In this episode, Jonathan Gonzalez and Gilad Shai talk about Raincoat, parametric insurance, micro-insurance, and the classic entrepreneurship spirit.
Chapters:
00:05 Warm-up
01:41 Puerto Rico
08:26 Stealth Mode
10:40 Building great products
17:00 Solution?
20:40 MGA
22:26 Other products
24:30 Micro-insurance
32:10 Future plans
34:27 Tip
#parametricinsurance #microinsurance #insurance #insurtech #instech #insuretech
Jonathan Gonzalez
Yeah, what's a strategic game? Well, it's basic games based on decision trees, right!? And optimization. So I do have to separate, though, because I do two types. There's strategic, which is more like board games digitally, right? As you mentioned, Settlers of Catan. So making that digital would be the equivalent of a strategic game on a PC. But there are also resource management games, which are like factorial, for example, how do you do supply chain? Right? And how do you structure and organize complex processes? So it's amusing because sometimes it doesn't feel like a game, but I like keeping my mind engaged, and I'm a big fan of games for whatever reason. And I have an extensive board game collection as well. I think board games are a spectacular way to get to know people in a safe environment because they get to be competitive; you get to find out who likes to lie and bluff. How do they think I always enjoy seeing that side of people in a safe, competitive environment.
Gilad Shai
Well, let me say I have cards against humanity.
Jonathan Gonzalez
where you can learn a lot from people that one-two, very different set of things, right. But you can definitely learn a lot.
Gilad Shai
You're based in Puerto Rico. Do you want to start with the insurance part? Or do you want to start with your personal story of how you got into insurance?
Jonathan Gonzalez
Raincoat is my second startup. My first startup was an IoT startup based out of New York. But for family reasons, I had to move back to Puerto Rico to take care of my mother, who was really delicate at the time. And in 2017, shortly, only really a couple months after I had gotten back to Puerto Rico, Hurricane Maria was announced that it was coming on the way. I remember looking at the map and saying, oh my god, what am I going to do? Not primarily because of me but because of my mom. She's in a wheelchair, very health-delicate. I was really just concerned about what I would do.
Post-hurricane. Once the hurricane passed, it took me three days to get to her because she lived deep inside the island. And you can imagine how horrible the devastation would be if it took me three days. Puerto Rico is a fairly small island. The ramp that she used for her wheelchair had been blown out, and there was a hole in the house.
The very first thing I did was, "hey, do you have insurance?" And what do I need to do to help you submit a claim with your insurance policy? Maybe we can get some FEMA help. And it was basically that process. It took us over a year to get an adjuster to show up at the house. And what's really wild is you can imagine what it's like to have a ramp blew out and a hole in the house that you can't repair because the adjuster needs to inspect it. You can't do anything about it. So it took us a year. And then, after that, it took us six months of back and forth with the insurance company. And at the end of that whole process, we got zero.
The very first question that I had during that whole experience, which was obviously very horrible, was, "Okay, did I just have bad luck? Was my insurance policy just really horrible was this like really common in Puerto Rico?" And when I started asking around my friends, to my soon-to-be co-founders, I realized that this was a super typical story, like a lot of people had very similar experiences for a lot of reasons from the event. And then the second order of question that we had was, okay, if everyone in Puerto Rico went through this, is this just the Puerto Rico problem? Like, is it just, you know, a regulatory issue here? Or is this a universal issue?
When we started looking outwards, we found many similar stories, like the media tends to focus very much on the events. When there is a wildfire in California, they will talk about it, but very rarely will they talk about it like all the people who are still dealing with whatever was the aftermath of that wildfire. So we want it to be part of the solution. Somehow, we thought the experience was so horrible that we could legitimately solve it, but we knew nothing about insurance. So we started researching, like the engineers that we were, and a concept that kept coming up was parametric insurance. And we thought parametric insurance was really interesting.
