Business Breakdowns
· 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.
· Geoff Collette, Matt Reustle
And I think lastly, and one of the most important aspects too, that might not be fully appreciated is Goosehead really created a business that could hire young employees right out of college, the opposite of what Robyn was seeing while she was getting licensed as an insurance agent. Goosehead's leadership approach and growing success could make the company unique, in making insurance a more lucrative and exciting career path to attract young professionals. They began franchising the business as well in 2012. They completed their IPO in 2018, and the founders remain at the helm of the business and own 35% of the company. [00:00:00] S0: Incredible backstory. I'm just still focused on having five children in the middle of your business school education. But that didn't stop their entrepreneurial journey together. On the point of them entering the market again, focusing a little bit on this theme of independence versus captive, would you say that has been a trend that's evolved over the years? Just thinking about positioning of captive players versus positioning of independent players, has there been a broader shift in the industry towards more independent or more captive over a period of time?
· Matt Reustle, Geoff Collette
[00:00:00] S0: Incredible backstory. I'm just still focused on having five children in the middle of your business school education. But that didn't stop their entrepreneurial journey together. On the point of them entering the market again, focusing a little bit on this theme of independence versus captive, would you say that has been a trend that's evolved over the years? Just thinking about positioning of captive players versus positioning of independent players, has there been a broader shift in the industry towards more independent or more captive over a period of time? [00:00:00] S1: In the past decade, the IA channel, the independent agent channel, has increased its market share from 2013 to 2023 in terms of homeowners premium as a percentage of total distribution. The IA channel increased from 41 to 51%, the captive channel shrunk from 53 to 34%, and direct has grown from 6% to 15%. Similar story on the auto side, a little bit different though in terms of the IA channel growing slightly from 31 to 33%. The captive channel has shrunk from 50 to 36%, and direct has grown from 19% to 31%. And there importantly have been shifts with carriers themselves in moving into the IA channel and away from the captive channel. There are examples including Nationwide, Liberty Mutual, and Allstate making those shifts over the last decade.
· Geoff Collette, Matt Reustle
[00:00:00] S1: In the past decade, the IA channel, the independent agent channel, has increased its market share from 2013 to 2023 in terms of homeowners premium as a percentage of total distribution. The IA channel increased from 41 to 51%, the captive channel shrunk from 53 to 34%, and direct has grown from 6% to 15%. Similar story on the auto side, a little bit different though in terms of the IA channel growing slightly from 31 to 33%. The captive channel has shrunk from 50 to 36%, and direct has grown from 19% to 31%. And there importantly have been shifts with carriers themselves in moving into the IA channel and away from the captive channel. There are examples including Nationwide, Liberty Mutual, and Allstate making those shifts over the last decade. [00:00:00] S0: If I'm just thinking about from the consumer perspective, the options of going through captive versus IA, I would think of captive as you're going to see one thing. You might get an advantage price if you go to the right captive provider. The IA is going to be much more bespoke in nature and can tap into many different policy providers, but pricing, I would imagine given there's two players involved, you might not necessarily see better pricing. But take that rough framing from the little that I know and tell me where I might be right and more importantly where I might be wrong on that.
· Matt Reustle, Geoff Collette
[00:00:00] S0: If I'm just thinking about from the consumer perspective, the options of going through captive versus IA, I would think of captive as you're going to see one thing. You might get an advantage price if you go to the right captive provider. The IA is going to be much more bespoke in nature and can tap into many different policy providers, but pricing, I would imagine given there's two players involved, you might not necessarily see better pricing. But take that rough framing from the little that I know and tell me where I might be right and more importantly where I might be wrong on that. [00:00:00] S1: Generally speaking, a given insurance carrier can only effectively underwrite a certain segment of the market. IAs are able to increasingly provide insurance product across a wider and wider swath of insurance carriers. So while State Farm is the largest, they're still less than 20% of the total market. And in the context of a consumer going to a Goosehead versus a captive, the likelihood, depending on product availability in that given geographic location, you're likely to find a much better rate, or at least a better rate for a given level of coverage through an independent agent relative to a captive provider. But that is somewhat situation dependent. There has been quite a bit of volatility in the product availability aspect of the marketplace in the last few years.