SPEAKER_01 0:00

The most interesting thing happened to me in the last year was about a year ago, March of last year, 25, I was riding my bike across the country with a group of guys. I think I was somewhere in uh Arizona or something like that. And I got a call that I really didn't want to take, but I'd already said no to an acquisition. And it I we don't do a lot of those, but it was pretty easy to say no. And I got a persistent call of like, you know, we really need to talk. And having already said no, I come in very skeptical. And then a few weeks later, after a bunch of different phone calls that I wasn't ready to take, we ended up agreeing to buy a Limpus insurance company. And it was a pretty wild ride to going from I don't really want to take this call to spending hundreds of millions of dollars on buying an insurance company in Florida. So that's my story. And I am an insurance dude. Boom!

SPEAKER_04 0:56

We dial, we quote, we cut the fluff. No suit, no script, just real world stuff from chaos to system. Growth, that's legit. Laugh a little, sell a lot, the insurance dudes. That's it.

SPEAKER_00 1:15

Welcome, Terry. Why don't you uh why don't you introduce yourself and the company that you're with?

SPEAKER_01 1:21

Yeah, uh Terry McLean. I'm the founder, co-founder, and CEO of SageShare. We go by the name Sage, really. Sage Insurance Managers is the sort of operating name. We've been around for we really wrote our first policy in the modern SageShare September 17th, 2009. So it's been a pretty interesting ride. SageShare as of today, we have 3.2 billion of enforced premium across 16 different states. Texas is our largest, Alaska's our smallest. We distribute through independent agents, through some large national distributors. Really, we think of ourselves as a managing general underwriter. Really on it, think very much operate like an insurance company organization more than a broker. We underwrite everything we do, and that's our differentiator. If you think about SageShare, one of the things we're proud of most is we've run one catastrophe underwriter of the year, three years in a row by insurance insider. So it's a pretty cool, and we very much think of ourselves as underwriters over brokers. I've been in this space my whole life. I thought I was gonna be a pension actuary when I was 14. So, unlike most people who end up insurance, I kind of knew it was destined. My dad was a journalist, uh, wrote for the National Underwriter Company for 30 years. So an insurance journalist. And um, I have an immense passion for this business. My home game is math and software. I passed some actuarial exams, some of them in college and some of them after college, but decided I wasn't gonna be a full-time actuary, definitely wasn't gonna be a pension actuary. After my year of doing that in an annuity company, I realized that was not my calling. Uh, I live in California now. I've got a wife and four kids under 13. The youngest one's four, and uh love running Sage. And running bike. And kind of bike. Yeah, I'm more of a runner than a biker, but I'm a biker and a runner. Live near the trails, love, love running trails, love biking. My wife and I, right before we got married, did an Iron Man triathlon in California. So yeah, pretty love being in California, love outdoors. Lived in New York for a few decades before moving to California in January 2020.

SPEAKER_00 3:34

That's drastically different. Yes, drastically different.

SPEAKER_01 3:38

Good different.

unknown 3:40

Yeah.

SPEAKER_01 3:41

New York was great, but it was time to get out of New York City with the kids. Well, you lived in the city? Our Oaks was in second grade. It was time to go. Wow.

SPEAKER_00 3:48

That's a big change. Yeah. Dude, it's so funny. Like people in in California react the way Californians react to to New York, New Yorkers, is just so funny to me because like nobody wants to deal with people from New York. You know what I mean? Because like we're all we're all outgoing and bubbly and kind of like BS-y kind of out here, where it's like somebody in New York, they're just gonna tell you the way it is. And so like I think the perceive, because it's so different, perception out here is like, wow, that person's difficult or something. It's like, no, no, no, he's just from New York, dude. He's telling you the way it is. That's right.

SPEAKER_01 4:24

Yeah, I I I certainly feel that I don't think of myself as from New York. When people ask me where I'm from, I say Cincinnati because that's where I grew up. I feel like that's where I'm from. In New York, I never, I mean, New York City, living there, unless you're actually from there, it doesn't ever feel like you're from there. It feels like you're you're borrowing it from other people. It doesn't, it I never felt like I mean, it felt like home, but not a warm home, like just where I live. Yeah. Not that I don't love it. I did love it, but it's different. I totally get what you're saying. I think the the LA versus New York is a little bit different than the Bay Area versus New York.

unknown 5:04

Yeah.

SPEAKER_01 5:04

It's a little bit different vibe up here. I feel like the Bay Area is a little bit more, not New York, but a little bit more New York than than LA is, honestly.

SPEAKER_00 5:13

Yeah. Different, different vibe. I I feel you on that. Yeah. A hundred percent. This is awesome, dude. You know, it's so funny, like most people fall into insurance. It's kind of like a, you know, like there's there's always like a stumbling upon, but you you were kind of set in that path from, you know, no being no doubt. Like that's so cool. No doubt.

