--:-- Ryan Hanley: In a crude laboratory in the basement of his home. Hello everyone and welcome back to the show. Today we have a tremendous guest for you, Kyle Nakasugi, the co-founder and CEO of ClearCover, a company that I've been following for a long time. I actually started following Kyle's career when he was still in the venture arm of AmFam, American Family. They were doing some really interesting things, and he had some very interesting comments on the industry that I thought were very intuitive and thoughtful. Considering what I would assume someone in his position would believe, they were very much inclusive of independent agents and very realistic on the industry while still taking a very forward-thinking perspective.
--:-- So I've always kind of been a fan and watched what he's doing. This is actually the first time we've had a chance to really chat for an extended period of time, and I found Kyle to be absolutely tremendous. I think what he's doing at ClearCover is another example of a company that is leading us into the future of where a product like Auto, Personal Auto, is going. While I guess it goes without saying that I'm an enormous believer in the independent agent, I do think that if we don't digitize, we're going to die. I've been saying that for a long time.
--:-- We have to digitize the soul of the independent agent and bring it online in a way that allows us to be the true relationship agents that we are while providing a much more digitized product. It just fits into our lives in a much more cohesive way. The paper applications and how hard it is for us to do business, that is just going away. If Rogue Risk has anything to do with it, we'll continue to make that go away because we don't get to be the outlier. I can't see a world in which everything else that everyone does in every other aspect of their business is digitized but in insurance.
--:-- "You don't understand, Ryan. This is a relationship business." No, you can take those relationships and digitize them in a way that makes you still a value provider, and what Kyle is doing at ClearCover is an example of how that is possible. I was very excited to chat with him. I think you're going to love this episode, and I'm glad to share it with you.
--:-- Before we get there, I want to give a shout out to a brand new sponsor to the show, a company I'm incredibly excited to share my experience with, and that's Podium. I know you've probably heard of Podium and some people have tried it. I am leveraging Podium for the text capture feature they have on their site. If you go to Rogue Risk, you'll see a little symbol down in the bottom right hand corner with a message that I put out, which is basically, "How can we help?" That allows people to do a chat, except the chat is via text message. I can text them back.
--:-- I've had Podium on my site for a week and I got six people who were basically prospects. Not all of them were the right fit for our agency, but two of them were. Two of them I passed off to other agents, and the other two were not great opportunities. But that's the way it's always going to be. To get six opportunities like that by adding this widget to the site, early signs are that Podium is going to be a very good resource for our agency. I've just started using it, so I won't say that I'm an expert in any regard.
--:-- Check out Podium. Go to podium.com if you're doing digital work, if you're bringing inbound into your website. So far, I've had great results with Podium and I'm happy to share them with you. There will be more to come as I start to learn the tool better. You'll be hearing more about Podium. So Podium.com. If you don't know how to spell Podium, that's P-O-D-I-U-M.com. But frankly, you should know how to spell Podium. So Podium.com, Podium.com, Podium.com.
--:-- All right, let's get on to Kyle.
--:-- [Transition to interview]
--:-- Ryan Hanley: Ryan. What's up, dude?
--:-- Kyle Nakatsuji: What's up, man? How are you?
--:-- Ryan Hanley: Doing the agency owner life thing, mixing in a podcast here and there. I want to hear the story. I've kind of followed from afar, but I haven't heard the story directly from you about the agency, about all of it. You were in the insurance game, then you were the CEO of a fitness company for a little while, and then you came back to the insurance game. The whole journey.
--:-- Kyle Nakatsuji: Oh, dude. So I started, well, this will be 16 years in insurance. My wife's father owns an agency still. My wife actually works there with her twin sister and her brother-in-law. My brother-in-law, her brother, did work there. I did that for eight years, boots on the ground. 50,000 miles on the car, driving to strip malls, dropping my business card off to every single person I bumped into, hawking them insurance. I played that game for a long time.
--:-- About eight years in, I realized there was a ceiling on that as the son-in-law. In hindsight, I probably would have made a lot more money than I actually am at this moment. But it was really good experience. I learned. My father-in-law is one of the most professional people, takes care of his clients, does the right thing. He's got a really solid foundation. I felt like I got a really good foundation.
--:-- I parlayed that into Chief Marketing Officer at Trusted Choice, built Agency Nation, went to Bold Penguin, was a CMO there for a while. I had to leave because my brother-in-law who worked at the agency got sick terminally, unfortunately. When that happened, my wife had to step up and take a bigger role in the agency, so I couldn't travel anymore. In the insurtech life, travel is a big part of the game.
--:-- I took the best thing I could find locally. The best thing I could find was this gym that I'd been going to for five years. When the owner, the founder, found out that I was looking for work locally, he came to me and said, "I'm a fitness guy. I've taken this as far as I feel like I can take it business-wise. I want to keep working on the workouts and the gym environment. Would you be interested in coming on as a CEO and growing the business?"
