[00:00:00.35] NICK ZERBIB: The industry is evolving. And the InsurTechs are forcing the independent agents to kind of embrace technology more and more, which is just an incredible thing that's been happening over the last 10 years.
[00:00:12.86] ANNOUNCER: This is The Insurance Technology Podcast, where we bring interesting people from across the insurance ecosystem to discuss and debate technology's impact on the industry. Join us each episode for insights and best practices from industry stewards and tomorrow's innovators. Now, here's your host, Reed Holzworth.
[00:00:34.21] REED HOLZWORTH: Welcome to The Insurance Technology Podcast. I'm your host, Reed Holzworth. In this episode, we're back with Nick Zerbib. We're going to get into a bunch of the companies that Nick has invested in over the years. We're going to dive into his thoughts around the industry and just technology in general and adoption.
[00:00:52.57] We're also going to get deep into a company that went from 0 to I believe it was a couple billion in valuation to not a couple billion in valuation, and why and what happened there. I'm not going to spoil it and who it was, but really, really good stuff, good context. Stay tuned. Nick is awesome. Great episode.
[00:01:18.43] So what do you think, Nick? So how about this? Give us some examples of some of the companies you've been involved in over the years.
[00:01:25.77] NICK ZERBIB: Yeah, yeah, I'm happy to. So the nice thing about-- so one of the more interesting businesses was AMS Vertafore. And one of the mistakes that we made was staying out of that space for many years and not re-entering until we made an investment and applied.
[00:01:48.55] But in terms of distribution and insurance services, we've been very, very active at Stone Point. We've probably invested in more traditional brokers, which is one of the reasons we love the IA channel and just insurance distribution broadly speaking. We were a founding investor in Epic, which is now Galway.
[00:02:10.50] We invested and continue to be very significant investors in Allyant and Higginbotham. And we recently acquired a minority stake in Truist Insurance. We're a minority shareholder in NFP. So insurance distribution is just a fabulous business from where we sit.
[00:02:28.80] Unfortunately, it's become too fashionable among our peers over the last 10 or 15 years. But it's a great space. On the sort of hybrid, more creative carrier side of things, we were the founding investor in Pure, which is--
[00:02:46.05] REED HOLZWORTH: Oh wow, didn't know that.
[00:02:47.15] NICK ZERBIB: --a high net worth--
[00:02:48.48] REED HOLZWORTH: Yeah, a great, great company, man. I used to write them back in the day as an agent. They are the best high net worth.
[00:02:54.78] NICK ZERBIB: They're a fabulous business. And they came up with-- Ross Buchmueller, the founder, came up with a really innovative approach to essentially writing business through a reciprocal structure, so effectively creating a member-owned sort of mutual insurance business. And we effectively funded the attorney in fact, sort of the MGA equivalent, that wrote on behalf of the reciprocal.
[00:03:24.20] So that was a really interesting business. That business we sold a few years back. On the insurance services side, we've been super active as well. We own a large TPA called Sedgwick. We own Enlight, which is the old Mitchell Gen X Coventry business. And at one point, we had helped Fiserv dispose of a number of insurance businesses that we renamed Stone River.
[00:03:46.66] So that included FSC and a number of other businesses that we exited. So we've been super active in and around the ecosystem that you mentioned. And it's just a very exciting space just because the insurance agents increasingly are embracing technology. I like to go back to on the benefit side, which is less relevant to, perhaps, some of the stuff that we all think about on the applied side of the business.
[00:04:14.65] But I think about Zenefits and the wave that they made within sort of HR systems and effectively acquiring all of these small customers, giving them software for free, but getting the broker of record on the back end, and how that model was so innovative. But it woke up the channel to the fact that they needed to start to bring benefits administration technology and other solutions.
[00:04:42.25] So the agents, the benefits agents, sort of pivoted from just essentially placing the group health coverages with HMOs, et cetera to actually providing a suite of technology solutions and running RFPs. So the industry is evolving. And the InsurTechs are forcing the independent agents to kind of embrace technology more and more, which is just an incredible thing that's been happening over the last 10 years.
