Reimagining Insurance for a More Resilient Future

Speaker A: Hi everyone, I'm Denise Garth, Chief Strategy Officer at Majesco, and you're listening to the Future of Insurance Industry Leaders podcast series. Follow along as I interview the best and brightest leaders in the insurance industry and insuretech landscape to bring you the latest in digital transformation, innovation, industry trends, challenges and opportunities, as well as next gen technologies. We use our experience to anticipate what's next without losing sight of what's now. Stay tuned to find out your next now. Welcome everybody to today's Future of Insurance podcast. I am thrilled today to have Mike Gula, who is the uh, founder of uh, an innovative technology company that I'm going to let him kind of explain it's adaptive insurance. But Mike and I met each other. He was on my path panel at Climate Tech earlier this year in Washington D.C. and we had such a great conversation on that panel and a, uh, separate conversation between he and I that I definitely wanted to bring him on board because this is actually a topic in an area that we have been writing about and researching about for some time. So Mike, welcome.

Speaker B: Hey, thanks for having me. Denise. So good to see you again. I really appreciate you having me on.

Speaker A: I think everybody knows everybody in this industry, but I find out that they don't. You and I didn't know each other until we met at the conference. So give a little bit of background on yourself and your company and why you started it.

Speaker B: Yeah, happy to. So background on myself. Career insurance professional, straight out of college, been doing this for over 20 years. Had a incredible insurance career opportunity to work for very large and very small companies, both from mutual and publicly traded insurance companies to insuretech that went public in 2021. When I was at Hippo Insurance, uh, as an early employee, which let me live all over this country and fortunately and unfortunately get to see all the different types of catastrophes that happen in this wonderful country that we have. I've experienced almost all of them firsthand except for a tsunami and a volcanic eruption. So it's uh, climate and insurance and all of what we do is very, very near and dear to me, which, you know, really led to what we're doing at Adaptive. Right. We're a climate tech MGA that is really heavily focused on specialty lines products. There are some significant gaps in the technology that's available to insurance companies to help consumers understand how to protect their properties and their businesses. I think we've seen a significant reduction in the amount of coverage that's available to customers. You know, and it's unfortunate. People forget sometimes insurance Companies are a business. They need to make money. Otherwise they pull out of markets or they no longer sell coverages, or they pull back on coverages, which gives the industry a negative connotation at times. But for us, I mean, Adaptive's focus is how do we help pioneer a path to climate resilience for, you know, business owners and homeowners across the country? Uh, we do that through a number of different means, which I'm sure we'll. We'll dive into a little bit deeper. But on the surface, that's a big piece for me. I've been around this, doing this for a long time and really passionate about helping people protect the assets that they have. And that's what we're looking to do at Adaptive.

Speaker A: Well, we were just talking about the convective storms that went through the Midwest. The last two weeks have been pretty intense. And so that's the number one risk that's out there in the marketplace today. It's not the hurricanes any longer, it's these convective storms. So when you think about all the risks, particularly for personal and commercial owners that you support, where are you seeing the biggest urgency and what aspects of resilience keeps people up at night?

Speaker B: Yeah, it's a great question, Denise. What we've seen in a lot of the research we've done, conversations we've had with customers, and just things that I've obviously seen continue to progress as you have. We were just talking about the tornadoes coming through is the events that are now taking place just continue to happen more and more frequently. We've seen a massive influx of people that have migrated to different parts of the country that are more prone to catastrophic loss. So it's not just the fact that catastrophes have increased and the number of catastrophes have increased, but the impact of those catastrophes, both financially and on communities, has increased as well, because you have a higher strain with more people living in these areas. So what we've tried to focus on is really helping consumers understand one what is their risk? Right. If you're buying a house or building or buying a business in a new town that you've never been to before, maybe if it's one that you've been to before and you've lived in for 20 years and just don't know anything about how the climate's changing, it's not just about understanding and assessing the property itself. Right. Or the customer demographic that's going to serve your business. It's how do you actually protect your financial asset? How do you understand what are the things related to climate and related to your insurance coverages that are going to be most impactful to you? Right. Over time. And that's a piece that we really focus on trying to help customers understand what their exposure looks like. What are the types of coverages that they should or should not have. You know, we don't focus at adaptive on all encompassing products. Right. We focus very heavily on niche specialty lines. Programs that help fill in gaps that are created from core insurance policies is really a big focus for us.