--:-- I hated leaving insurance because I really do love this industry, but it felt like I could do this. I love to work out. I know this gym. Good people. It was a very sellable product that was a really good product. So I said yes. I grew it from 2000 to 3000 members in nine months. I showed up one day to our standing 8:30 meeting. I'm in my Lululemon leisure wear, or whatever you call the business at leisure stuff.
--:-- Ryan Hanley: At leisure.
--:-- Kyle Nakatsuji: Yes, at leisure. I'm all at leisured out. He showed up in a suit with his attorney and handed me a termination letter that said, "We are terminating you without cause. Thank you for your service. You've done a good job. That's all I'm willing to say. Have a nice day."
--:-- I said, "Whoa, what am I supposed to do now?" His attorney said, "I'm going to speak for Mr. Phelps. You have a severance, so let's hope that works for you." That was it. Haven't spoken to him again. Walked out at 8:36 in the morning on a Monday without a job. I was shell-shocked to a certain extent, but I also said, "I have been mapping out this agency in my head of what I think is possible: a market segment, a process, a methodology. It's time to try it." That's where Rogue came from.
--:-- Ryan Hanley: What a story, man. Good thing it was like a CrossFit gym and not a boxing gym or something like that for that meeting.
--:-- Kyle Nakatsuji: It was called Metabolic Meltdown. It was all about, if you've ever done P90X, it was P90X with more weights and bands. There was more resistance than body weight. It was in a classroom setting, so you would move through stations. It was very timed, very difficult. You could burn 1500 calories in an hour.
--:-- Kyle Nakatsuji: Yeah, it was intense. I was freaking caught up. It was the best shape I'd ever been in my life. You're working out for a job six days a week surrounded by, I don't know how old you are, but I just turned 40. At the time I'm 37, 38, 39, surrounded by 22 year olds who are just yoked. You can't help but move in that direction. It was an interesting time, let's just say that.
--:-- It provided the opportunity to say, "Look, I've been trying to start this agency for a while now. Now's the time." Walking in the parking lot, literally the walk from the door to my car, I called my wife. I told her what happened. She was shocked. Then I said, "This is the sign. It's time to make a run at this. Whether it works or not, we'll see, but it's time to make a run."
--:-- Ever since that day, I've been building Rogue. We celebrated our one year anniversary on the ninth.
--:-- Ryan Hanley: Really? So you started it like March 9th of 2020? That's a whole other story.
--:-- Kyle Nakatsuji: Yeah. It would have been nice to know that COVID was coming. I don't know what I would have done differently, but that was interesting. I didn't really start operating the way I wanted to until like October or November.
--:-- Ryan Hanley: We've been at it for four and a half years. I'm not certain we're operating the way I want to yet either.
--:-- Kyle Nakatsuji: I don't know if you ever get there.
--:-- Ryan Hanley: I agree with that completely. But let's just say those first few months were... I can imagine "desperate" is probably a good way to put it.
--:-- Kyle Nakatsuji: Yeah, yeah.
--:-- Ryan Hanley: I first came into your vantage point when you were at AmFam doing all the stuff with the venture fund or whatever the framework was. I've always been intrigued by your move from AmFam to ClearCover, to founding ClearCover. Through the companies that you were researching and investing in, you obviously saw something and were willing to make that leap. You had to be doing well at AmFam. That's a big position. It was public. It wasn't like you were in some back office. You were someone that people wrote articles about and talked about. You were a very visible position.
--:-- I've always wanted to know, as much as you can or are willing, what you saw. What was that moment when you were like, "There's opportunity here. Time to make a move"?
--:-- Kyle Nakatsuji: I think it won't be dissimilar to your own story and to a lot of founder stories. There was a ton of serendipity, and I got a ton of help. Then there was this catalyzing moment where I was like, "Okay, now's the time."
--:-- For example, we started the venture fund at AmFam at the end of 2012. There were plenty of people in insurance and plenty of people using technology in insurance, but insurtech was not around. We were fortunate. I was lucky Peter Gunder, who this was his brainchild, was pressing it. I think Peter saw it coming. Come 2014, when everybody cared about insurtech, right place, right time. We were right in the middle of it because suddenly everybody cared about insurance and technology, and ostensibly that's what we did. We were just lucky to be focused on the right thing at the right time.
--:-- Got to meet with a ton of really smart people who were pitching their ideas. As a venture investor, you really get paid to do two things. You get paid to be intellectually curious, and you get paid to sell money, which is a weird thing to say, a weird phrasing, but that's kind of what you do. In the most competitive deals, you're selling, right? So you get paid to be intellectually curious and learn and build ideas and theses, and then sell money.
