David Gritz on Why Bespoke MGAs are Changing Insurance

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In a crude laboratory in the basement of his home. Hello, everyone, and welcome back to the show. Today we have a tremendous episode for you, a conversation with David Gritz, the co-founder and managing director of Insurtech New York. And, uh, David and I have connected over the last few months just chatting about all things Insurtech and, um, I, I really enjoy David's perspective. Uh, he has worked in, uh, the, uh, equity space in the past, um, done, uh, a bunch of different things as partners in different, uh, development firms, and ultimately settling here in the Insurtech space.

He has a unique perspective, and specifically, uh, with an expertise in the MGA/MGU space. And these types of products, these, these managing general agency products, have been, you know, listed as one of the kinda future trends in our industry. These specific companies, uh, that focus on very niche opportunities, very niche risks, and provide what I believe are independent agents with a very important set of tools in their tool belt. Maybe not necessarily, uh, a tool they're gonna use every day, but something that they can have when they need it or they run into, uh, a great opportunity that they can grow in, or if it is something that they wanna focus on. And MGAs and MGUs are filling the gaps where many traditional carriers just maybe aren't interested in working in a particular space, uh, or don't have necessarily the capacity to be as micro-focused as they need to be.

And, you know, I, I agree with David and, and what I wanted to know was where do these companies come from? How are they created? What do we need to know as independent agents about MGAs and MGUs? And, uh, Insurtech New York has, uh, their MGA lab, and, uh, David talks a lot about that, which is a place to cultivate, incubate, and nurture MGAs and MGUs as they're released into our space. So, uh, this is a tremendous conversation.

Uh, if you are interested particularly in, in the commercial space, I think MGAs and MGUs are gonna play a huge role, but this also goes in personal, right? Property accounts, investment property accounts, et cetera. Uh, there are a lot of MGAs focused on that, and David gives a lot of great examples and, uh, just couldn't be happier to have him on the show and just beginning to know David and, and learn more about his expertise. So, uh, guys, I'm gonna leave you with that. Uh, before we go, just wanna give a quick shout-out to, uh, the new program that I have going, this free course.

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And, and, and if inbound traffic isn't necessarily your goal, just brand awareness. When someone Googles you, what are they finding? A- Having a, having these 10 videos as the foundation of your YouTube channel are gonna make it so that when someone Googles you and sees your YouTube channel, what they find is a clear, accurate, and valuable representation of you and/or your brand, which is what we're trying to do here. So, uh, go to ryanhanley.com. Right on top you'll see a YouTube course.

Click on that, enter your name and email, and you'll get the course for free. It's 12 videos, uh, breaking down these first 10, uh, videos that you need to have. That's a little meta. I created a te- 12 video course which breaks down the first 10 videos that you need to have on YouTube. So, uh, go over there, uh, ryanhanley.com.

Find the link right on the top. Click that, enter your name and email, and you'll get that information for free. And otherwise, guys, I love you for listening to this show. Let's get on to David Gritz. What's going on, man?

Hey, Ryan. You have a pretty nice setup there with, like, the background and everything. Oh, thanks. Yeah. I, um, I, like, can't help myself.

I, uh... So, so if you were to look... So, so basically the way I set it up is just in the framing of the shot, um, if you were to look at, uh, like, like, even, like, right here, it just looks like a regular office. I mean, it's just, you know, whatever. Uh, the only weird part is I have, like, uh, sound dampening blankets that hang from all the walls to keep the, um, to keep the sound from echoing in the space.

Nice. And that works well for you? Yeah. Yeah, yeah. Yeah, they're pretty cool.

They, um, you know, they're just... Yeah, actually, they're moving blankets. I say they're sound dampening blankets. If you go to Amazon and y- you can buy, like, six moving... If you, if you type in sound dampening blankets, they'll send you these same exact blankets as if you type in moving blankets.

They're the same exact thing. And, um, they're, like, maybe 50 bucks for five or six of them, and they're kinda heavy, and I just drape them from the walls, uh, and it makes it so that you don't get that echoey sound. That's great. No, I, I think I do need to kind of upgrade my equipment at some level. So when we started doing Amplified, I got this mic and- Yep ... um, you know, I use the headphones to at least prevent some of the reverberation, but I think there's definitely a lot more I can do to up my game.

I have one of those, um... So this also has an XLR jack. Uh- Yep I, I can go out and, and I have, uh, I forget what it's called, but it's basically a mixing box for one to two mics, and I could probably clean up the audio a little bit from that too. When I grow up, I would love to be... Do you know Chris Williamson?

Do you know his podcast? Have you heard of him? I've heard of him, but I haven't, uh, listened to his podcast. So I, I, uh, not that he listens to the Finding Peak podcast, but if he did I would want him to take this as a compliment. He, to me, is like, he's like a younger Joe Rogan.

He's like a 20 years younger Joe Rogan. Like, the way he approaches it is much more calculated in, in s- in, uh, in so much as like, um, you know, he spends a lot of time thinking about the presentation of it, the questioning, that kinda stuff. Rogan just kinda, like, is a curious individual, hits and goes. I'd say Chris is thoughtful. He's got notes.

He has a lap- laptop up that he, you know, has notes on and questions and different things he wants to talk about. But, like, the presentation, the visual and audio presentation that this dude puts out is so good. Like, just, you know, and he's, and he's gotten to the point where he's got a couple people that help him on every show. But, like, two people. They're usually in a fairly large room with a smaller table, so it's like this very kinda like intimate but open feel.

The audio is just, like, deep and rich and crisp. And man, I, I like, sometimes I will wa- I don't particularly care for listening to podcasts on YouTube, but I will sometimes, like, watch the YouTube version, um, of the podcast just because it's, like, so good. It's like watching, it's like watching a, an interview on, like, what used to be, like, the major broadcast channels. And I'm like, man, that's, that's aspirational right there. Like, it'd be pretty freaking cool to have, like, a team and a setup and, like, this cool place, and, like, the people came in and did it live with you.

Like, that's pretty awesome. Yeah, no. I follow a bunch of YouTubers that have pretty good quality. Like, I don't know if you ever follow Andrei Jikh. He's one of the millennial money, uh, people.

