This evening our guest speaker is Aaron Schiff co-founder and CEO of Matic Insurance. We are going to cover many topics starting from his founder journey and Matic insurance innovative product - Insurance at a point of sale. Before we jump in I would like to thank our sponsors Carbon Five for hosting us at their beautiful offices in Santa Monica just in the heart of Silicon Beach.
G: Aaron, thank you for joining us. Are you ready to start?
A: Let’s do it!
G: Let’s start with the background story. Tell us about Mattic Insurance.
A: Yeah, thank you for having me, thank you (the audience) for coming everyone, it is super cool that you came on a Tuesday night with the Los Angeles rain.
Matic is an insurance agency powered by technology.
Our thesis was very simple. InsurTech is very interesting everyone is talking about underwriting, there is a lot of buzz around machine learning and all this fun stuff, the reality is that insurance is a commodity. So, true disruption in insurance, homeowner insurance specifically, is distribution! So we asked ourselves “why is it hard and what is the best way for distribution?” And that is the point of sale.
Matic is an insurance agency that integrates insurance carriers and lenders during the mortgage process.
G: How did you recognize the need? I am sure that you hadn’t sat at home and searched for a pain point to solve.
A: Good question, I tell you my story and that will lead to how we came up with Matic. In 2011 I started my previous company, it was an internet ad network, it made $6,000 in the first three days, we made our first million in seven months. It was just me and a partner, we never raised external capital, and we made several million dollars a year in profit. It was a life-changing business for me and I told myself “I’ll never be in debt in my life”.
Fast forward 2013, I bought my first house. Oops, I am in debt. Good debt, but still debt. House is the biggest purchase that people make and I was stressed out. So, I took a loan and thought that “it will be an easy mortgage.” It wasn’t, it was brutal! I had 45 email in less than 30 days, I had to provide same documents over and over again. I can go on and on about the pain of the loan mortgage process.
Two days before closing, the lender said: “now, you need home insurance.” I said three things: “one, why didn’t tell me before?! Two, how do I get it? And three, what is home insurance?” I get “home” + “insurance”, but what does it actually mean? To make the story more dramatic, the seller tried to push me out of the property so if the loan would not have closed in time I would have lost the house and the 3% deposit. As you know, in California that is a lot of money. I am a smart person - I’ll simply get insurance. I started my insurance purchase journey. I asked myself "what was the last commercial I saw? It was Geico," I went on Geico.com and started answering questions. The first questions were easy “what’s your name” “what’s your marital status” and then they asked questions like “what’s your roof’s matter” “do you have a circuit breaker or a fuse box” I was looking at the roof and thought “how should I know.” And then they asked me more questions that I didn’t even know what they meant “if you select yes, then the risk is prohibited.” So, I was going through this service online, hitting yes, no, yes, no, and thinking if there is a claim I am screwed. Ended up being kicked out of the website because it is to close to retail. We are in LA, where there is no mile far from retail.
Now what?! I’ll call an insurance agent. The average age of a first time home insurance buyer is 33. The average age of insurance agent is 60 years old. I don’t know any insurance agent. I called friends, they asked their parents and I got a phone for an agent. The agent reached back to me a day and a half later. The agent’s first question was “what kind of cover do you need?” Remember, this is after a brutal mortgage experience, I am stressed up, no one is helping me at all, and he is asking me for what type of coverage I need. I asked him “you tell me, isn’t that your job to tell me which coverage I need to purchase?! I have never done this before.”
Even though, I have to close the loan on time I didn’t buy the insurance from him. I didn’t trust him.
He started in a bad foot by calling me in his best time instead of my good time
G: In insurance, we love to talk about the customer’s journey. So, so far you, in your journey, passed through brand recognition, disorientation, pain, frustration, and when you start working with a professional you encountered lack of trust.
A: I think that part of it is the age gap. I communicate differently than a 60 years old agent, and there were things that he must have expected that I didn’t have. There was trust that we didn’t have. He started in a bad foot by calling me in his best time instead of my good time. At the end, I didn’t get my insurance from him because there was no trust and that was a pain.
What I realized was that this experience is brutal, I can’t be the only person who went through this so I wanted to solve that problem. My partner came from mortgage background.
G: Are we talking about Ben?
A: Yes. I come from the consumer side and Ben comes from the mortgage side. He started, back when I started my adTech company, a mortgage compliance company. A lender would hire his company to do audits and those audits would comprise from two basic things: 1. Are we being compliant? 2. The holy grail - can I close more loans quicker and cheaper?
He used to do auto and a lender and they were losing $30,000 a month because they couldn’t close their loan on time, due to extension fees caused by home insurance. It means that home insurance cause $30,000 in fees per month. It is crazy! That shouldn’t happen.