--:-- We were building ideas and coming up with theses we wanted to invest in around the insurtech space. Some of it was around distribution, and some of it was around all these new next-gen carriers coming out. We were trying to figure out how those might be successful or what might be successful. In the middle of all of that, I was living in San Francisco. I was going to open an office for AmFam out in San Francisco. I moved back to Madison so my wife and I could sell our condo and then move out to SF full-time.
--:-- When I got back, I heard there was a project going on at AmFam around an idea that we had worked on which we had called "incidental insurance." Essentially, how would you plug insurance into these moments where consumers are going to find it relevant? I asked Dan Reed, who runs the venture fund over there and who was my boss, "Hey, can I work on that on the side? Can I spend 20% of my time working with this team?" I did, and in like two weeks, the guy I was working with on it, who is now my co-founder, and I kind of looked at each other and said, "This can probably work, but it's going to have to be a separate company."
--:-- That began a six-month process of convincing American Family, who is very forward-thinking and super innovative, that they should allow us to go and start a separate organization to pursue this idea that they theoretically had come up with. We did. It went all the way to the highest levels of the org. They eventually said, "Go ahead, start it." They gave us a couple million bucks to get started when we walked out the door. Here we are now.
--:-- Again, it was just this conflation of serendipity, a bunch of thinking, and then this moment in time where it was like, "This is it. This is the thing. It's not going to happen if you don't go and do it." As I'm sure you felt perhaps on the walk to your car from the gym, Jeff Bezos calls it his "regret minimization framework." I just hit that moment where I knew I would regret not trying more than I would regret leaving to try, despite how great my current role was. As soon as I got to that point in my head, it was done. The decision was made. There was no crossing back over that line.
--:-- Ryan Hanley: I've had a lot of people... I don't want to say "shock" is not the right word. I think it didn't make sense when I started my own agency to a lot of people. It's exactly what you just said. I could have gone and gotten a job for a lot of people. It would have been much more comfortable. But the idea of watching other people do it... It's almost like you want to see how good you can be. If you don't put yourself in those kinds of positions, you don't know. You're going to wake up one day and be like, "I never really figured out how good I could actually be at this." That regret is absolutely something that I don't want to live with, which is why I'm sitting in my frigging basement hawking $1,300 carpentry policies right now. That's part of getting up off the ground. It's not my end game by any stretch.
--:-- I think you said something, and I'm interested in this topic. The episode that came out the same day that we're recording is an episode I did with James Altucher. I don't know if you're familiar with him. It was a big time goal of mine to interview him because I've been following him since his first episode. I think very highly of him as a thinker. He used the word "curiosity" no less than seven times during his episode about different things. You just used it again. What do you think it is about the idea of curiosity that makes it such an important part of successful journeys? And as much as you can, how does someone build more curiosity into their life? You were professionally curious. If you're not still, you were for a long period of time.
--:-- Kyle Nakatsuji: It's a fascinating question. I'm sure James knows much more about this than me. James is fantastic. I'll give you my sort of high level thoughts. One is, I do think some of it is innate. I think some people are, it's sort of back to Dweck's growth mindset versus fixed mindset. I do think some people just innately are curious and have this drive and want to do more. That's certainly part of it.
--:-- But something that I've observed, I experienced as a VC, I've experienced as an operator, I see the people who work at my company experience, is this sort of climb and descent of the Dunning-Kruger curve.
--:-- Ryan Hanley: I know the concept.
--:-- Kyle Nakatsuji: The high level for everyone else is this idea that there's a relationship between how much you think you know about a topic and how much you actually know about a topic over time. When you start learning about something, you rapidly climb up, and you think you know a ton about it. The more time you actually spend with a topic, you kind of fall off this cliff of stupidity. It's like, "Oh wait, I know so little about this thing." Then you gradually make your way back up, but oftentimes you never actually reach that level of confidence or belief in what you know about a thing that you had at the beginning.
--:-- What I've found is the people who can remain curious over long periods of time get over that hill, they get to the bottom, they get to the trough where they realize how little they actually know about this thing that they care about. Then you have to spend a substantial amount of time trying to reclimb that hill. If you're the kind of person that rests at the top and believes that you know everything there is to know about a thing after very little time, then you have very little reason to be curious.
--:-- I think being persistent in seeking the ways in which you are wrong or stupid or are less informed than you might know is one of these things that drives you to be curious almost by default. Once you fall off that cliff, if you want to maintain any sort of relationship with that topic, you have to keep being curious and keep learning to move back up that curve.
--:-- Ryan Hanley: What's up guys? Sorry to take you away from the episode, but as you know, we do not run ads on this show. In exchange for that, I need your help. If you're loving this episode, if you enjoy this podcast, whether you're watching on YouTube or listening on your favorite podcast platform, I would love for you to subscribe, share, comment if you're on YouTube, leave a rating review if you're on Spotify or Apple iTunes. This helps the show grow. It helps me bring more guests in.