To us, coming from software, it sounded like a breakdown of insurance into parameters, right? Which is exactly software. And, yeah, so with that logic of like, alright, this seems like something that could be sophisticated, you know, you could build, like, sophisticated products with this approach. Our next order of questioning was why, why haven't I ever seen a policy? Like, you know, why wasn't my mom offered one? For example? Why weren't any insurance companies in Puerto Rico offering parametric products at all? And we had all these layered questions right around that, like what happened then? Like, if you have a solution that's been used for two decades, there's some experience with it, right? It's not a new concept, then why isn't it mainstream. And in that process, while we were meeting with insurance companies, and reinsurers and basically everyone part of that stack, what we ended up finding out was that there were these common tropes that they would keep bringing it up as reasons why they weren't doing this. Some of them were related to the risk models and detection models and the data, right. Others were related to like the infrastructure needed. So maybe a simple product doesn't need sophisticated infrastructure. But if you're like doing image recognition, and all sorts of like machine learning, all of a sudden, it becomes like big data, right? Big data issues. And then the last component was that even if they had a good risk model detection and everything else, many of them had legacy policy management systems that just weren't really built to be automated, right? So this idea, this vision of hey, wouldn't have been awesome. If my mother had just gotten a text message within a couple of days of the hurricane saying, Hey, you're going to receive, I don't know, $10,000. And let's deposit it directly to your bank account. That was something that they just couldn't really operate. Or if they did, there were all these manual processes that had to happen for that to get done. So that's when we said we can deliver this, like we can solve this, what if we solve this, like we package these products, provide the infrastructure that powers them, and then essentially deliver them to the channel or the insurance company or the reinsurer, and see if they're willing to essentially distribute, right. So in a way, it's actually similar a little bit to the prior podcasts that I saw with affinity, where he was saying that they're not trying to do the distribution side of it, but rather enable that distribution very similar, right!? In our case, our mission is to protect every single person on the planet from climate disruption. And to do that, you have to work with every single channel, which means you have to develop kind of these, these products, right, that are easily embeddable, and that are actually really good and the infrastructure that powers it. And that's essentially what we focus on.
Gilad Shai
When we go on your website, which is raincoat.com, it doesn't say much.
Jonathan Gonzalez
Yeah, it wasn't by design. Funnily enough, like, it's not like we were trying to be in stealth mode. I think it's this was organic, right? We didn't start this thinking we were gonna make a startup by any means. We kind of started this very organically because we felt the problem and wanted to solve the problem. And then, in that process, we started to formalize a startup concept around it. So a lot of our movement has been word of mouth, right? So we've done we do one deployment in one region, and everyone's really happy with what we do. So they introduce us to another region, and that other region introduces us to another right, so we've never actually had the need to kind of like have that in place. Because we've had a good reputation with everyone, we've worked with. And you know, we have a great team that can solve a lot of these tricky challenges. That is shifting now. Right, so with the announcement of the fundraise that we did recently that that has been shifting, and now we need to like get an updated website and communicate these things better. But we're at the beginning of that inflection point. So in a way, this is probably the first podcast that I do right after when we've made that decision, right that we're going to roll that out. So maybe by the time people see this, we do have the website up and it'll make a lot more sense right? But ultimately up
I guess the the fundamental answer is we are doers rather than talkers, right. So we focus much more on solving these issues legitimately and driving that solution and making sure that the people that matter are happy with with what we've delivered both the end consumers, but also the partners that we work with. And now is the point where we're like, Yeah, we should probably be a little bit louder about the work that we do and some of the great things.
Gilad Shai
How much are you raising? Or what was the announcement?