Oh, okay. And he does magic tricks in the middle of some of his just videos. Most of them are, you know, one person. He doesn't really do interviews. But it's just really interesting how he flips between the different formats and the different views.

Like, he has a dark style view and a light style view, and he just must put a lot of energy into post-production. Yeah. I, I think that, so I was listening to someone the other day, uh, talk, um, uh, a thought leader on one of these channels. And they were, you know, there's this, there's, there's two schools of thought on this, and I, and I think it goes for everything when it comes to branding and marketing and, um, you know, you and I have been having some conversations about different stuff lately which have been really interesting. And, uh, I wanna talk a little bit, get into a little bit i- in our space and as we talk into the industry a little bit.

But there's, there's two schools of thought on this side. There is the raw, qu- I'm gonna do air quotes for those watching on YouTube. Like, authentic, um, version where it's just get it out and get the message out, and if the message is good people will come and, and listen. And I, and I think there's merits to that. And then the other side of it is, like, like this Chris Williamson guy that, that I really like, where he, part of his presentation is how much thought and effort and time he's put into the, the sculpting, right?

Like the guy that you just mentioned. And I go back and forth. Like, I kind of vacillate between the two because I think both can be right. I think what we don't do is spend enough time figuring out which one is right, if that makes sense. Like, is our brand raw and uncut and fast and furious and get it out and tell the story?

Or is a little more methodical, a little more planned, a little more, you know, uh, yeah, higher quality post-production, et cetera? Um, we just kinda pick one and go with it, and I, and I don't know that we always properly align that with where we wanna be. Well, and I think there's even some nuance there, because I think there's a lot of delineation between the person and the brand behind them, and I don't think people take advantage of that separation. And to use, you know, my two examples. The raw guy that I follow is, like, James Altucher.

Yeah. So he's kind of famous- Love James Altucher ... for basically being a digital nomad, even to the point where his kids were kind of embarrassed to be around him. And then on the other side, I listen to some pretty professionally done podcasts on NPR. Like, Radiolab is one of them. Mm-hmm.

Even to the point where they have, like, a full-time sound design person. And I think if you think about your brand or business, like, in some sense, you know, we want InsurTech New York to be the polished brand and the experience they get when people come to our events or participate in activities that we have, like formal programs. But then, you know, me personally going out on other panels or meeting people in person, you know, I would prefer to be genuine, not reserved, and not methodical about everything. I mean, obviously thoughtful, but everything doesn't have to be planned out in appearances. And I think people are interested in who you are, right?

Mm-hmm. So, you know, having the opportunity to go skiing with me at InsurTech Slopes is very different than people that, you know, hide behind EAs in order to get access to just simple conversation with them. Yes. It, I, I, uh, it's funny. I, I don't know that I have a solid personal philosophy on this yet.

It is, is definitely one area of my life that I find I'm, it tends to be, like- What day of the week it is or what season or which way the wind's blowing from, 'cause there's part of me that loves like the, the Cody Sanchez, um, be easy to find and hard to get ahold of. I think there's a lot of merit to that, especially, uh, when you are heads down building. And I was reminded of this a little bit because now that I'm in this kind of consulting role, advising role, et cetera, uh, I wanna be, I want people to have more access to me. I wanna make myself both easy to find and easy to get ahold of, because part of what I wanna do today is have tons of conversations, figure out what companies I think I can help, what companies I wanna invest in, what companies I can connect with other individuals, and that's the value I'm bringing today. During my Rogu Risk days, when I was heads down on a s- you know, a startup agency pulling out of COVID, I didn't want, if you weren't contacting me to buy insurance from me, I did not want to speak to you.

Like I did, you know what I mean? Like, I didn't put content out into the world that was whatever. So I, I feel like we have to, I think a, a, a part of it, a factor in what you're saying is also, like, what season are you in? If you're in build mode, y- a lot of times being difficult to get ahold of is good. But I think there are other times, seasons in, in our career or our lives when y- that's n- it doesn't help you.

Like, if I'm trying to get ahold of you to do business with you or I wanna make a connection with you, like, like, "Hey, dude, I got this great person over here that I'd love to connect you with that I think could help your business," and you're like really hard to get ahold of, I'm just, I'm gonna be like, "Ah, you know, whatever. I'm not gonna bother," 'cause it's, like now it's work. Now you're making me do work. I mean, the funny thing about that, Ryan, is you can pull up almost any insurtech website and I would say, you know, 70% of them don't have a phone number. Yeah.

And they're paying a lot of money onto Google ads, going to conferences, and people might meet them but forget their email, and now they're stuck, like when there could be an easier channel to get ahold of them. And, you know, it's not that hard to set up Grasshopper. Yeah. I, uh, I mean, this is a rabbit hole I'm happy to go down if you want to. Um, but I, I find that so many insurtech founders are incredible product designers and just awesome nerds, and just so bad at distribution of their product.

Just, just horribly, comically bad at distribution of the product. Like you just said, like basic stuff like if you want people to buy stuff from you, having a way to call you is probably a good idea. Like, even if it's your cell phone. Like, early days, like, just have a phone number. Maybe say, "Look, like, the best we can do today is text me," or something, right?

If like your, if it's... But some way to get ahold of you. Uh, I remember we were trying to purchase a tool one time back at Rogue, and I, and I can't remember then, I wouldn't say the name of the tool even if I could remember, and I can't remember what it is. So, um, but we were trying to purchase a tool, and for whatever reason the, like, credit card thing wasn't working. You know, sometimes Stripe isn't connected properly or whatever it was for some reason.

And I was like, but I still wanted the thing, so I was like, "Okay." I told my person, I'm, um, I told my, my, uh, operations person, I was like, "Oh, well, just give them a buzz." And she's like, "There's no number." And I was like, "Okay. Well, email them."

And she's like, "I can't." She's like, "The contact form isn't working." She's like, "I, I don't know what to do." I'm like... And like, we're literally having a chuckle on a Google Meet about how, like, we wanna give this company money and they're, they like, there's no way to do it.