--:-- We have a tremendous lineup of people coming in, men and women who've done incredible things, sharing their stories around peak performance, leadership, growth, sales, the things that are going to help you grow as a person and grow your business. They all check out comments, ratings, reviews. They check out all this information before they come on. So as I reach out to more and more people and want to bring them in and share their stories with you, I need your help. Share the show. Subscribe if you're not subscribed. I'd love for you to leave a comment about the show because I read all the comments. Or if you're on Apple or Spotify, leave a rating review of this show. I love you for listening to this show, and I hope you enjoy listening as much as I do creating the show for you. All right, I'm out of here. Peace. Let's get back to the episode.
--:-- [Interview resumes]
--:-- Ryan Hanley: Yeah, I love that explanation. That curve has been around and the concept is solidified, so me agreeing with it doesn't mean anything. But it has absolutely been the experience that I've had as well. In the moments of my life where I feel like I've made the biggest mistakes, it's often because I'm sitting at the top of that curve. Maybe I don't even realize that I'm there. You don't realize that you don't actually know nothing, which is probably the worst place to be: not even realizing that there is more to learn. You think you've got it. I see that so often.
--:-- There was a really... I don't mean to make this about James Altucher, but he did a podcast with a guy by the name of Cal Fussman, who was a very good friend with Larry King. They were discussing what was it about Larry King's interview style that made him successful for 40 years. He did something like 60,000 interviews, more than anyone else in history. He had this long running program, and he would interview people for eight hours a day. People didn't realize that even when he was on CNN, he had two other shows that would go overnight that he would be interviewing.
--:-- You think to yourself, "Man, nobody does that." You get the CNN show and then you go home and get drunk, or whatever your thing is. You don't then go on to a radio program and then go do something else. What Cal Fussman came back with was, for all his positives and negatives, the through line of his life was curiosity. That's what made him a success.
--:-- I look at that and I wonder sometimes if the individuals in our industry, if there aren't a lot of people who are at the top of that first ascent that have no intention or desire of dealing with the descent into really becoming an expert. I think that's where a lot of the stagnation came from. The companies that emerged in the insurtech revolution in 2016, I feel like what they were doing was putting a big, shiny spotlight on all these people standing on top of that first hump going, "You don't actually know as much as you think you know. You think you do, but you don't." That's a really... man, you got my brain going. That's a really interesting thought.
--:-- Kyle Nakatsuji: Yeah.
--:-- Ryan Hanley: So you started this company. Why this version of insurance? Why this? Why ClearCover? Why not anything else?
--:-- Kyle Nakatsuji: The thesis that we came up with while I was working at American Family was, we were working on this idea of how would you build a next generation insurance company? Not someone that sells something to insurance companies, but actually an insurance carrier. We were pretty focused on P&C and personal lines in particular because AmFam had such a large exposure to personal lines.
--:-- At the time, there weren't that many people doing it. Lemonade had just come out of stealth, Metro Mile was around, and Root might have been pretty brand new. It was a pretty small group of companies that were trying to build their own brand spanking new insurance companies. We came up with a thesis that was a little contrarian relative to the market: we believed the way you would build that next generation insurance company was by building an advantage cost structure, not necessarily changing how the product worked or how the product was priced.
--:-- The underlying thesis was all of that's interesting and pricing is obviously super important, but because of the way the market's regulated, it's a bit of a hamster wheel. It's really hard to build long-term competitive advantage there because, as I'm sure you're aware as an agent, carriers copy each other. They get to copy each other. The newest pricing innovation becomes the oldest pricing innovation relatively quickly.
--:-- On the other hand, carriers who at their core had an advantage cost structure were able to offer customers maximum flexibility and consistently low prices. We felt like that in a market where candidly the product feels kind of commoditized to a lot of consumers, being able to do that was actually the key to unlocking this sustainable competitive advantage.
--:-- We said, "That's our theory. You have to build some sort of cost structure advantage that would allow you to build this sustainable competitive advantage. Then you could build a new big insurance company." There were two questions that we had to answer knowing that was a thesis. One was, is that even possible? Geico and Progressive do just fine. You look at the expense ratio and it's not too shabby. What are you going to do to make those companies do any better?
--:-- I won't spend the whole time talking about it, but our thesis was effectively there were two things we could do differently that we believed would actually allow us to have an advantage cost structure. One was we would build the company from scratch with this digital bedrock. If we had built a digitally native organization, we would have some operational advantages that would lower our costs.
