--:-- Ryan Hanley: [Intro music fades] In a crude laboratory in the basement of his home... welcome back to the show. Thank you for being here. I love you for being here. We have an absolutely tremendous guest today. It is David McFarland, the founder and CEO of Coterie Insurance.
--:-- Ryan Hanley: Now, you've heard of Coterie Insurance. You've heard about them from many of the things they're doing, and maybe you see some of their LinkedIn posts, and you probably heard me read some ads for them and talk very highly about them. We don't talk about Coterie a ton in this episode—we do a little—but more what I wanted to learn about was David's experience essentially founding an insurance carrier, why he did it, and what he has to think about. I think this is a wonderful episode. I had so much fun.
--:-- Ryan Hanley: I've known David in the past before he started Coterie. This is a smart dude doing really smart things. Remember when I told you we had Stephen Lakers from Branch on? I said in the intro, "This is a dude that just freaking gets it. This is an insurance guy." Branch is doing amazing things. You can go back and listen to that episode. David is cut from the same exact mold. This is an insurance guy through and through, who understands our business, who's incredibly smart, hardworking, and is changing the game. Those are all things we can take, dissect, pass through our own filters, and apply in our own business. That's why I love having guests like David.
--:-- Ryan Hanley: But before we get to David, I just want to say thank you for listening. Subscribe if you're not subscribed. That helps push our numbers up in my ego. Love that. Then I get to rub it in Carruthers' face, and Cass' face, and Bradley and Scott's face when my numbers are bigger. What don't we love more than smushing our success in our friends' faces? I'm joking. Only a little bit.
--:-- Ryan Hanley: Our sponsor today is Tarmica. T-A-R-M-I-K-A. Don't call me Tarmica Tarmica. Tarmica is making small commercial profitable. Coterie is on Tarmica. If you have a quote of your appointment, you can quote them as part of all the other carriers you have. If you're an Indium agent, you also get Indium carriers. GoIndium.com, the best network in the country, in the business, in the insurance. Just GoIndium.com. Not a sponsor, just a huge fan. Been a member of the network since day one.
--:-- Ryan Hanley: Tarmica is changing the way we do small commercial. It makes it possible to rewrite small commercial, to work with small commercial, to spend an extra few minutes with them on the phone solving their problem because you know you're not going to have to go into 17 systems to try to get quotes. You just go into one, find the best quote, put it with the carrier that you know is the right fit, and off you go. It's taking two-hour-long quoting processes and bringing them down to 20 minutes. Changing the game for small commercial. Go to T-A-R-M-I-K-A.com.
--:-- Ryan Hanley: And if I haven't said it enough, Premier Strategy Box. The all-powerful, all-seeing, all-knowing, all-awesome Mick Hunt from Premier Strategy Box. If you need to improve your processes, if you need someone to help you get over that hump, to break that plateau, to push you through that ceiling that you just can't seem to get through, Mick Hunt and his team at Premier Strategy Box is the team to do it. Just Google "Premier Strategy Box" or "Mick Hunt." You're going to find Premier Strategy Box. Reach out to them. I am batting a thousand on referrals to Premier Strategy Box. Every single person that I've personally referred over has worked with Mick Hunt. Every single one. Because his team, what they're doing, their method, is that good.
--:-- Ryan Hanley: All right guys, let's get on to David McFarland.
--:-- Ryan Hanley: Hey Ryan, what's up man? How's it going?
--:-- David McFarland: I'm going good, bud. Good, good. How you doing?
--:-- Ryan Hanley: I'm doing well. It's been a pretty good week, so can't complain too much.
--:-- David McFarland: That's a good thing. I just talked to your buddy Ray last week. We had a good kind of high-level discussion on a lot of things. I'm looking forward to maybe going a little deeper and maybe a little nerdy with you. This will be fun.
--:-- Ryan Hanley: All right. I'm in.
--:-- David McFarland: Cool. Cool.
--:-- Ryan Hanley: I think one of the things that a lot of people in insurance know the term, but don't necessarily have any clue what they actually do. You were in a previous life the chief actuary at Clear Cover. What the heck is an actuary? What the heck do they do? Everyone hears insurance people spout off about actuaries all the time, but I'm like, you don't even know what those people are doing. You've never even met one, most likely. Talk to me a little bit about the super hyper nerdy side of our business. I want to start there.
--:-- David McFarland: Yeah, happy to. I actually had no idea what an actuary was when I set out to become one. I was a math major, but even that was a little bit odd. I was a history major, and then I switched to math in my junior year. I just had to figure out how to get done as soon as possible. There were two tracks, and I just said, "Put me on the one that makes me graduate soonest." That was the actuarial track. Again, didn't know what that word meant. Then one of the girls in my class asked me, "Are you studying for the actuarial exams?" I was like, "Of course I am." That's how I became an actuary. I'm not kidding at all.