[00:05:10.30] REED HOLZWORTH: It's interesting you bring up Zenefits. Man, that was such a wild ride during that time. Holy moly, I mean, they really revolutionized things in their own way. They were a customer of ours back when. And I was there during the heyday because they got into the P&C side. And they were big Salesforce shop.
[00:05:26.30] And so I was there. I was on Market Street with those dudes. During that heyday, it was insane. Like I remember being in their office. It was so packed with so many people because they were hiring so much that it was stacked full of people, like computer screen to computer screen, single screens, it was insane.
[00:05:46.69] And there were so many people in the building that they brought in these huge auxiliary air conditioning units because it was so hot because of all the people.
[00:05:57.33] NICK ZERBIB: Was this in Arizona?
[00:05:59.20] REED HOLZWORTH: No, no, this is the one in San Francisco.
[00:06:01.00] NICK ZERBIB: OK.
[00:06:01.36] REED HOLZWORTH: Yeah. It was crazy. So anyway, it's interesting you bring that up. You forget what those guys did during that period and how that's changed benefits brokers generally speaking. It's pretty cool. And that wasn't that long ago.
[00:06:20.72] NICK ZERBIB: But it was a wake up call because--
[00:06:22.53] REED HOLZWORTH: Yeah.
[00:06:23.30] NICK ZERBIB: --they were clearly-- it was a little bit of a Trojan Horse. The brokers finally figured out that they were getting the brokerage on the back end, which was in exchange for the free sort of slick technology. And then the brokers said, whoa, we have to raise our-- the benefits broker said, we have to raise our game to be able to compete with that.
[00:06:42.41] Now, their model ultimately didn't work because the cost of acquiring a 20-person employer, a 20-employee employer was just prohibitive. So it became problematic. But the concept of providing more tools to those mid-sized and smaller employers in order to be able to provide the employee benefits, consulting, and placement was something that resonated with the industry.
[00:07:12.57] So the industry started to embrace more technology solutions. And now employee benefits brokers run RFPs on behalf of their clients for different technology solutions, which is smart.
[00:07:24.95] REED HOLZWORTH: Totally. Were they the first to give away technology in return for a BOR? Were they the first? Because that was just insane. Like hey, we'll give you this thing. All you got to do is just sign over your insurance to me as your broker.
[00:07:44.09] NICK ZERBIB: Right.
[00:07:45.05] REED HOLZWORTH: And I would listen to these guys because I was there. It was so smart. And I don't know. I don't know if people do that. I think they got away from that. But it was so smart.
[00:07:59.39] But they were a technology company technically. But really they were an insurance agency.
[00:08:05.30] NICK ZERBIB: That's exactly right. That's exactly right. By the way, exactly, they generate all their revenue from the good old, traditional insurance commission. But their way into the door, their toehold, was effectively a pretty slick HR technology solution. But obviously, it broke down. And the business got sold in different pieces. So at the end of the day, it didn't work out as people had hoped.
[00:08:38.39] But it was an example of perhaps something that made sense that caused the industry to raise its game. And by the industry I mean the insurance agents, the independent agents who need to continue to be able to compete effectively with people who are trying to provide better solutions to the end market. I thought it was a great wake-up call.
[00:09:08.42] And not dissimilar to what's happened on the PNC side, but this was sort of an example that came to mind.
[00:09:14.67] REED HOLZWORTH: Yeah, no, that's really good. So here's a question for you. How does your role impact insurance technology? How do you impact insurance technology in what you're doing today, Nick?
[00:09:28.92] NICK ZERBIB: That's a great question, Reed. I'm not sure-- so the way we think about our role is we invest in durable, really strong, established businesses. Insurance technology, where we invest in it either through our existing portfolio companies or perhaps with partners' capital from time to time, we do that in the hope that it's enabling technology.
[00:09:58.23] So it's to make existing processes better, as opposed to trying to create a new brand, which only Google benefits from that, or creating a full stack carrier, which there's no competitive advantage to having a balance sheet if you're an InsurTech in my mind, unless your cost of capital is super low, which was the case 10 years ago when they all went full stack. But today, it's super high.