Like, there's no way to give them money to do the thing. And eventually we end up getting ahold of them and it, it ended up being fine and whatever, but I, I mentioned to the founder, I'm like, "Dude, like, if I w- didn't really want to use your tool, I would've just went someplace else." And, um, and he had no idea, you know what I mean? He was so heads down on product design and, and that kind of stuff that, you know, the marketing and sales portion had kinda been, been left aside. Well, and, and the funny thing is it's refreshing when you see someone that's aware of it, because a lot of these insurtechs are direct to consumer.

We have- Yeah ... one portfolio company that's direct to consumer called Chase that is a marketplace for extended warranty for your car. And just by h- random happenstance, I was in the market for it and considering it, and it was, you know, on a weekend when I had the time to actually think about, "Hey, you know, I wanna make sure I protect my car." So I texted one of the founders and we jumped on a call, we figured it out, and then, you know, over the weekend I was able to not just get a quote, but actually get a bound policy. So I think that's an example of what can actually work, and who knows, maybe one of your investors will become one of your customers if you make it easy to buy from them. Yes.

Yeah, no, that's a great point. I, I've always said you could s- you could have an agency that was only open on the weekends and market it as such, and probably do really, really well because no one else is open on, on the weekends. Um- Yeah ... but, well, I don't wanna, I don't wanna, uh, thrash insurtechs and stuff because I, uh, a- again, having just recently gone through, you know, my own entrepreneurial journey with Rogu Risk and growing it and selling it, and all the things that I went through, um, I understand how many different directions you're pulled in and, and it, and you know, sometimes you could just, you could set something up, it could be working today, you were like, "Okay, that's fixed. Let's go on to other checklist items." It breaks and you just don't come around and even know, you know?

And these are, these are hard things to stay on top of. But, um, well, dude, I, I wanna, I wanna talk about a whole bunch of stuff. I'm, I'm so glad to, to have you on the show and, uh, um, you know, we've kinda recently got to know each other a little better and, and enjoying that and all that, and I'm gonna be speaking in the, in the, in the fall at your event, and, um, I'll be at the AI one that's coming up here in March, uh, which is gonna be awesome. Um, this will probably come out- Just before then. Nice.

So maybe the week before. So if you're listening to this and you're, and you're in the New York area or wanna travel, um, a incredible event in New York, uh, that's coming up, uh, on AI and other things. Um, I'll be there. I know a bunch of friends are coming, so I'm, I'm really looking forward to it. And, uh, but, you know, I- the thing, the thing, the kinda like first question that I wanted to get in, 'cause you're, 'cause you're so in this world, and a lot of the people who listen to this show in particular tend to be independent agency side.

That, that's the vast, vast majority of the audience. But then even inside of that, um, focused on, on retail, uh, agency side. So, so we do have wholesalers, we do have MGAs, carriers. I got some carrier execs listening, and I love all those people. But the broad, the, you know, the, the largest individual demographic I'd say would be agency owners, producers, et cetera.

Okay. And in that space, I think just because of the nature of their work and the nature of, of who they are as people, et cetera, and, and what they do, I know they often feel like they catch trends late. They catch, uh, you know, things that are coming down the pipe. Technological innovations, uh, conversations that are happening that I think in your world are probably on point, relevant, this moment, you know, you're seeing down the future. And, and for them, you know, they're, they're a few years behind oftentimes, not necessarily because, uh, they're incapable of it, they just, it's just not the nature of their work.

So I would love to, uh, just start our conversation with, and you can take this any way you want, but like in general, when you're looking at the companies you interact with, the founders, the conversations you're having, like what, what do you feel, and this doesn't have to, uh, relate to independent agents, just, just in general for our space, like what do you feel, what excites you the most? What one kind of concept, technology, thought process that like when you hear somebody talk about it, you start, you know, you start veering towards that conversation? Where, where, just for you personally. Yeah. So small preference that I have a little bit of an unfair bias in the sense that my functional skill is product management and product development.

So that being said, the area that excites me the most is MGAs, and specifically MGAs that are making products available to markets that don't really have good solutions. So I'll give you a handful of examples, and we can definitely follow that rabbit hole down as- Yeah, yeah. Please ... deep as you want. Yeah. Awesome.

So one that I think is a big pain for independent agents is you probably in the last six to 12 months have had a carrier that decided they wanted to drop one of your customers, and most likely it's because of inflation or social inflation or natural disaster risk, and it's probably a home or auto thing, especially if you have business in Florida, Washington State, California, or Colorado. And there's a number of insurtechs that have come on the scene and they said, "Look, you know, we're not deathly afraid of doing business in Florida or writing homes that might have exposure to wildfire risk. We believe that we can have a proprietary process to write the best homes, to reward the homeowners that actually focus on making their homes defensible against these natural disasters, and we're gonna go and do it." So that's something that, you know, is immediately available to independent agents. I mean, obviously you gotta find them and be admitted to sell their policies, but it's something today you can act on.

Beyond that, there's a lot of really cool products that we get to see, and that's one of the reasons why we built the MGA Lab, because we felt that there was a gap between, hey, I'm really good at this type of business. Maybe you write a lot of churches. Maybe, um, you do a lot of industrial warehouses. And there's just this need that's out there, but you just don't know how to build a product from start to end with the carriers and, and launch it. So the MGA Lab was our opportunity to help with that.

And just to give, you know, a random sampling of some of the cool concepts we've had in the lab. So one of them is called Five By Five. So for individuals that are pilots and they want to fly their own plane and not have to hire a pilot, oftentimes it's much more expensive to purchase the insurance given that it's not your job full time. Five By Five is a telematics-based solution in order to, you know, help pilots get the right coverage for, you know, their hobbies. On the completely flip side of things, on the life and health side, we had a company called Flora.

Um, they're based in Canada, and they're trying to solve the fertility benefits problem, which is, you know, a lot of women are deciding they wanna focus on career first and family second, and, you know, that could be very expensive down the road if you have to have treatments or medical support in order to have the children that you want. So instead of, you know, investing a ton of money today to freeze your eggs, you can buy an insurance policy. So if you have to have any treatments, it's covered and, you know, you're paying the appropriate amount of cost for your age and, you know, the day that you decide that you wanna have a family but you don't wanna necessarily have it today. So I mean, these are just a few examples. I mean, we've also had companies that are in the crypto space to protect NFTs.

