Risk Matchmaking

Insurance companies are taking different approaches to manage risk and limit exposure, and rightly so. One big driver is that we have more natural catastrophes. Many of the underwriting models that were supposed to price those kinds of risks are, to some degree, less relevant. Obviously, combining that with the higher interest rate environment that we’ve had over the past few years, the insurers are taking a step back [to limit exposure].

Now, the impact on the agents is multifaceted. It means that more customers are in the market shopping, because suddenly they’re faced with a non-renewal. It pushes more [residential] customers into the market because the insurance is more expensive.

It also means that the agents have more work to do, which is good. At the same time, it’s much more complicated and more difficult than before because of the fundamental shift that we are seeing in the industry as a whole—not just in California, not just for homeowners. In the past, as an independent agent, you could sell to 80% to 90% of your [personal lines] customers with three or four direct relationships with large legacy carriers. Those carriers would basically meet the needs of most of your customers. That’s not happening today, and it’s not going back.

Why? Because legacy carriers are becoming much more precise with the risk they’re seeking, and they are trying to segment the market in a more precise way that will limit their exposure and losses. What it means is that agents cannot rely on having a handful of direct relationships to feed the majority of their customers. It’s also applicable to commercial. In some instances, it’s even more difficult in the commercial space.

This is exactly the fundamental paradigm shift in the industry that we [First Connect] are addressing. We are seeing it play out, day in and day out. Agents come to us and, relatively easily, get access to multiple options with carriers that actually want to grow in those areas with the agent. It’s a breath of fresh air and a lifeline to many agents who could not typically secure direct relationships with that many carriers. Keep in mind, we’re talking about mostly small to medium agencies They have a handful of employees. We are becoming a force multiplier for them in allowing them to access the market in this way.

On the carrier side, it allows them to grow in a much more confident and controlled way in markets that would otherwise be very challenging. First Connect empowers them with the vast amount of data that we have and the positive relationships we have with agents. Carriers can select the agents that are a good fit for them at the right time.

The basic challenge is that you have a very complicated market. We have tons of agencies and that number grows by hundreds every month. At same time, there is the emergence of new MGAs and the dynamic of ever-changing appetite of the existing players. There is just no sustainable, scalable way to [do] agency-carrier matchmaking without technology. Human interaction, of course, is very important, but it needs to be enabled by technology.

So, what do we do? We utilize two technology-driven product solutions. First, the discovery and connection between carriers and agents is facilitated through our Carrier Store where agents can easily browse [insurers], similar to what they do on Netflix or on their iPhone app store, and educate themselves.

This is an important piece. We help agents learn about the different appetite characteristics of the carriers that we have on the store. Then, as part of a vetting process, they answer questions that are important to the carriers before they get access [to the digital marketplace]. In many instances, the access process is enabled by technology to make it fast and seamless. It’s also great for carriers because they are presented to agents that are a good fit for their appetite.

The second solution is Appetite Finder. It’s a search experience that helps agents find markets. When an agent is looking to place a specific risk, we ping carriers’ APIs to do an appetite match. If a carrier indicates that it’s a good fit, we surface it for the agent when they are actively shopping. That risk matchmaking is powered and enabled by technology.

We have grown quite a bit beyond home insurance. While home is still important for us, we’re also doing auto insurance, and a big part of our growth is coming from commercial, like BOP [business owner’s policy] and workers comp. Commercial is a huge, very complex market where agents can benefit greatly from the technology that we’ve built.

One of the interesting things we’ve seen is that as personal lines markets start to harden, agencies look to focus more on commercial. First Connect is able to help them to get into the commercial space and to grow their agency as market conditions shift.

In the past, the relationship was very steady, very predictable. An agency had a handful of direct appointments, and they could meet the needs of most of their clientele with those direct appointments. They could count on those relationships to renew with a reasonable rate increase the following year. It was relatively easy to build a sizable book.

That’s not the case today. Carriers, especially big ones, are pulling out of markets and are limiting their appetite for new business. But because [property and casualty] is a big market, it also created a lot of opportunity. Over the past few years, when the market hardened, we saw an emergence of MGAs and new carriers that specialized in specific risks to fill a gap that was left when larger carriers felt that they were overexposed. Sometimes those new MGAs took a different underwriting approach, different data approach.

We’ve seen many MGAs emerging that specialize in restaurants, commercial auto, or fleet, for example. It’s great for agents, but they need to know how to work with those kinds of partners because, in many cases, they have a very specific appetite. These companies fill the void in the market through innovation, which creates a whole new world of opportunities for agents because suddenly they can rely on a larger pool of carriers and MGAs.

But it creates a more complex situation for agents because they need to keep up to date with the latest options and appetite changes on a constant basis.

This dynamic drives us to use technology and provide solutions in a sustainable, scalable way, without requiring agents to memorize the appetite and the underwriting requirements of different players. At the end of the day, agents are super busy running their own business and selling. We are focused on making it easy for agents to provide the best experience and the best protection to their customers, while allowing carriers to grow in a very profitable way.

What is going on now is kind of the best-case scenario. First of all, I want to credit the time that we spent under Hippo. That time was super critical and important in building the foundation and that set us in a very ideal way, to both grow back then and now. We just couldn’t be where we are without it. The investment round that was led by Centana allowed us to capitalize ourselves and to pursue goals in a much more aggressive manner, to get more technology in the hands of carriers and agents, and to accelerate the flywheel that has been fueling us over the past few years.

Beyond that, there is a growth story, but it’s not the objective by itself. The objective is to give carriers more control over their distribution in a very dynamic, constantly changing marketplace in order to grow at a fast pace while being profitable. We are rethinking how distribution is done by leveraging the technology and the vast amounts of data that we are gathering from both the agent side and the carrier side. AI plays a big role in what we are doing. It’s still very early, but we believe it could be a force multiplier in accelerating growth and empowering agents to be even more effective and more efficient in what they do versus what we’ve already achieved. I am biased, but I think we’ve achieved quite a lot already.

We are starting to see the pieces of the puzzle connect. First Connect is getting into massive scale, and we are starting to see an immense amount of data. We have visibility into many aspects and many facets of an agent’s activity, which provides an immense amount of value for carriers when they make distribution decisions.