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[00:00:00.56] JESSE WEDLER: I give this advice to any friends or early stage entrepreneurs but think, especially within insurance which is, pick your lane, have incredible focus, and just find something that you can be great at and stay focused on that.
[00:00:15.86] REID HOLZWORTH: This is the Insurance Technology Podcast where we bring interesting people from across the insurance ecosystem to discuss and debate technology's impact on the industry. Join us each episode for insights and best practices from industry stewards and tomorrow's innovators. Now, here's your host Reid Holzworth
[00:00:37.61] (VOICEOVER) Welcome to the Insurance Technology Podcast. I'm your host Reid Holzworth. In this episode, I'm going to be interviewing Jesse Wedler. Jesse Wedler is at CapitalG. capital like dollars. G, like Google. CapG is actually owned by the parent fund. For those who didn't know, there's a parent fund that owns Google, which is called Alphabet.
[00:00:58.94] Jesse has a very interesting lens on this industry. He's been involved in this industry for quite some time and has been in the finance side or on the finance side his entire career. Jesse is just, and I say this about everybody but it's true, an awesome, awesome dude for real.
[00:01:16.40] I've known Jesse for a good amount of time, not a real long time but a good amount of time. And I've interacted with him professionally. And Jesse is a really, really smart dude. So he gets into some really cool stuff in this episode. Stay tuned. You'll learn a lot. Jesse, welcome.
[00:01:36.60] JESSE WEDLER: Thank, you Reid. Stoked to be here.
[00:01:39.33] REID HOLZWORTH: Thanks for being here, man. I'm really excited to have you on the show. Jesse, you're the first guest in this finance world. So I'm really excited to dive in a lot on that side. You're heavily involved in insurance vertical. You know our space very well, so, man, I'm excited about this episode.
[00:02:01.02] JESSE WEDLER: I'm stoked for it.
[00:02:02.49] REID HOLZWORTH: But before we get into that, let's let the listeners know, who is Jesse Wedler? Where did Jesse come from? So if you don't mind, give us a little background. Where did you grow up? What did your parents do for a living? What did you like to when you're a kid?
[00:02:16.14] JESSE WEDLER: Let's go to the Wayback Machine. So I grew up in Petaluma, California, egg basket of the world.
[00:02:22.41] REID HOLZWORTH: I don't know you grew up in Petaluma. That's cool, man. That's awesome.
[00:02:26.35] JESSE WEDLER: I grew up in Petaluma, a bunch of old chicken houses because it was kind of the chicken ranch back in the 1800s, 1900s for San Francisco in the West Coast. Grew up there. My parents were kind of hippies that decided to get real jobs.
[00:02:40.48] My dad did a bunch of networking for the local utility, which actually was really cool because it was early days of the internet and got exposed to that as a kid. And then my mom was a teacher. And they wanted me to go on to some to help the world type role and got into finance somehow.
[00:02:58.80] I broke their hearts. They still don't, I think, totally appreciate nor are they excited about what I do because it doesn't really help the community, but I just kind of fell into it and couldn't stop.
[00:03:11.17] REID HOLZWORTH: That's awesome, man. So the whole time, you grew up in Petaluma? That's it.
[00:03:15.13] JESSE WEDLER: The whole time Petaluma. Parents are still there. Brothers still there. And now live an hour southeast of there.
[00:03:20.50] REID HOLZWORTH: So have you ever lived outside of the San Francisco area?
[00:03:25.33] JESSE WEDLER: I just kept getting stuck at every turn of life where I went to college here. I went to Cal. And then was going to go to New York, then got a job I was more excited about in San Francisco. Then I met a girl fell in love with her here and just decided to stay. And all the bad press about California, there's plenty of truth to some of it, but it's a pretty good spot to be also
[00:03:45.22] REID HOLZWORTH: I love California, man. I grew up there. I was just telling you before this started. I was just out in Monterey. And we went down to Carmel and Big Sur and did all of that. That part of the country is so beautiful, man, northern California.
[00:03:58.45] JESSE WEDLER: The natural beauty is crazy. You can go be on the water in the morning, be up in the mountains in the afternoon, and go to the desert if you feel like it too, which is crazy range.
[00:04:08.08] REID HOLZWORTH: It's awesome. I grew up in Southern California, Orange County, Laguna Beach. My dad actually moved. He's over it, over the whole Southern California hustle. And he cashed out, sold his house. And now he lives up in Mendocino.
[00:04:23.89] It's really awesome because I grew up Southern California. I know it really well. But now like experience, I know San Francisco really well, Bay Area and all of that. But going up the people that don't know, Mendocino is a few hours north of San Francisco and that's just. It's such a beautiful part of the country.