We had a company that does battery warranty, one that covers, you know, I know, Ryan, you went through an acquisition of your company, but covers the financial risk of the buyer for the acquisition. Mm. So there's just so much possible opportunities out there, and I think for me, the entrepreneurs that are trying to build products that find a niche, help someone with a coverage area that, you know, just frankly is not available enough or doesn't even exist, that's what excites me the most. Yeah, I love that. So I, I wanna go, I'm gonna take this back a couple steps and talk a little more granularly about InsurTech MGAs specifically for the listeners at home or wherever they are. 'Cause I think we hear this term and, you know, one of the things that I know for sure, especially in the independent space, and I do think this is changing rapidly, and it makes me very happy, and it's, it's why I'm, I'm excited to be coming to your events.

And, you know, I'll go to ITC this year, and I'm, I might go to InsurTech Hartford. And, you know, and I'm, and I'm really excited about this next season of my career getting involved in some of the technology companies because, um, I was very much their opponent in the 2015, 2016. I was one of the most outspoken opponents to the InsurTech revolution when all these, like, you know, uh, we'll call them coastal dicks who had done regression analysis in their MBA classes- ... came in and started telling insurance agents that they were dopes and didn't know what they were doing. And I was like, "Well, wait a minute. Eh, eh technologically you might be right, but you have no..."

You know, these people had no idea how in- the psychology of how insurance was purchased, okay? And I think that wave, many of that wave of InsurTechs crashed up against the rocks and either evolved or fell apart. But this next wave is what is so exciting to me, 'cause it feels so... And, and there's obviously some D2C plays, and I think that's great. But so many more of them are either have built an entire, uh, section to work with agents, and maybe they have a D2C too, or they're just fully broker-enabled, broker partner, uh, and, and are not trying to tell everybody why we've done everything wrong for 442 years, although consistently made profit through that entire time period, and more people, you know, have jobs, and we have one of the highest, the best, uh, employment, uh, retention ratios in, in, uh, in, of any industry in the world.

So, um, so okay. All, a big diatribe, because that's the show, and I have no other way to ask questions other than really long-winded, is to come all the way back and say just at a very base level for, for the, for the listeners at home, is there a difference? And if there is, what i- what would be some of the intrinsic qualities of it between an InsurTech MGA and, say, a, a traditional MGA that, that maybe some of these guys have used for 20 years? Sure. So, you know, I'll, I'll take one of these property examples, right?

So, you know, in property space there are a lot of traditional MGAs that have found a very tight niche, like I gave the example of churches or maybe, you know, commercial real estate segments like industrial properties or vacant buildings. And there are traditional MGAs out there, and many of them are great, and they're, you know, friendly to work with, and they're out there to, to help you and, and be good supporters. So the main difference behind an InsurTech MGA and traditional MGA is really just the perspective that they look at the world. So an InsurTech MGA looks at the world from a very digital and granular perspective. So they have, from their perspective, the highest amount of the risk that they wanna have a deep understanding of, because most of their understanding is coming from data opposed to experience.

So traditional MGAs, many of those that were started in '80s, '90s, or early 2000s, the reason why they were created is because there was a broker that got really good at a business. They were better than the underwriters of the carrier, so they told the carrier, "Let's do the underwriting for you." InsurTechs don't have 10, 20, 30 years of legacy, so the only way that they can be as good or better underwriters than the carriers is by either selecting a niche of business that no one else really focuses on, like we talked about pilots that wanna fly their own planes, or they have some type of data advantage. So, like, in the example of Batterise, the battery warranty company in our MGA lab, the founder is a battery scientist, you know? So their team is based in Oakland, California, where a lot of this green technology is being created.

So they know better than anyone else what's gonna cause a battery to fail or live longer than it's expected. So that data advantage of having 30 years of, you know, selling insurance to companies that make batteries is not as much of an advantage as the InsurTech that understands battery chemistry, knows how to collect data, and can digitize that data for better underwriting. So I would say both are good to work with generally speaking, but you're trading in either data or digital underwriting experience or just pure raw expertise. Yeah, I love that, and I, and I think, I think that's a wonderful way to, to separate it, 'cause you explained perfectly how a lot of traditional MV- MGAs do evolve, right? They're just retail brokers who, like you s- I think you said it perfectly, get good at something almost better than the underwriting team, and then they get the pen, and then it evolves from there.

Um, so let me, let me j- just again, just framing some of these thoughts in my head. Um, so when it... Let's say, uh, I have a great idea for a potential MGA and, you know, a market I wanna go after, a problem I think I can solve, uh, both from a marketing perspective and from a transfer of risk perspective that, that will, you know, potentially yield profitable results. Maybe I have some history in that industry, or I've worked with them, et cetera. Okay, all that's true.

So if I'm gonna base my underwriting and my ex- you know, and my product on, uh, uh, data, am I essentially doing, like, what, um, you know- Like what mutual fund or hedge fund managers do or, or trading desks where I take a data set and I go back and say, "Hey, let's run this algorithm over the last 10 years and see if it would have produced profitable results if we had underwritten it this way." Is that kinda how they're approaching it? Or how do they figure out, if you don't know what's gonna happen in the future necessarily, right? Um, well, we don't. I think maybe probabilistically you can come close, but, uh, how do you get that data?

How do you get to understand, um, okay, if we approach, uh, this warranty business, you know, you're, you're, you were talking about, and we do it this way and, and we price it in this manner and we go after this certain segment, we can actually have a... Like, how do you figure that out? Um, I mean, a- at a high level. We, I don't, we don't need to get into the, the ones and zeros. Yeah.

So, you know, I'll just give you an example. One of our portfolio companies, the company is called Certus, and they focus on multifamily properties that's managed professionally. So think, you know, the 50-unit garden-style apartment, you know, down the street from you in any smaller metro area or, you know, the s- six-floor high-rise that has 100 units in it. Um- What's up, guys? Sorry to take you away from the episode, but as you know, we do not run ads on this show, and in exchange for that, I need your help.