SPEAKER_01 5:34

Yeah, I figured I was gonna be an insurance early age. I wasn't quite right about how I was thinking about I was gonna go into insurance, but certainly having a math inclination, a love for finance, and in today's day and age, I mean, even when I was in college now 30 years ago, more than 30 years ago, the idea of combining that using technology was how I thought I'd spend my career. I had no idea it would be property casualty insurance focus on the catastrophe space. Didn't think of that, but certainly in the insurance space, it always felt like the right place for me. So that was my dad's introduction to it at an early age. And a little bit of it was I'm not really a science, like it's not where I'm drawn to. I'm drawn to financial markets and capital markets and that kind of thing. And so much more than drawn to, let's say, the biology or the physics of something. So I think that's part of how I ended up in insurance. Insurance is very much the combination of actuarial science and statistics and probability together with the financial world, certainly in in my world, because of reinsurance and insurance link securities and things of that nature, more than brokerage, it's a big, big part of what we do is connecting the financial markets to the insurance markets in the property space. How do you do that? Uh, well, I mean, there's the facet of putting together products that are connected to your underlying hedging cost. I'll I'll answer that question with a bit of a story about I presented at uh a financial conference in September of 2025, and uh the host said I was the first insurance person at this finance conference in 40 years since 1985. And I was presenting there at the request of the host, Mr. Jim Grant, and he said, talk about whatever you want. And I thought, well, to a finance audience, what could be more interesting than insurance link securities? Keep in mind, there's a finance audience, right? In in that world, they're looking for, well, what's the best opportunity to invest in the best risk reward? And so there's clearly risk in catastrophe insurance. So to answer your question of how do you connect it, the best way to connect it is source capital at an inferior and a superior cost of capital, at a lower, a lower cost of that capital. So you can bring that capital more efficiently to your customers. And in this audience, I think it's really to your producers. And I'm pretty sure that in our space, we've been better at that than anybody in the world over the last 10 years. We've gone to the capital markets. We've become, I think as of the first quarter of 2026, we'll be the fifth or I think right now we're number seven, but we'll be the number five cat bond sponsor in the world. And so you think about our tiny little business, 3 billion isn't that big in the homeowner space, but we have gone to market and acquired this capability to attract insurance-link securities capital in the form of catastrophe bonds and bring them to market, which have proven to be a lower cost of capital as a diversifier to our overall call it $7 billion reinsurance purchasing budget. So you get really good at that. And then you bring that lower cost of capital into your product mix so you can offer more cost competitive products to your end customers. So that's the primary way that you do that. And that involves everything from the math involved of how do you optimize a structure to take advantage of that to the relationship side of getting on planes and going to London and Munich and Zurich and Paris, New York City, Bermuda, and attracting insurance link securities investors who want to put their capital behind you because you offer better technology, better data transparency. They believe your claim settlement is better, they believe your underwriting is better, they believe your pricing model is better, they believe your insurance to value is better. They believe all those things about what you put together. So it's it kind of runs the gamut all the way from the pure finance side all the way down to the blocking and tackling and relationship building of insurance. That is awesome. So that's I can hold back if you want on that.

SPEAKER_00 9:57

That's the back end. I'm so curious. And I know it's a little off, like, but anyways, uh, how did you start SATsure? Like that's such a juggernaut to put together.

SPEAKER_01 10:08

Yeah, it's an amazing question. And and the story I think is a little interesting. So we started the origin story was I was working for Renaissance Ri, one of the world's largest providers of property catastrophe reinsurance. And I had a former business associate, Andy DiLoreto, who was landing LaGuardia around the same time. And I think I was going back to Bermuda or something like that, and he was flying from somewhere and he was ready to leave. He was working at a reinsurance broker at the time called Benfield. And we decided to start an insurance software and services business called Insight, Insight Catastrophe Group. It still exists today, still own that business. I don't run it day to day. Uh, a gentleman named David Delaney runs that day to day. But we started an insurance software and services business, um, which turned out to be a the right business thesis, probably the wrong business model to capitalize on the retreat of the Narge national companies away from the coast. So the the idea was we've had a bunch of hurricanes in 2004 and 2005. You had Hurricane Andrew, which, you know, sort of changed people's perception of hurricanes in modern society in 1992, and then you had these two big hurricane years in 20, 2004, 2005. Our view was the big national companies, State Farm, Allstate, Travelers, others are leaving the coast. And while they might dip their toe in the water, they're never coming back to the same market share that they once were. And if you believe that hurricane activity is significant and property aggregates, which of course, I mean, I'm not gonna get into a climate change debate, but hurricanes happen. We know they're happening, they're pervasive enough that they're gonna continue happening, they're not gonna stop happening.

SPEAKER_00 11:56

Right.

