTechGeek Podcast, powered by JBKnowledge, is all about Technology that is transforming and disrupting the insurance world. We will be interviewing guests and be doing deep dives, in the specific technologies that we see changing the industry. We are taking you on a journey through insurance tech.
Enjoy the ride, and geek out!
JAMES: Alright, alright, alright! Another week, another show. So excited to be back with you talking about all things insurance tech on The InsureTech Geek Podcast. I am your host James Benham. I am joined by my illustrious co-host and author and very interesting man, Rob Galbraith. Rob, how is it going, buddy?
ROB: Good James, how you doing, man?
JAMES: Doing great. I am in your home state of Michigan.
ROB: You are, yeah! You know, those Michiganders are making us Texans look very reasonable with all the protests and all that, so….
JAMES: Man, oh man, when you have got armed protesters in the state Capitol, you have got a little political problem on your hands. She’s got a challenging time up here in Michigan and it is…it is different. I will tell you, the grocery stores are way thinner on the shelves here. A lot more stores are closed. It’s a strange thing to leave Texas where all the grocery stores are full and the shelves are fine and there’s no food panic.
You come up here and it’s like, there’s a lot of stuff people don’t have. And so, it was interesting. We came up to check on our place here and of course, I love it. I love it up here, but it is cold. Look – it started at 33° today, with huge winds off the lake, and it is going to be a high of 39° in the middle of May, Rob. And that is on a week when it’s like in the 90’s in Texas.
ROB: Crazy. Yeah, no. Summer started early down here for sure. You know, I’m worried it’s going to be pretty brutal because normally it rains quite a bit in April/May and then the taps just turn off and we don’t get rain for three months in the summer. But we have not got that much so far in Texas, so definitely hot. But hey – after a long winter long start to 2020, I am happy to have summer start early!
JAMES: Understood, understood. And joining us from beautiful Denver, Colorado – Mr. Lance Poole! Lance, how are you doing today?
LANCE: I am terrific! Thanks James and Rob for having me on.
JAMES: Yeah, super glad to have you on! Excited to have you, even if you are an Alabama graduate, we are still excited to have you on. I just want to point out that I will interview any graduate of any school including Alabama on this podcast. It is okay, Rob, we will interview anyone from Michigan, Michigan State, Notre Dame – it does not matter where you went to school, we want you on this show!
You are a local-yocal Tuscaloosan, you are born and raised there. Kinda like how I was born and raised in Baton Rouge, I did not go to LSU – you did go to your local college. You went to the national, under saving five-time national champion. You have five coaches that have won national titles or something crazy like that. I mean, how many national titles y’all up to now? 20-something?
JAMES: It is like you just cannot stop winning! I do a talk called “Building a Mad Scientist” about how to build innovation labs at companies, and I have a slide about building process, like you have to have a process to be successful. I have a picture of Nick Saban on that slide – because how does one coach have that much turnover, right? Like all the assistants get cherry-picked every three years, right? All of his players leave every three to four years, and he just keeps winning national titles! He does not have rebuilding years, right, Lance? It is insane!
LANCE: It is. It is an amazing thing. And there is, you know, throughout Alabama, there are a lot of business people who study Nick Saban’s speeches, his way, he coaches, all these things. It is probably does not happen with a lot of other States where folks who are obsessed with how a football coach operates, but it’s produced good results in Alabama.
JAMES: But you should be obsessed with the way he operates, because it is that level of sustained performance – it seems impossible! I was tailgating in Tuscaloosa a few years ago, and I was hanging out with the strength and conditioning coach for the Crimson tide. He was telling me that everybody keeps cots in their offices because they have to. They would just sleep there. Saving never quits. They say it takes 24 hours off after a national title and then he starts recruiting again. 24 hours. That is all he gives himself after winning the big show! I was like, ‘Yeah, man. I take like a week after a good year!’ I am like, I want to take a week off! He takes a day, you know?
LANCE: Yeah, no. No one’s going to be writing case studies on appropriate work-life balance by the looks of it…
JAMES: No. You should not look at work-life balance there. Terry Savage, I do not know if she will have something to say about that or not. I’ll tell you what, it is fascinating!
Let us just dive right in! One of my favorite movies, Office Space, we are going to jump to conclusions now, let us just dive right in on this whole thing. You are from Alabama, you are born and raised in Tuscaloosa. You went to university of Alabama. What would you study there? What would you envision going into as a career and then how would you land in insure tech?
LANCE: Not many people get into insurance on purpose. Maybe I am the rare exception? So, I studied finance as my undergrad and then statistics for graduate school. Again, not a really popular path. I had a statistics professor while I was in undergrad that was just inspirational. Loved his class, made it a lot of fun, and I thought, ‘Okay, I want to be like this guy. I want to be a statistics professor.’