[00:04:40.64] JESSE WEDLER: And it's pretty rugged.
[00:04:42.20] REID HOLZWORTH: It is.
[00:04:42.65] JESSE WEDLER: It's real terrain. And it's cold a lot of times, but it's beautiful.
[00:04:46.72] REID HOLZWORTH: Very, very beautiful. So when you were a kid, what was your favorite sport, hobby? What were you into Jesse?
[00:04:53.56] JESSE WEDLER: I wasn't that athletic as a kid. And with parents who old time hippies, they weren't really into organized sports as much. And so I did a lot of camping, a lot of boating, fishing, ended up doing sailboat racing. Actually, when I was a teenager, kind of fell into that not like glamorous yacht racing. We're talking like hand-me-down boats, fixing them up on the weekends and going out and racing them on the water.
[00:05:16.36] So always stuff feels like oriented around the water. I don't know why but always spent a lot of time. At California, we got the ocean. We got the Bay. We've got the Delta with a bunch of rivers and so just have a lot of fun with that.
[00:05:28.94] REID HOLZWORTH: That's awesome, man. You still get out sailing at all?
[00:05:32.21] JESSE WEDLER: Get out sailing some. We've got an old ski boat. We keep up in the Delta. We take the sailboat up to the Delta. We go camping in the summer on the boat and then go on little day trips on the ski boat, drag the ski boat up to lakes in the Sierras with the F150. Yeah, just too much fun, too much play stuff to do around here.
[00:05:52.94] REID HOLZWORTH: That's awesome.
[00:05:53.31] JESSE WEDLER: But ironically, you can hardly get insurance in California. I don't know if you saw the news today. The State Farm is not going to issue new homeowners policies in California. And so it's this insurance island out here but for a lot of good reasons.
[00:06:10.07] REID HOLZWORTH: I was an agency owner back when State Farm, Allstate, Travelers, all the bigs, all the tier ones pulled out of Florida actually at an agency in Florida. And it was crazy because as independent agents, it exploded. And all these small homeowners carriers just started coming out of the woodwork.
[00:06:32.88] You're going to see it. They'll start coming out of the woodwork. They're not AM Best rated. They're demo tech rated companies, but they'll start popping up and taking on the risks. Does California have a thing like Florida does like citizens or it's forced placed, not forced placed but like a state run situation, I assume?
[00:06:51.84] JESSE WEDLER: They do, and they make it really hard for the big carriers to play and really be profitable here, which is one of the issues.
[00:06:57.63] REID HOLZWORTH: That's interesting.
[00:06:58.86] JESSE WEDLER: Similar to Florida, there's such a huge cat risk here. We got earthquakes. Now you got these fires. And so it's definitely a daunting spot to think about underwriting for.
[00:07:08.40] REID HOLZWORTH: Its gnarly man people don't too I grew up like half our town, half of Laguna burned down when I was a kid, burned down the school, everything. With the fires, it was funny. I saw the fires coming over the hills and I was a kid at school. And I ran inside the office. I'm like, oh, the hills on fire. This is not good.
[00:07:24.37] Anyways, what people don't realize is that fires are one thing that decimates stuff. But then if it rains, you get all the mudslides. And it's compounds everything. It's so gnarly. California's a tough state.
[00:07:39.81] JESSE WEDLER: Five years ago, there was those really bad fires in Santa Barbara and then three weeks later big rains. We were actually down there. We drove through Montecito. And it was like huge mansions just like off their foundations that were just on the side of a road. It was wild.
[00:07:55.93] REID HOLZWORTH: That's wild, just the whole thing slid.
[00:07:58.23] JESSE WEDLER: It's the whole thing slid. And in the summer now Northern California, the fires is such a real thing. You have weeks on end where you can hardly even go outside and kids can't play outside. The AQI is so high. So hopefully, we get a good summer this year, but definitely a persistent issue.
[00:08:13.62] REID HOLZWORTH: We can go on and on about California, man. I'd love to pick your brain sometime about the water. I hear this stuff people are moving out of California because there's no water. It's a funny place. But I'll say this, California is one of the most beautiful states in this country. It is. It's so awesome. There is so much to do in California if you're an outdoors person.
[00:08:33.69] Similar to you, I didn't grow up playing sports because I grew up in a beach town, man. And we were the Laguna Beach artists.
[00:08:42.69] JESSE WEDLER: You go surfing and body-boarding.