SPEAKER_01 11:57

And so we're gonna have hurricane activity and property aggregates. What are you gonna do with that volatility? It isn't gonna be absorbed by the large national insurance companies. That's true. What happens is you need regional insurers to fill the gap, unless you believe the government's gonna do it all. So government does some of it, but most of it is not done by the government, government. And who's gonna solve that regional insurers were? And you've seen Florida players do that. And we, our view was most of the other states are gonna see an increased prevalence of regional insurers solving that problem. And so after having started that software and services company and realizing this isn't happening fast enough to build a business model, we said, well, let's build a business that's going to accelerate the regional insurers, filling that gap and make money on that. And so that was the idea. We started that, officially incorporated a company called Coastal Risk Underwriters in January 1st, 2006. And we really, I mean, we wrote a little a few policies on Berkshire paper, but it didn't really go anywhere. The market softened too quickly, and their pricing wasn't gonna work. We thought we were gonna get launched with another big A-rated insurer, and that fell apart. And ultimately, we picked up a relationship with IET, who they've just been absolutely amazing partners. Um, with uh a friend of both Andy and mine, Brooks Clark, our chief actuary, joined us. Um, he's he's our chief actuary and been my business partner since 2008, almost 20 years now. And we built out what was still called Coastal Risk Underwriters. We rebranded to Sage Share in 2013, but we had you were there at that time. Oh I mean, we had the software and services business and they were kind of commingled. So it was maybe 30 people or something like that. So it wasn't, it wasn't two of us, but it was in in 2009, it was a few dozen. And we wrote our first policy um September 17, 2009, in what I'd call the modern Sage sure. And then we just added Alabama, added South Carolina, added Louisiana, added other states, and grew organically, entirely organically, to what was at the beginning of 2020 or by the end of 2024 was 2 billion. So we were organically from that first policy in 2009 over that, call it roughly 15-year journey to 2 billion organically, and never, never lost a carrier partner. We always did right by them. We moved on from a couple of them because there were mergers or downgrades, and then just moved the business to one of our other partners, but never really churned and burned like a lot of MGAs have gone through over time, where they got to move carrier to carrier to carrier because they're not generating other writing profits. And that's something we're very proud of and has allowed us to keep growing. I think it's one of the key reasons why we've been able to keep growing is we always had an underwriting plan to make money for our carriers. And we are always disciplined enough to write the business at the right price. And as price needed to go up, take the price and to underwrite the business, even if it meant that we weren't gonna write as much business. And I think that's the the big challenge in what we've done is finding that balance. Well, everybody wants to grow, especially if you've got venture or private equity backing. We were self-funded. So we didn't, we didn't have to worry about that. And we never, fortunately, outside our partner group, we never had to take outside money. So we were able to do it and say, we're gonna do this right. We're gonna stick to making the right decisions in the best interest of our capital and our capacity, so that they aren't gonna wake up one day and say, you know what, I don't really need you. You're not, you're not using my capital wisely. And then you have to reshop that business. And that impacts your agents. It's it's just a bad. It happens, and you know, it could have happened to us, but we were fortunate we picked the right partners. We were lucky enough to have the right partners, and we're able to continue through that without them saying, get out of here. You know, you've you've burned me enough. I don't want your business anymore. So that's what allowed us to keep growing organically. And in a business line like homeowners, that sticks pretty well. So most of our business during that cycle to 2023, we were running retention rates in the high 80s, low 90s. So you you're you're holding most of the business. And then if you write a good amount of new business, um, you can keep growing it at nice rates. So anyway, that's been the story. That's been the organic growth path. And it sounds gargantuan when you look at it in the rearview mirror, but each year it was like, okay, we're gonna grow 20, 30%. And when you're at 3 billion, if I could grow 25 or 30%, yeah, that's a gargantuan number. Yeah. We can't do that kind of growth today. But when you're at, I don't know, 250 million, growing 30%, it's good growth, but it's not, it's not crazy. Those aren't crazy numbers. You just got to find that right balance where you're making money for your carriers and understand you're gonna have the new business penalty of re-under underwriting that business and bringing business on. And you got to price that in your products to make sure that you're able to hit your carrier margins. How did you maintain that like momentum? I mean, like anything in the entrepreneurial journey, some of it's luck. I mean, you know, markets, I don't know, you have weather, right? And you can't predict when the weather's gonna happen. I'd say what wasn't lucky is the the year we almost got the profitability was 2012. And hurricane Irene had hit New York the year before. I was living in New York City at the time. My wife is seven months pregnant and hurricane. No, I'm sorry, eight months pregnant, and Hurricane Sandy hits in our large at that time, New York was our largest state, and Hurricane Sandy took away any chance we had of making a profit that year. So you get unlucky sometimes, but we had the momentum at that point. We had just gotten to the point where we were cash flow break-even. It would have been nice to get a contingent commission that we didn't get because we lost, you know, had losses in Hurricane Sandy, but the next