--:-- David McFarland: I ended up knocking out the first couple of actuarial exams. I got a job at the National Council on Compensation Insurance. That's really where I first realized what an actuary was, because I was doing the job. What we do, really succinctly, is quantify risk. Risk is this abstract idea that we generally don't want. Sometimes we do want it, but it's something that people are willing to trade away in exchange for something else. Insurance is really the market for selling risk. I don't want this risk, so I selectively say, "I will trade this risk for something else." Usually it's in the form of giving someone money to take your risk. You give the insurance company money to take that risk. The people who find out how much money that should be—that's what the actuaries do.
--:-- David McFarland: That's generally a rate-making actuary. Then there are reserving actuaries. Even reserving actuaries are using mathematical concepts and models to figure out how things are going to develop over time and understand the cash flow. That's generally what actuaries are doing. Is it fun? If you like solving problems with math, it's very fun. I really liked it.
--:-- David McFarland: At NCCI, one of the things I did was legislative pricing and analysis, which sounds totally boring. But I geeked out on it because we had tons of data. I would come into my cube and have an email with hundreds of pages of legislation saying, "This is what we want to do to the Louisiana workers' comp system. Figure out how this is going to impact things." You literally have to read through, figure out what's changing, pull all of this data, and you have a real-life math problem of how people in this state and the employers are going to be impacted by this change in workers' comp. We're going from employee choice to employer choice. We're going to increase our compensation rate from 55% to 66 and two-thirds. All these things. It's a really neat job.
--:-- Ryan Hanley: That's interesting. It's funny you're talking about being a math major. I was also a math major. I also became a math major by walking into my counselor's office in college and asking, "What allows me to graduate on time?" I have a feeling my reasons for becoming a math major last minute were different than yours. I was a failed engineer. My experiment into engineering failed miserably. I literally walked in and said, "Hey, I don't want to have to come back here for another year, nor can I afford that. How do I course correct and graduate on time?" They said I had to take like double courses. They etched out this path, and it was math. That was the only thing I could do. That's how I became a math major.
--:-- David McFarland: So you were taking 20-plus hours a semester trying to cram it all in?
--:-- Ryan Hanley: Yes. Also had a female who I didn't mind hanging out with who was taking math class at the same time. I was like, "I can do this. What classes are you taking? I'm going to take that." It's funny how that decision course-corrects your life, and here's how you're making it. Desperation and using the wrong brain and all that kind of stuff. It's amazing how we're motivated.
--:-- Ryan Hanley: Our industry is so compartmentalized in many ways. You have the sales arm that gets so much attention and marketing. You have the manufacturing piece with carriers. Even inside that, you have underwriting, the actuarial piece, the claims piece. So many aspects of our business simply do not interact, do not understand each other. Oftentimes there's very little respect for each other. Certainly don't always have the best working relationship. Having now jumped from being on the actuarial side, one of those compartments, and moving into the role of founder and CEO of Coterie, having a broader view, you now see all these pieces. How do you navigate some of that? How do you get these departments talking to each other? What are some of the ways you've operated inside your business to solve what seems to be a fairly common problem inside of carriers?
--:-- David McFarland: One thing we do—and it's not unique to Coterie, but I'd say it's more on the software side—is we create cross-divisional teams to accomplish certain missions. If we have a particular objective or key result, we put together a group of people who are qualified to tackle this thing. That is their job, and they have to work together. It's no longer just an actuary in the back room saying, "This is what we should charge." Actuaries, underwriters, back-end engineers, front-end engineers, product managers are working together to bring something to fruition.
--:-- David McFarland: That helps in a number of ways. One, it builds camaraderie across the team. Two, it makes an autonomous group of people who have the full responsibility of carrying this out. They have the decision-making authority and all the resources they need right there. They don't have to trek into the other silos, open the door, and hit the magic button so people will answer them. They can actually work with people in a group dedicated to bringing this mission to fruition.
--:-- David McFarland: In the other world—the legacy insurance world—you have all these silos. People don't want to encroach on anyone else's space. You end up having more and more separation over time. When you want to do something new that requires actuarial, underwriting, and engineering to get together, there is no relationship of trust or anything to push something forward. It's just a general agreement to work together and not harm each other, rather than people getting together and having close ties and relationships.
--:-- Ryan Hanley: Sometimes people are literally physically separated by buildings or even cities. Look at an organization like Travelers—not a knock on them—but they will have entire operations in separate cities from each other due to acquisitions over time. That's just the way it ends up happening. You're hundreds of miles away, thousands of miles in some cases, from someone you may be interacting with on a day-to-day basis. In a distributed workforce, that's going to be more and more common. But it does add to that siloed, compartmentalized nature, especially if you haven't built the culture you described.