Jonathan Gonzalez
Yeah, it was their seed round. So we raised four and a half million. The there was a good group of investors, including Anthemis, which is an insurer tech, and fintech, specific investor, Softbank co invested as well. We have a couple banks and insurance companies that came on board as corporate insurers, including local insurers, and Puerto Rico, sorry, local investors from Puerto Rico, like Mauro ventures, and other entities like that. So it was an it was a good group. And ultimately, there's an alignment, right in the sense that everyone agrees that this problem is super serious, like it's a very serious issue that has to be resolved. And everyone agrees that the way right to resolve this is through strategic partnerships, and really developing good technology. I think one aspect that is missed a lot. I think in the insurance industry, and it varies quite a bit. I know there's lots of really great people working on this. So I don't want to make a blanket statement is that products matter? You know, good products actually matter. Like you can focus on sales, you can focus on distribution, but at the end of the day, there's a real human being on the other side, that's purchasing a risk transfer of some kind. And that human being has expectations, and those expectations have to be met. And I think oftentimes, we focus a lot on the Chrome, right on the on the flashy outside of insurance without forgetting, right, the fundamental aspect of insurance, which is something bad happens, and a person needs to be made whole and as quickly as possible.
Gilad Shai
When you talk about the product, are you referring to the insurance product or the technology product?
Jonathan Gonzalez
So there's a story to this one. So when I first started looking into this, my initial because of the negative experience, my initial reaction was man, these people have to be evil. Right? Like, like, there's like, if you look at a like, if you truly looked at my mom face value, and you looked at the situation, we were in to say no to that it was like, alright, seriously, what's going on here? Like, that's some straight up evil stuff. So how does that happen? Right, like, was my thought like, how exactly systematically do we grade that? And one thing that we've realized, and that's why we focus on these end to end kind of embedded solutions is that, you know, we very quickly realized that a good product requires, like a visibility over the full stack somehow, right? Like someone has to take responsibility. And oftentimes what happens with these negative experiences isn't that someone was actively trying to do harm, but rather systematically, different components came into play that ended up resulting in a really bad negative experience. Right. So as you mentioned, the person who was placing the risk was thinking about certain things. The person who wrote that legal contract was thinking about other things, the guy who sold right or the guy who sold focused on selling the policy. So we don't know what they said, We don't know. You know, like, all these incentives that were kind of aligned ended up in a bad experience. And I think, you know, I'm happy to see that a lot of people in the industry are starting to take sort of personal responsibility over that and say, All right, Yes, the system needs correction somehow, right? Whether it's technology, or clarity or whatever it needs correction, because it's really the system that's creating kind of these nice events. And to add to that, you know, we learned a lot. So one of the people who ended up joining raincoat in the early was Luis, our chief insurance officer, and the story of loose is actually really interesting, because he's been a, like, a five times insurance CEO, basically, like he's ran insurance companies in large regions, and he was running a an insurance carrier in Puerto Rico as CEO at the time, at the same time that I was having this experience from. And, and it was really fascinating to see his struggle from his perspective of dealing with the situation, right, and the real pain that he had of like, man, you know, there were moments where I wanted to just issue a check on the spot and be like, Here, here's the money, but regulation requirements, and all these things would not allow him to actually be able to do that right, for a diverse set of reasons. And it was really eye opening to me, just to realize how some of these are unsolvable problems, given the context of the situation, right, which is why new, completely newly imagined products are required, because let's talk about the volume issue, right? Like, well, this insurance company with the claims adjuster, you know, maybe that insurance company had like 10 claims adjusters Max before, before Hurricane Maria, and all of a sudden you have 100,000 claims, right? Like, realistically, what are they supposed to do? Right? Yeah, they can bring adjusters from other places. But while you bring them train them, you know, it's like there's this volume issue because of the spike Enos of the event that is just incredibly difficult to deal with. And I think that's where technology can can really help either packaging completely new products that avoid that entirely, or technology that enables much more expedited claims process in very high volume situations.
Gilad Shai
How do you fix it? Or how do you improve it?