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Peace. Let's get back to the episode. Um, so essentially, you know, that data exists for traditional business. That data exists based off of claims history for a lot of the larger carriers. But the difference is with Certus is they're saying, you know, "All of our operators need to use our software called Leonardo," and Leonardo is the checklist for the property manager, so they make sure, you know, the pools are properly maintained, the roof gets inspected at its regular intervals.

People, um, are able to report information about the property so it gets fixed, and ultimately you can cut some of that potential liability out of the equation. So in that case, right, you don't necessarily know the impact of Leonardo. I mean, for them, it's a little bit unfair. Leonardo's been out there for 10 years, so they could look at properties that have used Leonardo just as the software and see the performance. But I think what you can do is you can say, you know, "What's the normal loss ratio for a traditional multifamily property?"

Let's call it 50 to 500 units. Right? What does the top decile look like? What does the top quartile look like? And then you can say, "What are some of the characteristics of the top decile and the top quartile of, you know, loss performance for these, um, building owners or property managers?

And what are those characteristics that determine that?" Right? Obviously, there's normal underwriting factors, you know, age of the building, crime rate of the area, or just, uh, impact of natural disasters, like how much convective storms are. But then there's these softer issues like, you know, do the property managers actually follow the checklist? How often is the, you know, sidewalks inspected for major problems or divots?

And, you know, how happy are the individuals that are renting from this specific building? And that softer part, there isn't a magic formula where you can go back and, you know, look at Munich Re's loss runs across all of their customers for those things. But you basically have to take a leap of faith and say, you know, "We know what the pricing needs to be to be competitive today. If we're able to perform in the top median or the top decile, right, then we will make money for our carrier or reinsurer." And that's what most of the MGAs have to do, is they have to find industry data to get the reinsurers excited or maybe match up with what the reinsurers already have and then say, "We are gonna beat that industry data because we have these three other data points that we can kind of loss control for or manage against that we think is gonna give us an advantage."

And sometimes they're right, and sometimes they're wrong. And if they're wrong, it could mean they go out of business. But it could also just mean next year they figure out better data points that they can use. Yeah. So if they're looking at essentially the same, or ha- you, you'd have to assume a lot of these companies essentially have this access to similar data sets, or if they wanted them, the traditional carriers could get access to these data sets.

Why do you think that more traditional or legacy carriers, uh, why do they even allow these MGAs to exist? Like, why not just create these products themselves, box them out of the market? Why, why, why even open the door for these types of companies? And, and it does very much feel like- We're heading towards what could be a, a, a golden age for MGAs. I mean, there's so many of them popping up.

They're addressing very unique needs. There's, there's tons of new, uh, it s- it feels like there's tons of new MGAs popping up all the time that are finding different little niches to address and, and provide value in. So like, w- why do you think the traditional carriers allow these, these, uh, uh, entities to take space? Yeah. So I'll give you, uh, two reasons, and one of them I'll give an example.

So the first reason is really just a scale problem. So if you're Chubb, Travelers, Nationwide, or even Arch for that matter, you want your internal teams focusing on how they can take their books of business from 150 million to 200 million or 450 million to 600 million. Because if they only have a limited number of really strong leaders and really effective producers or underwriters, they have to push on the scales where incremental makes a big impact. But to go from zero to 150 million is very difficult, and most of the time the underwriters that are sitting in the chairs are operators that have not done that or don't know what to do. So if an MGA comes to them and says, "Look, I can bring you a book of business, and, you know, year one it might be 10 million, year two maybe 30 million, and year 10 might be 150 million to match one of your other lines of business.

Would you be interested?" And a lot of the times the answer is maybe or the answer is yes because ultimately they don't have enough internal talent to incubate and produce all of theirs. There are some carriers that actually have a strategy, uh, like Everspan is one of them, where they acquire and build teams to be able to do this, and I think more power to them. But most carriers do not have that ability. So it's much easier to say, "You know, look, we're gonna take a risk on a new emerging team, and maybe if we take a risk on 10 of them, three or four pan out and it will kind of pay for the couple that we wasted a little bit of startup capital for because, you know, now we have a, a great book of business that we're writing for."

So that's one, which is the scale. The other point, which may be to challenge your assumption. So your original assumption was the carriers have all the data and they can, um, use it all. So- Mm-hmm ... my belief on that is the carriers do have all the data but it may or may not be accessible, right? Mm.

So oftentimes it might be locked up in some core system that is not easy to access, run queries on, or they just might not have enough data scientists or IT people to be able to manipulate the data in a way that is useful or effective for them. So there, because of that access problem, it's much easier for a startup that has no legacy to just go ahead and say, "You know, we'll create the data. We'll make it accessible in the easiest way and, you know, we're off to the races." So for a carrier looking at that, even, you know, allowing the startup to access some of their own claims data is probably worthwhile because they don't need to pay for the cost. And startups are scrappy, so oftentimes they can do the same thing, um, with like 1/10th the amount of cost, whether it's like data science or IT resources.

Mm. So both of those things make a tremendous amount of sense to me. I really like this idea, and I, and I just had never framed this in my head this way. Essentially what carriers are doing with MGAs, uh, in a sense, is outsourcing scale for themselves. It gives them...

It's almost like a, a VC placing bets. They might like the AI space, but they have no idea who's gonna be the winner, so they take 10 bets and they say, "Here, we're gonna help you support these programs," and hope one or two of them hit and that makes up for the rest. That's essentially what you described and, and kind of a similar idea. I mean, maybe not exactly so calculated as that, but, uh, it allows them to maybe push into new markets or get insights into things they don't see without having to spin up teams or build expertise, et cetera. That, that's what I kinda hear you saying.

Yeah, definitely. But the other thing is like to have one program manager that can, uh, manage five programs and let's say after 10 years some of the programs only get to 10 or 20 million in premium, you still only have one person managing five of them versus if you had to hire five underwriters. So you're actually better off financially to do that as well, even if it- Mm ... you don't have one that hits, because just the efficiency of, you know, managing programs versus running programs. Hmm. Why do you think it is that...