--:-- Ryan Hanley: The other side is—and I'm interested in what your mind goes to—do you think that territorial, compartmentalized nature that traditional insurance tends to find itself in... I don't want to take a shot at them. This is all businesses. Someone says, "I've been here for 10 years. I'm taking care of my family in this job. I need to make sure I keep this job. I need to protect my wife." It's a self-preservation thing. As you grow this company, as you go from startup to insurtech, whatever that means, to being a major consistent player in the space—as I'm sure is your goal—how do you fight against what feels like a very natural tendency toward stagnation in an enterprise? How do you think you'll approach that?
--:-- David McFarland: One thing is hiring. The second thing is firing. The third thing is fostering the culture that you need. Part of that is hiring and firing. On the hiring side, you've got to consistently hire bar raisers—people who are going to be culture and value adds to the company, not people you feel comfortable with because they won't threaten you. Hire people who you feel are going to threaten you. That's a good thing.
--:-- David McFarland: We're big fans of the whole "first-order negative, second-order positive" thing at Coterie. In other words, there are some things that are first-order positive, second-order negative. Like eating cake. It tastes delicious, but may not be the best thing for you long-term if you just eat a bunch of cakes and donuts. I'm not bashing cake. I'm a big donut guy myself.
--:-- Ryan Hanley: No judgment.
--:-- David McFarland: Or like heroin. I wouldn't recommend doing heroin. May be great—can't say from experience—but long-term, probably not the best effect. That's separate from things that are short-term negative, long-term positive. Short-term negative things like saving for retirement. It stinks having to put money away, but long-term, it's going to be really nice when you're able to reap the benefits of 7 to 10% growth year over year.
--:-- David McFarland: This applies to how we do things at Coterie in general. If there are team members you're concerned about—people who are either blocking great people from being hired or creating these little siloed fiefdoms so they aren't going to be appropriately challenged—have that conversation with them immediately. Document it. If it doesn't get resolved quickly, fire them. That type of culture is not acceptable.
--:-- David McFarland: A lot of times we want to say, "Well, they're not royally screwing up anything. Let them do their job." But those little siloed fiefdoms grow over time. You've got to put an end to them. You can have lots of talented people in a siloed fiefdom, but it's a siloed fiefdom. You can't get information out of there. There's no transparency. That lack of communication and cooperation across the entire organization corrupts it. It also shows the rest of the organization that you permit that. Other people will start doing it too. That's unacceptable. We're big fans of fostering the environment by hiring the right people, firing the wrong people, and setting good examples along the way.
--:-- Ryan Hanley: As someone who has led companies and is now building my own, this is the hardest part in my opinion. Having the vision, piecing things together, even sales and raising money—which is a pain in the ass—but hiring and knowing how to set those guardrails and goals, communicating that, and ultimately letting someone go if they don't hit them—this is the game. All those plans, all the money, all of it doesn't mean anything if you don't have the bodies behind the scenes to execute the plan.
--:-- Ryan Hanley: This topic gets a lot of lip service, but it really is the whole game. The business owners, founders, managers, leaders that I have the most respect for and really admire or aspirationally want to grow into—this is what they spend 50% or more of their time on. Not whiteboarding out world domination, which is fun to tweet about, but actually on the people and this process. You can't read enough on this. You can't talk to people enough about this topic. This is the game: having the right people.
--:-- David McFarland: I couldn't agree with you more. That's why Starbucks is a coffee shop. That is not a unique idea. There are many, many coffee shops. Starbucks is an amazing organization because of execution. They've been able to build up a group of people and a group of stores and run in a way that achieves that type of scale. It's not because their coffee is exceptional. There's lots of other really, really good coffee. But to your point, that execution of bringing people together, bringing a culture together, and building it at that type of scale—that's something special. It's people. People are the most valuable asset of any organization. If you can figure out the people side of things, you could open a shoe store, a coffee shop—it doesn't really matter what it is. It's going to go decently well.
--:-- Ryan Hanley: On that topic, what is your method for our space? Don't give away any trade secrets, but what is your method? Our space is unique in that people inherently hear the word "insurance" and they're like, "Nope, I'm good." That's not to say that as the industry evolves and fintech starts to mash into insurtech, there is a lot more talent starting to look at our space. But it still feels like there is a lack of the most talented people bum-rushing and saying, "Hey, look at all the opportunity here." You have to search and work to find people who want to really see what we're trying to do.
--:-- Ryan Hanley: Additionally, I find that—and a lot of people listening, please don't take this the wrong way, obviously I love all you guys—many of you are corrupted by the traditional way insurance has been done. Look at middle market producers. This is a problem I've had in general. I got very lucky that the producer I have today, the insurance advisor, is great. But in interviewing people, anyone who was currently licensed had this delusion of being a chest-thumping LinkedIn middle market producer who tweets about the $500,000 account they just wrote. Getting them to think about the way we do business, which is digital—we've met two of our 250 customers in person—it's a whole different way of doing business and thinking about it.
