Within venture capital circles, the insurance industry is sexy right now. It seems not a week goes by without another startup being announced, some with niche angles such as peer-to-peer distribution, insurance for on-demand workers, and even insurance for the “insurable moments” people spend with their latest tech gadgets. In some cases, insurance companies themselves are among those backing these startups.
One of the most recent instech startups is called Embroker. It’s San Francisco-based, and it just came away with $12.2 million in venture capital funding. It got that on top of a $2.2 million round last July.
Embroker was founded in 2015 by CEO Matt Miller, a principal at the private equity firm Hellman & Friedman, which has had interest in numerous insurance-related firms. It owns global broker Hub International and insurance technology vendor Applied Systems and it has investments in Arch Capital Group. It previously owned another insurance technology firm, Vertafore, which it sold in 2010.
Miller formerly served on the boards of Hub and Applied Systems. Prior to joining Hellman & Friedman in 2013, Miller worked at Bain Capital in Boston and Hong Kong and at Bain & Co. in New York.
Miller is not to be confused with other entrepreneurs who seem to have little respect for traditional businesses or the insurance industry who call themselves disrupters.
“I prefer the term ‘massive improvement’ to ‘disruption,'” says Miller, who learned about the insurance business while working with Hub and Applied Systems and while surveying small business owners about their insurance experience..
Embroker is a commercial lines platform that empowers — hence the name, Embroker — small businesses to manage, buy, analyze, compare and store all of their insurance information data in one place. In many respects Embroker is Zenefits for the property/casualty side, rather than employee benefits.
Embroker is not so much displacing or disrupting what commercial insurance brokers now do as it is supplementing and complementing their traditional methods—while giving small business customers who want it more information, convenience and control along the way.
Embroker is far from alone in wanting to simplify and bring small business insurance online.
A number of independent agency carriers have joined the TrustedChoice.com online commercial insurance platform backed by the Independent Insurance Agents and Brokers of America to sell small business insurance. Bolt has for several years provided a platform for insurers to offer products and customer service online. Other commercial lines platforms include CoverHound, Insureon’s Insurance Noodle for agents, and Seattle-based AssureStart. Insurer Hiscox has been expanding its online platform for small businesses for a number of years. CoverHound announced it will in July start selling online what may be one of the most complex insurance products — cyber insurance — to small businesses.
American International Group, Bermuda-based Hamilton Insurance Group and hedge fund firm Two Sigma Investments have joined to create a technology-enabled insurance platform for sales to the small to medium-sized business market.
Berkshire Hathaway, which owns GEICO, is building Berkshire Hathaway Direct Insurance Co. to sell insurance directly to businesses over the Internet.
Embroker entrepreneur Miller actually believes that commercial lines insurance is too complex and too much work to be turned over to digital operations entirely. But he also believes the process can be made simpler and more transparent for small business customers. Embroker’s technology is there for customers who are comfortable with it but to the extent they are not, Embroker offers humans. This startup has licensed agents and brokers on staff and on the phones.
Miller believes that small business owners want to know they have the right coverages, they’re paying the right amount, and that if anything happens, they have a partner they can trust.
But they also want more than that. “They want that to happen in an efficient and as painless a way as possible. That is the need that we are meeting,” he says of his venture.
Embroker promises to bring more risk management services to small businesses that Miller thinks get a bad deal now relative to what larger customers get.
He said that there are a lot of great insurance brokers that put together programs, manage claims, perform risk management functions and offer loss control services. But they can’t afford to do all of this for small customers, so these customers miss out.
“They get some guy that calls them once in a while, that just checks in, and collects a commission. That’s really what we’re addressing,” he said.
Q&A with Embroker CEO
In the following interview with Wells Media Group’s Andrew Simpson, Miller discusses what he thinks small businesses want from insurance brokers versus what they now get, how Embroker works with customers and carriers, the role of relationships in the business, and his vision for his startup and the future of the property/ casualty insurance industry.
How Embroker Works and Why It’s Needed
While other instech startups seem focused on direct sales, and there have been several attempts to streamline the relationships between brokers and carriers through new technology, Embroker is tackling distribution and the relationship between brokers and customers. Why? Is that based on your experience, or do you think that’s really where things are more solvable?