Speaker A: There's this aspect that, you know, we've got increasing risk out there and at the same time we've got a lot of changes happening in government agencies, whether it's federal, it's state, it's local, that is really impacting the ability to respond to risk or respond to these events and help people who are impacted by these events and also their role or not role of helping to kind of drive some risk resilience. We saw some of those uh, organizations at the climate Tech conference. Talk to me about how you see that level of change on top of the risk change impacting and driving what it is you guys are doing.

Speaker B: Yes. So I'm going to be an optimist and I'm going to say that I hope that the changes that are coming down from the federal government in FEMA and some other lettered agencies will actually end up being hopefully a net positive effect on the industry. Right. So rip the band aid off isn't necessarily the way I would go about doing it, but let's just use FEMA as a great example. FEMA has changed so much as an organization over the last 25 years. Right. It is not nearly now what it was intended to ever be when it was designed. Congress has voted new things that have changed it and added things on top of it that just made it an organization that got away from what its roots was, which was really responding to federal disaster emergencies. Right. Helping save lives, not necessarily helping people insure their properties, but helping people find a way to get rescued after a, uh, crazy event happens. Right. And then they've morphed into this whole different type of organization that people became this expectation that they were going to be there to save the day after one of these events. That's actually what insurance is for. Right. I mean I tell people all the time and folks that aren't in the industry don't realize that insurance adjusters are on the ground faster than fema and most federal disasters that occur in this country. Right there you've been around the industry a long time.

Speaker A: You know this, I've had experience.

Speaker B: Right, of course. And they are the ones that are out there adjusting claims. They are the ones that are first on the ground, face to face with consumers. And that's what insurance was designed to do, was to help people build back what they lost from an event. My hope is that with the changes that are coming down with FEMA and from the federal government is that they're trying to actually push this onus of resilience back onto municipalities, states and communities across the country. Right. There's a lot of different things behind the scenes that we won't get into on problems, um, that happen with how commercial properties are insured by state and local governments and the way federal disasters are actually mandated and made and how you qualify for one. It's a convoluted mess of things that doesn't necessarily force good behavior and habits around insurance. If FEMA all of a sudden isn't there to help dig out and save people after these events happen, it's going to force more community level resilience. We've already started to see this in a lot of the wildfire prone areas in Texas and California and a lot of the cat hurricane areas. You've started to see more engagement with the Insurance Institute for Business and Home Safety. We have the means as a human species to actually protect ourselves against these events. We can prevent a house from burning down in a wildfire. We can prevent a house from blowing away in a hurricane. We can't really prevent a house from getting hit by a tornado. That one's kind of one that we haven't fixed yet. But everything else we can actually do. It's a question of cost. Right. Where does that money come from and how do you deploy that capital the right way to help protect the properties that need the most protecting? That's the piece that I think you're going to start to see states pay a lot more attention to. You know, the NAIC has paid very close attention to this. So you're going to start to see a lot more stuff coming from regulation and I think it will be hopefully at least a uh, more net positive effect that people will start to focus more on the proactive portion of what we do versus the reactive portion that we've always focused on as an industry.

Speaker A: Well, I think also, uh, when you push it down into the local communities and the municipalities, let alone just the states and municipalities, what really begins to happen is that hopefully they begin to change some of the building codes and the building requirements. Because until you change that at that level, people won't change. They don't have to, because they just know something is going to bail them out another time and then another time. And so you're right. We have to change our behaviors and our expectations on that whole thing. I think the other aspect is, is that it puts more onus. There was an interesting article where one, uh, actually we talked about it at the conference where there's an individual who's got a home and it may actually be safe by itself, but its neighbors aren't, and so they put him at a higher risk. And so I think it becomes this whole thing about how do you make sure that we all are in it together and not just individually in it as well. Yeah.

Speaker B: I think it goes back to the last point you just said, Denise, when it comes to building codes. And I'll use the example we just talked about. Right. Let's assume you have a community in Florida that's impacted by a hurricane. And let's assume that the whole community was built 40 years ago. So it's not up to the latest building codes. Right. And needs to be updated. Let's say 20% of the homes in that neighborhood were demolished and needed to be rebuilt. And those 20% of homes are rebuilt back to the new standard. Right. That's great that we had the building code. And the building codes should constantly update to help protect properties. The problem that we have though in the US Is that the home inventory is aging.

Speaker A: Right.