--:-- Ryan Hanley: I know what you guys don't model as well in some aspects. How do you start to sell the vision? How do you sell our industry and get people to buy into, "Hey, I know it has always been done this way. We're doing it slightly different. I need you to kind of forget everything you learned in the past"? How do you navigate those things?
--:-- David McFarland: That's a good question. Honestly, transparency and genuine passion for what we're doing shines through and helps alleviate some of the more logical concerns they have. When you see your CEO, who is a Fellow in the Casualty Actuarial Society, from the insurance world, knows a little bit about it, start nerding out about how tech and data can actually change the space—change it from a 55 expense ratio to a 35 or 30 expense ratio—and buying small commercial in ways that no one else can do, that hopefully gets them a little excited.
--:-- David McFarland: It doesn't answer any of their questions about how we're actually going to do it. To your point, they're loaded with biases. "Well, this needs to happen. This needs to happen." We run into this a lot where insurance veterans say, "But what about this and this and this and this?" Valid concerns. We can figure this out. We are very stuck in our ways of "this is how we have always done things." You have to have a little bit of a period, especially with insurance folks, of breaking that down and easing them into the idea that this is a new airplane we're building. Yes, we're flying it right now. No, it does not have landing gears or seats or a control mechanism. But it's going to be okay. We're building it midair. Don't worry.
--:-- Ryan Hanley: Exactly. There's parachutes.
--:-- David McFarland: Well, there's not parachutes, but it's okay. We brought the parts maybe. Hopefully.
--:-- Ryan Hanley: Yeah, exactly.
--:-- David McFarland: That's a challenging part to it. Thankfully, that same message really resonates with people who aren't from the insurance space—creative, very intelligent, passionate people. They're just like, "Oh yeah, we can totally do this." Admittedly, sometimes that creates problems because they'll build things, and then it's like, "Oh, you may have missed something there." But even so, this is a very agile world—both agile in product development and in our ability to move quickly. We can pretty rapidly fix things with tech, make things right. So it's less to worry about. In the legacy insurance space, you don't have that. Any type of change is going to be a year in the making, so you have to make sure everything gets right.
--:-- Ryan Hanley: I like to be fair. I think the issue always comes down to this when I talk to somebody: you have to have a respect for how we got here, but a curiosity as to how we move forward. The companies I've seen get smashed up against the rocks are the ones that have had a complete lack of respect for how we got here. If you can't honestly look at our ecosystem and say insurance isn't actually broken—ripe for invention, ripe for innovation, there are absolutely all these gaps in the market that can be filled and should be filled, and that's incredibly exciting—but it's not actually broken. When a house burns down, someone comes in with a check and says, "Here, rebuild your house," as long as you're properly covered. That is lost so often on pure technologists.
--:-- Ryan Hanley: On the other end of that spectrum, the pure traditionalists look at the world and tell you every reason why the things you or even I are doing just cannot happen. Impossible. We're in the middle of raising money, operating off a 25% EBITDA percentage in our projections. Some people look at it—the people that see where we're going don't even question it. The people from a more traditional side are like, "You're going to need a hundred-person call center. There's no way in the human costs and the market." They just can't see it. It's funny how those two perspectives mash up against each other. But when you find someone who operates in between those two things, who has that respect for where we came from but sees where we're going, those individuals are as valuable as their weight in gold. It's unbelievable.
--:-- David McFarland: A hundred percent. That's one of the reasons why we hire on humility. We hire on four things: integrity, intelligence, passion, and humility. Humility elevates all the other three. The one-sentence way we describe it is: we're smart, passionate people who do the right thing, and we're not going to brag about it. When we have these humble people, even the technologists can take a look at the history of the insurance space. They're not just going to bash it the whole time. The reason the legacy insurance space is where it is today is because it evolved like that. Workers' comp started in the 1920s. What did you expect? They didn't have anything. Of course people went to insurance agents and brokers, provided them information on salaries, and they would write it down and give it to an insurance company. Then we evolved it with the forums and all that stuff.
--:-- David McFarland: Of course it's not going to be as advanced nowadays. Even with rapid advances in technology, it's a matter of opportunity cost. How in the world are these giant insurance companies, who are making money hand over fist, going to invest a ton of money in something that's only going to marginally impact their bottom line? They're not going to. They're going to focus on mid-market and up. That's where they're making tons of money from a large carrier perspective.
--:-- David McFarland: You're raising money. Growth equity funds with $350 million and up under management aren't going to invest in Series C companies. They're going to invest in Series B, Series C. They're going to write a $50 million check because if they write a $3 million check, it's not going to move their bottom line, even if it's an amazing company. It's the same thing with The Hartford, Travelers, Liberty Mutual. Why in the world are they going to invest in this tiny little sliver of the market when they're pulling in over $10 to $15 billion of TAM? They're not going to do it.