I really geeked out on statistics like that. Again, thankfully this is the InsureTech Geek Podcast, so I can really geek out on some of these things! I got a couple of years into a graduate/PhD program, and decided I do not want to do research for my entire career. The idea of being a professor was more exciting than the actual work of it. That is one thing you find out when you are in school – what it is like to actually do the jobs. After I read my 30th research paper, I felt like, ‘I do not want to be writing these for my career.’ At the time, I had someone else in my program that was studying for an actuarial exam. I looked at it, and I was like, ‘Hey, this is pretty easy stuff! I think I can pass this exam, this is not too bad!’ And so, I took an actuarial exam and that was kind of the first step in a life full of glamour and fame as an actuary.
JAMES: It is! It is a very – I mean, there is a paparazzi, um…
LANCE: It is hard to deal with, you know…
JAMES: Dinners, receptions, constant award shows…
LANCE: That is right! But I got interested in actuarial science I thought, ‘Okay, this is a path where I think I could be successful.’ It is got a lot of math that is involved, but also there is this business aspect and you’re sort of the engineer for the insurance company. I actually started out my undergraduate school studying engineering and so that was a path I wanted to pursue. So, I’ve kinda had a little bit of that mindset, but now I am doing this for an insurance company and that’s how I ended up getting into the world of actual science.
JAMES: It is interesting! I have thought about this because I have gone to hundreds and hundreds, if not a thousand of conferences since I started JBKnowledge 19 years ago. I do not know how many [conferences] I have spoken at, over 400, but I have attended maybe close to a thousand.It is interesting because there is a lot of conferences and a lot of industries I have been to where people say the exact same thing. No one goes into college to become this – whatever that is – you know?
One that I really believed was a compliance conference. I went to a compliance conference and for sure – I know that there is no 17-year-old out there saying ‘Dad, I want to be a compliance officer one day!’ But I know that there are some 16 and 17-year-old math geeks. And I say that affectionately because I am a geek, right? I am a hardcore geek. I am a computer science geek. I am an accounting geek. I love numbers. I know there are people that say, ‘I want to be a mathematician.’ I want to be an actual [profession name]’, you know? I know that happens. But you look at the professions kids want to be. They [say they] want to be – ‘I want to be a doctor, I want to be a pilot or a police officer, a firefighter, a pilot, or astronauts,’ you know, those kinds of things. Most professions, kids do not dream of, right? You end up in – you find your passion later. This is interesting because you found a passion for mathematics and numbers, and you found probably one of the best homes in the planet for mathematicians and insurance.
What was it like when you really started digging into the work?
LANCE: So, I started out – I am a life actuary by training. So there’s different kinds of actuaries and you can focus on life for property and casualty. I was working for a life insurance company and I started out in probably what is one of the most least glamorous actuarial jobs you can have – and that was working in the reserving department for the company. [Reserving departments] calculate the reserves – how much money does an insurance company have to hold? There is a lot of requirements there. I was in that role for a couple of years and I found the work to be somewhat boring and repetitive – and not all that interesting. There [are] some people that thrive in [reserving departments] and they love it, I was always more business oriented. I wanted to understand.
I remember an early conversation asking one of my coworkers about the product we’re working on, because a lot of times you just refer to these products by some four letter code. I said, what is this product like? What is it do? And the response I got back was just a blank stare. Like, ‘Why does that matter in terms of the work I am doing here? Why do I did not know what this product does?’ Then I was like, well, I am just kind of curious, like ‘Who buys this product? Who is it for? You know, how is it work?’ A lot of those kinds of things. That was kind of a wake-up call to me that maybe I am not in the right role. I am interested in what it is like to be an actuary, but there’s other kinds of things I could do. At that point I switched companies.
[I] start working for a different company where I was for almost 10 years, and ended up in the product area, which I think was just a great fit. When you are a product actuary, you’re building new products. You’re helping tweak the products. And at the end of the day, that is why the insurance company existed, exists to sell product to, to insure risk. Being in the product area was a really good fit for me and my personality.
JAMES: That makes sense! Rob?
ROB: Yeah! Lance, I have known you in your current role as CEO of Juniper Labs, and you were one of the first people that I met that had come from the insurance industry then kinda made the leap over to the InsureTech side of things. Previously, a lot of it had been investors, entrepreneurs, folks like James that really kinda started from the outside, right? Selling into the industry you saw opportunity to make it better. I did not see a lot of insurance insiders is, I would turn it, kinda flip it over to the start-up world. So just tell me about that transition? I am really fascinated by that, and I have seen, by the way, more and more people doing this over the last couple of years. Tell me a little bit about your journey of how you ended up in a start-up world?
LANCE: So, when I left the insurance world, I was VP of product at a life insurance company called “Protective Life.” I was on the CISO track was sort of the de facto innovation person at my company. So, also, and I will say this, I felt like I had the best job that I could possibly have in the company and still felt like, ‘Eh, this is not what I should be doing you know. A few minutes ago, we were talking about actual real science. I’m not currently working as an actuary, I’m the CEO of an insure-tech start-up, and I guess my chief role now is like the head salesperson for our company.’ I am not sure if that tells you about our company that an actuary is the person in charge of sales and product and those things.
JAMES: Yeah. The chief executives should be the chief spokesperson, I believe.
LANCE: You should be. You should be.
JAMES: After two decades of doing this, I can tell you that that is your main job anyway. No matter what.