Miller: A little bit of both, actually. It was certainly where I had more experience, but it was also what I felt to be more of an acute problem. I really had been around just speaking to businesses that I knew, business owners that I knew, people running businesses, and asking them about their insurance experience. I did a lot of that work, actually, when I was at Hub, and previously just core customer work, speaking to people that run a business with $10, 20, 30 million in revenue, and saying, “How do you buy insurance? Is the process painful? Does it work well? Do you understand it? What could be improved?” I spent a lot of time doing that, just speaking to people that were running businesses, and trying to understand from their perspective, what were the pain points, what needed to be improved. That’s really what led me to focus on the distribution side.
They obviously have the ability to go buy insurance. Carriers have the ability to create products that serve business needs. It’s just everything about the process of actually finding out what you need, buying them, managing them, that creates problems.
Let’s get down to the ‘nuts-and-bolts’ of it. What problem does Embroker solve? What tools does it bring to the customer to help solve them?
Miller: The problems that we solve are numerous. I’d say the main one is fundamentally, a lot of businesses don’t understand what they’re covered for. They don’t understand what they should be covered for. They don’t feel like they have a good handle on risk management as a core operational part of their business. They don’t feel that they have any tools that help them with this process. They’re basically entirely reliant on their insurance broker to come up with the exact right program for them to find the right prices, to manage this whole part of this business.
That’s a pain point, especially because there are a lot of fantastic insurance brokers that do a really good job of that. But I’m a business owner myself, so to be entirely that dependent on an external third party, and one for whom you have no idea of validating whether they’re doing a good job or not, is a real problem.
If we could get a little bit specific, in terms of an example. Say I own several restaurants in California. How might I use Embroker?
Miller: One of our largest customers is a chain of many restaurants in California, actually, so that’s a good example to use. Essentially, how you would use the platform is we upload a lot of information about his business. We take his locations, his employees, his payroll, basically all the type of exposure data that normally you fill out in paper applications to get it all the policies you need each year, and you would basically at renewal need to fill out different applications.
We store that, and keep that up to date in the cloud-based platform. He has the ability to update. If he wants to add a location, if he wants to change the payroll. If he wants to change the equipment that he’s covered for, we can do that with our platform.
Similarly, he can manage and track his claims online, so that when he has a claim, he can check and see whether it’s been updated or not. He can also benchmark what he’s paying, and what his coverages are, versus other types of restaurants.
He can look at worker’s comp, what his rates are based on different payroll. Just everything that he really needs to do around his insurance policies.
What does the platform do for the buying process? Does it allow for comparison? Does it allow for shopping?
Miller: It does. We’ve built out an ability to go online, take that information, and return it with quotes and comparison. We’re not an online shopping platform. We don’t think commercial insurance is meant to be like going to Travelocity and buying a ticket from Reno to San Francisco. It’s more complicated than that.
I’d say that really what we’ve spent more time on than actually comparison shopping is deep, deep analysis of what actually those policies are covered for. We have people that would help him navigate that process, understand what are some different options that he would have. Where we use the technology is actually to drill into the policies, and to actually look at what are the differences in coverages. We can do that very quickly because we have built a data model that allows us to compare policies.
Among your customers, who tends to be the person that you deal with? Is it the owner? Is it a CFO?
Miller: Depending on the size of the company, when they have a CFO, it’s the CFO. Primarily, I’d say with most of our customers, it’s the CFO or VP of Finance. I know in some businesses that are on the smaller side, that they don’t have as established of a finance organization, it’s the owner or the CEO.
In many cases, with technology companies especially, they don’t bring on a CFO until they’re pretty much significantly larger. It falls on the CEO to have to manage all of the insurance parts of the business.
What do you see as the target audience? I’m wondering, “Are there that many businesses that really want to know that much about their insurance?” I guess, is the question. Do they really want to have that much involvement in insurance, when they could just pick up the phone, and say, “Joe, I added three employees. Do it”?
Miller: They always could. What’s interesting about the role of technology is that, when I think about what businesses want, and what insurance provides in general, people don’t come to work thinking that they want a directors and officers policy.
That’s not usually the way that their mind, it’s not a need that you need to fit. What they want is their insurance to be taken care of in a high quality way. They want to know that they have the right coverages, they’re paying the right amount, that if anything happens, that they have a partner that they can trust, and they can deal with it. They want that to happen in an efficient and as painless a way as possible. That is the need that we are meeting. I’d say that the number of businesses that want that, I would probably describe them as all businesses. All businesses in the U.S. want that, and I’d say the number of them that have that is a pretty low percentage.