Jonathan Gonzalez
From our perspective, I think the first step is to realize that we don't have to fix everything all at once, we can start by building products that work really well within the context of that product, right. So for example, the very first product we ever launched was a micro insurance policy in Puerto Rico, it was the first micro insurance policy under the NIC that was fully admitted. And this policy wasn't trying to like replace a property policy or wasn't even trying to be bundled with a property policy or anything like that. It was a standalone parametric policy that provides a fixed cash amount based on wind speed intensity, basically. And it's it's modeled based on kind of like, how those excess expenses look after the hurricane, right? So like, if it's a really strong hurricane, what does that mean? How much am I gonna have to spend in food, gasoline? And like, what are these monetary amounts? Right? So that's what the regulator was looking at in this product. And what we found by launching that product, was that there were a lot of people, like I would say, maybe 80%, or more that were buying the product, not because they were trying to supplement something, but because literally they were uninsurable otherwise, right, because that was it. That was that was their only way right to get any form of safety net after the hurricane was that policy. And it was really eye opening to me, because, you know, you wouldn't think Puerto Rico with its penetration rated insurance, it's very high. In Latin, Latin American standards, I think it's over 12%, something like that, you would think this wouldn't be a problem. But all of a sudden, we uncovered a giant gap that no one was really looking at. And all of a sudden, you have like this massive amount of people who just literally could not get any traditional product, right. So for them, for those individuals, you fixed a problem, which is a complete lack of safety net, right. And I think as we and this product was specifically designed to solve that, right, that specific gap, I think this product innovation is what's basically required to be able to start patching these gaps, where they are so that you can truly have universal coverage. And you mentioned for example, Montecarlo, before the call of the conference, right? And, you know, I think the the CEO of peak, RI mentioned that, you know, the insurance industry needs more innovation to cover the gaps, right? And they talk about how it's not so much of like, oh, we need to push more sales, but rather we need to develop new products, like legitimately new products that cover new risks that are either perceived or have already manifested like COVID And that's exactly how we see it as well right? Like climate change creates new problems. And that requires new solutions and I see it very much as a expanding the pie as opposed to cannibalizing the pie.
Gilad Shai
Are you an MGA?
Jonathan Gonzalez
In Puerto Rico, we are, but it depends on the market. We work really well with other MGAs. Ultimately, what we want to do is push out the product and embed it with whatever the channel is. So there are channels that don't require an MGA. Right. So, for example, the government is an excellent example in Mexico. We work with the government of Mexico and a consortium of reinsurers that include Swiss Re AXA Munich Re guy Carpenter, right as the reinsurance broker and like, that doesn't require right. And MGA because it's like a government kind of sanction policy through a local government insurer, etc. And, ultimately, for us, it's really that focus on what's the problem here, right? How do we resolve that problem? And how can we be part of that solution, providing the core technology required to like actually solve that? And that sometimes includes everything from enrollment, all the way to like executing payments, right. So it's really that holistic view of building these products. And we're super excited because we've really seen that, in every market, we launch something new, it's the first time in that market that that new thing has ever been launched. And it's really interesting to see how new trends create, right? So like, when we started out with the first microinsurance policy in Puerto Rico, there are now more like five different types of policies. And they're all distributed in different ways. And they all have these mechanisms. And that excites me because it's like, I'm not going to take credit for that wave. But it's really great to be part, right of that wave and see, okay, people, we're actually trying to think about how do we cover this gap in dynamic?
Gilad Shai
What type of products do you have and where? We know about Puerto Rico; we heard about Mexico. How did you start? What was the first product?
Jonathan Gonzalez
The first product was the policy in Puerto Rico that I mentioned. That was basically our first product. After that, we launched an agricultural set of products with an insurance company in Jamaica. And then, we did the deployment in Mexico, which is technically still alive.