[00:10:20.39] So for us it's, how do we make our existing portfolio companies and businesses that we invest in better, more efficient by hopefully either embracing or acquiring really smart, innovative technology? And that perspective we gain by getting to know individuals like you. And shame on us. We were not early investors in your business. But certainly, we were in a Bold Penguin or in a poly, which is dealer policy, and other businesses that are trying to make the process better, more efficient.
[00:11:03.05] REED HOLZWORTH: Yeah. Yeah, it's interesting. I think you got to give yourself some credit, Nick. You've sat on some boards. You've been involved in a lot of companies out there. There's others that you didn't list. And your knowledge and your wisdom of this industry and how you're kind of helping these businesses mold and shape them, you're giving them guidance in forwarding the industry overall.
[00:11:32.09] I think you help the industry just by doing what you do. And I mean, you're a guy-- you're a busy guy, like all of us. But you'll take anybody's call and spend the time.
[00:11:43.82] NICK ZERBIB: Listen, it's amazing when you have the combination of people who have seen some of the shortcomings of the industry, but at the same time understand the value proposition of providing solutions to customers, to insureds, and then come up with really innovative ways of addressing that, whether it's a Kabir [Syed], or an Ilea, or you with everything you've done, or on an admin side with the folks at Holmes Murphy was Businessolver.
[00:12:18.33] It's fascinating because some of those businesses are now part of bigger, more established businesses. But some of those are going to be in their own right very, very successful businesses for the long term. And they all germinated from people trying to figure out how to make things a little bit better because they sat in the agent's seat. And that's super powerful.
[00:12:41.58] And so hopefully, there will be more new blood that comes in, particularly as the agency-- I'm not using BMS-- as the agency management software providers become more open architecture. And the industry needs to embrace more cooperation, which I think is one of the themes that you've hit throughout your podcast. That's super, super important.
[00:13:07.69] That's important because the carriers need to realize that if the agents are not successful and are not able to continue to evolve, that is their most important channel of distribution. So making the pipes more efficient for the agents is critical long term, which is, I think, really important to everything that you and I talk about whenever we talk about some of the industry's problems.
[00:13:34.74] REED HOLZWORTH: 100%. So if you could fix one problem in the industry, would that be it? What would you fix if you could fix one problem?
[00:13:41.48] NICK ZERBIB: Look, I think one of the really interesting areas-- we talked about it a little bit in the context of some of the things that Vertafore was thinking about 25 years ago-- is there is massive growth today in a very challenging rate environment around excess and surplus lines, so nonadmitted. And nonadmitted is still very paper-based.
[00:14:03.21] And so one of the areas that could be really interesting over time-- and it's an area that I think Bold Penguin had tried to go after, but obviously was focused more on the admitted market-- is how do you marry small commercial nonadmitted? Is there a way to make that part of the market more efficient?
[00:14:23.61] And that would create some expansion opportunities for the independent agents because today it's not efficient for them to do it. Or they do it through wholesalers. So to me, ENS, small commercial, technology, those three words have not coalesced yet.
[00:14:42.72] REED HOLZWORTH: It's funny, the ENS and all of that nonadmitted stuff, that's hot, man. It's hot like I hear a lot of that. There's a lot of people right now that are getting in the weeds on it. I don't solutions, and companies, and startups in that space. But I've heard a lot of people, like yourself, talking about that.
[00:15:04.89] They're digging in. And that's big. I forget. Somebody telling me not so long ago the growth of it is just insane. It's like exploding right now for a number of reasons. And so there's definitely some gold in those hills.
[00:15:17.49] NICK ZERBIB: Yeah, yeah.
[00:15:18.42] REED HOLZWORTH: For sure.
[00:15:19.09] NICK ZERBIB: I mean, the large end of the market is still transacted in the traditional way. But it's really, could you expand the market opportunity for the core audience that is really important to us from an independent agent, broker standpoint by providing some tools that enable that CSR, that agent to effectively be able to quote and transact smaller business that doesn't fit into a tight box?
[00:15:50.13] And obviously, that's where MGAs come in in terms of finding homogeneous classes of business. And that's where a lot of the InsurTechs started by essentially having very clever ways of either embedding themselves into other distribution channels and providing homogeneous classes of business. Where some of the InsurTechs, I think, faltered is when they decided to go full stack and vertically integrate.