Speaker B: There's a lot of new properties being built, but it's not like the auto industry where you turn over cars every couple of years and you add all these new safety features and then it's implemented nationwide. We have a retrofitting problem in this country. Right. It's how do we actually add resilience to the properties that already exist? Build back better. Absolutely. 100% should happen 100% of the time. Like if a house burns down or it gets wiped out in a hurricane, it. It should be built back to the latest and greatest building code that's protected to help that person. But in the wildfire example that you used, right. And this was a great panel that we saw at, uh, Climate Tech, the houses in the center are protected, right? They're protected by everybody around the outside. So how do we actually get the homes that are around the perimeter of that neighborhood to protect themselves? And also the homeowner that's in the center that's protected should have some onus in helping protect the rest of the neighborhood and should be part of that. Right. That's resilience and that's firewise community and understanding. Like where do we invest the dollars and cents? Where does it go? Who needs to be protected and why and what's the impact that's going to come from it?

Speaker A: Well, and I think it's also the responsibility to the point if you've got insurance, it's the insurance responsibility too. Like the uh, example I gave about my personal experience eight years ago with hail damage. I had a shake roof and I had pala windows. I had $140,000 worth of damage, had to have the roof replaced in all my windows. But it wasn't the insurance company who made the recommendation to me. It was actually the contractor said, hey, you've got enough coverage here that you can actually get a different type of roof. One of those that's 100 year warranty and it's more like a rubber. So the hail just bop, uh, you know, bounces off of it. Boy am I glad I had that over the last two weeks given the storms that we had.

Speaker B: Yeah. And when you think about this and you know it's, it's hard because of the way our industry is set up. Right. We compete with each other, but we don't compete with each other. Right. The amount of capacity that's out there and the amount of risk nobody wants all of it. Right. There's always going to be this diversification of risks that's going to be required. And the piece that's always struck me as being very, very funny in the way that our industry works is you don't have this cross intermingling of carriers working together to prevent these types of damages. Right. And I'll use a, uh, I hate using this analogy, but I grew up in New York and went through 911 and I remember after 911 happened, all the things that came out about the FBI, the CIA, the NSA, all these different agencies the government had and none of them spoke to each other. Right. And like everybody knew different answers that if they put them together would have painted a very clear picture of what taking place. The insurance industry is sitting on one of the most valuable data assets on, um, the planet. Right. With AI and the capabilities that we have with AI data is the gold coin to making sure that those things can actually work. So if you have a neighborhood that has a thousand homes in it and Allstate has 5%, State Farm has 10%, Hippo Insurance has 2%. Why can't we all just work together and share property Data around that. This whole adverse selection and everything that we've talked about for so long around insurance has worked so negatively against the industry as a whole. For us to be able to work together to help protect the properties. Right. I want to prevent any house from the neighborhood burning down. I don't care who it's insured with.

Speaker A: Right.

Speaker B: It's a win for everybody if this community is still standing after the wildfires. And that's where we make the most amount of money. Like I've been a career underwriter, right. Underwriting profit is where everybody gets paid and makes their bonus. And everybody is happy when there's an underwriting profit. So am I going to try to save three points on my expense ratio or can I monetize my data and potentially make it available to the market and then actually reduce my loss ratio by 10 or 20 points, which if I'm state farm or all state, is a very meaningful number if that actually happens. Right. And that's the piece that we haven't gotten to yet. But you're starting to see a lot of the AI tools that are out there starting to create synthetic data about properties that isn't exact. But it's getting closer and closer that folks are starting to make different decisions on. You know, I think we'll start to see some interesting things come out of that years to come.

Speaker A: So we just published our research that was for customer research, built out, uh, demographics, primarily focused on individual or personal types of insurance for both PNC and lnh. But it did get into some, um, small business types of aspects. And it really fits with a topic that we talked about where there's a, ah, 9 trillion global gap in insurance. While 70% of that is on LNAH, ah, there's still 30% for P& C. That gap ties to. We found we broke it down into three different types of risks. The largest one was financial risk. And to your point you made earlier, your home or your business is your biggest financial asset that you want to have protected. And yet most people don't feel that they have the right type of protection and they're looking for other types of products. Why do you think that there is such a gap in this protection element? People understand they need it, but they haven't bought it. Why do you think there's such a gap there? You guys are fitting some of that gap.