The truth is that there are so many manual processes involved in doing a good job as an insurance broker. There are a lot of great brokers that do it, but it involves a lot of work, as anyone would tell you. You’re actually going to put together a program for somebody, and you’re going to put together a benchmark and study for them, you’re going to manage their claims, you’re going to perform risk management functions, you’re going to do some loss control.
Smaller businesses just don’t get those services. It’s not possible for brokers to provide that. They get a really bad product, essentially. They get some guy that calls them once in a while, that just checks in, and collects a commission. That’s really what we’re addressing.
You mentioned restaurants. Are there other markets that you’re targeting that you think are most likely to…
Miller: A lot of our customers are technology companies. That speaks to they are early adopters of technology products in general. There’s a lot of them here in the Bay Area, of course, but I’d say we are also focusing on a lot of Main Street businesses, restaurants, retail, real estate, and health care are some big ones for us.
What’s behind the technology? The human element? How else do you help this customer, who I’m assuming in a case of even a small restaurant owner, whatever, has five, six, seven different insurance policies. How does Embroker go beyond the technology?
Miller: We’re very, very focused on actually building a great organization. That means that we have fantastic brokers. We employ a full team of licensed agents, as well as account executives, also licensed, that are meant to be on the phone and help customers with their questions.
In that way, we don’t operate that differently from a standard brokerage firm. We hope that we have better agents, perhaps. We hire the best ones that we think we can find. Fundamentally, business owners have different levels of comfort with insurance. We want to make sure that our ability to serve them is not dependent on their expertise. If they feel comfortable engaging with software, and that’s a better way for them to engage with their policies, then we provide that. If they would rather just call us on the phone, and have somebody manage it for them, we do that as well.
Would you term Embroker a disrupter of the insurance process?
Miller: I prefer the term massive improvement to disruption.
Relations with Carriers
You seem focused on improving the interactions, relationships between the broker and the customer. Does Embroker do anything to address the relationship of the broker with the carrier?
Miller: Yeah. It’s a very interesting question. I would say that, in general, the way that we approach it…We are, obviously, an insurance broker. We’re an independent agent, and we work with a number of carriers as their business partner. Our philosophy around it is that we want to be great partners to those carriers. We want to win when they win. I’d say that that is, first and foremost, what we focus on, is that we look for ways that we can win together, and provide value to them.
The way that we would want to provide value is by performing our role as a broker in the most effective possible way, but utilizing technology, being different, and saying that, if we want to bring great risk to you, we want to really do a good job of educating those customers about what risks that they could and should insure themselves against. Then match them with the right carrier that has a product in that space that’s appropriate for them. We just hope to do it a little differently, and more efficiently, by using technology.
I read that you have about 10 carrier partners at this point including Hartford and Travelers. What do you look for in a carrier?
Miller: First and foremost, we need to work with carriers that have great products, that have a great value proposition, because it’s hard for us to sell things to companies if it’s not the right product and value proposition from an insurance perspective. I’d say that that’s the number one thing. We want to work with the top carriers, that are the leading brands, that our customers feel that they want to have those products, and they’re going to have the right value, and the right coverage. That’s first and foremost.
The second piece is, I’d say, less than any specific bit of efficiency that we need out of the gate, or ability to build specific technology, we’re in this for the very long game. We see this as a 10- to 20-year evolution in the industry, and that we’re just getting started. It’s important for us that we get partners that share the same mindset, that have an approach towards innovation, that they believe in investing in innovation, they believe in investing in change that benefits its customer base. I’d say that that attitude is what we’re looking for more than any specific piece of technology right now.
I’m sure you get this question a lot but how do you compare with you do to Zenefits, for example, that seems to do similar things, or try to, in the employee benefits space?
Miller: That is the primary difference, of course, is that they’re working in employee benefits. I’d say they’re also probably working with slightly smaller companies overall, and especially recently, they’ve doubled down on the 1- to 50-employee entities.
There’s a large difference between the roles of a good benefits broker, and the role of a good P&C broker. What we focus on is really being the best possible risk manager that we can. We think about ourselves as the first next-generation risk manager. Everything that we do is around helping businesses really understand their risk, manage their risk, mitigate risk, and then matching them with the right insurance products that allow them to do that.