few years were pretty innocuous from CAD activity. And so, you know, I would call that good luck. We had a, it was a pretty benign period. A lot of other people got that good luck too. But at for us, having a few years as we were going from 60 million to a couple hundred million of pretty modest hurricane activity is a huge part of it. Now, on the not luck side was the underwriting discipline of we inspect every house. We didn't fall into the trap of, well, we sure could save a lot of money if we didn't inspect. We could sure have a lot less underwriters if we just took the agent's word for it and bound it and didn't really look at it. Or, well, we inspect 10% of the risks. We know what happened. That's not luck. That's very purposeful. The other thing that we chose that wasn't luck was we stayed away from the Florida market. The Florida market was out of control, low price, um, a very dangerous legal environment. And I don't think a lot of the companies were eyes wide open to those challenges. And we were pretty like, we'll write not admitted there, but we we we won't. Another thing that wasn't luck was we decided to be entirely ENS in California. So no admitted in California, the regulatory environment is too toxic. So those things weren't luck. Those were strategic choices that I'm not so sure everybody has the discipline to make along the way. I'll tell you one of the things that we didn't get right, that we now have right, but we didn't have right along the way, that burned us a little bit, but we were able to recover it from was not doing claims ourselves. We relied on our carriers, which directly relied on a bunch of TPAs that ultimately weren't doing right by us on the claim side and learned some really tough lessons from that, especially on hail. We we we have we've had tens of millions of hail losses that we've paid on that we should not have paid on, that we've done forensic analysis on and be like, that was not hail. And we paid on it. And that that hurt pretty badly. So that was a tough mistake to make. And today we don't we don't make those mistakes anymore. There's a lot of roofer-driven and public adjuster-driven fraud or, you know, shady allegations of hail when there's no hail. And at this point, we don't we don't leave that to chance anymore. We make sure if there's if there's an alleged hail claim that there was actually hail that caused the damage. So that was a tough lesson to learn. But we also invested very heavily in technology, which is no accident. You can invest heavily in technology and still do create lousy technology and burn a lot of money. But we've been very purposeful in where we've invested in technology. I think that's been part of the success and the growth path. We have endeavored to create what we refer to as our market-leading buying experience, which the majority of our producers say we have the best, or certainly one of the top three best experiences for quoting and binding experience. We also very invest very heavily in developer experience. So those agents who are large enough and have integrations with carriers, that we do that better than everybody. I'm pretty sure we do that better than everybody. We have a whole team that does that for a living, is they integrate with our agents so that they can get products to market faster. Our big agents that are that are doing that at scale. So we do things like that that are very purposeful, that make a difference. And if you do that well and you make it easy for your agents, easier, I should say, because there's always friction, there's always pain in getting business on the books, you make that as easy as you can. That certainly results in an opportunity to grow. And that was paid off massively in the hard market 2022 through 2024. That was a very, very firm period. Prices had to move up a lot, and producers didn't have a lot of options. So that buying experience really benefited us. We could bring in large volumes. We've also invested huge in technology for the inspection process. That's an area that is, I'd say, our biggest challenge as a business. We have pretty competitive products for preferred customers, but we create a lot of friction for our agents. We can't deny that. We inspect every property and we actually take action when a property has a roof that's not in good condition or we have trees overhanging the house that are prone to cause damage during a hurricane. We're pretty tough on underwriting. We can't really apologize for that because that's what enables us to bring cost competitive products. And we're not doing it. So we win awards for underwriter of the year. We're doing it because we need to protect our insurers' balance sheets and making sure that the price that we charge is commensurate with the risk. It sounds technical and annoying, but the reality is without that, we don't produce the results that we do. And we need to charge a lot more for our product, which is a negative feedback loop that nobody wants to have. So we invest a lot in technology and we still are. I'd say that's one of our bigger areas of investment where looking to make that experience much lower friction. I mean, it's always friction, right? You're saying, hey, there's something wrong with this property or with this insured's hazards on the property that are not up to a standard, and nobody wants to hear that, right? Or you're not insured to value. And we ran insurance to value up front, but sorry, the information you gave us wasn't matching what's what we found when we inspected. Sorry, we're gonna have to raise coverage A. And that's challenging. That creates and that happens on more than 20% of our properties. So we want to lower that number. We don't want that to happen, but it does. And we invest a lot in technology. We're investing, we're we're inspecting more than 250,000 houses a year, physically inspecting. So that takes a lot of technology across a bunch of different inspection vendors to do that and do that frictionless. Increasingly, we're using automation and things like AI to improve that. We don't have AI deciding any of that, certainly. At this point, it's not ready for that, but we do have it accelerating the process and continue to make investments to make that stuff better. It's so interesting. Hopefully that was the answer to the question.