One day Ben and I carpooled to a hockey practice [comment about hockey practice and hockey fans in the audience] and we were pitching ideas one to the other, and then Ben said: “why don’t we connect the mortgage lenders to the insurance carriers to sell homeowner insurance at the point of sale?” I said “wait a second, you can integrate with a lender?! This is a no-brainer.” We spent the next eight months checking if someone else was doing it because it sounds like the simplest concept in the world. And there is a beauty in simplicity. We found out that no one else was doing it. One of our investors said: “I am giving you money because I can’t pick holes in it.” That was August 2014 and now 2018 we just raise $7M from various investors.
G: A quick disclosure, one or two of the investors that Aaron pitched to reached out to me. So I had the opportunity to see an early version of his deck. Part of my feedback to the investors was to ask Aaron how is he going to bind the policies (at that point he talked about providing quotes) and how will he overcome the concerns with a Ukrainian team. Do you want to touch this topic or continue with investors and insurance?
A: Let’s touch that. This is a good question. We are a distributed team. We have two main offices. First, the Operations office in Columbus OH and the second, our tech talent in Ukraine. There seems to be pros and cons for that. The pros that they are amazing talent. The real con is communicating over a ten hours time difference. Seven hours if you are in Columbus. I will argue that my tech team knows more about the mortgage insurance than anyone in this room, and definitely more than the average American.
G: [to the audience] I see that we have new faces in the audience. Welcome! We have a diverse group of people today from agents, IT executives, entrepreneurs, adjusters, and lawyers. During the conversation with Aaron, we are trying to touch many topics so everyone can hear about a topic that is closer to their heart in addition to the exposure to new topics. That is the reason we cover the customer journey, investors, Ukraine and founders’ story.
Let’s use this momentum and segue to InsurTech. Aaron, you had a successful company, Adrenalads, in the AdTech. How did you end up in InsurTech? That was a major leap. How did you do it?
A: If you had told me, three years ago, that I’ll go to insurance, I would have laughed at you. Because I really had no idea about insurance as you know from my founder story. I think that what is sexy for me about insurance, and what was sexy for me about Adrenalads was, that I like to solve a problem of efficiency. Or, if there is a clear hole in the market and there is a clear problem to be solved and I can solve that problem, I’ll jump in to solve it.
The skills that I learned in Adrenalads are very relevant both from the marketing side and the product side. There are many things that I am not good at, one of the things that I am very good at is understanding where things are going to go. When we started Adrenalads I wrote “what do we need to do to be successful” and there were three items on that list. We did one of the items from the list and we were successful. My secret power is "vision." “Secret power” is the new thing. That is the catchphrase that replaced “ninja developer” and “Jedi master engineer”. So for Matic, walking thru the process and feeling the pain, earned me a clear understanding of what we need to do.
That was the transition. That’s how I made it to insurance.
G: How did you meet Ben?
A: Ben and I know each other since high school.
G: That was easy.
A: We got lucky because we were not smart about it. If you can understand what makes a good partner in marriage, you can understand what makes a good partner in a business. What I found is that you need to have the same end goal and separate responsibilities. So, founder dating is like regular dating. Make sure that the person that you are with you are ready to get “married” to. You will have someone to go through the tranches with. You will “hate” him some days and you will need to “love” him at the same time.
We love all of our carriers equally
G: How was the insurance carrier dating?
A: Matic is integrated with twelve carriers today. Nationwide is also an investor of ours. We have several cool stuff coming out soon with them. We love all of our carriers equally. We are looking to increase the number of our carriers this year. We integrate with them directly. Carriers are different, some have APIs some don’t. Our goal is to integrate with those with the API. The mortgage industry is going digital, so when you are going to get a mortgage now, instead of going back and forth with emails, the loan officer will provide you a portal to load all your documents. In that portal, you going to have a big button “get a quote.” When you press that button, we would like to give you a quote in several seconds. Some carriers can do it and some can’t. That is a challenge from the technical side.
On the business side, the volume requirement that they want, some have multiple departments that you need to navigate and get approval. Like any other company that you can imagine, they are all different colors, they all have different flavors and organized in different ways with their own nuances. I love all of the carriers, some are easier than others.
G: Is that the culture, the industry or the momentum?
A: I would say it is the culture. The carriers are moving towards APIs. They get that this is the future. Some know how to execute, some don’t, and all of the in between. One of the cool things about the carriers is that they know their weak points and they are really honest with themselves about it.
I make many talking engagements like this one. In past panel, a carrier exec said that “carriers will spend more on taking care of their legacy systems and improving them than any other industry.” He estimated it at $5B, I believe it is more.