From that role, we think about insurance as financial products, rather than benefits are primarily, it’s an HR product, really, that’s meant for employee health and safety. What we think about is the role that we can have in bringing insurance to be something that businesses see and value as just another tool in their financial arsenal.
It strikes me that what you’re doing, the platform you have, could be used by other brokers. Is that part of the plan?
Miller: I wouldn’t say it’s part of the plan. I’d say right now, we’re really focused on just building a great organization, and delivering value to our customers. I’d say that we will really focus on investing in a great product, and what I hope to be the best product available for insurance and insurance management.
If there is a point in the future, where it makes sense to look to allow other people to use the product, we will consider it, but it’s certainly not part of the plan right now. I’d say right now, the plan is just execution, building a great product, and delivering great customer service.
It sounds like with your system you’re able to do for some of smaller- and medium-sized businesses some of the risk management or analysis pieces that they might not get otherwise. It sounds like you’re doing more work for these customers. Are you getting more pay from the carriers for doing all that?
Miller: No, we’re not right now. Yes, we’re doing a lot more work, I think, than anyone else. In many ways, the reason why we’ve raised venture capital is because we have a cost base that probably would not support that with our current revenue base right now.
Our goal is that a lot of that work will be able to build technology, the efficiencies that, over time, will come from a big investment in technology. Right now, you can get a huge engineering organization that would not be supported by our current customer base. Over time, as we grow that customer base, and the software improves, that we’ll be able to actually do that work much more quickly and easily than anyone else. We’ll be able to have better products to a large number of customers.
Maybe you’ll get an insurance carrier to compensate you for it, too?
Miller: Someday, maybe, but no, we’re not charging any more money.
Culture and Recruiting
I wanted to talk about the culture of your company, and of the high tech industry. Insurance has a reputation. It’s hard to get young people to be interested in the business. It just isn’t sexy enough. Although if you go through a recession, and you still have a job, you’re grateful that maybe they were conservative at the time. Everyone wants to work in high tech, and yet, there’s been some bad press lately. There are some questions about the diversity in the industry, or lack thereof. There’s also some talk about taking advantage of young, out of college, low-income, low-paid workers, while the venture capitalists and the founders get rich. What kind of culture do you want to build at Embroker?
Miller: Culture is extraordinarily important to us. The culture that we want to build is one that has certain core values at its heart. I think that the core values that we have are those that help us build a world class service organization. We never lose sight of the fact that yes, we’re a technology company, but we’re also a service company. We only exist and thrive when our customers are happy, when we’re providing them with a great product that really meets their needs and experience, an entire experience that’s a great one.
It’s an extraordinarily competitive industry. I don’t think we have any magic behind what we’re doing, but I think we have a great product. The culture that we need to build is one that supports that in every way. That means going above and beyond for our customers, but also supporting ourselves internally.
We need to build a culture that attracts young people, attracts great talent, both on the software side, and on the insurance side. I’d say that that’s one of the things that is certainly a challenge, but it’s something that I enjoy a lot.
It’s really one of the biggest opportunities, is building a place that really does mend a best-in-class Silicon Valley technology organization with a best-in-class insurance organization, and that can provide a place that gives incredible career opportunities to people from both factions, lets them learn from each other.
Do you think the technology angle gets young people more interested? Are you more able to recruit young people, and will you be able to because you are so focused on the technology?
Miller: I’d say yeah. There’s been a huge amount of interest from people in the industry, especially younger people, that are looking for something that represents a different way of doing business, that stays true to the mission.
There’s a lot of people that have had fantastic careers in insurance, and they don’t want to leave the industry. It’s a fantastic career path. Especially with younger people, they want to find a way to remain engaged, and add value in this profession, but do so in a way that feels innovative, and that allows them to use their talent and skill set in a different kind of environment.
I was shocked when you said this was a long-term commitment of 10, 20 years, because we don’t hear that from tech people too often. What’s down the road?
Miller: I think there are a lot of changes that will be coming to the insurance industry, and I hope we can help catalyze some of them. They’ll be really good changes, in the sense that right now, we have a problem, both in this country and globally, with underinsurance. Uninsured losses are actually higher, as a percentage of GDP, than they’ve been historically. Fundamentally, you have businesses and individuals that just aren’t buying sufficient coverage. That’s a problem in terms of the value that we can potentially add just by helping make sure that both businesses and people have sufficient coverage. That will require a change in the way that the industry thinks about distribution, in the way they think about creating products, in the way they think about everything, operationally. We’ll have the ability to start going down that path now.