Speaker B: Absolutely. So first and foremost I'll say that it's the lack of knowledge around some of the products that can be created and are available in the market. Right. And this I put on the industry. This is why Adaptive was created. Right. We need to do a better job finding ways to create products that can be profitable, that can have a spread of risk, but can also provide some level of resilience. Our first product that Adaptive launched, what we call grid protect, right? It's a power protection policy for short duration power outages. One of the biggest impacts to small businesses across the US and globally, right. Is business and non damage, business interruption. Right. Most small businesses in the US fail not because of an insurance loss or a catastrophic weather event that took place. They go out of business because of what we call death by a thousand cuts. Right. They have a very small bottom line like number that they're trying to hit on revenue and anything that fluctuates that as an impact. Power outages are covered under a bot policy if you have an off premise policy endorsement, but they don't trigger until the power has been down for 72 hours, right? that point that's a catastrophic event that caused the power to go down. It was a hurricane, it was a tornado, it was an earthquake, a wildfire. 94% of all power outages in the US last less than 24 hours. That's where the coverage is actually needed. So we created a parametric product that covers for anything less than 24 hours that triggers very quickly. That's intended to get capital in the hands of the customer as fast as possible. On the flip side, in both residential as well as commercial, we have a deductible buyback product, right? Deductibles is something that is increasingly been on the rise and there's a number of different products out there. Deductible buybacks, there's parametric wind and hail policies that you can buy for us. The deductible buyback being a follow form on the core policy is just an easier transaction for the insured because it's how much retention am I going to keep as a customer and what am I comfortable with? Maybe State Farm says you have to have a 5% wind and hail deductible in North Texas. Well, if I own a million dollar house, I don't have 50 grand just sitting in a bank account somewhere waiting to pay for a roof loss. Now that causes an issue for State Farm because if that customer has a claim and they don't repair that damage, that could lead to a much larger claim down the line for State Farm that they're going to have pay or whoever the carrier may be. So when you give the customer an option to try to spread out that financial risk over a longer, flatter period of time that they can buy back that will come in and cover. It's these types of products that we're focused on and there's a lot of others that are starting to focus on this as well. But it's filling in those gaps, it's creating more financial resilience so that when the shock event happens, it's not a, uh, what do I do? Where do I get this money from? What am I going to make a decision on? Am I going to fix my house? Am I going to go to work? There's just so many things that have become, you know, problematic for the customer. And obviously in today's economy, properties are more expensive, vehicles are more expensive, insurance is more expensive. Now, gas prices are crazy through, like everything is just compounding and compounding and compounding. Right.

Speaker A: Those are great examples of the types of parametric insurance that can help close that gap. But there's still a lot of confusion about what parametric is and what it's not. Lay the parameters on that out there for everybody.

Speaker B: Yeah. So I'll give my daughter's definition. She did an internship with us last summer and after her first week we were like, what is parametric insurance, Francis? And she's like, if, then insurance. And I was like, that's really good. We're going to use that. Right? Because all parametric insurance really is, is if the trigger happens, then the coverage payment gets paid. Right? So in grid protect, if you buy a 12 hour policy, right. If the power goes down for 12 hours and we verify that through a third party data source, the policy is now triggered, Right. We send a first notice of loss, we verify that with the customer. We've already verified it through our data. And then if you bought a $10,000 coverage limit, we're going to send you $10,000 in coverage. Now, uh, parametric has been around for a long time, but it's a very simple product to understand of just this is the trigger mechanism. Now it has to be easy to understand, right? It can get very convoluted. When you're selling a PA parametric in the wind space or the hail space, when you're like, well, if it's a one inch hailstone or one and a half inch, a uh, two inch, a two and a half, a three, it gets a little confusing and then it's like, well, the wind trigger is at 140 miles an hour, 160, 180. And you only get. It can get very confusing. So Our view and philosophy around Parametric is we use Parametric when it fits a specific need and it's easy to understand. Power outage is very clean. Right. You can buy a coverage limit at 8 hours, 12 hours, 16 hours, 20, 24, with a coverage amount and it's very easy to use that way. Now, on the flip side, what I think Parametric is not, is not going to replace core coverages. Right. I would not sell a homeowner a Parametric home insurance policy. Right. One, you can't. But two, it would be very, very difficult. Parametric works very well for filling in very specific gaps that a customer needs. That's why we look at it as a very good product for resilience because it's access to capital very, very fast after an event. Right. It's very clean. From an insurer's perspective, there's limited adverse selection because you can't really fake a loss. It's driven off of third party data. Right. So for us on the power product, I'm monitoring what's going on with the power. So if the power goes off, I'm verifying it through a third party data asset. It's not just, you know, Denise went and flipped the switch off on her electric panel and was like, oh, I had an outage that lasted eight hours. Right. It's, it's more protected in that, in that sense. Um, so it's a cleaner transaction. But it's not always the right policy to fit the right bill. Right. It needs to be something that can be fit into the right transaction at the right time, whether it be embedded, which is a great way to offer parametric products where it just comes included with somebody else's product or service, or you're having an agent sell it directly to a consumer that's having an educated conversation. You know, if you walk into any restaurant owner in the US and you ask them how much revenue do you lose on your busiest day of the week, 95% of them will know exactly what that number is because they're working to that number every single day of the week. Right. So if I say, well, if the power goes down for 12 hours on a Friday night, you lost $15,000. What if I could sell you a parametric insurance policy that says, if the power goes down for 15 hours, I'm going to pay you back that $15,000 within 24 hours after that loss. It's that valuable. It's that simple of a con. And like the light bulb, like, what kind of insurance is this? Nobody's ever Told me about a policy that works like that.