SPEAKER_02 23:55

Yeah. Um you have you're you're modest and humble when you talk about you've had a lot of luck, but I think that there's a lot of science and math that went behind the choices that you made. And it sounds like, and you know, this is a lot higher math than I'm usually used to talking, that you have these different buckets you've identified, right? Where there's where there's knowns or unknowns, right? And you've mitigated your risk and your ability to to shine in this, in this niche, if you will, by identifying, okay, we can figure out over here with this, like whether it's underwrite or whatever it is, right? Each component, that that we're gonna be pretty solid if we if we do it this way. And we could do it over here. And it sounds like you you've found as many buckets as you can where you already have knowns or you're pretty close to the knowns. It's like no Florida, right? Because now there's too many unknowns. And yeah, you could make a bunch of money, but Katrina's gonna come along at some point. And so you don't want that. So it's it's just it's really interesting because you because you're in this market where there is significant unknowns, but you've mitigated or you've limited where that is to just a few places.

SPEAKER_01 25:03

Yeah, you're absolutely right. I I think about it all probabilistically. And so, how do you essentially find the places where the probability of winning is high enough to pursue and keep repeating that process over time to find the adjacencies where the probability is close enough to that? And of course, you learn over time. I think you characterize it correctly. What's I think really fascinating, I mean, we're primarily a homeowner's writer, whether it's the owner-occupied or the tenant-occupied homeowner structures. We do some our commercial businesses exceeded now 100 million. So it's no longer a nothing business, but it's it's it's meaningful to us, but it's primarily personal lines property. And so in that business, what I think there's a large misperception about insurance and population at large, in the insurance space, I'm I wonder even how many agencies even realize how unprofitable homeowners actually is. If you look back at the statistics that are produced in yellow books over any period, I like simplifying, it's like not any one year period, but over any five-year period or 10-year period or 15 or 20 or 25 or 30. And you look at any of those periods, the homeowners insurance industry loses several percent of premium. It's three to five percent on underwriting. So shocking, right? Imagine if health insurers lost three to five percent on underwriting every year and they only made it up on volume or float. I mean, it's uh it's it's almost unimaginable. And sometimes I scratch my head and say, why? I mean, part of it is if you have large reciprocals or mutuals, they feel like they can provide products to their members or their agents at a subsidized price because their cost of capital is not market cost of capital like a publicly traded company. It's it's subsidized cost of capital because they're either member owned or they're they're I mean, they're owned by their policyholders in a reciprocal or they're owned by their policyholders in a mutual. And that that moves the market a little bit. The other is some people are just subsidizing because they write the auto and they're saying, I need this package, and I'll get there someday on homeowners. There are signs that the big nationals are reforming a little bit and they're moving price up. And so maybe prospectively, homeowners will enter a golden age where it actually makes money on underwriting. I wouldn't hold your breath on that one, but historically, it doesn't make any money, which begs the question why are people doing this? And now part of it is the subsidy, like I said. But the reality is another part of the reason is because the profits go to the reinsurers. The primary companies don't really have, they have tail risk, meaning like the Katrina times 10 that bankrupts the entire industry. But most insurers, if you beyond like the really black swan type events or years where you just have a an amount of catastrophe activity that we've never seen in human history before, if you look beyond that and just say on most periods, insurers don't have that much risk. They take the risk in and then they send it out to the global catastrophe reinsurance market, buy cat bonds, buy insurance link securities, and they end up hedging almost all of that risk. And that's what I was speaking about at the finance conference. Like, this is crazy. How could this be? And the reason is the reinsurers are really absorbing all the volatility. They're the ones that are left with most of the profits in the primary companies can muddle through with their very low amount of net risk, again, beyond the tail. And it's close enough for them to survive and sort of make it up on the investment income side of the equation. So if you if you see that in the homeowners industry, everybody's thinking, oh, these guys are making all this money. They're really not. And the reinsurers are the ones making money, but they deserve it because they're taking all the risk and the volatility. And they're the ones writing the check in Hurricane Katrina and Hurricane Andrew. That's where the capital is coming from. State Farm will have a loss, but it's not, it's not sitting there stuck with a $10 billion bill. It's it's sending all of that to the reinsurance market. So that reality informs a lot about where we choose to play. We understand what our cost of goods sold from the global reinsurance market. And we say, okay, is there enough margin left over? And if it's Ohio, there's not that much cat risk. So there's not much margin left in the business. And so we go to markets where there's actually volatility and say, we can optimize, optimize the way we buy reinsurance. It's not buy little amount of reinsurance. It's optimizing and finding a way to get the reinsurers the margin they need. And there's enough margin left over that through that optimization, and that's through portfolio balance, that's through solid underwriting, that's through building relationships with reinsurers to make them want to give you their capacity at an attractive price. It's all those facets in the blender to build optimized portfolios that generate superior returns so that our carriers can enjoy positive underwriting margin instead of negative underwriting margin, and we can get paid our fees that we want to run the business.

SPEAKER_02 30:06

And what, what comp like so that and the insurers, I'll ask this for Jason just in case he's not following. So, so there's a, you know, the the premiums come in and go either to the reinsurer or into the investment portfolio, right? And so the investment portfolio also is is the big source of the like it's it's hedging against loss from the underwriting side, right? They already most of the most of the insurance carriers understand they're gonna lose on this side. So how can we win on the back end? And they're taking in billions in premium. Does that so yeah, walk Jason through that?

SPEAKER_01 30:41

Yeah, so so so this is this is one of the major areas that show up in rate filings and you'll study in if you if you somebody who takes actuarial exams, the investment income is a meaningful component in long tail lines. But in homeowners, the amount of investment income that you generate on an average portfolio generates about one to two percent of premium in float. And that's in an average interest rate environment. In a low interest rate environment, it's way lower than that. In an average interest rate environment, it's one to two points. Last time I looked, I think it's about 1.5% for the average insurer. It's not, it's not a lot. In workers comp, it's everything, right? You're you're you're holding money for long tail casualty lines, it's everything. You can you can lose three, five, seven, maybe even 10 points on your underwriting results and make it up an investment income. You can't do that in homeowners. Your average duration of holding the money is less than six months. Okay.

SPEAKER_00 31:41

Right. So, like the only reason why the carriers are doing this is just literally to bundle and uh make it up on their other lines.

SPEAKER_01 31:49

Yeah, I mean, I I think that's the historical reality. That's right. I think, and maybe there are other reasons that are not obvious to me, but I think those are the primary two reasons when you look over that historical period that that I talk about. I do think there there could be some optimism. I have a little optimism while remaining a decent amount skeptical, that there have been some, there's been some wisdom accumulated in some of these larger insurers that they just can't afford to keep running these underwriting losses. And we've seen prices move up. And that's tough for for agents and for policyholders. I have a lot of empathy, but I do believe the industry has been subsidizing for a really long time. And that doesn't help the retired person who has, you know, has a fixed income and has savings and their price doubles. I have a lot of empathy for that. It's tough. But the reality is they've been being subsidized for a long time. I assure you, in California, on any reasonable view of risk, industry, homeowners here have been getting subsidized for decades against the reality of wildfire exposure. Massively subsidized. And and that has to change. And it has changed. Prices have moved up. Um is that has it has it moved up enough? I would say almost certainly in the Midwest, in the Northeast, no. It hasn't moved up enough yet. In Texas, in maybe Florida, maybe. In California, on the highest risk, no. On the lowest risk, I think it has. And so we're seeing signs of certain places in the biggest ex uh biggest catastrophe exposure areas. We're seeing signs that the market's operating rationally, that people are actually raising price to a level where they can sustainably run a profit and buy their reinsurance. Um, and that's healthy, that's normal. And we're, I think we're finding that that top of the curve. Will that discipline stay or will the discipline erode? And we go back and revert to the underwriting losses of people doing stupid things and burning their way into markets, charging too little just to accumulate revenue and then waking up with a hangover. I don't know. I hope I want to have some optimism for that, but we've seen it over and over where undisciplined startup companies come into markets, they burn their way in with low prices, and then they wake up with a hangover and then they need to move books of business or retrench. So it'll happen again. Will it happen to the whole industry? Will the large nationals end up realizing that they're not generating enough growth or they're not, they don't, they can't bundle as much. And so they start lowering prices again. We'll see. I don't know. But that's that's the question. And historically, the industry has not maintained discipline, but maybe it'll be different this time.