--:-- Ryan Hanley: Both of our companies are partners with Tarmica in different ways. To your point, the next time a commercial lines rep walks into your office, ask them if they've heard of Tarmica. 90% of the time the answer is going to be no. Even though there's a 90% chance that company is on Tarmica, they just don't care to push that information down to their people who are boots on the ground with agents. All the company really cares about is whether Gallagher is on the platform, whether Marsh is on the platform, whether NFP is on the platform, because that's what's moving the needle.
--:-- Ryan Hanley: I do have a point I'm going to with this part of the conversation. One of the reasons I'm so bullish on a company like yours, why I invested in our relationship in terms of being so promotional about it and working with you and talking about doing some things at a deeper level, is because it's almost like—this is going to be a terrible example, but I was going to equate this to cryptocurrency. If you've already missed on Bitcoin, thinking about a company like Coterie—you're like the ETH or the Cardano. I'm going to catch this. Here's a company that cares. My putting some amount of premium on the books you do on a monthly basis impacts you guys, and you will develop toward a company like ours. Not that you don't want the big guys too, but there's a certain level of company that has moved past caring about a standard agency. It's not that they actually don't care. It's just that you could hit all-time sales numbers with them and it's not even a blip on their radar. It's a nice checkbox. "Oh great, they're doing good. That's wonderful." It's okay for them to feel that way. That's where I'm trying to get to. We have to recalibrate and think about our own agencies and our own businesses. Coming back to Coterie in particular, what are you doing different?
--:-- Ryan Hanley: Like, that's a question I get a lot. People will say to me, "Hanley, just wait. Give them three years and they'll blow up and their rates will triple. None of this stuff ever works—insurtech this, insurtech that." And I just said to them, "Guys, I know a lot of the people in there. Not that I know all the nitty-gritty details, but the people inside that business are doing things differently." I know that. That's why I've spent time and really gotten to know you, and we're working on implementing you deeper in our agency. So what is different about Coterie? How do you respond to that agent who sits there and says, "Ah, just give them three years and it'll all blow up, because that's what happens with every insurtech carrier"?
--:-- [Ryan pauses for a moment, then addresses the audience directly.]
--:-- 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, or leave a rating and 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—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. But 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 and review. I love you for listening to this show, and I hope you enjoy listening as much as I enjoy creating the show for you. All right, I'm out of here. Peace. Let's get back to the episode.
--:-- David McFarland: Yeah. Unfortunately, they have some empirical evidence that supports what they say.
--:-- Ryan Hanley: For sure. For sure.
--:-- David McFarland: What we bring to the table—we really focus on three things: speed, simplicity, and service, all for the sake of our distribution partners. We're 100% distribution partner focused. We don't do any D2C. Our model is helping our partners run in ways that they couldn't run before. To your point, when the people you're talking to say, "You can't run an agency like that. Your call servicing center is going to be massive," we recognize that the way of the future for agents, brokers, and distribution partners in general has to be efficient. And we make it efficient for our distribution partners. We do this in a number of ways.
--:-- David McFarland: One, integration. We can integrate in whatever way our distribution partners want. We can provide a dashboard just like every other insurance company. Our dashboard is better than every other insurance company. But we can also integrate into the systems that our distribution partners are already using to make binding and quoting policies much better. The other component is the conversion and policy selling process in general. You've interacted with a lot of different things that take a long time to sell a small commercial policy, and you know how frustrating that can be. You're not making a lot of margin on small commercial policies relative to your time. So we take that from an hour-long process to about a four-minute process. We're also in the process of utilizing even more data so you'll be able to bind those policies in no time. I'm not talking just a nice quote—I'm saying you can bind the policy right there without talking to any human. That's a pretty big component. That's the speed component.
--:-- David McFarland: In addition to all this, the servicing part—we're helping our distribution partners service the customer post-bind. Obviously that helps you a lot. You need to be able to run your business in such a way where you're not answering calls and sending out COIs all the time. All of this makes it so that our partners can run into expense ratios and focus on what they're good at: coverage recommendations and building relationships. Getting the business in the door. We handle the data, the servicing, and all the other stuff in the background. We do this because one, we control the insurance product, and two, we control the tech product. Most of the time, other insurtechs either don't control the insurance product—meaning there's an API end up to someone else. That's a fine business model. That's a great business model. But what we want to deliver is a product—both a tech product and insurance product—that's going to enable our distribution partners to run in ways they just couldn't do before.
--:-- David McFarland: The other side is the tech product. The reason we can integrate and move fast on Rady and have API calls done in less than a second is because we built the tech product. We're not relying on Duck Creek or Guidewire, which are fantastic for other players doing something more traditional, but it didn't meet our standards in terms of how we needed to operate.
--:-- Ryan Hanley: Yeah, "fantastic" is a stretch. "Fantastic" is maybe a little bit of a stretch.
--:-- David McFarland: But those things really help our partners operate in the way they need to. Small commercial isn't broken, but it doesn't make a lot of sense for the distribution partner in how things are operating today. Certainly in the way it's traditionally distributed.