Y- you had said this before, that a lot of these insurtech MGAs are not deathly afraid of risks like Florida property or California or, or insert whatever other, um, you know, kinda traditionally risky, um, uh, I almost said risky risk. You can tell it's the afternoon. Uh, what- whatever, uh, uh, high exposure risk, uh, you, you could add in there. Why is it that they're not deathly afraid? Like, what is it?

Is it just the nature of an entrepreneur trying to attack a problem? Is it that, uh, with access to in- w- with, with accessible information and a better understanding of data science they can actually f- maybe see things or, or see around corners that, that we haven't in the past? Like, like, what gives them... What is it about these organizations or, and/or the end of types of individuals that makes them not deathly afraid of, say, Florida property? Yeah.

So I'll give you the optimistic view and the pessimistic view. Okay. Yeah, yeah. I love that. So the optimistic view is essentially the entrepreneurs can take advantage of hyper-targeting.

So let's just say you're Kettle, Green Shield Risk, or Delos all doing wildfire in California. They are not State Farm, where they need to be available everywhere in the state. They can say, you know, "Of the thousand submissions, we're okay with taking, like, 25 or 50 a month because we're only interested in this area of Sonoma County," or, "We only wanna write on one side of the 101 because we feel like the coastal side is better than the inland side." And when you're able to be that granular, one, um, if you're new, you're not necessarily gonna upset all the independent agents, 'cause they can understand you're just really picky. Or maybe you tell them, like, "We're only looking for homes that have no grass or shrubs that will actually burn."

And they can look at their customers and say, "Okay, this is the rule. Like, if you wanna get the coverage and don't wanna be in the, you know, state fund, then you just gotta follow these rules." So if I was State Farm and I said, you know, "Everyone has to remove their shrubs," it's gonna make the media. So I think because they can do hyper-targeting, they can be more effective in their risk selection. I mean, Delos in their first year of writing had zero claims, and they're writing in wildfire exposed, um, area, and there were fires that year.

So I think, you know, Kevin, uh, did a really great job of targeting, but he also didn't have to own everywhere in the whole state. Hm. So that's one- Okay ... optimistic view. They can be more selective and picky. The pessimistic view is it's not their balance sheet, right?

So if you're a founder of an MGA, typically the stack looks like, you know, fronting carrier is taking maybe 5 to 25% of the risk, and then you're reinsuring for all the rest of it, and then you're getting, you know, your MGA commission. So when you don't have as much skin in the game, I mean, they usually have sliding scale profit share, so they are getting upside from the underwriting profit. But they're not getting downside. Like, the carriers are usually gonna say your MGA commission's 25%, but they're not gonna say you had 110 year and we're gonna, like, take money back from you. So sometimes the founders just found a loophole in the system where they're ultimately getting access to somebody else's balance sheet.

And yes, like, ultimately they're taking risk in a sense that if it doesn't work out, they could lose their reinsurance and they're done. But, you know, how many years did Lemonade lose reinsurers a lot of money and they're still alive today. So some founders just look at this and, like, you know, maybe they're not, um, you know, Daniel or Shai, but they do have some of this kind of West Coast or East Coast arrogance there. Yeah. Well, if you look at Lemonade's stock price, you're...

I'm not sure they're still alive, but I guess they are. Uh, the website still loads. Um, that be- that's, uh... I st- I still have not recovered for the sh- from the shots that they took at the independent agency space when they took them. Uh, there's just a small amount of bitterness I retain from 2016 for that.

But, um, uh, I, so I think it's, it's incredibly interesting to me that... Is the barrier w- how high is the barrier to spin up an MGA? You talk to some people. You know, I, I have, you know, I have friends all over the space that play in all different regions, and it's so interesting to talk to them. And, like, you know, some of them will be like, "Oh, you just, you just go get some reinsurance paper and, you know, talk to these guys, and they got this whole shelf of fronting stuff that you just pluck it off and put it together.

And yeah, you gotta put a brand on it, and off you go." And I'm like, "That, I mean, I, I understand you're being very cavalier with your words right now, but h- it can't be that easy, right?" I mean, uh, but then when you describe really the relationship, you know, obviously you have to have the relationship to have a business plan. They're not just gonna throw reinsurance over the top of something for no reason. But, you know, w- what really is the barrier it, you know...

Say someone's listening, and they dominate, I don't know, farms that have large pig populations and, you know, they figured out some, some thing that gives them some advantage in farm insurance, and they wanna go find a reinsurer and some fronting paper that will put together a program that will allow them to write pig farm insurance. I'm just making that up. Like, w- what really is the pro... I mean, and obviously there's 10 million steps, but just at a high level, like, is it as simple as having these contacts, having a good risk, et cetera? Or, you know, is it, is it, is it much more in depth?

Do you really have to be part of this world? Like, you know, y- you know, like being in the VCPE world, like you're either in that world or you're not. There are not a lot of people that just jump in, you know, at any given time. So, like, how do you get into there? How do you make these contacts?

Do you gotta fly all the way to Lloyd's? Like, like, where do this, where do these things evolve from? Yeah. So I'll answer both parts of that in, in order. First, is it hard?

And then second, what are the overall steps in the process? So is it hard? I mean, I don't wanna shatter people's dreams, but it's extremely difficult. And if anyone says starting an MGA is hard, just tell them, "Why don't you go do it first and come back to me?" Yeah.

So there are a lot of founders that we've seen spend two to three years and either not make it or just barely get over the edge, like hanging on the cliff, uh, and figure it out. And one of the reasons why it's hard is because just like you said, Ryan, like you gotta be in the world and in the network. And- I'll, I'll just give you a maybe un- unfair example, and I'm not gonna name the company specifically. But there was a company that pitched to our fund. They're based in the UK.