Speaker A: Well, you're talking about talking, uh, to individuals. But a lot of the insurance is sold through agents, whether it's a captive agent or it's an independent agent. And I happen to have a captive agent because they're captive with the insurance company that I have it with. But my daughter and future son in law have it with independent agents.

Speaker B: Yep.

Speaker A: They're not selling it either, Mike, that they're just going through the renewals. We just renew every year. You know, it's just renew and we aren't asking can you have a better addendum or another piece of coverage that would actually help in those gaps?

Speaker B: Yes. And it's interesting. Like we've seen this shift. You know, I'll share something with you from I joined Hippo Insurance in the very early days, one of the first 10 employees back in 2016 and asaf1, our CEO used to always talk about how the age of an agent was like 60, the agency force was going away and all insurance was going to be sold online. And that was kind of the motto of the business. What we saw come out of the first insurtech revolution is actually technology tools that have enabled agents to sell policies easier and faster to customers. But the number of agents has not gone down. You've seen less captives. Right. You've had a lot of companies now that have switched. Nationwide is a great example. Right. They were a mutual insurance company that was completely captive. That's now all independent. You know, you've seen this with carriers do that where now all of a sudden they're realizing that they can offer other people's products and they don't have to take all the risk on their balance sheet. So agents are hungry right now. Renewals is obviously the place where people look to make money. You don't want to touch your renewal, you don't want to do anything with your renewal. What I think is actually happening, and we've seen this with a lot of customers and you sound like short of your insurance background, like somebody who owns property and has assets and understands what insurance can do. Consumers are starting to ask for a different experience of what's available to me. Right. We see it already. We don't sell adaptive products currently direct to consumer. We are having a number of consumers come directly to us because they are finding us online and finding our products online and inquiring with us about those products. Which tells me that people are starting to actually do their own research. Right. AI is just as useful for independent consumers as it is for the insurance industry. Right. So they are using it to help find like, wow, I have a 5% deductible on my home insurance policy or I have no coverage for a hurricane on my commercial building in Florida and a hurricane is going to happen at some point. Like, how do I find coverage for this? We've had incredible interactions with agents. We talked to thousands of agents over the last year. We have many of them on our platform. Platform. I think there are really, really good agents out there who actually do a good service by their customer that will go above and beyond that will sell them what they need. It's not just about pricing to the bottom of the barrel. They will give them the custom, you know, the customer what they need. We try to focus on those agents. Right. But at the same time, I still want to try to focus on those agents that don't know about our products to actually help them understand how to give a better experience to their customer. Right. This is going to be better for you in the long run if you're able to offer these products. So when the customer has a claim m, that's how you have a customer for life. Right. They have a great experience there. They're going to come back to you like, wow, I didn't know I needed this coverage and it came in and paid for me. Like that's the best experience you could have. Or maybe the only one that might be better is you convince them to do some resilience measure and it prevents the claim from happening. Maybe, but we're not there yet.

Speaker A: You talked about and you shared some examples of what it is that you're offering in the market today. Parametric insurance perspective. What are you looking at doing without sharing your secrets before they're announced? Because there's a lot of risk out there and different types of needs. So I mean it's, it's a kind of a, a lot of opportunity out there, Mike.