--:-- Ryan Hanley: Exactly. Exactly. And we can help the Tarmicas, the Breezes, the Rogue Risks—the people who are servicing brokers and agents, the people who are brokers and agents—everyone in the mix run in ways they just couldn't run before.
--:-- David McFarland: Yeah.
--:-- Ryan Hanley: I'll give everyone a quick use case. One of the things we've started doing—because we get such a breadth of types of risks—our biggest challenge at Rogue is the breadth of risks we get. We've defined our niche not as a specific vertical, but as a way in which we acquire business: through inbound traffic and referral partners. Most referral partners don't just streamline you. It's not like doing a mortgage. Everyone is a homeowner, so that's sweet and easy. But with this, one day it's a contractor, one day it's a Bob, one day it's a crypto miner. You have to be able to accommodate that. So what we've started doing is when we get mainline stuff—especially when we get someone who we can tell is more digitally focused, and we have some ways we're starting to do that—we'll just send over a shortened version of our Coterie link, and people will just go through and find the policy themselves.
--:-- Ryan Hanley: We did that wrong a couple times at first. We didn't tag it as us. But Ray raised the man—he helped us get through that. But now, what that does is it says, "This person has a problem. They need to get a GL policy today." Granted, if that person has something more complex, we'll work them through the same process, just maybe over the phone. But if they can do it themselves and write that $500 GL policy themselves, now we have a customer who we can service, add value to, and potentially cross-sell over time. And they got the policy they needed in four minutes. My team didn't have to pick up the phone. They just said, "Hey, we see what you're doing. The best way to get this squared is to go right to this link, put your information in. You're going to get the best quote in the market. This is the policy you need. Bam." And they just do it.
--:-- Ryan Hanley: That's not going to solve every problem you have in small business, but it does solve a very specific problem. It's a feature like that that I look at and say, "This is the kind of thing that as agents and distribution partners in general, we tend to fight." We feel like if I don't talk to them on the phone, they don't think I added any value. But what that person thinks in their head is, "Oh my gosh, I contacted this company, Rogue Risk. They solved my problem." That's what they think. Now it's on us to continue to communicate and nurture that relationship, but there's no loss of relationship or value connection because they reached out to us, we provided them with a solution, and now they have what they need to move forward with their business. That's the value. I feel like we can't overlook how important that is. Those speed and efficiency features are what make what you guys are doing special. I know it's still early days. You launched in 2018, right? So it's still super early, which is exciting to see how far you've come in that short amount of time.
--:-- David McFarland: Thanks. It's a paradigm shift though. To your point, in the legacy agency and brokerage world, there was almost this expectation that people add more free time. Get on a phone, talk to someone. Even in other industries—realtors, for example. It used to be that your realtor would come to your house and have coffee with you for an afternoon. And it's like, "I don't want that. I'd like to sell my house. Don't come to me. Don't talk to me. Sell my house."
--:-- Ryan Hanley: Before you go, I just got to tell you this real quick. When I started my career back in 2006, I would sell home and autos. The first 200 home and autos I sold, I sold at the person's home at their kitchen table. I would stack meetings. I would have one meeting at 7:15 and one meeting at 9:15 at night. People would be letting me in their house at 9:15 at night, and I'd be having coffee, selling a home and auto at their kitchen table. No one would ever let me in their house today.
--:-- David McFarland: That's exactly right. Now it's like, if I come to an agent or broker, it's, "This is my problem. Solve it as fast as possible." If you can provide that—four minutes, done, weight off my shoulders—that's the benefit that agents and brokers can provide: making sure people are getting what they need done and making sure they have the appropriate coverage when the time comes.
--:-- Ryan Hanley: A hundred percent. It's such an exciting world. One of the things I'm super interested in personally is how you're using third-party data. This is a general topic that has been thrown around a lot. People use it kind of like, "Oh, we're using data here or infusing data." I think people kind of understand what that means or how you're using it. I'd love to get—and again, don't give any trade secrets away unless you want to—but what does that mean, using third-party data? How does it work? Where are you getting it from? I think it feels like one of those black box items to people where they're like, "I kind of understand, but I don't."
--:-- David McFarland: I think a lot of the insurance world is very excited about the amount of data that's out there and what they can use. That's a very good thing. Whether or not they're actually able to use it is a whole other story. What happens in most of the insurance world—and I'm speaking from experience as an actuary—is there's all this exciting data. I remember pulling it up and thinking, "Oh, this could help us with this, this, and this." Then you go through the effort of trying to get a contract signed, which probably wouldn't happen. But let's say it did. Then this data starts coming over in JSON blobs or whatever. Making it actionable and actually using it in production—where you're actually rating risks or changing underwriting in real time—I'd be shocked if many insurance companies are actually doing that. On a very limited basis, some are. On the commercial lines side, it's difficult. A lot of it is because of the systems they use—Guidewire, Duck Creek. They have a backlog of information they can ingest and apply to the rating engines they provide. Their rating engines are built in such a way that they can't just take in any JSON blob that comes through. It has to be mapped to fields, and you have to use it here and put it in. That means you have to pay your Guidewire consultants lots of money to implement that. Guidewire just acquired Hazard Hub, so there will be nice implementations on the property side. Fantastic. Great for them. But still, if you find all kinds of other data from accounting systems, financials, or just scraping the internet, you're not going to be able to screen scrape for a while and then pull that data in and apply it through your Guidewire system unless you tell them to put it on the backlog for the next three years.