LANCE: That is right. For me, it was recognizing that I was not in a role that I feel fit well. So what are my options? At the time, and this has been six years ago, start-ups were becoming to be more of a thing that would be talked about as [a possible] path. My story is different than a lot of entrepreneurs. A lot of entrepreneurs you hear, one of my favorite podcast (outside of this one!) is How I Built This. If you listen to How I Built This, I feel like those stories are so often ‘I was a 12-year-old and I had this first business’ or ‘I was a 10-year-old and I had this business.’ Both of my parents had jobs. My mom was a teacher, my dad had a blue-collar job, so, I did not grow up with this model of an entrepreneurial path in mind. Which I think is why I went the corporate route pretty early like, ‘This is what it looks like to work.’ Then as I had some corporate success and had some friends that had done start-ups, I thought, ‘Okay, this could be a really interesting path and let me see if I want to pursue this.’
One point of the transition is recognizing that I was not in the right role and I should do something else. The other part of my story is, that I think is important is, I recognize there’s privilege in this, too. Actuaries do pretty well. You get paid well. So I was,able to build up a bit of a cushion too I did not leave [without a] cushion. I had six to 12 months where I could say, ‘I am going to try and make this work.’ And then on top of that, as an actuary, there is almost zero unemployment. So, I felt like at stepping away, worst case, I can come back and get a job for an insurance companies and maybe I am more employable having had some true start-up experience. I would say 0.2 would be you have a plan B.
Most start-ups are going to fail if you have to come back and end up working in the corporate world by choice, or because your startup failed. And know what it is? You are going to. You are going to come back too. Then another thing I would say as well – and this maybe this is…not sure if this is controversial – but, I think you should, leave knowing that you make more money in the corporate world. I am big believer that on an expected value basis. We talk a lot about what expected value is on average. What are you going to earn? I think on average you do better just working your way up the corporate ladder. I am six years in my bank account canprove that for sure not having had an exit, but it is not all about the money. Doing what you feel like you are called to do is more important than maximizing my earnings.
JAMES: You know Lance, I kind of took a different approach. I took kind of the Hernan Cortez approach when he landed in Mexico. He ordered all of his ships burned so his troops could not go back. And when I started JBKnowledge, I had some offers from really large accounting firms. I did intern with one of them. I am not going to say anything other than they’re a great firm. I’ll leave the name out.They called me to find out why I wasn’t taking their full time offer and I said, I am going to start my own business. And they were like, ‘Are you sure?! 911 just happened! This is 01. Are you sure? 911 just happened. There is no jobs anymore. Like there’s a lot of people want this job!’
And I said, ‘Ah, you know, I am going to Cortez this so I cannot go back.’ And I said, ‘Then you will not have a problem filling it.’ And that was it. That kind of ended the conversation. I definitely burned all the boats. I thought I really wanted to be fully all-in. I would not do that again, just because it is good in business to have relationships that you maintain. I was young, right? I was young and brash and 21, and thought I had the world all figured out. But it is interesting. I would love to ‘talk about what exactly you would say you do here,’ to quote Office Space again. Tell me like you have some products, which I thought was super cool cause you worked ‘Sudoku’ into a product name. Tell me what the products do.
LANCE: The best way to think about Juniper Labs is we help answer the questions and underwriter would want to answer. We are focused on commercial insurance. We are an insuretech building technology for insurance companies. The questions a commercial insurance underwriter would want to answer a questions like – ;Who are you? ”What is your business name? ”What is your address?’ All the things about your business.
Question one, who are you? Question two, what do you do? Like, what does this business do in commercial insurance? Cause business has changed, dynamically all the time. The moment we are living through right now shows that businesses change. Those are the four questions we are building technology that will help answer those questions. The data is Sudoku, as you referred to it, is just taking some of this technology we have and filling in data gaps that may exist. This particular problem is a problem for carriers but also you think about brokers when they are capturing information from the application. They are just trying to get maybe the minimum amount of applicants data they need to get the app across – and there could be a bunch of data gaps there in terms of what the business does. What’s the business’s website? Anything else that could be pertinent? There’s probably things they wish they would have captured when it comes time for renewal that they do not have. That is something that we have been working on – this product is called Data Sudoku.
JAMES: Awesome. Rob?
ROB: And as Lance said yeah, as a former underwriter, I can totally appreciate that! Yeah, there is, there is definitely a need for that there. There is no doubt about it. So, I think that makes a lot of sense. One of the things, as we have talked about Juniper Labs, it is always struck me, is obviously you have a vision for your company and your business in terms of the strategic vision, if not on our roadmap, I’d imagine, as well of how you are going to get there. But you know what you want your company to be when you grow up, right? If you think about it that way yet, at the same time, one of the things that is always impressed me is your ability to to flex, qnd to kinda say, ‘hey, as we talk to carriers and let them know about opportunities that we see and the things that we can do,’ we are also flexible in terms of, hey, they need…’
How do you manage, I guess I would say that that strategic vision with kind of the being opportunistic and just going where those conversations that you have with carriers take?