Speaker B: There is. So our focus primarily, Denise, is around climate. Not always climate. Right. We just recently launched a product in partnership with Tokyo Marine hcc, who's one of our carrier partners who we've been close to for a very long time. They back our Grid Protect product. Um, we just automated and built a direct to agent flow for their restaurant recovery program which is around foodborne ill illness and reputational harm, which is a whole nother issue around social media and other things that can happen to businesses. We were able to leverage our technology and our quote bind issue platform and our agent network to be able to pull that in and actually offer it where agents can get access to it. But primarily our focus is around resilience to climate, right. And emerging climate risks. We will segue from that. Obviously as an MGA we can offer other products, but the primary focus is really around, you know, wind, hail, hurricane, wildfire, flood, all these big perils that are becoming not just catastrophes, but the everyday style events that now happen that aren't necessarily a catastrophic loss. Right. SCS events around severe convective storm, as you know, in the middle like are just every year, right? Every year something new. Like I live in Austin, you know, I've had a new roof put on my house because of a hail event. You know, we had hail two weeks ago and I was like, oh please, please, no, just stay peace size and don't. Because it could turn into golf ball baseballs, uh, on a moment's notice. So for us, I will say that everything we will likely do is going to be really heavily focused on specialty lines programs. Right. I love working in the ENS space because the data that we use and the ability to create more customized products, um, actually have more value to the customer. Right. And I'm not trying to circumvent regulation, you know, I've worked with filed programs for a long time and those are very, very much needed and should stay the way that they are. But the ENS space just gives us access to more of these specialty lines, things that actually impact in the catastrophic risk kind of profile that we're looking at. But you know, obviously as the founder and CEO of a company, there's opportunistic things that will come up that I'm sure we will potentially. You're always trying not to dive after those shiny pennies that you see all over the place. And I'm an insurance nerd, so all kinds of new ideas, kind of. I was like, oh, we could definitely build a product for that. And then it's like, well no, uh, we can't definitely build a product for

Speaker A: that Right now I think about it in terms of, you know, when you buy your benefits every year, you know, as an M employer, you get your, your most important thing is your medical insurance, then it's your vision and your dental. And it may not be from the same venture, but it's making sure that you're covered for those other types of things. And then you can buy the supplemental that can kind of help do some additional gap or coverage in many ways. We have to think about that on the PNC side, you know, where today we're Kind of like, oh, I do my homeowners here, I do my auto here, I do this here. And yeah, some people bundle, um, but not always do they bundle. So insurers have to think about a different approach that they may need to start partnering to offer a more broader, what I say, risk assessment and risk profile that they bring in partners like you just said, like with Tokyo Marine. Because that's what's going to create, uh, customer loyalty, quite frankly, is that they may say we don't want to do a, uh, parametric insurance, but we're going to partner with somebody so we can offer that at every point in time to make sure that our customers are covered.

Speaker B: Yeah. And again, it just gets back to this whole like balance sheet exposure. Right. Like why would I not want to offer this to my customer, especially if I'm not taking the risk? And there's value. Now there's something to be said about the partners that you work with. Right. Like we only work with a rated or better financial strength partners because we work with a lot of national partners. But I think the other opportunity to this Denise and you brought up benefits, which is actually funny segue for us because we do a lot of stuff in the embedded space, parametric products. And the things that we do work really well from business to business to consumer. Right. The B2, B2C route. And how do we actually start to change the experience and embed that experience that you have? There's a lot of very large carriers in the country that have done this well. Right. Like Allstate is probably one of the best. You see their service plan agreement on so many things. You go to Best Buy. Oh, do you want the Allstate three year service warranty? All these different things. You see a lot of parametric products in the weather space around like camping protection. Tokyo Marine has a really incredible program called Sundays that, that covers like bike riding and other. Like there's a lot of little pieces out there and those are amazing that they work that way. But which always blows my mind is that customers are so worried about protecting these tiny, tiny little things. Yet on their home, in their car, they're like, oh yeah, nothing will ever happen. I'm m. Like till it does. And it's a crushing financial thing that happened to them them, you know, and I'm one of those people. Like I've been in insurance my whole life. I have policies, lots of. I've spent ridiculous amount of insurance premiums, knock on wood. I've had very little claims activity. But you never know. When something is going to happen, especially in today's world. Right. It's just a very, very difficult thing to try to plan for. And this is where the technology revolution is actually at hold. Right. There are things that we've done at Adaptive like I could not have built our grid protect product five years ago. Right. The AI was not there yet. The data wasn't there yet, the technology platform wasn't there yet. You know, the secret sauce for us is we've built all of our technology stack from the ground up. Right. I've built a number of different insurance platforms and for me it's around knowledge. Right. I use AI every day, but I use it from a compliant insurance perspective of Knowledge we talked about.