They focus on, um, essentially helping people solve the sandwich in the middle, uh, caregiving gap where, you know, you're taking care of your kids and your parents at the same time, and offering solutions to help, you know, mainly on the parent side of the equation as an employee benefit. And generally speaking, you know, this is a new line of business in the UK. There are a couple startups doing something similar in the US, and it's, uh, arguably nice to have, not need to have. If you're a benefits broker selling to, you know, mid to large size companies, they're not like, "Oh, I'm really worried about my employees. They have to take care of their parents, and that's causing so much absenteeism.

This is my number one priority above, like, having a slightly better dental plan." It's just not true. So this, this founder pitched to us and he said, "You know, we got capacity." And the carrier was, you know, a very good carrier based in, in New York, which we've talked to and asked to participate in the MGA lab, and they were always super reticent about doing anything w- with startups. And I just like ...

Also, the founder was in his younger 20s and never had started an MGA before. So I just after the first call, kept racking my brain, like, "How did this happen?" Like, "How did he do this? Is this guy magic," right? So second call we get on for a diligence call.

He also brings his dad on, uh, the call, who happens to be the chairman of the UK division of the carrier that is in New York, and it all clicks for me. You know, if you have that in, of course you can get the board to approve it because ultimately you might not have as much skin in the game, but your, you know, in this case, dad has a lot of skin in the game that if he's betting on his son, it's gonna pretty much wreck his career if it doesn't turn out well. So having a good connection on the inside makes a big difference in the viability of you being able to pull this off. The other thing which I would say is this number one success factor that all the independent agents have an advantage over the founders is if you have a book of business in the space, like you have $5, $10 million in premium in the space, the carriers will instantly give you credibility because they know you can get that book over to the program versus a startup that's completely starting from zero. So I wouldn't get discouraged if you're an independent agent because, you know, just grow your book in the way that you know how, and then start the process.

Um, you don't have to start from zero like every startup. And, like, you really should leverage those connections, right? Like, if you know a really great underwriter at Nationwide, like, it's gonna be much easier to get the programs person than, you know, to just cold call them. So that's the hard piece of it. So I mean, that's one of the reasons why we created the MGA lab is 'cause we know how hard it is.

We saw how much founders struggled. So we wanted to try and create all the ingredients and be the ones that could be your kinda inside reference, so to speak, to get you over that hump. So that's easy or hard. Second component is what are the major steps? There's three primary steps, and we can dig into more, Ryan, if you want to.

But- Yes ... the first step is ultimately the financial model. So there's two components of this. One is how to get to scale, and the other is profitable underwriting. So how to get to scale, ultimately, very few carriers are gonna care unless you can prove within two to three years you can get to 10 million in premium. And I understand, like, if you're starting at one or two, it can be really hard.

But if it's a good enough idea, good enough product, a lot of people are gonna want it, and it won't be necessarily as difficult as you think because you're not gonna be the only one that's selling it. So that's one part. The other part, the underwriting side of it. So this can be broken up into three major components. First is the actuarial model, AKA the pricing.

How can you price it in a way that is interesting enough that people will buy it and will still make money? Then it's the underwriting guidelines. What's in the box? What's out of the box? What will you make special exceptions for, and how do you make sure that your underwriter follows those rules?

If you can't write it down in extremely explicit way and hopefully find a similar filing, then the carrier or the reinsurer's gonna look at you and say like, "Come back to me when you've figured out what you're gonna accept and not accept." Because that's how you protect their balance sheet. If you don't have strong underwriting, they will lose money, and they're gonna assume that from the gate. And then the third component is ultimately figuring out your regulatory strategy. Is it admitted product?

Is it, you know, an ENS product? Are you starting in one state and expanding? Do you quickly wanna do a 50-state strategy? Is it gonna be something that's offered in, like, an affinity way, or is it gonna be offered, you know, directly through the traditional agent channel? So you gotta figure all those things out, um, you know, theoretically, and then start to execute on them, which could be, you know, expensive from the legal perspective.

So you have to be efficient at that. I mean, we've seen 10 to 20X order of magnitude of startups in terms of how much it costs them to get, you know, licensed to sell their product in, in a state. It all comes down to how well did you think about it ahead of time. So that's first step in the process, the financial model. Second step in the process is ultimately building your risk stack.

So, you know, if it's admitted, and for some ENS products, you're ultimately going to need to find a fronting carrier or hybrid carrier that's willing to let you use their paper and licenses, right? Because- My guess is you're not trying to start and become a carrier, 'cause you just need so much capital. So you're gonna find someone that wants to put their name on the front of the policy. Second component of that, of that stack is the reinsurance component. Most common for MGAs is to set up some type of quota share.

So you wanna find equal or unequal reinsurance partners that are gonna take anywhere from 10 to, you know, 90% of the risk. And maybe you guys wanna have some skin in the game where you set up a captive or an offshore reinsurer that allows you to participate in that and makes it more interesting to the reinsurers if you have money to lose. Um, but it, that's not a necessary, that's more of a nice to have. And then the last part is probably the part that you might be the best at, which is how you're gonna distribute it. Who, you know, what process, and what timeline.

Yeah. When you, g- geographically speaking, when you're talking to, and again, I know every project is different and there's nuances, but as a rule of thumb, do you see it better to start regionally and expand? Do you... I've seen, like, um, um, I had, and I'm gonna... Oh my gosh, I'm blanking on his name.

From Branch Insurance. Steve, uh- Yeah, Steve ... yeah, yeah, great guy. Loved having him on. Um, when he was on, you know, they were talking about their expansion strategy, and this was, uh, about a year and a half ago, th- or maybe even longer. They've come quite a long way since he was on.

It may even, jeez, it may even been longer than that. But, uh, but if you go back in the files, guys, you can see it. Um, but he was, he, you know, they were in, like, six states at the time, and he's talking about how, you know, "And then we're gonna jump here," and if you, like, looked at a map, it would look very frenetic. You know what I mean? It was, like, all over the place.

But, but obviously he had a very, you know, they had done their research and he had a very detailed plan on how they were expanding. So, like, you know, I think to a neophyte you might say, "Oh, we'll start in Pennsylvania, and then we'll add these five s- you know, and then we'll just grow and grow and grow," where I haven't seen that. It seems like everyone kinda jumps around. Maybe that's because the regulatory environments are easier to deal with or they're less expensive or whatever. Um, you know, how do you, how do they, how do they think about geographical expansion? 'Cause I know that can be frustrating for agencies sometimes where, like, they see this great product that they'd love to write, but maybe it's not in their state yet, or it's only in one of the states they write in and not in two of the other states, and that becomes hard to manage.