[00:08:45.63] REID HOLZWORTH: 100% all the things, dude, mountain biking, BMX, skateboarding, everything, all the water sports, skimboarding. Laguna is a huge skimboarding town. That's where Victoria Skimboards is from.
[00:09:00.54] JESSE WEDLER: You don't want to go play some soccer game when you go be on the beach.
[00:09:03.78] REID HOLZWORTH: Right. I know, right. So what did you want to do when you grew up? Jesse Wedler as a little kid, I wanted to be a forest ranger. That's a fact.
[00:09:16.23] JESSE WEDLER: I could see that. You got the beard for it. I did have a beard when I was seven too, by the way.
[00:09:23.07] REID HOLZWORTH: Exactly, it came in early, came in thick. What did you want to do, Jesse?
[00:09:29.31] JESSE WEDLER: I had phases of EMT and stuff like that, kind of little kid type passions. I think, it is interesting just to think back because it all makes sense in retrospect. At the time, I didn't really know how to describe it.
[00:09:46.23] I mentioned earlier my dad being a networking professional for this local utility. He was building their networks, but he had a front row seat to the internet. And so I remember in '95, I was working on this school project. He's like, you should use the world wide web to do your research.
[00:10:00.15] I'm like, what the heck is that! He's like, it's the spider web of information, and you can find all this information from these different nodes of the spider web. I'm like, dad you're crazy. I don't know about that.
[00:10:08.88] And it was like, early days, you're cruising Netscape or even browsers before Netscape just trying to access it. And it was kind of cool. And then I actually started playing around with web design. And then being in the Bay Area during the late '90s where just all the craziness around dot com and all this innovation.
[00:10:26.52] I didn't really know what to make of it, but I knew there was a lot of energy around it. And it was like, wow, this looks cool. I want to find a way to go get into that. And so graduated college, worked in more traditional finance. I started working at oil and gas, flying to Houston a bunch.
[00:10:41.53] And I was like, what am I doing? I got to get out of this. I got to find my way back to technology. I like the Bay Area. I know I want to work in technology. That's the secular trend of my generation. I got to get back to this. Quit my job, went to business school. I had a bunch of ideas that I was excited to go think about starting, played around with different company ideas.
[00:11:00.55] And then I got convinced to go check out Google Capital, that was our old name, now CapitalG for the summer 10 years ago. I was like, I'm going to go check this out, get a sense for what it's like inside of Google. And 10 years later, I fell in love with the people there and what they were working on. And so I didn't go start the ideas I was excited about but ended up in investing. It's been a lot of fun and get to work on some really cool areas.
[00:11:27.76] REID HOLZWORTH: So your first foray, if you will, into technology was at CapG, formerly Google Capital?
[00:11:34.40] JESSE WEDLER: Yeah. I did some internet investment banking my early part of the career where we were valuing company early days of Facebook when they were private and everyone's trying to figure out how to value them. But first real foray into technology investing was at CapitalG.
[00:11:48.41] And [INAUDIBLE] CapitalG because we're a slightly unique model where we are a venture and growth focused investor, but Google Alphabet is our sole LP. So we're underneath the Alphabet umbrella. We get to work with all the teams at Alphabet to diligence the companies we're looking at, to help the companies, whether it be product and engineering questions they have or sales intros to companies that are around Google who we think would be a good fit.
[00:12:14.28] And so we try to leverage and work with the teams at Google to go make better investments and help our companies after we invest.
[00:12:21.71] REID HOLZWORTH: That's awesome, man. That's awesome. And I guess I actually don't know this. I was just kind of figured. I know that you focus a lot in the insurance vertical, but is it financial services in general? What are you after?
[00:12:35.81] JESSE WEDLER: We're a generalist team. And so a bunch of us look at different areas within technology. And I started venturing towards what we call vertical software, which is software for specific industries and kept going further and realizing that the best vertical software markets were within financial services. And so just spend more time increasingly around insurance, banking, other parts of broader financial services.
[00:13:01.01] But to me it's interesting because financial services biggest category by far, just in terms of profit spending, et cetera, biggest category by far. But still several years, if not generations, slower or behind where other industries are in terms of just cloud modern infrastructure and the way that companies are working.
[00:13:27.63] I think a lot of that's because the incumbents have great business models. And so the disruptors haven't out competed them. So I think it's a fascinating space because there's so much detail and nuance in terms of how these companies work and a huge technology opportunity over the next 10 years. And so it's a complex market.
[00:13:47.27] You know that better than anyone. But I think there's a huge technology opportunity around it in our career lifetime. Someday they'll put us out to pasture read. But in the next 10 years, we got a shot at making an impact here.