LANCE: Yeah, that is a good question. We have a big vision of being able to make commercial insurance cheaper and more transparent. You are completely right. Rob, that it is important to have vision. We want to transform the experience. There’s always things we want to do, as you say – ‘when we grow up.’ You were early stage start-up. But I think the thing that is important for us is we are not wed on how we get there. I think in the early days as a start-up founder, it is important to listen to problems, to always have your ears open for problems. When you are talking to a carrier, you may start the conversation with focused on a particular solution that you have. My ears perk up when I hear of a problem that a carrier has, that is one thing – always be listening.
The other thing is if you are not working on something that’s a top five problem for an organization. I think you should just move on because it’s a fool’s errand to try and force the organization to try and look at a solution that is not what I would call one of the ‘burning problems’ that they have. The other thing we will do too, that I think is pretty scrappy is just replicate success. If we talk to a carrier, gave them a challenge, work on something, then a lot of what I am doing is asking around to see if other people have a similar problem are experiencing similar pain.
You have to have a lot of relationships. If you just know a couple of people, it is hard to do that. But if you have a wide network of 20-30 people, it is easy to pick up the phone and call someone. You do not have to divulge confidential information, but just in general terms. Say, I am hearing if someone else is having this issue, ‘Is that something you guys are experiencing too? Is that a problem?’ And you can either get a ‘Yes, this is a problem,’ or ‘No, it is not something we are really focused on right now.’
JAMES: Gotcha. Let us dive a little deeper. Let us talk about machine learning. Just there’s people who say the word machine learning and do not understand what it means. A lot. Now, I started writing software when I was 11, I got my first computer from my dad and at middle school they started me in computer science classes. I started on a Gateway 2000 at the house and at school – oh Jeez…I think we had some old TRS-80, and then we had some 386’s. They were pretty old machines, but we were able to build expert systems back then. Not a GW basic Q basic, we built a whole bunch of conditional statements. You know, ‘if this; then that’, right? I think a lot of people confuse an expert system for a machine learning algorithm. They say, ‘Oh, this is artificial intelligence’ because it did some things in it deterministically figured out that I had one. The reality is behind the scenes, it is just a giant, ‘if then’ statement.
Walk people through your definition of ‘machine learning’ and how you are applying it here?
LANCE: Yeah. So our definition of machine learning is – the way I think about machine learning is…maybe we can go pretty literal with the where the word. Just that we have some system that is able to take in data and then improve the experience. Improve the learning without being explicitly programmed. There is no, ‘if then’ statement as you refer to in your example, James. Just to give an example of one of the things we are working on I mentioned these questions that an underwriter would not answer. One of those questions is, w’hat does your business do?’ So, we have an API that can classify businesses, and if you are not as familiar with commercial insurance, large driver of the rate that a business pays on insurance is the class code. So it is a code that groups similar risks together, then we can take just a short description of text a website, and then return back a four-digit class code as to what this business is. The way that model was created is we took millions and millions of records and we’d have to program, you know, if then statements, but we could take millions and millions of records and train a model to get good at being able to predict what the classification code is, based on just a short description or a website or some input text.
JAMES: Awesome. And I have seen some pretty interesting examples of how people in InsureTech are using machine learning. Can you just give me like, just the really small example, and he said, ‘we are only working on top five problems.’ Which I agree with, right? There is a lot of solutions in search of a problem out there and InsureTech and an Alltech. You are trying to solve real world problems they have right now so that they can make more money and be more profitable, more productive.In Rob’s book one of the top seven problems facing the insurance industry is that insurance is too expensive, right? And just in general he talked about how we can tackle that.
So just walk me through what is the biggest problem that you have been able to knock out or begin to knock out with machine learning?
LANCE: For us, the small business segment, we see it as challenging for carriers because there is not a lot of premium there. So, if you run a, you know, a shop that has four people in it, you know, your worker’s compensation premium might just be $2,000 or $3,000 a year. That is not enough to support a human underwriter spending hours upon hours working on a file. So, what we’re seeing in the ways we’re hoping to make the commercial insurance even cheaper, is by reducing the effort that has to be spent to do some of the key underwriting task as it relates to commercial insurance. A big one is classifying a business, there has been research that showed that 40, 50% of policies are actually improperly classified as having a human underwriter look at them. What we can do is actually run this through our APR technology and more accurately classified businesses but at the same time, then allow the commercial carriage to not have to have as much time and energy spent on that work. That is one of the ways we are helping to make the small business segment more profitable for commercial insurers.
JAMES: Awesome, Rob?
ROB: Well, I have a question on with your background as an actuary. We talked about artificial intelligence, machine learning, you know, and some of the actuaries I have talked to. I have talked to several different, CAS events, casually actuarial society and others. Which is great that they keep inviting me by the way. I think they keep inviting me cause I keep challenging them. But like actuaries are so used to kind of the process, right? Taking the exams, the certification, reading all the papers. I feel like they are actually not prepared to, for this world of artificial intelligence that is here now, right? This is not a 10 years from now. Like this is real now. And I do not know, just kind of curious your thoughts about actuaries, this whole, you know, they used to have all this tribal knowledge that was really important. Any blokes such as James and myself could, run a TensorFlow now.