[00:16:15.98] And now we're kind of seeing the hangover effect of that because some of that business that was written was not particularly profitable. So it'll be really hard for the next group of folks who want to raise balance sheet capital.
[00:16:29.84] REED HOLZWORTH: Yeah. So what technology do you think is going to impact this industry the most in the next year or two?
[00:16:39.98] NICK ZERBIB: It's hard for me to-- the big unknown obviously is, what will AI do--
[00:16:48.02] REED HOLZWORTH: Yeah, totally.
[00:16:50.03] NICK ZERBIB: --for the agents? Our sense is that self-service tools are going to be, perhaps, somewhat enhanced. But my sense is it will make that CSR or that broker perhaps more efficient by being able to search for things in a faster way inside of their universe.
[00:17:15.09] So perhaps there's an element of AI that makes this a little easier for the insured. But I suspect there are efficiencies to be gained by the broker and by the folks who are maintaining the policy and the account management function inside of an independent agent. So I think there's a lot to be had there.
[00:17:34.59] It's still early days. But you'd have a pretty good perspective on that as well.
[00:17:39.54] REED HOLZWORTH: Yeah, no, definitely, 100%. I mean, everybody's investing. I mean, you know this. Everybody is making investments there. I think you're going to see a lot of cool stuff come out of that. At first, getting into it is kind of scary, like what? What does this mean for us as a technology company?
[00:17:58.77] But now that we've really dug in-- we have a team literally that's working on this-- and dug in, it's pretty cool. There's a lot of really neat things and value added things that we can do as an industry, as technology companies around AI. It's pretty cool.
[00:18:15.49] And then you're seeing some of that come into our industry. We had a guy on the podcast recently. Literally it's his business. And so it's good. I could totally see it. So a couple more questions.
[00:18:33.92] Any advice you have for entrepreneurs coming into the insurance technology space?
[00:18:40.25] NICK ZERBIB: Yes, a couple thoughts. And I think we touched on one of the more important themes. We're very, very big believers on the investment side in sector expertise, in domain expertise. And so one of the things that has made people successful in this space is having lived through, having walked in the shoes of whatever problem you're trying to solve, as opposed to just bringing technology to bear.
[00:19:12.35] So it's marrying that sector expertise with a technology solution. It's what made you successful. It's what made Ilya successful. It's what made Kabir successful.
[00:19:24.35] You all had experience working inside the industry and understood some of the pitfalls. So if you're an entrepreneur and you're coming at it from a technology perspective, make sure you marry that with the industry perspective and vice versa because I think that will make you more credible. And I think there's more success if you go back historically when people provide those two perspectives.
[00:19:54.01] And then look, the other point-- and I like the way Ilya put it-- it's funding sources are a little bit like matches. You want to make sure that you're aligned with them. And you got to be careful. So as an entrepreneur, this is your big shot.
[00:20:14.73] Some investors are sometimes shooting for the stars and the moon. And so sometimes there's a little bit of misalignment. And so being very judicious about the capital and not necessarily raising as much capital as you absolutely could at points in time that's not really available today is long term the right approach. And being just super, super careful with burn rates, which you experienced, others have experienced.
[00:20:52.26] And in today's environment, that runway is so critical. Having runway is really imperative. But the most important thing we look for when we're looking at earlier stage things, which we don't do as part of our day-to-day job. It's more helping more established players think about adopting enabling technology.
[00:21:15.64] But when we do, it's marrying that sector expertise with a technology solution. You can't have one or the other. You kind of need both.
[00:21:24.46] REED HOLZWORTH: That's really good. That's really, really good advice overall. Thank you for that. So last question, who do you recommend I have on the show? Any names you think we should talk to?
[00:21:38.60] NICK ZERBIB: I've got lots of great names for you, just depends on how long you want the list to be. So look, one guy who you've probably bumped into over the years, who's got just a wonderful perspective in terms of the arc of comparative rating, and the MGA systems, et cetera is Paul Arrieta, who I'm very fond of and is a very smart guy.
