Business Breakdowns
· Matt Reustle
[00:00:00] S0: This is Matt Reustle and today we are breaking down Goosehead Insurance. I'm joined by Geoff Collette, Founder and PM of Aeon Capital Partners. Now, insurance isn't exactly a new industry, and I always enjoy hearing about how a new entrant has effectively carved out a niche in a world of incumbents, and Goosehead fits that billing perfectly. So Geoff walks us through the story of Goosehead identifying a bottleneck in that home buying process that was a good old-fashioned problem to be solved. And then we cover the evolving market where the captives like State Farm and Allstate are leaving opportunity for independent players like Goosehead to provide value. Now Goosehead is particularly interesting in terms of how they went about this market, really targeting the real estate agents and their distribution engine. And there's just a lot in general to learn from Goosehead, how they've evolved with notable themes like technology, the franchising model, an emphasis on speed. But this is a business where the evolution is still ahead, so we get into that as well. What will the next chapter look like for Goosehead? So please enjoy this breakdown on Goosehead Insurance. Geoff, we are here to talk about Goosehead. Thank you for joining us. I think this one will require a bit of an introduction into what Goosehead is. Maybe we could just start with a simple example of how a customer might come across Goosehead or interact with Goosehead in any given circumstance. So maybe you could kick us off there.
· Geoff Collette, Matt Reustle
[00:00:00] S1: Approximately 80% of Goosehead's new business comes in the form of a customer coming across the company, typically through the home purchasing process, whereby a mortgage loan officer, which I'll refer to sometimes in our conversation as an LO, or a real estate agent, refers the client to a local Goosehead agent during the mortgage underwriting process to get homeowners insurance. These loan officers and real estate agents are known as referral partners to Goosehead agents. And then the balance, the other 20% of new business comes from client referrals. So they're not really doing any direct-to-consumer marketing whatsoever. [00:00:00] S0: In terms of the market that they operate in. It's insurance. Is it 100% homeowners insurance? Do they move out into any of the other insurance fields? [00:00:00] S1: It's pretty much strictly homeowners and auto. Personal lines is I believe a very small portion of commercial. But they really don't compete in that space. So it's tilted a little bit majority to homeowners. They lead with homeowners insurance and then attach auto and other umbrella-type policies as well. [00:00:00] S0: I've seen the add-on options and opportunities come in from my insurance providers in the past and I know that is common in the industry. Can you paint Goosehead via numbers in some way? Whether it's the business size and market cap or how big they are in the market. Anything that can just give us a sense of the scale of the business.
· Matt Reustle, Geoff Collette
[00:00:00] S0: I've seen the add-on options and opportunities come in from my insurance providers in the past and I know that is common in the industry. Can you paint Goosehead via numbers in some way? Whether it's the business size and market cap or how big they are in the market. Anything that can just give us a sense of the scale of the business. [00:00:00] S1: The company is roughly a four and a half billion dollar market cap business. In 2024, written premiums totaled roughly 3.8 billion. That was about a 29% increase year over year. They're one of the largest independent personal insurance agencies in the United States. Yet they only comprise less than 1% market share of the overall personal lines market. In their go-to-market strategy within the home purchasing process, in 2023, they had roughly 18% market share in Texas, their largest state, and about 5% nationwide. Just to give you a sense for its growth trajectory, historically on a 5-year and 10-year total written premium compound annual growth basis, that was 39% and 42% respectively. They've got roughly 2,500 agents, a little over 400 on the corporate agent side, about 1100 operating franchises that have about 2100 total franchise producers. This compares to over 39,000 agents among the three largest captive insurance companies, State Farm, Farmers, and Allstate. And the financial profile of the business is a Rule of 50. So 20% revenue growth in 2024 and 32% EBITDA margins. They're aiming for that profile to increase to a Rule of 60 and be sustainably at that for ideally many years.