Maybe you could just talk about the impact that you see for AI in general on actuaries, and how would you mentor a young actuary today or encourage them to stay relevant in this ever changing world?
LANCE: Well, I think you are absolutely right in terms of the implications that now you don’t have to have a hundred-year-old process to price a product. In fact, like those models are outdated, not useful, not helpful. We have seen the world change really dynamically in the last two months. You can almost take all those assumptions and throw them out the window and being good at machine learning, taking, – like you mentioned TensorFlow as an example. But picking some of these off-the-shelf tools and being able to create models is far more important than having a process that’s rooted in a true science, like actual sciences.
The advice I would have is to be really good at using those tools and understanding the methodology and knowing how you can take shortcuts. We’ve had conversations with a couple of InsureTech’s who are working on creating their pricing model right now. They don’t have the data that the Hartford may have. But they have access to public data on companies, they have access to loss data. There’s other things you can get to if you are scrappy, where you can create a model that is good enough and allows you to get to market much faster than someone who’s going to try and get the perfect model.
JAMES: That sounds bad.
ROB: Yeah, that is awesome. That is great advice. Lance. And I got a quick follow up. I am sure you are aware of that the University of Alabama is home to the Insurance Hall of Fame, so I am sure you will, you will no doubt being honored there one day. You’re kind of, you know, one of the smartest guys I know in the industry.
Where do you see the future of the industry? Not necessarily just short-term during the pandemic, but long-term and do you think this is going to accelerate some trends? Or do you think some will slow down? How do you kind of see the next 5 to 10 years plan out?
LANCE: Well, speaking of the Insurance Hall of Fame, it is a funny story. I took a lot of classes in the room where the entrance Hall of Fame exists. You have all these pictures on the wall and it is almost like the Scooby Doo cartoons where the pictures have eyes and they’re looking at you. It is really unnerving to sit there and try and take in what the professor saying when you look over and you see this picture of this older person that is looking at you. So I would be honored to one day have my picture on the wall, Rob.
Not sure if that will happen, but I need to work hard to get it there. in terms of change, I think it is definitely going to accelerate the pace of change. Like we, we have certainly heard the quote, “There’s decades when nothing happens. There’s weeks when decades happen.” I think these last weeks have been decades happening. The other thing I have joked about before is that I want to be in the insurance industry when the world ends, because it is going to happen 10 years later in the insurance industry. We are behind!
I think the pace of change will accelerate, but maybe it is not quite as fast for insurance. Some things that I see happening probably been a lot of people that have talked about digital, I think this is going to be a big push for digital solutions. If you are a carrier and you have not been focused on digital you’re already behind because now there’s going to be more demand on doing things digitally, and do not want to interact as much face-to-face on paper–paper. It’s stock in paper that should be down stock and digital things is up. The other thing that I am really interested in and could be completely wrong on this tape, but we have not talked a lot about is federalism. It is interesting that we are on the the podcast with two guys from, from Texas. There’s been such a lot of the mess related to the crisis because of there not being coordination between the States and the federal government. You have got, you know, these stories of governors outbidding each other for PPE, there is all kinds of things and that also has insurance industry can resemble that too – like the fact that we have 51 different commissioners! There’s lots of different jurisdictions that are at play. One of my predictions would be that there could be more federal coordination going forward. Maybe this is a push towards more of a unified standard in the U.S. on the insurance front.
JAMES: That is like a third rail with many in the insurance business, right? You have a trill, literally a multi trillion-dollar industry predicated and billions and billions of dollars in the U.S. predicated on 51 unique sets of rules. It is created and there’s many, many, many companies that exist. We can name a few of them, but we are not going to, because of the disparate regulatory environment, the patchwork code of regulations. That being said, we will maybe we won’t touch on all of the issues we could talk about when we talk about coronavirus because certainly what works for Michigan, uh, does not work, uh, necessarily for Texas, and the same with what works in a super urban dense area like New York city apply to Marfa, Texas. Right?
And so, the, I, for one, am a pretty large state’s rights advocate in general. But, I have seen the incredible amount of inefficiency that it is brought to the insurance market. Uh, it is just really complicated. I will tell you what Lance, I would love to see the health insurance market be federal, right? The ability, just the fact that you got to get different insurance when you change, when you move States which just makes no sense. The rules are so different. Of course, it limits competition too, which is the really big problem is I would like to see all those insurance companies competing with each other nationally to try and drive premium down. That is probably a bit of a pipe dream. I am not sure that it’ll happen simply because there’s too many billions of dollars and there’s too many insurance commissioners whose entire careers and staffs are dedicated towards the individual regulatory environments and the States.
When it comes to coronavirus I was thankful that Texas that has 28 million people and is larger than most European countries and has a larger GDP than almost any of them – was able to make its own decisions. I did not want to have to consider all the considerations and other and other areas. I think there is, it is always a two-edge sword, right? It is always a two-edged sword. But certainly from a technology perspective, the patchwork creates a ton of opportunity for technology companies. There is opportunity and all that mess right?