--:-- The second was, and this is a little bit in the weeds, there's a structural cost arbitrage between digital customers and analog customers. Essentially, an analog customer costs more to acquire and serve because you have to do a lot of things for that customer that you don't have to do for someone who wants to buy online, whether that's from an agent or not, but wants to buy online, wants to self-service. If you built a really concentrated portfolio of digital customers, you would naturally have a lower cost structure than someone who had to balance analog and digital.
--:-- We said, "That's our ticket. If we built a digital company focused on digital customers, we could actually really lower our cost structure." The second question we had to answer was, where do we want to start? There are lots of lines of business. This was another choice. We chose to start in what I'll call mass market auto, the non-telematic segment of personal auto. Everybody was like, "You guys are nuts. That is the dumbest decision you could possibly make."
--:-- It is a knife fight. It is wildly competitive. I had a conversation with our chief actuary yesterday, and he reminded me that when I was pitching him, maybe I should have said this, he asked what we thought would stop others from entering the space and trying to copy what we were doing. I told him, "I don't know if anybody else is stupid enough to try."
--:-- But personal auto for us was actually the right market to implement this strategy. If you think about building a cost advantage and applying it flexibly across a really large base of customers, it was very much the right place to start. The unit economics work on a single policy. You don't have to try and sell a bunch of policies and make money. There were a bunch of distribution opportunities we could work on. We made that choice. It hasn't been all roses, but I stand by the strategic decision there. Based on what we wanted to accomplish, starting in auto was the right call.
--:-- Ryan Hanley: How do you fight the retention game? That seems to be the... Take Lemonade who you already referenced. Tremendous at acquisition, but they can't get profitable because one of their renters is really tough. They also struggle on the retention side as well. Geico struggles. Geico has been around forever and does great, but they struggle with retention versus what you would call more of an analog agency model. They struggle with retention. How do you solve that? I think that's the natural first question for anyone who looks at your model and goes, "That's great, but I bet they don't retain anybody."
--:-- Kyle Nakatsuji: It's an excellent question. Starting at a high level, there are two ways you can improve retention as an insurance company. One is to actually get people to stay with you longer. Right?
--:-- Kyle Nakatsuji: And that's the one most people think of when they're saying, "Okay, go ahead and improve retention." The other is by increasing the percentage of people who have been with you longer as part of the portfolio. In essence, and I'm sure you've seen this in your own book, personal auto in particular, personal lines generally, customers sort of exhibit the Lindy effect. The Lindy effect means that the longer something sticks around, the longer it tends to stick around. All that means is that if you look at a personal auto customer cohort, churn is quite high when it's new, and then as the customer cohort ages, churn gets much better. Retention gets much stronger.
--:-- If you were to look at how much of a cohort sticks around from six months to 12 months, you might lose 40% of the book, but from month 36 to month 42, you might only lose 5% of the book. One of the ways you look at retention in some of these newer startups is that they're so heavily weighted towards new business. They're very naturally going to show worse retention because new business retains much worse than mature business. So one thing is you just have to get old enough and build a portfolio that's old enough that the retention starts to look normal and more apples to apples with your peer group.
--:-- The other thing is improving your retention overall. For us, there have been a couple of things we've done. One is building technology and user experiences, trying to make sure the experience is worth sticking around for. The other, very candidly, is operating in multiple channels. We get plenty of customers who buy from us direct who are great, but they tend not to stick around as long as customers we get from our agency partners. By building technology that allows us to operate in multiple channels, we can also start to balance retention. I might have to pay slightly more in acquisition costs for an agency customer based on commissions, but they're going to stick around for a period of time that more than justifies that extra cost. It took us a minute as a startup to do the math and not be overly dogmatic about channels. Building great technology and user experience is one thing, but being multi-channel has been a big part of how we've improved retention overall in the book.
--:-- Ryan Hanley: Something you said in there that I find particularly interesting is your ability to use data and break it out in a way that you could actually define the exact issues in certain segments of that retention curve that you could potentially target and fix. You can say, "Our first six months, we have a 40% drop in retention, but once we get past six months, that goes down to 10." Now you can go in and say, "What is causing in those first six months the 40%?" Now we can attack that 40%, get more people to the six-month mark, so ultimately more people are pushing down the line further.
--:-- What's important for our listeners, because data in the IA space is a major topic that many agents are giving lip service to but aren't actually understanding what it means for their business, is that if you don't have the information to define some of the high-level ideas you just brought out, you can't actually fix the problems. You're guessing at what the problem actually is. It's one of the reasons why I'm so interested in you guys, Hippo, Openly, Branch—these digitally native carriers. You guys are built to understand what these data points mean, versus some of our traditional carriers which are trying to figure out how to handle this data because it's in so many different variations in so many different places. They think so provincially that it's hard to break out what the actual root causes of many of these things are.