[00:22:07.76] One area that touches the InsurTech world in a very--
[00:22:11.36] REED HOLZWORTH: Paul Arrieta, he was-- sorry-- he was a bolt guy originally, right?
[00:22:15.97] NICK ZERBIB: He was an FSC.
[00:22:18.11] REED HOLZWORTH: FSC, OK, yeah.
[00:22:18.95] NICK ZERBIB: He was at Applied at one point too, Applied, FSC, and then MGA systems.
[00:22:26.37] REED HOLZWORTH: Yep, yep, OK, yep.
[00:22:28.85] NICK ZERBIB: Another person that you might want to consider is super savvy. Luke Ledbetter runs a business called Kestrel, which is a fronting business. So fronting is an interesting place where it's a conduit. It's essentially providing the insurance paper for MGAs. But increasingly, many of the MGAs were in techs. And they needed that fronting.
[00:22:55.74] So he's seen a lot of the InsurTechs, what's made them successful, what's made them less successful. And he provides the insurance carrier paper. And on the back end you have reinsurers. So he's a conduit between--
[00:23:09.14] REED HOLZWORTH: Oh, that's interesting.
[00:23:09.84] NICK ZERBIB: --between MGAs and the reinsurance market. And he charges a fronting fee. So the perspective--
[00:23:18.92] REED HOLZWORTH: Oh, that's cool.
[00:23:20.22] NICK ZERBIB: If you think, like I do, that becoming a full stack InsurTech will become increasingly difficult, the InsurTechs that are focused on the distribution side of the ledger will need fronting carriers to effectively access capital. So he could provide a really interesting perspective.
[00:23:42.24] And then look, on the claims side, which is, I think, obviously, with Ivan's, and Applied, et cetera, we think more about the front end and distribution. But on the claims side, which I think is going to be an increasingly important area for further efficiencies, you have companies like Next Gear, which is now part of Core Logic.
[00:24:07.05] Garrett Gray would be a fabulous participant here. He really understands building a network, a managed repair network, on the back end of homeowners' claims. And so it's a really interesting business that he built.
[00:24:21.94] And I think increasingly, you're going to see more efficiencies, more InsurTechs focusing on the claims side of the ledger because there's a lot of dollars spent on loss adjusting expenses, et cetera. And obviously, homeowners and auto continue to face a lot of pressure on the carrier side.
[00:24:39.06] So those are a few names for you to consider. But you've got such an awesome Rolodex that I'm not sure I'm adding anything to it because you know everybody.
[00:24:52.79] REED HOLZWORTH: No, those are good. Those are good ones, for sure. All right, Nick, so what's your drink of choice?
[00:25:00.50] NICK ZERBIB: Pinot grigio. I like a nice white wine. This is summer. It's hot. It's humid. That's my favorite. What's yours, Reed? I'm going to flip it on you for one second.
[00:25:13.10] REED HOLZWORTH: I would say overall, I love a good gin martini, dirty.
[00:25:17.00] NICK ZERBIB: Nice. You
[00:25:19.16] REED HOLZWORTH: I kind of used to do a lot of blue cheese, olives. Now I'm just regular olives mostly. But done right, really cold-- it's funny. It's such a simple drink. But it's hard to get it right, right for some reason. But yeah, no, I love a good dirty martini, gin, not vodka, as they should be.
[00:25:42.39] So Nick, this was great, man. This was really good. Thank you for everything you do for this industry. Really good context. Really good advice too. So thanks for joining us, man. It was really, really good.
[00:25:55.59] NICK ZERBIB: Reed, it's really my pleasure. I really appreciate you taking the time to spend with me. And thank you for these very, very informative podcasts. We'll see you soon.
[00:26:10.44] REED HOLZWORTH: Nick Zerbib, another one, Kristen.
[00:26:14.67] KRISTEN: Yeah.
[00:26:16.08] REED HOLZWORTH: These guys, they're all so connected. And it's like a small group. I mean, it's a larger group. But there's a small amount of people that have been involved in this industry from kind of the beginning and have been involved in so many of these companies in so many ways, and are still involved, still trying to solve these problems, right?