LANCE: Yeah, there certainly is. If you look at what is happening with InsureTech’s in Europe and the UK, where there is one system there are some things that are more straight forward. One of the things we deal a lot with is stitching together open data, data from different municipalities, taking the Harris County and Texas appraisal data and putting that with the business license data in Texas. That takes a lot of effort, but it allows us to create value. I have seen the same kind of open data in Europe and the UK that is amazing and really easy to use, and you do not need someone like a Juniper Labs to help put it together for you. You are right, the mess does create opportunities for tech companies here. Whereas in other places that are under one system, there’s efficiencies that we do not have here. I am with you. I like the ability for States to make their own decision, but would love to see us be able to capture some more of the efficiencies that are gained whenthere is one person making decisions.
JAMES: Yeah. Yeah it is. It’s always a two-edged sword. Who is it that said that they have a significant fear of an efficient bureaucracy? Because an inefficient bureaucracy is absolutely terrifying! I think, I agree. After I served six years in our city council here, and I have been involved in government for a while, an efficient bureaucracy should scare the hell out of everybody – because they can be brutally efficient.
There is a two-edged sword, everything in life. Rob, what you got?
ROB: One of the things that we have done the last few podcasts is talking about some of the latest news items in the headlines. James, you probably already had a couple queued up, but one I wanted to throw out to you guys. The AIG’s CEO this week, Brian Duperreault mentioned that he thinks COVID-19 is going to be ‘the worst global catastrophe ever,’ which raised a lot, a lot of eyebrows. In the same ‘earnings’ it is called, actually killed their InsureTech unit called “Blackboard.” That also caused a lot of chatter. j
Just curious if you guys saw that. Any reaction? Do you think it is? People were starting to say ‘Well, let us see, Hurricane Katrina was this amount’ and what not. People started counting on their fingers and toes when they said ‘worst catastrophe ever.’ So just curious, any thoughts that either of you had if you saw that?
JAMES: Yeah, thank you for bringing the news up! I appreciate that we are going to be doing that every show. This was an interesting one because, first off, it depends on the topic Lance and I were just talking about. The political situation at States because there are state legislature lectures that are discussing basically overriding insurance contracts and requiring coverage on general liability policies for this. Even though they either explicitly excluded pandemics or did not include it by name. I think it depends. I think it like a big giant question mark. It depends on what the insurance company’s exposure is to this, right? If we are not really talking about the phrase catastrophe in terms of exposure to insurance carriers, we are just talking about total losses on a catastrophic event, then I think it’s a different conversation.
It does not depend on the regulatory environment. It just depends on how much money people lose, right? I mean, there is going to be a significant financial loss, companies unable to recover, et cetera out of this, I think it’s a bit too early to be making that definitive of a statement because it’s challenging and you have to look at a lot of different models. Like Sweden is kind of going their own way they have experienced far less economic growing. They have experienced more deaths, but their argument is ‘we are just getting it over with faster.’ And so, you look at what Sweden’s doing – it is a very interesting experiment. I think we are probably a few months away from making that determination. I feel like it is a bit premature to say it is the worst catastrophe ever.
I mean, do we really have the cat numbers on the 1916 to 1919 influenza epidemic, which was just a hundred years ago that my great grandfather died then. Do we have the data on that? Really? Do we have the loss number? Cause we did not really collect cat loss numbers a hundred years ago like we do now, right? So maybe in the in the recent history, because hurricanes are so localized compared to a global pandemic, right? There is no other thing I can think of in my 40 years of walking this earth that impacted every business on the planet simultaneously.
LANCE: It feels like a managing expectations type of statement, right? At this point, let me just go ahead and say – this is going to be the worst catastrophe ever. Let us get that priced in and then when it is better, then the AIG stock prices is higher. It feels to me more like I am going to set expectations low and hopefully we do better than what I’m helping everyone to think this is going to look like. So, with you, James, it seems early in terms of making that statement, and I feel like as a CEO on our earnings call, it is just managing expectations.
JAMES: Lance, I came up with a phrase a couple of weeks ago on my other podcast, Coronagoating. It is when you have existing business problems and you blame coronavirus for them. Now in this case instead of scapegoating it is Coronagoating. So, I think it is going to catch on #Coronagoating um, I am seeing a lot of start-ups do this. They had failing business models already. They were losing money like crazy. They were trying to raise more rounds. Of course, term sheets have all been torn up in the last two months, right? If you are not a profitable company, you have a bunch of debt, or you had a big cash burn situation, having a revenue decline. It is pretty devastating in particular if you cannot get your next round of funding.
Because what I have been hearing is the major PE and GE groups and VC groups have been still be willing to fund, but vastly they’re down rounding all of their investments right now tothey’re taking advantage of the situation. They are sitting a lot of capital. They go out and they can get a lot more of the equity for less money. I think there is a good deal of coronagoating. I think if you are a public CEO, and you might have been on the verge of hitting some negative numbers, you could just say, ‘hey, coronavirus is the worst thing was ever happened.’ I do not know. I’m not sure. I agree with you. There is a lot of expectation setting that happens on those investment calls though.
Rob, what are your thoughts?