SPEAKER_02 34:29

Well, and then you have the the political pressure too, right? In California, where they couldn't. I mean, Jason's agency was unable to write business for a certain amount of time, a year, right? Yeah. We can't say which carrier. It rhymes with the University of Ball State.

SPEAKER_03 34:45

I don't know if you've heard of that university.

SPEAKER_01 34:50

Well, if you if you are the one I think you might be, we just turned on a ENS product for you in California. So you might have seen that. And we have capacity. We don't write the highest risk, but in terms of the macro environment, yes, there are places where we have capacity problems. I think those are increasingly in the rear view mirror if you include ENS in the equation. So if you think admitted is coming back in California and that's the solution, then you know you're not living in the same world I'm living in. Um the you're not gonna see a bunch of regional startups going and writing admitted homeowners in California. If they do, you will you will see some chickens come home to roost for their investors who make a very unwise decision. They should not do that. You maybe you'll see a few, but you won't see those in droves. They will not solve the market problem. The market problem's got to come through. Pricing has to be one element, and terms and conditions have to be another. And California regulatory environment, in spite of whatever the regulator might say, don't believe it. It won't, it won't play out that way. The politics are too toxic. You need a DeSantis type who comes in and says, not on my watch, or a Tim Temple like in Louisiana who says, Look, you can say whatever you need to say, not on my watch. And so you need somebody who has the courage to push back. Doing that in California, I mean, I wouldn't want that job. Who would want that job? Like, are you gonna push back against the political will of California? Not me, not uh, not anybody that I know. So that's a that's a tough one. You can get away with that in in Florida, you can get away with that in Louisiana. I don't even get away with that in California. So I just don't think there's a scenario under which anybody who, unless something changes about wildfire risk that I don't know about, you simply cannot solve the property problem in California without ENS. And ENS has to become the main part of the market solution. You can you can have the regulator, I mean the uh the residual market, the fair plan, solve that stuff, I guess, if that's what the society wants. But you you've gotta have ENS as a major part of the market mechanism to solve that.

SPEAKER_00 36:59

Yeah, 100%. What what are you seeing as far as like the agents that are just crushing it that partner with you guys, what what are you we what are you seeing them do differently to generate business, especially with technology and everything else?

SPEAKER_01 37:14

Yeah, I mean, there's a couple different parts to that question. I mean, certainly the ones that are bigger tend to be very technology forward. So, I mean, we we we we run the gamut. We run from somebody who might only write one policy a month with us to people who are writing hundreds of policies a day. So it really runs the gamut. And if you think about the bigger side of that, whether it's the roll-ups or it's national footprint distributors, the ones that are doing it best have control of their distribution through technology. And, you know, things that were unimaginable a decade ago are now reality. And those are the ones that are winning because what they're able to do is get their agents, their humans, to the right solution better and faster. Now, you don't have to do that through controlling your agents. You can give them better tools. But the real our observation is the ones who are winning are doing that basically like through mandatory or essentially near mandatory usage of technology so that their agents are smarter and better. And they're building those tools into their user interface. Now, that's not reality for a smaller agency, right? You're not, you just don't have the budget to invest tens of millions of dollars or millions of dollars in technology. My guess is, and I'm not really that close to it, increasingly there have to be startups who are building insure tech startups who are building smart technologies on the agency's desktop to do that for them, that they can buy and put in place. And we remain, I think, a market leader who is ready to be bleeding edge with those types of organizations to bring solutions to agents' desktops. I mean, we we know it's better for our agents, but the ones who are winning the most are doing that. Clearly, the other type to, you know, sort of go the other direction from technology, there are the old school blocking and tackling. People, from what we can tell, are not ready in the United States, maybe in other countries or other areas are, but the average person wants an agent. They want an agent to solve their problems. They don't want to figure it out. And the agents who are winning are the ones connected to where people, you know, whether it's the real estate or the mortgage, the old school, those people still exist in our lives. It's not like everybody buys a house through an online site. They buy it through a real estate agent. That's the majority of real estate sales. And so they're getting a home loan either through often through a mortgage broker or through some banking contact. And because of RESPA, they can't, they're not originating the insurance. So they need an insurance agent. Those are still the best source of high quality leads in our world. You know, there might be the online shoppers, which certainly, as I'm sure both of you know, and I think most of the world knows, those people who are shopping for insurance online don't tend to have a very good insurance score. They don't tend to have high stickiness and end up not being the customer who's the winner. So those who, say 10, 15 years ago, said, I'm gonna invent reinvent insurance, and consumers really want to go shopping for insurance online, it's a fallacy. It's just they don't. They want to go to somebody who solves the problem for them. And when do they have the problem? When they buy a house. And so that's how the winners, and so those who create the best relationships and the best sourcing relationships are the ones who win on, I guess call it the old school insurance model. And that's still out there and it's still very, very much present. How much longer? I don't know. Cole, maybe maybe I'm an old fuddy duddy. We don't see a lot of change in that. We don't we see the way they do business changing and becoming more technology forward, more automated, more streamlined, but the same people with the same relationships. Part of it is the entrant, like the RESTA rules are no joke. So you, if a real estate broker could sell you insurance and make money on it, they probably would, but the law doesn't allow it. And that that creates that regulation, it creates a lot of impediment to changing the entrenchment of the insurance agent as a fixture of US homeowner sales. And homeowner sales leads personal line sales, like like it or not. Like, yeah, if you you can go to an online site and buy your auto, but homeowners leads the sale and usually prevails as the the anchor to personal lines, at least in the preferred sector and certain the mass affluence sector. So I don't I don't see it changing. We don't see it changing. I'm not saying never. I'm not gonna predict that far in the future, but certainly when we look out over five years, we're we're not strategizing that that's gonna change radically. We'll certainly be there if it shifts. And if we see trends, we're always experimenting and we're investing in what might happen on a regular basis. But our bets are on the existing model largely persists in a more technologically advanced state where lots more system integration, lots more stuff gets done. Agents who are servicing policies via single sign-on connections from their website to the carrier's website and service becomes more seamless, but all through an agent who continues to get paid commission. So that's not a sales pitch. It's just we've been doing this for a while and we're not seeing the movement. There's a lot more energy around this 10 years ago than there is today.