[00:26:41.72] KRISTEN: Yeah, and I think, for me, listening-- because you obviously, have a relationship with Nick. But just listening to the amount of different companies that he has been a part of and that he connects all the way back to your first guest. We brought it all the way back around.
[00:27:01.28] REED HOLZWORTH: 100%.
[00:27:02.69] KRISTEN: But you talk about the common thread of them connecting all together. But I think another common thread is these people are just good people. Just even connecting with him and getting him ready for these interviews, he's just a really nice person and cares about people. And I think that's, again, another common thread of the people that have been on the podcast.
[00:27:26.52] REED HOLZWORTH: I swear I feel like a broken record around these guys. I don't know. I don't know if the listeners may even find it like a little bit annoying. But Nick is awesome. He's a fucking awesome dude. He really is. And he knows his shit. And I mean, technically, Nick's kind of like my boss in a way, right? But man, what a great thought leader.
[00:27:51.17] You could ask that guy anything about this industry. And he's been there, done that, been involved in it. I mean, maybe not any anything is fair. But you know what I'm saying. And it's just anybody that knows Nick-- and it's like a lot of these guests. They'll say the same thing.
[00:28:05.41] Man, that dude is such a great guy. He is.
[00:28:07.65] KRISTEN: Yeah.
[00:28:07.86]
[00:28:08.06] REED HOLZWORTH: And on the finance side, people, on the finance side, that is a really, really good thing to have somebody like that in your corner on your board.
[00:28:19.02] KRISTEN: Yeah.
[00:28:20.40] REED HOLZWORTH: I mean, it's-- yeah. Right?
[00:28:23.01] KRISTEN: Yeah, I think one of the other things too is that you always ask the influencer, who else should I have on? And I love that he kind of went outside the normal bounds of who is an InsurTech and was like, there's certain topics we haven't taken on yet that maybe we want to delve into.
[00:28:47.06] The investment side was something we hadn't delved into. And I'm glad that we did for the last few episodes because it gives a completely different point of view, not just of the people that are looking to grow in the industry because they're founders, but looking to help the industry grow as a whole.
[00:29:03.18] REED HOLZWORTH: Yeah, I think it's been fun on the investment finance side, getting their take on it all. Nick and I, we could talk for hours and hours about stuff. And then like going back to Jesse, just kind of that whole view of the market and what's happening globally, it's just been eye opening in ways. It's been good. I've really enjoyed it.
[00:29:30.08] KRISTEN: So what are you thinking? What are what are some topics that we're going to be taking on going forward? We did investment. We did some OGs.
[00:29:40.05] REED HOLZWORTH: I don't know. That's a good question. I wonder what the listeners want to hear.
[00:29:47.92] KRISTEN: So I have to say that some of the most viewed have been ones that you've done with carriers. So maybe we should bring in a couple innovative people on the carrier side again.
[00:29:59.53] REED HOLZWORTH: Oh, there is a lot going on on the carrier side. That's a good call. I've spent a lot of time with those guys. And things are really moving on the carrier side. And you know what? I'm just going to go off a little bit of a tangent here.
[00:30:18.54] You know what I'm seeing and I'm seeing like in the last 30, 60 days literally? I'm seeing executive alignment at the top level of these carriers saying, we are leveraging technology to give us a competitive edge with our distribution. Everybody's leveraged technology. And we're going to go digital blah, blah, blah, blah, blah, blah, blah, all that.
[00:30:43.91] But this stuff is now like e-teams. I mean, the best of the best of these carriers are coming after it. And they want to set themselves apart leveraging this stuff in really creative ways. And so yeah, it's a good call. I mean, there's a lot going on there.
[00:31:04.41] I think that would be good for the agents too to understand how some of these guys are thinking--
[00:31:09.66] KRISTEN: Yeah.
[00:31:11.24] REED HOLZWORTH: --about the future, right?
[00:31:12.59] KRISTEN: Absolutely.
[00:31:14.21] REED HOLZWORTH: Yeah. Yeah, all right. I like it.
[00:31:17.09] KRISTEN: All right, on to the next one.
[00:31:19.88] REED HOLZWORTH: On to the next one.