The trick is to show the carrier value
G: That is not encouraging for B2B startups. What is your advice to a CEO of an early stage startup or a business development in the space that wants to work with the big carriers?
A: I think that the trick is to show them value. I have a feeling that they don’t want to miss out. I pitch them the same that I pitch an investor. This is our plan, this is how we are going to execute it if we do x, y and z this is what you’ll get. For them, it was a clear proposition. And we fit into the familiar agency structure.
When you come with true innovation the carriers are pretty open-minded
G: We see that many carriers repeat the questions “how can I improve my digital sell” and “how can I improve my agents sell,” we don’t see enough that ask “how can I sell differently?”
A: A lot of agencies that we have seen are direct to consumer. That inherently is competing with them. We said here is something completely different, so when you come with true innovation the carriers are pretty open-minded.
G: How it is to work with loan officers compare to insurance companies?
A: It is a different dynamic. Once we integrate with a lender, it doesn’t mean that the loan officer is out of the picture. The average age of the insurance agent is 60 and the average age of the loan officer is 55. They have been doing their job successfully for many years. Inherently they are entrepreneurs. They work for themselves and drive their business. The challenge is to convince them to work in a different way. Matic is competing with the referral that they have today. Our value proposition is why they should replace or complement the referral that they have.
G: Can we talk numbers?
A: An insurance agent can’t pay a loan officer. The real value prop is in the user experience. Now they can provide a better experience to their customers. If the loan officer sends you to a mediocre insurance agent, that reflects poorly on him. Our job is to be great 100% of the time. Because we have the technology and we have more carriers we can also offer the customer better price.
G: How are you going to use the $7M that you raised? Is it to increase the screen scraping solutions?
A: In the past year most of the insurance companies that we have been working with had integrations. Very exciting! So we don’t need to scale via scraping. Early on we decided not to scrape and only use a proper integration with the carriers. We spent a lot of time and effort on the quoting engine that we call Einstein.
The $7M are for two things: 1. Getting me out of the way. We were very lean early and as a founder, I was doing a lot and now I am trying to transition from founder to a CEO. Now, I am hiring people that are better than me across the board which is very fun and very exciting. So, basically, building a scalable organization. 2. It is blue ocean right now. There appear to be many lenders out there that we need to work with. We are the first, we are the market leaders, and there are new companies on our tail. So it is all about how do we over execute everyone else.
G: You are the leader in your space. How are you going to keep your leadership?
A: There are competitors but no one is doing uniquely what we do. I can consider Lemonade as a competitor that goes to the lender. The thing is that Lemonade is a carrier, they don’t have other carriers. Matic provides quotes from many carriers. Let’s look at Hippo who is an MGA in several states. That means that they are not Switzerland and they have their own product. Being an MGA is not simple to do well. There are two things they need to do: 1. They need to be an MGA and quote and underwrite their product 2. They need to integrate and work with the carriers. They don’t have the focus that we have. That is why I think that we will over execute and be better than them. We can tell our story to the lender that “our only job is to get your customer the best policy in the best price.” We have an amazing team that can execute on this story especially with our knowledge in the mortgage industry, rating system, and integration technology.
Alan (audience): When you say “rating” you mean matching your underwriting carrier to your customer?
A: When I refer to "rating" it is the process of collecting the lender’s data, distributing it among the carriers and then collecting and comparing the different quotes.
Getting the audience engaged
G: (to the audience) What were your favorite buzzwords in 2017?
Audience: blockchain, AR, VR and AI.
G: How about ICO? Don’t you think that it eclipsed all other buzzwords in the past quarter or two? Aaron, what is your prediction for 2018?
A: I am a little bit biased. I am huge in the ICOs right now. I have a decent portfolio of coins. I missed the Dragon ICO. I don’t know if you are familiar with that and the Icon ICO. It is pretty much a 100x ICO. Yeah, ah I am pretty into this.
G: (taking the advocate role) I don’t believe in the current cryptocurrencies. When you think about it one needs to invest energy (processing power) to retrieve a non-intangible perceived value and pollution.
A: So is current printed money
Jeff (audience): it is truly the wild west of what is happening, but at the end of the day it is here to stay. And the right process in the cryptocurrency world is forcing its way into the industry to be used. I will equate it to the Red Hot Chili Peppers. They were guys who were punks and against the system, yet if you read about Malibu and one of them tried to build his mansion there, so when you read about his story it is a weird battle between going against the system and working with it.
Aaron: there is a great MEME of a guy dressed up all in gold (shoes, necklace, rings) and the caption is “It is all about the technology for me”. Is that kind of what you refer to?
Jeff (audience): yeah, exactly. That is what happening.