SPEAKER_02 42:21

It's it's just so interesting how much has changed in three years, right? Since Chat GPT launched. Like it's just yeah, it's you know, I I don't know how plugged in you were to like the earlier LLMs before all the, you know, everything came out, but it's just so interesting how fast everything is changing. You know, regulators can't keep up, nobody could keep up with with the pace of the technology. It just seems at some point it's so good, and then they plug it into a quantum computer or whatever, and now you have something pretty powerful that can do a lot of things. A lot of industries, it seems like, are gonna be blockbustered, right? Like things are gonna happen or or not. I don't know. I mean, it's just I I don't know. I'm just throwing battle out.

SPEAKER_01 43:06

Yeah. Yeah, I mean, I I we have thought about this a lot and think about breaking apart the problem because I mean, if you go back to 1999, there was no, there were no more department stores. There are no more malls, right? They they cease to exist. That's the theory, right? But what we still have malls. People are still building new ones, maybe, maybe not as many, and it's changed and Amazon delivers the package a couple hours from now, but yet there's still malls. So things evolve. I just don't see this complete overhaul or radical shift because of the impediments to the existing model. So, first of all, in spite of my views that we need surplus lines to solve a lot of our problems in catastrophe exposed areas, we do still 97% of homeowners in the United States. I think that's the number, is sold admitted. So maybe 97 goes to 93. That that would be a A doubling in more of surplus lines, but still 93%, still 90 something percent, the overwhelming majority is still done that way. So use that as one example. Regulators will evolve, but one thing I don't think they'll capitulate on is unexplainable correlation/slash causation in prediction power. So I mean, is it artificial intelligence? Probably not, but credit-based insurance scoring has been around for a number of decades. We've been using it everywhere we write business, and it's been a perfectly good tool. You can talk about all the models you want. Nobody can show me a model today that can give me lift on credit-based insurance scoring that has any predictive power and can be explained. Maybe one exists, but if you can't split it to the regulator, you can't file it. And if you can't file it, you can't charge it. And so maybe you could dabble on surplus lines and that stuff. And maybe 10 years from now, I'll be it'll be saying there'll be pervasive use of modern AI-based models for surplus lines. That could very well be true, but surplus lines maybe is like I said, maybe it goes to 7% of the US homeowners market. Is that really, you know, the equivalent of department stores going away? Not really. So on the fringes, and I think that's 10 years out, seven years out, not pervasive because it doesn't really solve a business problem by itself. There's there's plenty of other more important business problems to solve. That's AI in search of a problem. And AI, I think, will gravitate toward where there are real problems. And so I contrast that with claim settlement. I think AI is already and will radically change how claims are settled. We're seeing that. We're seeing major changes on our side. I think that's the biggest opportunity. It solves lots of problems. One, it's very expensive. Customers want better service and they can get better service. And the companies can save money, the customers can get the better service, and we can do it faster where everybody's happy. I think that's where AI goes, where there's really a problem to solve that's that's obvious. And there's plenty of those in operations, in efficiency, in claim settlement. AI can go to maybe start solving some inspection problems that we have. It takes a lot of labor to go do that. Is there is there a pathway today to using AI to replace physical inspection? There's not. Will there be in five years? Probably. There probably will be. That's probably where AI will go. It'll be taken aerial imagery or the the Waymos that are driving by people's houses taking pictures along the way. And it'll probably chart those, create images, and give us a replacement cost of that without us ever going there. And that'll happen increasingly. So I do think there are pretty exciting ways in which AI is going to matter. I don't think it's going to replace what customers really want. What customers want is exactly the opposite. Do I want to trust the bot to get me insurance? Well, sure. If I have a VIN number and a social security number and I can buy insurance, okay, show me what you got. Okay, I just need insurance now. It's easy, that's easy. But any insurer that does that on homeowners is going to lose. We've seen many of them as far as 10 years ago attempting to do that. They got crushed. And they will get crushed because it can't be done with today's technology. I'm not saying that's true 10 years from now. Right. It's true today with certainty. Is it true five years from now? Probably still true that you cannot replace the underwriting of a risk with physical inspection with what is out there. So I can't, you know, I can't predict five years with certainty, but with high probability, with 10 years, a lot harder to tell today. But we've heard this before that technology is going to change everything. I don't believe it's going to change everything. I think it's going to change certain pockets in meaningful ways and accrete to mostly the benefit of the entrenched players. I don't think it's as much of a disruptor as it is in e-commerce or as much of a disruptor. I think it's a disruptor for the physical delivery model and in insurance, meaning the people who are going out and inspecting houses, they're going to get disrupted because there's cheaper and better ways. I just don't think the distributors are going to get disrupted. Maybe the way they do business gets disrupted. Maybe there's less physical sourcing and more electronic sourcing. I'm a lot less close to that. But on the insurance underwriting and balance sheet side, there just isn't a good pathway to around RESPA. There isn't a good pathway around the underwriting risk in the regulatory environment that drives most of our business. So that's that's the fundamental reason why I don't believe we go from what I think is still 93% of homeowners' insurance is sold through an agent to a meaningfully lower number. I'm not sure what the stat is, but that the last stat I saw was 93. And that hadn't moved much than more than a few points in over a decade. So again, that's a few years dated. I haven't seen it in the last couple of years, but it hasn't moved much. And so I don't, I don't think AI changes that quickly. Awesome. Well, that's great news.

