Business Breakdowns
· Geoff Collette, Matt Reustle
[00:00:00] S1: Happy to do so. The average annual homeowner's policy premium is, I believe, around $2,100. For every hundred dollars of insurance premium, roughly $60 of that goes to claims and reinsurance costs. $29 goes to operating expenses, including 12 to $14 for agent commissions. Goosehead receives 14% commissions on new business, 12% on renewals, and then there's 15 to $16 of opex. Think underwriting administrative costs. That leaves basically a low single-digit percent for underwriting profit, excluding investment income. And so effectively Goosehead occupies a part of the value chain that's actually producing the most economic value, particularly in periods when there's volatile underwriting results. That is a very attractive place to be. [00:00:00] S0: I can see where that 68 cents of claims would be something that could probably swing depending on the market and underwriting. And you have to price it right to actually have somebody take the policy. But I'm sure there is some ability to make more margin from that $0.68. Out of curiosity, do you know how much that can swing for various providers?
· Matt Reustle, Geoff Collette
[00:00:00] S0: I can see where that 68 cents of claims would be something that could probably swing depending on the market and underwriting. And you have to price it right to actually have somebody take the policy. But I'm sure there is some ability to make more margin from that $0.68. Out of curiosity, do you know how much that can swing for various providers? [00:00:00] S1: It's actually proven to be very difficult. You'd think that home insurance is a business where a lot of these companies can make money in, but it's actually proven quite difficult for a lot of even the large carriers to consistently make money in homeowners insurance. I think one of the points that is worth understanding is how Goosehead, their business is actually very naturally hedged in terms of their ability to deliver growth and improving margins in varying macro environments. So as product availability constricts and premiums rise, that is prices going up, it places some challenge on new business production, but it drives up the value of their entire renewal book, which is very profitable. And as premium growth rates level off, product becomes more available, allowing for significant new business production growth, retaining a higher percentage of the existing book and earning more favorable contingent commissions, which are often based on production levels and the underwriting profit of the business that the agency writes.
· Geoff Collette, Matt Reustle
[00:00:00] S1: It's actually proven to be very difficult. You'd think that home insurance is a business where a lot of these companies can make money in, but it's actually proven quite difficult for a lot of even the large carriers to consistently make money in homeowners insurance. I think one of the points that is worth understanding is how Goosehead, their business is actually very naturally hedged in terms of their ability to deliver growth and improving margins in varying macro environments. So as product availability constricts and premiums rise, that is prices going up, it places some challenge on new business production, but it drives up the value of their entire renewal book, which is very profitable. And as premium growth rates level off, product becomes more available, allowing for significant new business production growth, retaining a higher percentage of the existing book and earning more favorable contingent commissions, which are often based on production levels and the underwriting profit of the business that the agency writes. [00:00:00] S0: Can you share a bit more about what renewal looks like in terms of whether the policies are being renewed at a certain term or duration of the contract or whatever might be entailed when it comes to renewals?
· Matt Reustle, Geoff Collette
[00:00:00] S0: Can you share a bit more about what renewal looks like in terms of whether the policies are being renewed at a certain term or duration of the contract or whatever might be entailed when it comes to renewals? [00:00:00] S1: So homeowners insurance is typically on an annual renewal cycle. For Goosehead, the client retention is currently 84%, but premium retention, which includes the ability to attach incremental policies as well as the premiums going up, is around 98%. Historically, client retention was around 89% with premium retention around 93%. So you can kind of see quantitatively what I was referring to just a moment ago in terms of the hedging dynamics around their business. [00:00:00] S0: In some ways, Goosehead acts as an extended sales force or an external sales force for a lot of these insurance underwriters. Would you say there's anything else unique about the go-to-market? I think you gave a pretty good overview. Is this making a lot of phone calls? Are there very unique relationships with the real estate agents? Is there anything else that gets into the special sauce that's allowed them to get where they are today?
· Geoff Collette
[00:00:00] S1: Goosehead has a differentiated business model and innovative proprietary technology that effectively offers a superior value proposition to its various constituents. I can kind of walk through that across insurance buyers, agents, their referral partners and carriers. So for insurance buyers, Goosehead provides unrivaled product choice, over 200 carriers, expert sales and service agents and proprietary technology that enables very fast quoting. They're effectively simplifying the complexity of insurance to help buyers find the right coverage at the best price in a superior experience, as evidenced by its 89 net promoter score which is four times the industry average. For agents, Goosehead provides best-in-class productivity. Corporate sales agents and franchise sales agents with over three years of tenure averaged 2.8 times and 1.9 times greater productivity than industry best practice respectively. Those results are driven by the unrivaled product choice that improves close rates and benefits client retention. They have a centralized high-quality service team and that enables sole focus on sales and benefits from high retention rates. And to your point around the go-to-market strategy, that's centered on these referral partner relationships which is a highly efficient go-to-market approach and it's supported by its proprietary technology platform. So they're effectively getting very high-quality leads at very low costs. Goosehead agents don't compensate referral partners for leads. Rather the referral partners benefit from Goosehead's servicing capabilities for a given client that also help generate repeat business that's critical for that referral partner. Its industry-leading proprietary technology empowers agents to improve efficiency and client satisfaction by streamlining workflows. I'll give you a few examples. So they've built out a referral partner search tool which is a unique database of home transactions tied to specific individuals across the nation. So their agents can be very targeted in their marketing efforts to maximize lead flow and they're able to coordinate amongst Goosehead agents so people aren't going after the same referral partners.
· Geoff Collette
They have an agent-facing comparative rater that simplifies and speeds up the quoting process, improving the client experience and conversion supported by agent-driven machine learning for predictive coverages based on tens of millions of quotes. Since 2018, they've created what's called a digital agent which is a unique self-serve consumer shopping experience that matches clients to best coverage in under two minutes with as little as three data points. Clients combined quotes through a brief call with local agents that have expertise in their specific market. All client data is treated confidentially. This type of experience does not exist on the market today aside from Goosehead. And they are also increasingly building out what's called quote-to-issue or QTI technology whereby you can actually bind a carrier's policy within Goosehead's proprietary agent-facing rater rather than the carrier systems, which just speeds up the process that much more. In terms of recruiting corporate agents, they basically have a value prop where it's an 18 to 24 month paid apprenticeship to master insurance and develop this referral partner network, offering compelling career growth with multiple opportunities. And on the referral partner side, they're really offering that unrivaled product choice that maximizes the likelihood for their client to get best pricing. It's particularly important these days with the affordability challenges in the housing market. They have best-in-class service that basically provides these binders that are part of the home closing process within an hour of receipt, preventing the insurance from ever holding up a closing. They help those loan officers grow their own business by giving them insights from the technology that they have that has the details around additional real estate agents that they could be working with. And lastly, on the carrier side, Goosehead efficiently drives profitable growth where and when carriers need it most through its broad scale distribution capabilities that have centralized quality control. By leading with that home insurance customer, Goosehead is bringing high-quality bundled clients to carriers who retain well, supporting more favorable loss ratios.