--:-- David McFarland: What we're able to do—because we built out the insurance products and we built out the system to do it—is actually apply it. That's exciting. We do it in a number of ways, and we do it with the focus on speed and simplicity. We want the agent and broker to be focused on relationships and coverage. Let us handle the data side of things. I shouldn't be asking you how far away that business is from a fire hydrant.
--:-- Ryan Hanley: Amen, brother. That might be chiseled on my tombstone: "Don't ask me how far away this is from a fire hydrant." Because I promise—and this is not a knock on agents and brokers—they're going to put in an answer, and that answer is not accurate.
--:-- David McFarland: Yeah, 500 feet. Exactly. Every business in the world is 500 feet from a hydrant.
--:-- Ryan Hanley: This is like, "When was the last time your plumbing was updated?" When I see this, I feel like this is the insurance gods messing with us. Who is going to put "outside of 10 years"? You'd be stupid. You're going to have the risk declined. They'll go, "Decline, not updated." You'd have to be a moron not to just put 2015 or five years from today. You'd have to be a moron not to do that.
--:-- David McFarland: That's right. And it is—what do you expect from insurance companies? Of course this is going to happen. Why are you asking these nonsensical questions for a premium that's less than $5,000, or even more than that? I'm kind of shocked at that, especially when the data is there. Our focus is on speed and simplicity. The fact that we're able to get this information, make it easier for the agent, broker, and policyholder—and not only do that for new business, but understand it and audit it throughout the life cycle of the insured to help our distribution partners—like, "Hey, by the way, this risk went from a zero employee count to a non-zero employee count. You should probably upsell them to workers comp." Or, "Hey, they changed from a personal address to a business address. Make sure they have property coverage now." That just makes your job so much easier because we're able to pull data on this and just say, "Hey, just a heads up."
--:-- Ryan Hanley: This is the part—I have a whole bunch more questions on this topic—but this is the thing I think people are missing. I think everyone goes right to—a couple of questions I wrote down were, "How do you determine which data helps with the underwriting process and which doesn't? Do you have a process for testing stuff blind to say, 'Okay, you're not actually using it in rating, but you're saying ultimately this doesn't have a factor'?" I'm interested in that. But just being greedy and selfish, if we're using this stuff properly, it helps us cross-sell. It helps us sell more policies. It helps us round out accounts better. It helps us increase the premium on accounts because you all of a sudden found out that they put an addition on a building because they had to go get work permits that you would have had no clue about until renewal. Maybe they wouldn't have answered it right or they would have forgotten. But because we can pull permit data, we can see, "Holy crap, they put a $100,000 addition on this."
--:-- Ryan Hanley: Those are the places where I look at it. To your point on humility—I don't know that I would ever be classified as humble, but I am completely willing—and I think more retail distribution side partners, which is what Rogue is, our role in the market—we are not the manufacturers. We are not the regulators. We are not the compliance departments. We are not the data engineers. We are distribution. That's what we are. That doesn't mean we can't be good stewards of our accounts. It doesn't mean we shouldn't care about coverage and protection. We absolutely should. That's part of that role. But to then become underwriters and become all this—no, that's not our job. Use the tools at your disposal to do the thing you were meant to do. I think this is so lost on people—what is actually possible and the flags and triggers that can come off of this information if it's coming from a good source.
--:-- David McFarland: That's exactly right. That's why we call ourselves an insurance manufacturer and servicer. We hook into distribution. We want to make our distribution partners successful. Having that distinction—your job should not be data collection. That's what we do. We do it to make you more successful because, let's be frank, when you are successful, we are successful. And the customer is successful. We want the policyholders to feel like the distribution side—their agent and broker—is the hero and they're taking care of them because that helps our retention too. They stay with you. You stay with us. We make your life easier. It's a virtuous cycle. That's what we bring to the table.
--:-- Ryan Hanley: It's awesome. So I am interested—going back to the one question I teased—do you have a process for testing different things? Because this is another thing I get from some people who maybe know a little bit about data. They'll go, "Well, yeah, but all that, you still have to ask for the same things. It's all the same underwriting." Are you testing different things from the standard actuarial models? Are you testing things like, "Does the owner have red hair?" and it comes back, "Oh no, it has no impact," or "Yeah, red-haired people are crazy, they get into more accidents"? Are you testing those things to see if you can find hidden gems, or do you have a model set and you're working that model?