Now we have a new deployment in Colombia that also goes live soon, and a bunch of others that are kind of, like, in process, but fundamentally, for us, I get this question a lot "Oh, what are you a form an MGA? Are you a broker?" They try to fit us into a very specific box. And the way
I see it is always from the side of the consumer. It's like, there's a channel; let's say the channel is banking, the bank wants a product, they want to offer a product, who's actually going to build that product. So who built it, right? Who built the product for that bank. And that's where we come in, and we say, I'll build the product for you, I'll bring you the capacity, I'll bring you the infrastructure, I will structure the whole thing for you, I'll deliver it for you. And I'll integrate it with your core systems. And I will give it to you fully packaged so that you don't have to deal with that chaos. Right? And we call it abstracting the chaos. Like there's all of this chaos that's required to build. Yeah, it's because it's complex, right? This is incredibly difficult. And that's what I hear a lot, oftentimes from the industry. It's like, oh, man, doing this is so hard, like covering these people is so incredibly difficult, like all these small-scale farmers, how do we reach them? How do we? That's so difficult and, you know, my response is always, Yeah, it's challenging. But that's our core. That's exactly what we do, right? Like solving that difficult problem is exactly where we excel, and that's exactly what we focus on everyone, my coinsurance or your generic question, so um, it's funny because it's not like we try to be micro insurance, but most is like truly ends up being micro insurance. I think it's mostly because embedded products tend to be microinsurance products. And because of that, most of our products are embedded. So they're microinsurance by definition. And also because every thing we do is mass consumer-focused, right? Like high volume, high throughput, like we're not trying to be parametric brokers, right? We're not trying to, like, build one-off policies for X or Y clients or anything like that very much. What we're doing is mass scale. So it's like, we have a large group of people, and we need to protect them. What's the right product? To do so, what's the right channel to reach them? Like? Those are the questions that we're asking ourselves. And oftentimes, the solution is a micro insurance product.
Gilad Shai
What's your definition of a micro-insurance product?
Jonathan Gonzalez
Honestly, right now, I've seen all sorts of terms minus just policies that have low coverage limits. It's a very broad one. Right. But just basically, we're talking about limits that are, you know, in the couple 1000, it depends obviously, on the market, right, a couple 1000s. For one person in one market is a lot and for another might not, but we're talking about policies that definitely aren't competing with traditional policies in any way or form.
Gilad Shai
Okay, so the coverage is about the limits. Does it have any limitation in terms of time? And payment?
Jonathan Gonzalez
Times are yearly. But it depends, again, a little bit on the channel. So we do have products that have multi-year cycles. We're talking about like five-year contracts. So it really depends.
Gilad Shai
We need to ask about the embedded part. What's your definition of embedded? Because we've seen so many definitions.
Jonathan Gonzalez
I feel like I'm on the spot. I don't want to mess it up for people who feel very passionate about the definition of embedded. To me, embedded insurance is insurance that isn't marketed. So insurance that an entity that went out and found customers for that specific insurance, but rather insurance that is as close as possible to the insurable interest. We call it the checkbox. It is as simple as buying a product. Maybe it's bundled by default. To me, that's embedded where you're essentially not marketing the product at all; you're just integrated into the channel. And I think that's where it's super powerful. And it's a really interesting thing, like, actually, when I think about it, it is a little strange that insurance is sold the way that it is, like you'd think it would. It would have been embedded from the beginning. And there are lots of things in this world that function like that, that we never think about twice. So an example that I always mentioned is, you know, Amazon's return policy, or like E-commerce, is return policy that is incorporated into the pricing of everything, right, you just assume that it's there. And obviously, you're paying for it right? A return policy is integrated, and I could see an alternate multiverse universe where return policies are actually insurance products. Do you want to pay $1.53 on this Amazon order on the off chance that it isn't what you wanted? And you return it?!
Gilad Shai
If I were the seller, I would buy insurance against returns to cover the shipping cost, and if the goods were damaged on the way back to the customer, the product...
Jonathan Gonzalez
You don't offer it. You integrate it as a benefit. It's like fully part of the cycle. Right. And I think that's probably the way insurance should work. If it could, right, that would be ideal for everyone. Wherever I buy the house, I get the insurance at the moment. If I rent the car, I will get it at the moment. And I think that would be a lot easier. Also, for customers to understand because they're thinking about the risk in that context in that transaction. The fact that insurance is sold separately, and I need to think about the risk and then go and find insurance, is very disjointed. That's part of the reason why selling insurance is so difficult. And I've heard that mantra 1000 times. I'm sure you've heard it too that 'insurance is sold, not bought." I'm sure that's part of why people feel so strongly about that.