It may happen gradually. It may happen quickly, but I think we need to move to a place where the industry is innovating and creating products that people can really understand, and can access and find value.
Insurance and Relationships
I enjoyed reading your blogs on your website— and I would encourage people to do so at embroker.com — addressing certain myths about insurance and technology. One of them is about insurance being an industry of relationships, which we hear. I think you even confessed to saying that once yourself, but you say that the problem is that the relationships that are there now are not the important ones to customers. What do you mean by that, and what’s the future of human relations in this business?
Miller: It’s a point that I want to clarify because it is a nuanced point. The point is not that relationships don’t matter, and that relationships are bad or negative in any way, and that we shouldn’t have relationships, and relationships shouldn’t be important to business. All of those things are not what I mean. What I mean is that I think there are relationships that don’t benefit customers, frankly, because they depend so much on that relationship that essentially they, in some way, shape, or form, end up with a suboptimal outcome. Whether somebody hasn’t done enough work or they’re paying too much, it creates a sense of complacency, in many cases, that can be problematic. If you just look at the big picture, and you look at where dollars of premiums go, a lot of people, even in the industry, they might not talk about it that much. If you looked at an insurance brokerage, does it make sense that the producers are earning their salaries, and the CSRs or account execs that are actually placing the business, and dealing with carriers and actually doing the work, are actually making those salaries?
Stepping back, it’s like, “Does that make sense?” A lot of people, I think, would question it because it’s the people with the relationships that are earning the money. That does not advantage the customer.
Finally, one of the other points you make is that the insurance industry has been pretty slow to change. You might have overstated it. You might have said no other industry is as slow as it is. I wonder, first of all, if you think some of that has to do with the regulatory structure and whether that’s part of the problem? Beyond that, how can Embroker or other technology help the industry come up with more innovative products? What does the industry have to do to take advantage of the technology and create new products?
Miller: On that point, absolutely, the regulation has been a piece of inhibiting innovation to some degree. It’s a fair balance that we need to strike, both as a society, and as a country. The regulation is absolutely there for a reason, and it also has the impact of inhibiting innovation, especially 50 state regulation frameworks. We know that. It’s something that anyone in the industry that’s tried to create product, or tried to operate in the environment knows that it just makes it more challenging. That’s probably a fair trade-off, to some extent, that we just need to make sure that we’re evaluating it constantly, and that the regulation we have in place is protecting individuals, protecting our overall economy, and not overburdening innovation.
Hopefully, turning to what it makes it now possible, I do think that advances in technology will help create a number of opportunities for innovation that have never existed before. If you look at it, even on the personal side, we’ve seen usage-based auto insurance come out of nowhere. Now to be still, perhaps not the dominant form of insurance, but growing. It’s taken a little while. Even now, if you look at where it was 10 years ago, and where it is 2 years ago, the pace of change has accelerated.
We’ll continue to see that across different areas, whether it’s insurance for the on-demand economy, whether it’s usage-based insurance, in different ways, shapes, or form, whether it’s the integration of wearable technologies in both underwriting and loss control, there’s a number of really exciting opportunities to use technology to innovate.
Are you talking a mindset change? Does the industry have to change the way it looks at things?
Miller: I believe it does. It’s starting to happen, actually. We’ve talked to a lot people that have been in the industry for a long time, that maybe previously have thought that this was something that you could pay lip service to, and what would be something that we would talk about, but wouldn’t actually happen. People are starting to come around, that changes are going to happen quickly now. It’s important for people to really have a mindset to embrace those changes, and to try to learn how to create value from what’s now possible to do.
Anything that you think you should get out about Embroker that we missed?
Miller: We’re very excited, is the short answer. We know that there’s a lot of work to do in the space. It’s an incredibly exciting time and space for us to be in. Over the next year and couple years, we’re going to really make sure that we’re doing everything we can to really push the industry forward, and to provide something that really feels new and innovative to businesses.
If you do talk to a lot of business owners, they would probably reiterate a lot of what I’ve said, that there are opportunities for improvement in the entire process, and hopefully, that we’ll hard at work in figuring what those are.
I assume you have no lack of places to spend that 12 million bucks, right?
Miller: There’s always opportunities for investment.