ROB: Yeah, I figured the two CEO’s would catch onto the expectations really quickly. Yeah, I agree with both of you. You know, I think it is a little early to make that call. You make a great point, James. I think what is unprecedented here it’s is the global nature of it. I have talked to friends all over the world, right? Germany and India and Australia, Thailand elsewhere – and everyone was locked-down, and everyone was stuck at home.
Obviously companies are now – I mean – countries are reopening at different paces. There was a time when, yeah, it did not matter where you were, Brazil didn’t matter where you were in the world, you were kind of experiencing the same thing. That is unprecedented. So it may very well prove to be the biggest, kind of global insurance catastrophe ever. But I think it’s a little bit TBD and that makes sense in terms what is called The Overton Window, right? You have got to shift the window ofwhere you want people to focus on stuff. That was something that I know in the news because some chatter this week among my social network online.
JAMES: Awesome. I had an article, Rob, that was from a few weeks ago from Forbes, and you probably read it. It was just outlining is by Lev Barinskiy, Five Technology Trends In The Insurance Industry. I decided it was a good article that really covered what I think iscertainly in the rise of InsureTech. talking about telematics. Really the topics you and I talk about all the time – telematics, the rise of social media, robotic process automation, artificial intelligence, and blockchain.
It’s interesting of these, the one I feel like is really taking a back seat in conversations is blockchain right now. I feel like we talked a lot, a lot more about it a year ago, and right now with everything being as crazy as it is, we are like, ‘okay, forget about blockchain.’ Blockchain is actually playing a huge role in some of the developing markets right now, and, and in insurance and in risk mitigation. Blockchain market went crazy, and Argentina they are on the verge of yet another collapse because, I mean, I grew up going to Latin America. I have been operating Argentina for 19 years. Most of Latin–America operates in perpetual cycles of boom and bust, and boom and bust. It was that way when I lived in Mexico in the nineties, I have been operating Argentina for the last 19 years. But blockchain, the Bitcoin market to be particular – which sits on blockchain technology, went bananas in the last few weeks.
In South America because of COVID, and, you know, the, the currencies collapsing again – the peso is. I think you are going to see this happen a lot. They’re going to be looking for ways in insurance, and this is where smart contracts and blockchain come in. When you have chaos, you need a simple way to track provenance and a simple way to track who owes what money. There is, there is some really, really, really strong cases being made right now for the use of blockchain and for the use of cryptocurrency to top it off. Of course, we have all known those of us that are in InsureTech Geeks have known for a while. That is smart contracts and blockchain and cryptocurrencies could play a colossal massive role in insurance. The entire insurance product line could be delivered inside of a blockchain, and that’s something that’s often this Forbes article that I thought was kind of the sleeper right now. Because we’re talking, we’re still talking a lot about machine learning, but a blockchain’s kind of been taking a backseat. I think there is a big role it is playing right now with COVID in particular as you see currencies collapse, an entire economies collapse blockchain takes on an even more important role. Rob, I would love to hear any thoughts you have on that.
ROB: Yeah, totally agree. And the fact that so much of your economic well-being right now is to depend on your political leaders, right? What decisions they make and whether those are wise decisions or not, and not being this in a partisan way at all. It is difficult, right? It is a moving target and numbers are very conflicting, right? You have got to make some hard choices, but however that plays out. The fact that you have entrusted somebody with your livelihood in many cases, I think people are going to look to find alternative ways to be able to control their own destiny a bit more, control their own future. Exactly right, not worrying about what the federal reserve does, or what Congress does or whatever.Not just in the U.S. but all around the world. That is what crypto and in blockchain, do right? It is like, ‘hey, we talked about the rules. There is a system, here is how it works.’ I think people can, uh, as I have been kind of monitoring the price of Bitcoin throughout the past couple of months on this.
Lance, what are your thoughts? I am very curious.
LANCE: Two things that I think have been interesting. Zoom bought Keybase yesterday. The acquisition was announced.
JAMES: They had to, right? They had to.
LANCE: I am sure that Keybase founders did really well on that. So Keybase, they have a slack, like technology that is, that runs on the blockchain. They have a handful of other solutions. I am not an expert on the company, but I think Zoom bought this company as a way to shore up its security. So, I think to your point, James, the blockchain as a technology we are going to see more and more of that has not been talked about as much. But you know what just made news yesterday too, that that is interesting is parametric insurance and parametric products and a lot in the smart contracts you mentioned that it could be powered by blockchain or the bring back and circle back to actuarial perspective on this. It’s really hard to price some of these products where the exposure is just completely unknown and you have to use champs traditional pricing techniques, but if you can bring these products more to a parametric approach, if this thing happens, then we will pay this amount and we can measure it really easily. The pricing is more straightforward than–than putting this on a traditional insurance product.
JAMES: Yeah, that would define explicitly covering everything in a conditional statement, right? I had a friend who built a system eight years ago, nine years ago. Super cool. It was a giant conditional engine that you could place, it was not betting, although it would have made a brilliant betting platform. He pulled in data feeds on every kind of event you can think of. And I mean every kind of event. You pulled in sports data feeds, all sport data feeds. Then he pulled in details on the games and then you would put a conditional statement if Tom Brady makes five completions in the first half, I am going to donate. So, it was not betting cause. You know, online gambling is not legal everywhere. I am going to donate 50 bucks to this charity. So, it was all giving and charitable platform and I thought was brilliant because he basically created an if then statement around every event that he could get his hands on an RSS feed for.