SPEAKER_02 49:07

Yes. Well, it's nice to have somebody that's smart and analytical say something contrary to what everybody else has said, right? Like I mean, you got a lot of people that are trying to throw out the scare stuff.

SPEAKER_01 49:18

If you if you've got other podcasts or other things that are you're seeing, please send it my way. I would love to look at it. I'm just not seeing any evidence that's suggesting that's actually what's happening. There the way agents are getting the business is different, but it's still going to agents. Right.

SPEAKER_00 49:34

Yeah. It's almost like, I mean, so far the tools enhance all the all the processes. It's not so much a new process. It's more of, you know, having more firepower of what you're currently doing. Exactly. Or efficiency. This is awesome, dude. Thank you so much for going the distance an hour, which is which is awesome. But I I'd really like to know from your from your point of view, like going into this new future as we're talking about AI and stuff like that. Like, where do you see the advantage for the insurance agency owner? Where would you double down if you were them?

SPEAKER_01 50:08

I think I said it earlier in some form. To me, it's gotta be technology. You gotta have the tools to be competitive. And if you're like, well, it costs me this much to put people in place to do XYZ, and that's not competitive, you're you're gonna be at a disadvantage. You've got to be able to compete. For example, lead acquisition might go up in price as other people get more efficient. They say, look, I can write this piece of business so I can afford supply and demand economics are gonna dictate that they can pay more for their leads. And so leads become more valuable, whether that's through I need to build more relationships or hire more people to acquire leads. You can't have inefficiencies in your operation at scale and expect to win. The world AI is going to change that. There, it's going to drive away all of that cost. And you can't afford to have that leakage. So I would say you really need to figure out what your technology is, whether that's buy reasonably priced tools off the shelf that can make it easier for you or build it yourself, depending on your size and what your budget is, you got to be prepared to invest in the technology and deploy it in your business to be able to win at the game. That's that's my number one for sure. And the other thing I would say, kind of again, off the other end of the spectrum, is relationships matter. If you're, if you're thinking, at least in in my world, one of the most important things we have is our relationships with our agents who are delivering business to us. I wouldn't trade those relationships and the trust that you build for anything. I wouldn't trade it for some direct-to-consumer business. I wouldn't trade it for a big portfolio of small agencies. What I want more than anything is that relationship where you trust that person on the other side. And, you know, they need something. They call you and they text you and they say, hey man, can you do this for me? And like, all right, let's take a look. You know, I'll do the best I can. And, you know, it's it sounds old school, it sounds dated, but it's it's real. And the insurance industry has been built on that for decades. I don't mean do stupid stuff or do unscrupulous stuff. I just mean build that trust and build that relationship so that you're there for each other. As long as the agency model exists, I know that that's how we will do business. And I do think most businesses are built on that kind of trust.

SPEAKER_00 52:22

I and I hope that it continues that way. I love it. I love it. So I I would say the takeaway is really double down on the relationships. And then as far as technology, use that as the tools to really create the efficiencies to double down on those relationships. Absolutely. Super cool, man. Well, I really appreciate for you coming on the on the pod today and really cool insight too on on especially the riskier areas. Me being in California, it is super interesting. And we got a lot of people too in in Florida and you know, all those risky areas. So yeah.

unknown 52:56

Cool.

SPEAKER_00 52:56

Fun stuff.

SPEAKER_01 52:57

Thanks for having me, guys. Yes, thank you.

SPEAKER_00 52:59

We'll have to have you on later and see uh what what what the outlook is uh, you know, maybe next year or when some crazy help. Cool.

SPEAKER_01 53:09

See you guys.

SPEAKER_00 53:10

See you. All right, Terry. Thank you.

SPEAKER_01 53:12

Thanks so much.