Like, uh, w- what is the general philosophy behind geographical expansion for MGAs? Yeah, so there's three layers to it, and just to give you them upfront, it's market, regulatory, and then ultimately network, right? So first is market. Where are your customers, right? So let's just say you come up with an oil and gas product.

You know, you definitely wanna be in, you know, Texas, Louisiana, probably, you know, if it's fracking-related, Pennsylvania, North Dakota, the places where your customers are. But does it make sense to be in Vermont where they won't even let, you know, pipelines go through their state? Probably not. So, you know, from a market perspective, you might be able to eliminate a bunch of states 'cause either they're too small, like if it's personal lines there might not be enough humans in that state. Um, if it's a certain type of risk that doesn't exist in certain states, then you don't have to write it.

Or you might wanna just figure out, like, who are your top three areas geographically and focus there first. So that's the first piece. Second piece is a regulatory strategy. So if it's excess and surplus lines, right, it's a lot easier to get set up in those states because you don't have to file. So it might be much faster to expand, you know, everywhere.

Um, if it is a admitted, then what you wanna think about, right, is what the cost is to go to the states that you ideally want to go to, right? So, you know, New York and California are usually very difficult states, more expensive, more time-consuming. Maybe you wanna prioritize doing those first 'cause you have to go through that, or maybe you wanna do them last because they're such a pain in the ass. And the other thing is thinking about what type of state are they, right? Are they a file and use state?

Are they use and file state? Are they a traditional, you know, file and a, and approve state? And based off of that, that might change your sequence because you know that you can get approved a lot faster in, let's say, you know, Arizona versus California. Um, even though California might be a bigger market, you know, I might as well be wanting to start selling right away, so I'll start in Arizona. So that's- Mm ... you know, how I would look at the two major factors.

And then the third factor is important but not as significant, which is where is your network, right? Like, where do you know distributors? So you might think ideally, like, one... I'll give you an example, right? There's a startup that, um, was one of the finalists in our competition called Sigo.

They sell auto insurance to primarily Spanish-speaking audience, so English as a second language. So naturally there's certain states that are gonna be great, you know, Texas, Florida, Illinois, uh, New York, New Jersey, right? And for them, you know, one of the challenges they had regulatorily is that some of the states did not actually allow policies to be in Spanish. They had to be in English. So if they have to do some lobbying to change the laws, they should probably start in the states where it's legal to sell Spanish language policies, and then do your lobbying and, and bring on the other states.

Obviously, like, there's ways that they can sell without, like, fully adapting their strategy, but that's one way that you would definitely think about your network. Mm. That's really interesting. I, um- I, I like, you know, I think that this, this, this segment of our industry plays such a crucial role in, uh, how we operate, uh, program business, captive business, MGAs, et cetera. These, uh, niche-focused products, people that are trying to attack, uh, risk from different angles.

Uh, while, you know, our... I, I do give legacy carriers a hard time 'cause it's fun. Obviously, they're a tremendously important, you know, crucial. I mean, they are the, the suppliers of all suppliers are, are, are traditional carriers. However, there are so many instances like you, like you mentioned around Florida property, Californ- uh, Cal- California wildfires.

Uh, I have a buddy that runs, um, a program focused on, uh, flood insurance, particularly in California because the kinda odd and unique nature of flood insurance from California versus what I, you know, what I would have to deal with here in New York versus him is, is so much different. And, um, you know, th- there's... It's so important that these, that these organizations exist, and I think that what oftentimes happens is, and, and this is one of the reasons why I, I stuck with this topic through our entire conversation. I know we could have gone so many different directions, and it gives me a, a reason to have you back on. But, um, I feel like this segment of our market is often overlooked and often undervalued.

We see a, we see a MGA, and we go, "Ah, well, you know, I can't, I can't put any contingency in. Come on." And, you know, it's all fronted or reinsured papers, or how good is it? You know, there's all these, like, kinda colloquial, uh, dismissive things that are thrown at, at these types of, um, uh, organizations. And it, it has not been my ca- I mean, I, there's always gonna be bad apples.

There's always gonna be people that make bad decisions and come and go. But it does not seem to me like our, uh, industry is gonna become... Right now it feels like we're in a contraction phase from our, from our large legacy carriers. I mean, I... That's obviously been the case, but it feels like this seems like it's gonna probably last a little longer.

Um, the Fed just came out and said they may actually increase interest rates instead of drop them in 2024, at least in, at, in their first, in the first meeting. And if that happens, being able to place risks with, with these types of MGAs is, is gonna be more and more necessary to properly serving your customers. So I, I'm just, I'm glad we got to spend so much time on it. I know, uh, there are a million topics we could have gone down, um, and I'm sure maybe you would have. But it'll give me, like I said, it'll give me a reason to have you back on, and I really wanted to press this button 'cause I do think it's important.

Um, if, if people wanna learn more about you, about what's going on in InsurTech New York, about the lab, about some of the companies in your portfolio, uh, where do they go? Where, where should people who are listening to this that are intrigued, how do they get on your email list, et cetera? Like, give them the pitch for how to get deeper into your world. Yeah. So the best place to go is insuretechny.com, and you can find more about the MGA lab, our spring conference coming up, and, you know, all of our events throughout the year.

And, you know, if you're listening and, you know, are curious about this MGA topic, feel free to, you know, reach out and connect with me on LinkedIn. As, you know, Ryan puts out, like, I do definitely wanna talk to more aspiring MGA founders and, you know, happy to see if there's a way that we can help you, whether it's advice or, you know, formally through the program. Yeah. I love it, dude. Uh, so glad we've, we've been, uh, connecting here and, uh, look forward to that continuing and, and glad we had a chance to have you on the show.

Thanks, Ryan. I'm going to shabooms. Close twice as many deals by this time next week. Sound impossible? It's not.

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