--:-- Kyle Nakatsuji: It's certainly an advantage to build the infrastructure of the organization anticipating having to deal with a world where data is abundant. In many ways, it's a bit of a necessity for us. If you looked at retention at Clearcover the same way you looked at retention at Allstate, you would say, "Man, Clearcover really sucks." But if you really get into the data and understand how cohorts behave and why a cohort behaves the way it does, you would say, "Actually, they're doing really well." It was almost a survival method for startups to say, "We're going to have to get pretty granular in how we look at things because comparing us apples to apples versus 80-year-old companies doesn't actually work."
--:-- Ryan Hanley: That's interesting. It's very interesting to think about your retention over time in this idea of a cohort versus just how much business do we retain this year. Many insurance agents do not have the technology to allow them to make that calculation. When you're writing multiple lines, how do you compare business brought in excess lines using an accrual method versus direct bill cash methodology and mashing the two together? A guy by the name of Chris Burran has been making the podcast rounds. He's one of the smartest guys in our industry, independent or not, talking about how data, particularly how it impacts accounting and enterprise value, is so incredibly important.
--:-- You look at a company like yours and what you've been able to do and the success you've had, the opportunities that are available to you because you built that way. Obviously some of it, like you said, was survival, but I'm also assuming you have a lot of smart people, yourself included, that were doing a little bit of whiteboarding on the way up too. Talk to me a little bit about where you see these things starting to go. You don't have to just talk about Clearcover. I feel like you guys have been around for four plus years. Hippo is going public. Lemonade went public. Openly is making a lot of moves. Coterie just hit the market. This next generation of carrier feels like it's working. I'm really interested in where you see it going. What are some of the things that get you excited about the next phase, the next wave of where you guys go?
--:-- Kyle Nakatsuji: That's a good question. There certainly is a growing number, although in absolute terms, there's not many. If you looked around, maybe there's like 20 or 25.
--:-- Ryan Hanley: It feels like a lot because a decade ago, there were zero.
--:-- Kyle Nakatsuji: That's right. We have a slide we actually showed to the company that looks at the top 10 personal auto carriers. The newest one was built in 1937, I think. That was when they were founded. So yes, it feels like a lot relative to the past. In terms of potential, I think there's a lot of growth. It's a really big market. I think you're going to see a lot of companies with a ton of growth opportunity. But maybe more than anything, the thing that I'm excited about is back to this idea of flexibility and being able to adapt to a changing ecosystem.
--:-- Part of the reason we're super excited about the agency channel in our business is that the agency channel in 10 years is not going to look the way it does today, and it's not going to look the way it did 10 years ago. Knowing that's the case, I really like being a digitally native and agile insurance company to be able to serve the needs of that constituent as the constituent needs change. We're not alone. I think a lot of us are in that same boat. As these markets evolve and change, despite the fact that being small does have disadvantages, the agility you have from being small and from having that digitally native platform is a really big asset. It's potential energy in that asset because you haven't had to use it yet, but I promise it's going to be useful as the market continues to evolve.
--:-- Ryan Hanley: To me, what's been exciting about our time in this space is that we had the baby boomers come in and they did a tremendous job of saturating the market from a growth perspective. There are so many tremendous agencies spread throughout our country. It's phenomenal. Unfortunately, that created a gap in the Gen Xers because they were kind of boxed out. Now you have this age group of 30 to say 45 to 50. There's a 15-year window of professionals, men and women, who are really growing up in their agency life at the same time that you have insurtechs and carriers like yours growing up.
--:-- I'm having conversations with carriers about how to build an API into your system with a subdomain on my website so it's a native experience from my customers, but it's your product, and seamlessly work clients through that process. They're committed to Rogue because that level of connection is what increases retention, but they're getting seamless products and well-priced, well-developed products from carriers such as yourself. Those kinds of conversations didn't even happen five years ago. I'm certainly not even close to the only one having these conversations. These partnerships and integrations and the lack of resistance to building walls around our thing is so exciting. It feels like completely undiscovered country to me.
--:-- Kyle Nakatsuji: I agree. The thing I'd add is the benefit in many ways boils down to the absence of fixed cost overhead to do experiments and to innovate with your partners. What you run into a lot is it's not that these carriers don't see the opportunity or they don't want to help, but the opportunity has to be of a certain size to warrant the kind of investment to turn a ship that big. With newer carriers like us, we're just more free to experiment. There's much lower overhead to doing interesting and innovative things with our partners. That ends up being an advantage too because it opens up the universe of possibility. You don't have to rule so much out at the beginning.
--:-- Ryan Hanley: I agree. For all the traditional carrier professionals listening, this is not a knock on you. Many of them are trying and are innovating. It's unfortunately not the culture of all, but that's okay. There is something to be said for—and I'm going to bring up Hanover again because I give them a very hard time about their technology, but their product and their people are world class. Their brand is recognized in the market, particularly by commercial customers. You think about someone like Clearcover, you guys don't have that national brand yet. There's still a lot of that sales. Everyone is working to a middle space and finding where they fit with their own advantages and disadvantages.