Speaker A: It's got a unique set of products that most platforms might be too much for. The types of products that, that you have. And that really kind of brings me into. You brought up AI with all the buzz about AI. How are you using AI today and what are your plans and how does it differentiate you? Because once again, it goes back to, particularly for parametric, it goes back to sources of data.

Speaker B: Yeah.

Speaker A: And to validate that there was actually a claim, let alone to be able to underwrite it from a risk standpoint. Really quickly talk about how you guys are using AI, particularly agentic AI. It's really now the way that a lot of people are looking.

Speaker B: So AI to me is like employees, right. You can hire people who have experience, they may be really good at what they do, they may be very junior at what they do. They may make mistakes, they may not make mistakes. Right. So when you hire employees for your company, you usually put them underneath folks that are managers. Right. That have done it for longer than them, that make sure that they're doing it correctly and checking their work and different levels of hierarchy. Right. So I've always approached, um, AI from a compliance end. Right. I'm an underwriter. Most of my career I've been on the stand holding up against decisions I've made to cancel somebody's policy and then their house burns down. I know what it's like to go through a market conduct exam. So everything that we do at Adaptive from an AI perspective has come at, from, uh, a compliance end first. Right. How are we using this and what type of decision making process does it do? It doesn't make any decisions on policies for us. Right. We're not actually underwriting business in a sense. Right. It's not like a homeowner. So there's a lot less risk for us, us on that. Front. But I, like I said, I use it like I have four or five different employees that work for me every day. They're still running it all through me, but they're doing all the work and then bringing it to me to sign off on. That's where the value comes from. I do market intelligence research on everybody in the market of what's going on. What are the things I should be paying attention to when I'm looking at a large data asset, right. And I need to scrub through a bunch of data and try to find different insights. AI works really, really, really good for that type of, type of thing. If I'm doing research around compliance or underwriting in a state, most of that information is public. I have the knowledge of how I've done that research in the past, and I just train my AI tools to actually go and do that research the same way and structure it based on things that I've structured in the past. I always ask for links to where did you actually find this information? Because I'm going to go and spot check and make sure that it's not hallucinating like crazy. But AI has a lot of issues still, right? It's got a long way to go. You know, we definitely use it on the engineering side. It saved us a ton of time, like cloud code and other things that help my engineering team, you know. But it's interesting, you know, my, my CTO says it best. He's like, you know, AI can take you 60% of the way there. You got to take with the other 40. That 60% is game changer when you're trying to get a new idea to a certain point, right. We do things with our tools that are just revolutionary to what I would have been able to do three or four years ago. It's just, it's just craz. It's scary at times. But the other side of that coin, and I mentioned this earlier, consumers have access to this technology as well, right. They're going to use it to help them through a claims process and understand what their contract actually means and says. So, like, we need to start having more educated conversations, right?

Speaker A: Well, our consumer research actually identifies that they're using it, and it actually can be a bridge for insurers to be able to kind of help them bridge the gap, to offer them some stuff. So you're absolutely right about that. I think we've got to be very creative at how we're using it to benefit ultimately the consumer.

Speaker B: Yeah, I was an AI denier for a long, long time. For a very, very long time. And then last summer was like my tipping point. Yes. Like it was. I spent a weekend, I downloaded a tool called replit, which you may or may not have heard of. And I've had an ideas around these things and I was like, you know what, I'm just going to of productize these and come up with all this stuff that's in my head. And then I was just able to have such a constructive conversation with my engineering team because it wasn't me trying to explain to them what I needed them to build. I built my own wireframe with no designer, no engineer, not a clue how to write code. And I created a framework for something that I show them, a visual that led to something that was revolutionary for us. And it was based on an idea that I never would have. Like it would have taken a year for me just to try to explain the nuances of what each piece was. So those are the kinds of things that I think will continue to advance when it comes to resilience and protecting homes and consumers. This is where I think AI is going to have one of the biggest benefits on insurance and society across the board. Like that is where it's going to make its weight in gold of just how it can help a customer understand how to protect their property and things that they can do. If you only have a hundred bucks to spend, go on AI and it will tell you exactly how best to spend every single penny that's there on the things that you need to actually do and where to go and do it.

Speaker A: Yeah, we look at it that it's going to drive a level of, um, operational efficiency that you can redirect resources to be able to work with customers to drive resiliency. There's, there's the game changer there, Mike, because we're struggling with a number of resources, you know, because we're just doing business the way we've always done it. It. What if you do it more efficiently? Which is why we're building an AI into our core so that they can redirect those resources to more important things.