JAMES: Any weather event, any sports event in government, it every time Space X launches a rocket. I am giving a hundred dollars to the National Science Foundation. You could literally condition everything that happened that you could get a data feed for and then trigger a financial event from it. Unfortunately, the start-up did not work out for a variety of reasons, but the core technology duck tails into exactly what you were just talking about. That would be a fundamentally different insurance contract, right? The contract would be a series of conditional statements and what they pay out with, they are triggered, right?
LANCE: Exactly. A lot more straightforward. This is my business interruption insurance or coverage going to be paid? Is coronavirus, you know, causing physical damage because BI is a part of the, you know, the property insurance. So those questions that get debated and talked about today, it would just be a very clean cut. And maybe that’s part of the future of insurance too, is, is making this payout more clear, the conditions for the claim more clear. Versus what is there now where it’s up for debate and, you know, you have, you just told, we’ll just file a claim and let’s see what happens.
JAMES: Yeah. Rob, any closing thoughts on that?
ROB: Just the transparency, I think that is the theme that keeps coming through. You know what you have. And again, like I said – taking a little bit more control over your own destiny, rather than ‘what are the courts going to do right?’ ‘What is the state legislature, the governor, again, the director or whatnot?’ There’s so many decisions that I think are outside people’s control. It actually ties a little bit back into the decentralized versus centralized, we are debating more.
You know what? You have a not now, people may not like the price, right? When they say, yeah, you know, add the pandemic and coverage to the business interruption. But it would be great if you had the transparency in the pricing too and say, hey, you know what? It is going to cost you. Um, obviously people talked about, uh, Wimbledon, right? Getting the pandemic parent where they were paying 2 million a year for pandemic insurance over 34 years, and then boom. This year, right? Coverage triggers to get $149 so it clearly can be done. So, I think that the big one with the parametric is going to be, do people really understand such a fundamental transformation? You know, I think already people used to go on to insurance agents and brokers for their advice. To the extent that now you’re flipping over to kind of a parametric, it’s just such a different paradigm. But I think after this [people will say] ‘I’ve been paying all these years and I didn’t really understand what I had, I thought it was covered and I am not as it turns out.’ Or ‘I’m covered only because, right, some contract got blown up retrospectively’. Just this unknown and unsure,and having to wait to see how the courts decide. People are going to want a lot more transparency going forward.
JAMES: Awesome. Well, look, we do need to wrap up. Lance, final question, this is our closing question. Let us look forward in the future.
What is the one thing relating to your business that you are really excited about that is developing or coming in the future?
I hit on this a little earlier, but the move to digital, before there was a face-to-face, there was a paper involved. There’s all these – I would call it ‘old school’ type technologies, and now, there has been a huge impetus to move away from that and to adopt digital solutions. Whereas before the carrier might have said, ‘Hey, we are good like businesses, business is fine. We are growing at 5, 10% a year. Everything is okay. We are not as worried about the insureTech start-ups that are coming into our, our world.’ And now, that is all out the window! Now there is going to be much bigger push to digitalize. For our business, we are helping enable that move. For us, this has accelerated the adoption, accelerated change and that has got me excited! Also just as a consumer having an easier way to purchase insurance, that is exciting as well.
JAMES: Awesome. Rob, closing thoughts?
ROB: Yeah, Lance it is so great to see you. Thrilled to have you on the podcast. Glad to know you guys are going strong at Juniper and really appreciate having you on and hearing your thoughts. Again, one of the smartest guys I know in this space, so it is always good to be able to catch up and get your thoughts. James, good to see you enjoy a freezing cold, Michigan! Catch the next episode.
JAMES: Yeah, I will absolutely. Lance, where can people find out more information on your company?
JAMES: Okay, awesome! Great! Well, of course, we will post all that in the shownotes. Appreciate you being on super geeky conversation. Go SCC! I will just say that we can, we can bond around that. Our chancellor – I do not know what Obama said – but our university chancellor said, we will have football in the fall. I thought that was a pretty bold and definitive statement. He said ‘We will have football in the fall. We will have class in the fall.’ Needless to say, Aggies were pretty excited about that. I just do not know if there’ll be any people allowed in the stands, but it should be an interesting season of SCC football and maybe Alabama will be back in the mix again this year, right?
LANCE: Hopefully so.
JAMES: Yeah, I mean, I would not be surprised at all with Nick Saban at the helm of that organization!
So thank you all for listening in today and again thank you to our guest and Rob for being on the show today and with that “The InsureTechGeek Podcast” powered by JBKnowledge is all about Technology that’s transforming and disrupting the Insurance world.
I have been your host James Benham with my prestigious Co-Host, Rob Galbraith, theendofensurance.com Thanks to Jim greenly our Podcast Producer, Kara Dalton, our Creative Producer, and thank you for joining us today.