· Geoff Collette, Matt Reustle
[00:00:00] S1: The company is roughly a four and a half billion dollar market cap business. In 2024, written premiums totaled roughly 3.8 billion. That was about a 29% increase year over year. They're one of the largest independent personal insurance agencies in the United States. Yet they only comprise less than 1% market share of the overall personal lines market. In their go-to-market strategy within the home purchasing process, in 2023, they had roughly 18% market share in Texas, their largest state, and about 5% nationwide. Just to give you a sense for its growth trajectory, historically on a 5-year and 10-year total written premium compound annual growth basis, that was 39% and 42% respectively. They've got roughly 2,500 agents, a little over 400 on the corporate agent side, about 1100 operating franchises that have about 2100 total franchise producers. This compares to over 39,000 agents among the three largest captive insurance companies, State Farm, Farmers, and Allstate. And the financial profile of the business is a Rule of 50. So 20% revenue growth in 2024 and 32% EBITDA margins. They're aiming for that profile to increase to a Rule of 60 and be sustainably at that for ideally many years. [00:00:00] S0: Wow, get rid of that Rule of 40. We got bigger aspirations here. You mentioned captive insurance providers. Can you just define the difference between captive in that term versus what Goosehead might be doing?
· Matt Reustle, Geoff Collette
[00:00:00] S0: Wow, get rid of that Rule of 40. We got bigger aspirations here. You mentioned captive insurance providers. Can you just define the difference between captive in that term versus what Goosehead might be doing? [00:00:00] S1: Captive means essentially that an agent sells product from only one carrier. Historically, this was a primary way of doing business for the large insurance companies. Independent agents can distribute product from many carriers, except for those that choose to only distribute through captive method. As well as, there are some predominantly on the auto side, direct-to-consumer carriers. Think of Progressive's Direct Business and Geico. And there's also USAA which distributes directly as well. [00:00:00] S0: I'm going to get into a little bit more about the differentiation, but I think given these growth numbers, this history of a business, there's going to be some interesting people behind the scenes here. Key players, an origin story. Can you walk through that? What is the backstory of Goosehead? Has there been a key player that has propelled it on this path, that it's gone on to where it is today?
· Geoff Collette
[00:00:00] S1: The backstory is an important aspect. The founders are a couple, Robyn and Mark Jones, and I'll give you a little backstory on them as well. So they were teenage sweethearts in Alberta, Canada. They got married when they were just out of high school. Mark initially went to work driving trucks for Robyn's father's fertilizer business and a couple years later went to the University of Alberta. By 1985, they were living in Calgary with three children on Mark's 18,000 Canadian dollar salary as a CPA. He borrowed money to go to Harvard Business School. His fifth child was born on the day of his first midterm. Mark joined Bain after graduating in 1991. Essentially became a road warrior. By 2002, his wife Robyn started flipping a few homes and realized a pain point in dealing with insurance agents as part of that process, and believed she could do it better and became an agent herself. In 2003, Goosehead was founded on the premise that the client should be at the center of its universe. At its founding, they set a goal of becoming the number one distributor of personal lines insurance in the US during Mark's lifetime. And they remain committed to doing what it takes to get there. Just to give you a sense for what that means, State Farm is the largest personal lines insurance distributor at over $80 billion of auto and home direct written premiums via the captive agency model that we discussed. That's roughly 20 times Goosehead's current size. In 2004, Mark left his role as a partner at Bain to join Robyn at Goosehead. Neither Mark nor Robyn took a salary for the first couple of years and the business really started hitting its stride in 2006 with the hiring of its first customer service agent. And really, there are a few early insights and decisions that shaped Goosehead's business model, the first being splitting the sales and service functions. It's often required of agents in other agencies to perform both of those functions. But it's really often the case that those roles are better served by different personality profiles. Another aspect is that rather than spending money on advertising, Goosehead could focus on relying on referrals. Informed by Robyn's experience and the need for homeowners insurance when closing a mortgage, that motivates a loan officer to line up an insurance agent.