Speaker B: That's incredible. That's incredible. And that's the way you do it. Now imagine if the city of Austin did that. Right. Or the city of Boston or the state of California, like, uh, you start to expand this out and think about the type of impact that can it have if it's used the right way for these types of things. Where does the money come from? So, you know, there's a lot of folks that are really Concerned about the jobs that are going to be lost from AI. And of course, course, like anything, right? When the typewriter came out, people lost jobs. When the Internet came out, people lost jobs. Right? It's going to happen. But I think you're going to see this shift because it will lead to other things. Like, great, okay, so I don't need a customer service representative to answer the phone anymore, but maybe that person just applied for this new job in our resilience and sustainability team that is actually doing the outreach to customers to help them protect their properties and help them get access to these different.

Speaker A: And I might be able to generate some revenue on top of it.

Speaker B: Yes, yes. So that's where we have not seen what that kind of flesh, uh, comes like. Everybody's like, paying 52 pickup, where the cards all went flying. And it's like, uh, well, wait a minute, what's going to happen here? And it's, I will say engineers are probably the one that's going to have the most amount of impact because nobody writes code. Everybody's becoming just an orchestrator. Aric said, uh, on a podcast not so long ago, you do still need to have junior developers to become senior developers. So if you only keep your senior developers and you don't keep any of the junior people, like, who are we going to train that are gonna. And it's gonna be that scenario where, like, you've been around insurance long enough to remember green screens, right? And I remember at Nationwide, we had, like, the one guy that worked in the mainframe room still at, uh, Nationwide, that could still go in and fix the one piece of server that was busted because he was the only guy left in the universe that knew how to.

Speaker A: Well, senior people know the business too. And that takes time to learn, as

Speaker B: we know it does. And that, I will say on the flip side is why the NAIC and why regulators are going to continue to be skeptical about how AI is used. Because when you put AI in the hands of somebody who doesn't understand their business, they may have an incredible, incredible business idea, right? And they may be developing a product that could be, you know, revolutionary to the insurance industry. But if it's not done legally and it's not compliant to the codes and the laws that are set in this country for how these things are done, it's just going to end up having a negative impact on everybody else that is attempting to use it the right way. Right? And that's the piece for me that is most concerning because I've gone to conferences at ITC last year, there was a whole bunch of claims companies that I was like, well, okay, great. It's awesome that it made these decisions, but I'm going to be a lawyer for a minute and you're going to be on the stand because I'm deposing you as part of a, you know, bad faith claim that, uh, I just filed on behalf of my insured. How did you make the decision?

Speaker A: And they're like, by the way, for third party vendors. You do have to submit what you're doing. Yes, yes, we're in the process.

Speaker B: Right, that's the place that's interesting. And it's there, it's behind the scenes. You know, we, we were at a, I was at a conference with RBC in New York a few months back and the head of Google X was there and he was like, look, the decision tree is there, but when you have something that made a billion decisions in three seconds, there's no humanly physical way to present that response in a way that a human can comprehend how the decision was made. So, yes, it did make a decision that is documented. But, uh, our courts are slow enough. They're not going to go through a billion lines of code to figure out what was, what was the decision that was made.

Speaker A: So this has been a great conversation, Mike. I knew it would be. If you could use one word or phrase to describe the future of insurance, what would it be and why?

Speaker B: I mean, it's cliche resilience, period.

Speaker A: Yeah, yeah.

Speaker B: Like if we are not resilient to the future, it is going to be an interesting time for humanity over the next 50 years. And resilience is something that I truly believe is something we can do now. We have the know how, we have the tools, we have the technology. We can make ourselves resilient to so many different things. We just haven't put the funds to the right places on where they need to go. I'm very optimistic. Being a startup and taking VC money, the investment that's coming into this, I think the federal thing we talked about earlier is going to continue to drive more private money into the sector, which will move way faster than public money will ever move. Right. So resilience is key. Like, this is the piece that if we need to have a resilient future and we have the means to do it, that's a big focus that I think will be very, very, very interesting over the next 10 years.

Speaker A: Love the word. Love the word. Well, thanks, Mike, so much for the conversation today. I'm sure that we'll have more conversations in the in the near future.

Speaker B: Uh, awesome. Thanks so much for having me on, Denise. This was a pleasure. I really enjoyed the conversation.

Speaker A: That's it for this week's episode of Future, uh, of Insurance Industry Leaders Podcast. Subscribe to our market leading podcast series, available wherever you get your podcast from. Thank you for listening and be sure to tune in the next time m.