--:-- I think about the day when I'm mashing a Dryden policy because it's an inner city, late 1800s build that a standard carrier doesn't want, and I'm mashing that homeowner's policy with Dryden with a Clearcover auto policy, and it's seamless for the customer. The customer just thinks they have a great program under the Rogue brand. That's what a true partnership looks like. It can be digitally provided to the customer. We're all winning in that scenario. That's a huge win. It's why I'm so excited that companies like yours are pushing the envelope. You're forcing some of the traditional companies to think differently about their business. It's wonderful.
--:-- Kyle Nakatsuji: To be clear, I agree with you. I came from a big company. It's not the absence of ambition or desire to innovate. It's more than anything, rational decision-making that slows these groups down. The way I like to phrase it is the elephant doesn't move more slowly than the mouse because it wants to. It's a biological imperative. If an elephant moved as quickly as a mouse, it would break. It would literally fall apart. That's how some of these big companies work. It's not a desire to move slow or an absence of the ability to think about moving fast. If they tried to move that fast, the thing would fall apart mechanically. But they're making progress, and they have a lot of strengths that we do not as new entrants. There's give and take.
--:-- Ryan Hanley: Have you started to consider other products?
--:-- Kyle Nakatsuji: It's always on the roadmap. It just depends on where it lands on the roadmap based on the quarter. Part of the reason we chose auto is because we felt like auto was a great place to build a relationship with a customer and be able to add more value to that customer's life over time. An easy way to think about that is additional insurance products. There are other ways to think about it, like are there other digital protection products or other products and services that are going to be authentic and relevant to our relationship? We do work with agents, so it's less imperative there because the agent can create a lot of that value-added bundle on our behalf. But certainly, we're thinking about all the ways we can authentically expand on a relationship we have with customers once we have that customer.
--:-- Ryan Hanley: Because you're in insurtech, I'm obligated to ask you about the utilization of blockchain in the insurance industry. I'm mostly saying this because the last 12 months I've been so intrigued with cryptocurrency. I'm down this rabbit hole that I don't even want to tell you how much time I waste on decrypt.co and all these stupid sites. The more I learn about what these kinds of technologies actually do—you can take this wherever you want. I look at a technology like Cardano. Most people know it because every huckster in the world thinks it's going to be worth $3 and it's worth $1.47 as of 10 minutes before we went live.
--:-- When I dig into something like that, one of their primary objectives is to provide unilateral access to actual currency for the continent of Africa. If someone hasn't actually put their brain to this, what happens in most cases is even worse than the United States. All of the money is held by singular individuals, and the rest of the country is in many cases still in the barter system outside of the major budget policy areas. What they're trying to do through their cryptocurrency is really spread out and allow financial transactions to happen at scale to a group of people because they all have a cell phone. I think about that, and then I think about the amount of contracts of information that's passed. Is this something we're ever going to get to? Because I look at the speed at which these transactions can happen, and it feels like there has to be a there there, not anytime soon. I just want to know if I'm crazy or not. If you don't know that much about it, answer that way too.
--:-- Kyle Nakatsuji: I'm certainly not an expert. I spent a fair amount of time on it when I was at AmFam, a little less so now. In my opinion, first we have to separate whether we're talking about cryptocurrency or the underlying crypto infrastructure.
--:-- Ryan Hanley: I'm more interested in the technology because the currency is what it is. I think more about whether there is a utilization for simple things. Think of loss runs. Think about the process of loss runs. If actually implemented and agreed upon, you could create a blockchain which pinged every single carrier. They all fed, agreed on what losses happened, and you would no longer need loss runs. You wouldn't have to answer the question seven different ways, "When's the last time you had a loss?" because every insurance carrier attached to that blockchain would unilaterally agree on the losses of a particular risk. I think about functionality like that, and to think that the insurance industry would ever adopt something like that makes me feel a little crazy. But the concept of it feels like there's something there.
--:-- Kyle Nakatsuji: I completely agree. It's a classic flywheel problem. If you could—without naming it—there are many validating data points that I have to pay for today as an auto insurer that if they existed on a free and trustworthy and immutable record, I would not have to pay for it. If you think about the Verisk history, they went to all of the small regional carriers who could not compete with the large carriers and got them to dump all of their data together so they could use it together, and then started charging everyone for it. You have to have some sort of hack at the beginning to get people to say, "I'm going to start sharing all of my data with you with an uncertain reward."
