Speaker unverified: uncertainty

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…e two and have one system with different workflows and views but shared information then you really unlock a lot of possibility. What's the what was the most surprising thing when you first got in the industry? Because I think you said you work you worked in the industry on the wholesale side. So that's selling is that selling on the for the carriers? selling for the carrier into the broker and then trying to acquire the brokers like underlying employer clients. Okay. It's kind of interesting. Yeah. So, like you're really going after the employer clients, but is it that they're just kind of so small that just working with the brokers makes things more efficient for you as a carrier? that and the overwhelming majority of employers today utilize a broker and they do so because a broker is it performs that like advisory function and so it's very typical that we would we get the question a lot of the the role and utility of the broker function. Yeah. Because you should in theory you might think there's a middleman. You should remove the middleman. That's generally you know a good thesis for building a company. And this is the classic question that we will get from someone on the investing side of okay so your play is to disrupt the broker let's rip and replace. Y and what we knew from our experience was the enablement model is actually more interesting because it drives more value to the end user. And if you think about the utility of the employee benefit broker they are the extension of the finance and HR team for these companies. Give you an example. paid family leave is a a regulatory stipulation in now I think they're up to 13 or 14 states that mandate you have to provide this like paid insurance coverage if you're on a paid family leave if you're an employer and you've got an operations in 10 states you need a place to go to understand hey I've got some folks that are in Colorado what's my exposure on this yeah and this is like the ongoing functions an example of the ongoing functions that they do in addition into budget creation, budget adisement, human capital strategy as a broader term. And so for us, we like the enablement play both from a opportunity for us to grow the business faster because if we acquire one broker, that means we access all of their underlying clients. So I like that part of it, but also in terms of just being most helpful. We do think that the enablement of allowing the brokers to be more efficient to more effective and work better is the way that we can drive value to that broker and then inherently more value to even the carrier as well. Yeah. Because it sounds like there's just different layers of complexity with the the different states. You mentioned all these different regulations and rules, but also different carriers might have different products. Am I right on that? So like someone might do just medical, some people might do property and director's insurance or whatever. So I guess it's kind of like you it makes it even harder to just kind of skip and go direct to the company when they're like they need different products. They need different expertise in different places depending on what they need. Yep. kes it even harder to just kind of skip and go direct to the company when they're like they need different products. They need different expertise in different places depending on what they need. Yep. There's there's an expertise element to it. And there's just a simplicity of how do we make it easier in we give you a method to be able to work. We have one operating system that allows for you to work with a bunch of the supply side carriers as a broker. And I think what we observed was there was an interest for if you think about the employee benefit broker today, it's a professional services company typically a relatively small organization and they they want and need a technology stack that works for them. But historically that has not been the case. They've used older legacy software systems that haven't been of high value. And so what they've typically done is built their own workstreams that are largely based in Microsoft products and workflow documents and things like that. What are the software tools? Is there like some kind of a database thing that was made in the 80s or the 90s that they use? Is that the stack we're talking? Yeah, it is. I mean it is. There's there there's a agency management system stack which are pretty old legacy systems that they will typically use as their back office for organizations of clients policies and then compensation for their producers and also just some basic information about their customers. But it is it is limited on its functionality for sure. And so there has been this thirst for how do I find something that allows for me to operate my business better and more efficient and effective, but there hasn't been a huge tech stack that has been available for this segment of the industry, especially one that is as large as it is in terms of just like dollars transacted. Yeah. What's like the I don't know market size TAM if I'm if I'm you know using the the VC lingo on I mean you know the the rough estimate each year is in this in the health care spend space you know it's well over two trillion a year and if you break that down further into like when you pull out Medicaid Medicare and you just include the like employer sponsored you're still at like well over you know 1. 5 to$1.8 8 trillion that is transacted across all of the premium across all of the employers across the country. And so it's massive, right? And it's it's controlled through this distribution network that's actually fairly small if you think about the number of individuals that are employee benefit brokers, employee benefit carriers. Yeah. and was always a bit of the joke when I was on the wholesale side in talking to friends that were in other areas of trading finance explaining like this is how this transaction works where I'm emailing things back and forth 25 times and it's a multi-million dollar like opportunity from a premium standpoint and this is the way that it comes together and it usually would make people snicker of like that can't possibly be the way that it works and it's it's very true it's very true yeah well you think of like like Facebook or Google ads you can spend a dollar on Facebook and it's like the most ke that can't possibly be the way that it works and it's it's very true it's very true yeah well you think of like like Facebook or Google ads you can spend a dollar on Facebook and it's like the most automated machine-learned like possible thing on earth. Like they put so much data science and and research into this and it's like you spent a dollar to just win an ad. And then and then this on the other side, it's like, you know, Walmart or, you know, a Fortune 5 company buys an insurance policy that they pay $50 million for and it's just some emails back and forth, just and and that that's the thing where we I think our our point of view in understanding the business was was helpful because there is a lot that goes into that and there's a lot of nuance that needs to be true that you have to be able to deliver in order to help that problem. It's very easy, I think, to say unilaterally it's this is obviously something that we can improve and make more digital. Uh but then when you like actually double click into it, there's a lot there. What's like sort of the take rate then on different levels of it? Like when a broker sells a policy to a employer and then like what does the carrier get and kind of I don't know profit or cut take rate throughout kind of like the value chain. How does it work? Yeah, I mean if you think about from a carrier perspective, you know, when they think about a dollar of premium, y they then break that down into, you know, what is the claim cost of that? And so there are certain products that are high incident, low severity, meaning like you're going to use it a lot. Medical is actually one of those where you're using you're using a fully insured medical product. And so there's a bunch of claims that are happening every single day. And then there are some products that are like high severity but low incidence meaning it doesn't happen that often but when it does it's big be like hurricane or fire damage or even a life insurance right you've got you've got a company and it's 200 employees the the frequency to which that will be a life insurance claim. It's like one or two per thousand is sort of like the number. And so the way that they think about it is they cut down that dollar of premium to what's the claim cost and then what is the expense layer of that. And for a lot of the insurance companies, the majority is claim cost. And then when they think about the acquisition cost for their team, like for someone to sell a product into a broker, then ultimately into a player, you know, probably 8 to 10% of premium. Isn't that their distribution cost? And then the remainder is sort of running the operations of their business and the distribution cost of paying like a broker as well. And so historically brokers get compensated as a percentage of premium but we you have seen a bit of an evolution on that where some brokers are using more of a feebased structure. And so it's a little split. I would say generally larger employers if you're a broker that works with larger employers you've got more of a feebased structure. And if it's smaller, you typically have more of a percentage of premium. But…

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