Stephen (audience): there is an insurTech company Insurepal.io that is doing an ICO next week to raise $18M. As I understand from their founder, they are only going to accept "premium coin." It is a completely different business model. They are using social proof, it means that only if my buddy agrees to take the risk for me, only then I get a policy. It means that my buddy, here, needs to put his credit card, or his wallet, to ensure my policy. But, if anything actually going to happen, I need to take care of it.
Aaron: The challenge with insurance right now, and I bring it from a conference that I attended with various carriers’ CEOs, is that the carriers are using the same underwriting methods that they have been using for the past fifty years. Now think about that. The technology of two years ago is significantly different from the technology that we have today. Right?! That is the biggest opportunity to change and that how do you understand your risk. People do an ICO just to do an ICO, people will say “blockchain” for just saying “blockchain”. The question is - “what is the utility?” The real utility is using blockchain if it is the right tool for understanding the risk.
My opinion is that if there is a way that blockchain can help understand the risk then blockchain is the technology for that.
Alan (audience): It is an interesting point there with the underwriting and actuarial work. The proper challenge is not that we are not smart enough because we are hiring many smart data scientists, the problem is that the states and the government can’t keep up with us. So, one of the challenges that we have, and if you look at the GLA model which is not that complicated, the state doesn’t have people who can even look at that simple algorithm so you can never get approval for any new underwriting. They reject everyone that you put in front of them. They are trying to recruit data scientists. There is a battle between how fast can we move using data fairly and using credit data and all other restrictions. That is the main challenge. I don’t know how it will continue to work this way, something will need to break. It can’t keep working the way that it is working now. There are so many sources. If someone is watching YouTube for 5 hours are they a better risk? And if they are doing it at 3 in the morning can we put it together? Today we can’t do that. At a certain point, the state will need to give up and let the carriers to go for it.
Stephen (audience): I don’t think it will work. As a person who has done it for a long time in pricing and built actuary tables among other stuff, I am worried to death that carriers will use that for anti-selection.
Alan (audience): Yes, I agree, that is a big challenge.
Stephan (audience): They will start cherry picking and take only the risk that they are willing to take on. And that will leave the population that watches YouTube for too long not covered.
Aaron: There are carriers with models for social data that they can’t use, but they can backdate. They can use the social model and backdate and say “we should not have allowed that person to go on our platform.” Regulation is important especially for insurance.
G: I agree. Regulation is very important for insurance. The problem that we are describing is not easy to solve. Right now, it is over-regulated given the technological advancement and its effect on human behavior aka risk. Think about Pokemon Go, I wish I had the statistics for that, how many pedestrians had been hit while texting or playing Pokemon Go.
We talked about sandboxing and allowing startups to develop products in a safe regulated environment and experiment.
A: Having “startup gone wild” is something that we don’t want in the financial services because it will cause a problem especially when you deal with PII. One of the things that Ben and I early did was to get into the PII. Remember, I was on the product side coming from adTech, and I had this “I want to break things” Social Network, if Mark Zuckerberg did it I want to be Zuckerberg let’s go and do it. The first thing was wo wo wo, we can’t do it, this is financial services, you mess up once and you are done. That is the reason that financial service moves slow.
Moving to the fun part
G: Let’s move to the fun part. This a questionnaire that combines my favorite questions from James Lipton and Tim Ferris. In our prep call, Aaron asked me not to prep him on these.
G: What’s your favorite word?
G: What drives you?
A: Solving an efficiency problem. I like to see a clear vision to solve that problem. I could never build SnapChat. If had to build SnapChat, it would be the worst product you have ever seen. The company would have been close and the world might have been a better place. I am a very transactional person. I need to see a formula.
G: This is a great Tim Ferriss question. Which book did you like to gift?
A: Was I supposed to bring a book for today? I have a great one, it is called 15 Commitments of Conscious Leadership. It is an amazing book. I can’t recall how I heard about it, but Dustin Moskovitz of Asana, he was one of the Facebook co-founders, gives it all of his Asana employees. It is a book that you need to read multiple times so it will sink in. It is all about being authentic to yourself, you have to change and be a good human and that book gives you a paradigm on how to do it. I have gifted that book.
G: Who is your hero?
A: I’ll tell you who is my current hero because I go through phases. I am on a Winston Churchill kick right now. His management style, his way of meetings and his wit, that cleverness that only Englishman can produce.
Audience: and he was a functioning alcoholic
A: I heard he watered it down…
G: Thank you, everyone, for coming. Aaron thank you for sharing your journey, thoughts, and opinions with the Los Angeles InsurTech community.
A: Thank you, it was a pleasure to be here.
G: Please, grab a drink, something to eat, and kindly, don't drown Aaron with questions.