--:-- Yes, I think the technology is super powerful. People also love to talk about it with respect to parametric. I agree that smart contracts are quite useful as you think about the expansion of parametric products. But again, the devil's in the details. For a parametric product to work, you have to have a trustworthy oracle. Even now, it's very difficult for a lot of our claims. Here's a great example: We launched our product called Clear Claims. We use AI on the front end to determine eligibility. If you're eligible, we can pay your claim in under 30 minutes. We pay claims in like 13 minutes. You submit it digitally with photos. If you're eligible, you go through this super fast process. We pay your claim almost instantaneously. But we haven't reached the point where there's enough of a trustworthy oracle where we can do that in three seconds. You still have to go through a fast-tracked process to have the photos estimated, and then we make the payout. At some point, maybe that changes. But the implementation of this is difficult because you have to create the right incentives, and the technology isn't quite there.
--:-- Ryan Hanley: I agree with you. The technology is not there yet. It's still too buggy. I feel like we're a decade away. But I look at it and say to myself, if I were in an organization that had a time scale that could play on that level, pushing a few chips into some of these spaces feels like it would have major returns. I think about a company like yours and what you're trying to do. Being more focused on commercial, I look at the Attunes and the Coterie and what they're trying to do on the commercial side. I say to myself, why are those companies still dealing with wet signed loss run requests? That simple concept—who cares if someone knows the loss data? They don't even have to know the carrier the loss was with, just that the loss occurred. You could even anonymize that and speed up this process so we could be the better deliverers of our products. I was just interested in your thoughts on that because the deeper I get into cryptocurrency and then my nerdiness took me into the tech, it's a rabbit hole. Please do not step into it lightly. If you are a nerd and you go down that rabbit hole, it is very deep, and there are some absolutely bananas people in that space too.
--:-- I want to be respectful of your time. Very tactically, where are you guys today? What states can agents participate in Clearcover today? As much as you can prognosticate, where do you see things coming? Where do you see people going? How do agents start to get to know you guys and see if they want to partner with you? What does that look like?
--:-- Kyle Nakatsuji: Thank you for asking. We are in 16 states right now. I won't list them all off. It's kind of a long list. They're all on the website. It's a smattering: California, Texas, Arizona, Georgia, Illinois, Ohio, Wisconsin. It's a bunch, and it's growing. We expect to be in maybe 25 or so by the end of the year. We're moving pretty quickly. We are rapidly expanding our agency relationships right now. You can hop on our website and submit it. There's a page there where an agent can fill in some information and start to go through the process. We work with some of the larger agency aggregators as well. If people are affiliated with an aggregator, that would be another way to do it. We are very much looking to expand our agent relationship footprint. It's a big push for us this year. We spent last year tuning a bunch of stuff up. Our platform and our engagement with agents isn't perfect yet, but we're learning. I promise it's going to be worth it. As we've talked about, I think there's a lot of potential in these relationships, and we really believe in the channel. Clearcover.com is where you can apply. I'm at
[email protected]. You can just email me, and I'll push you to the right people. We are looking to expand these relationships.
--:-- Ryan Hanley: One of the other things that I think has been the best part of the last five years is our general openness to share information and best practices with each other. In previous iterations of our industry, a comment like "our handling of agents isn't perfect yet" would be frowned upon. "Why would you ever say that?" Today, I think agents look at something like that, especially this emerging group of digitally focused agents—not having anything to do with age, just mentality—and they go, "That's all right. They're growing. I'm growing. I'm learning." I feel like as an industry, we have really started to hit a stride in terms of working together. It makes me very excited. It's why I love doing this podcast. Ten years ago, you wouldn't have been willing to come on here and share all the things you shared. You wouldn't want someone to glean something out of something you said that they could use against you. Today, it's part of our culture. It makes me very excited.
--:-- I'm very excited for you and what you're doing. I know New York will most likely be one of the last states you ever come to because that's the case with everybody. We don't have any of the super fun, new carriers. The carriers that are there are all super fun, and I love you all. I'm saying the new guys don't come to New York last because it's the worst. But when you do, I will certainly be calling. I believe in you. I've been following your career for a long time. I'm very impressed with the way that you look at things. I think Clearcover is doing a great job and would be a great partner for agents. Thanks for coming on, man.
--:-- Kyle Nakatsuji: Thanks, man. Really appreciate the chance to talk to you.
--:-- [End of interview. The following is a promotional segment.]
--:-- Ryan Hanley: Close twice as many deals by this time next week. Sound impossible? It's not with the One Call Close System. You'll stop chasing leads and start closing deals in one call. This is the exact method we used to close 1,200 clients in under three years during the pandemic. No fluff, no endless follow-ups, just results fast. Based in behavioral psychology and battle tested, the One Call Close System eliminates excuses and gets the prospect saying yes more than you ever thought possible. If you're ready to stop losing opportunities and start winning, visit masteroftheclose.com. That's masteroftheclose.com. Do it today.