--:-- David McFarland: We have our base model, and we've layered on some things on top of that that we've tested and proved themselves out pretty well. Then there's a whole swath of things we're testing throughout. One, we're testing for credibility—making sure that this is something people can validate, that the data we're collecting is accurate. Making sure it's veritable, truthy data. But also understanding how impactful that data is. And of course, assuming it's not unfairly discriminatory, in accordance with actuarial standards.
--:-- David McFarland: There are a lot of things we use today that—to your point, like plumbing being updated—people are putting in "500 feet" every time for fire hydrant, and "10 years" every single time for plumbing. That's a useless field most of the time if you're asking someone to just fill it in. I don't care if it's the policyholder or the agent and broker—no one is going to put in the actual information. They're not going to go outside and measure how far away the hydrant is. So why keep asking? What are some other things we can say are more correlated with expected property losses that we can actually measure and are going to give us more lift? Bonus if we can actually use data and not have to ask the person at all. We do that constantly—constantly looking at new sources of data, understanding how this is impacting the customer, and if it's truly accurate.
--:-- Ryan Hanley: I want to be respectful of your time. I know you're a busy dude running a new insurtech carrier manufacturing plant empire. Where do you see small business insurance going? What excites you about the small business insurance market? Obviously it's where Rogue is dedicated. It's what we do every day. Everything we build is towards helping serve it. Another reason I'm excited about what you guys are doing is because this is your segment. This is what you focus on. I see small business insurance as one of the very few remaining blue oceans in our space. I know people write it, but no one owns this space. Not like personal insurance, which is very difficult to disrupt and wedge your way into in any meaningful way. I feel like small business insurance is still the Wild West. It's still the Louisiana Purchase before everyone had staked their claim. What do you see as exciting? What do you see coming down the road that's getting your juices going with small business insurance in the next few years?
--:-- David McFarland: Efficiency. I don't want to give away too much, but what we're building out right now on the efficiency side of things—I think it's going to change how small commercial is done. Agents and brokers are actually going to be able to bind these policies in ways that make them money. Today, the amount of time you put in relative to the money you make on small commercial policies—it's not there. We can flip that. This is going to have huge impacts not only for the agents and brokers, but also for the end policyholders. 40% of commercial businesses aren't insured. For small commercial, I'm guessing it's 60%. They're not doing it because it's an arduous process relative to all the work they're trying to do. They don't need that. They're focused on their business. Going out and talking to an agent for a few hours and then faxing them all this stuff—that's difficult for them. We have more and more small businesses today—people operating consulting shops, people doing DoorDash and stuff like that. Those are all little LLCs running around that need protection. At any moment, they can essentially be out of a job or with no indemnification. We can add so much to this market just in the name of efficiencies. Making things such that, "Hey, don't even worry about sending over your financials. My insurance manufacturer pulls up all that information. We'll get this taken care of with a couple of clicks." That kind of efficiency is what we're aiming for.
--:-- Ryan Hanley: I love it. I couldn't agree more. One of the things—you could say it's kind of a marketing message, but it's philosophically what we believe—is that insurance provides the foundation upon which entrepreneurs have the possibility of taking risk. They can extend farther. They can hire that extra person. They can take on that extra business line because they have that foundation that if something goes wrong, they're going to be able to rebuild quicker. For too long, particularly with small business owners and consultants, and especially now with gig businesses and side businesses—people doing Zoom calls on their regular job—there's a hesitancy to grow there, or maybe even an unspoken fear because if something happens, it can come back to them personally, come after their assets, come after their savings. The deeper we can extend into these markets and the easier we can make it for these people to get coverage, the better. I couldn't agree with you more. Efficiency is a huge part of it. I think messaging is a huge part of it. The messaging to small business owners around insurance has been terrible for so long. Hopefully organizations like yours and mine and others can help change this. It's a very exciting time for the piece of the market we're going after. I appreciate being partnered with you, man.
--:-- David McFarland: Agreed. It's been great partnering together on this. I love what you're building, and you understand it. The focus on making these things efficient is going to not only benefit you as an agent and broker, but also benefit the end policyholder. You're providing the actual service they need—solutions and coverage—not just an hour-long coffee that's going to make them more stressed because they have all these other things to do.
--:-- Ryan Hanley: Agreed. Well, man, I wish you nothing but success. Where can people get at Coterie? If they're interested in partnering with Coterie, who's the best person or where's the best place to go to reach out and start to learn more about a partnership?
--:-- David McFarland: Coterieinsurance.com is the first place to go. There's a partnership page and an agent resources page. Ray Lynch—Raymond Lynch—is there anyone better to talk to? He's fantastic. He can get you set up. If all else fails, just shoot me a message on LinkedIn, and we'll get you rolling.
--:-- Ryan Hanley: Fantastic, man. Appreciate you. Appreciate the time.
--:-- [Ryan Hanley addresses the audience directly.]
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