[00:13:59.69] REID HOLZWORTH: That's pretty awesome, man. So what's like your profile? What do you guys look for? What size does CapG typically invest in?
[00:14:07.80] JESSE WEDLER: So for us, it's typically post product market fit. So series B and beyond is typically when we get involved. But we got a really flexible mandate where we can invest from series B through IPO but also post IPO or perpetually private companies that are private equity backed.
[00:14:24.20] And so to me, that's really fun because I think in a lot of markets, we always want to find the exciting disruptor that's going to go build a big business and has really a brand new approach to an industry. But in a lot of use cases, we actually find that the incumbents are actually way better businesses.
[00:14:42.17] If you look at something like Applied, I think Applied has by far the best technology for the independent agent channel. And having the flexible mandate, we can go invest in a company like that even though they're not a startup per se, but they're just an incredible business.
[00:14:57.38] REID HOLZWORTH: You know what's funny is when you guys invested in Applied, the industry was like, oh, no. This is scary. This is not good. Now Google's got their mitts in there and they're going to get all the data and do all this evil stuff with the data.
[00:15:15.83] JESSE WEDLER: We had to do press briefings with all the insurance press about, how is Google approaching this? How involved is Google going to be? Is there an end game in mind? It's like, no, no, no. It's just a great financial investment in an awesome company that we think has a lot of potential and a lot more to run.
[00:15:33.48] REID HOLZWORTH: How long ago did you guys invest in Applied? It was a number of years ago.
[00:15:36.99] JESSE WEDLER: Five years ago, from 2018.
[00:15:41.37] REID HOLZWORTH: I don't want to go too far off on this tangent, but I will just say this being involved with it. Applied is crushing it, dude. It is a rocket ship right now. They really are. They're crushing it.
[00:15:56.34] JESSE WEDLER: I think the venture world, incumbents like Applied get a bad rap because everyone just assumes there's some old sleepy business. But there's beautiful businesses like Applied where they know the industry so well, they're already serving their customers well.
[00:16:10.05] But when they have a desire to innovate on top of it and they're going to build a lot around what they already have, like you say, it's a rocket ship. They're unstoppable when they have that right mix of really good domain expertise in existing product but desire to innovate.
[00:16:28.77] REID HOLZWORTH: And when you look at companies that invest in businesses like Applied, a lot of them out there will just buy it, hold it, squeeze it, milk it, if you will. There's a lot of different strategies there.
[00:16:46.70] But I feel like, and you tell me, the investors in Applied, the owners of applied really have doubled down, tripled down, quadrupled down on that innovation and really growing Applied and letting Applied get to that next level by literally bringing down when Taylor Rhodes came in. And I know this because I'm involved in it. Bringing down EBITDA and it's like, hey, let's reinvest in the business and let's really make this thing what it could be.
[00:17:18.62] JESSE WEDLER: I think private equity typically gets a reputation for, we're just going to buy it, squeeze it, and milk as much cash flow out of it as we can. And that works in a lot of businesses, but I think it's also shortsighted because if you step back and you say, OK, if we actually invested some of this back into the business and really focus on innovation, what could we get from that investment? And it's never totally quantifiable.
[00:17:41.61] If you try to get a product team to tell you the specific ROI on $1 invested, you can't. You can't necessarily do that. But when you have a fresh perspective, when you've got technology-oriented team, you can say, look, it's obvious that our customers need this. Better connectivity to carriers is where the puck is going. We have an opportunity to go be that and deliver that and why wouldn't we take a shot at it.
[00:18:06.49] I think it's actually a good analogy for how the whole VC and tech ecosystems approached insurance, is they look at this huge market that's data-oriented where technology is obviously critical. The common thing you hear in Silicon Valley is like, god, look at all those old incumbents when they're talking about the carriers.
[00:18:26.49] There's got to be so much room to go outcompete these businesses just because they're old, not having appreciation for the complexity of the business or how well they're run. But it's just that Silicon Valley disrupt mindset. And so those mindsets creep in and people go fund companies or start projects to try to go compete in insurance.
[00:18:45.45] And then you see the last wave of InsurTech, how much money went after, really a growth-oriented approach without having a good understanding for how to underwrite and how to actually be a good insurance business. And they try it for a few years, a bunch of money goes into it, and they run scared. It's just a lot harder than people appreciate.
[00:19:09.24] REID HOLZWORTH: I've seen a lot of people put huge money into some of these. And now we're starting to see them all fizzle out in the market.
[00:19:16.80] JESSE WEDLER: I was looking at this stat recently. But if you just look at the personal line-focused carriers that all raise a bunch of money and went public and aren't doing as well today, I think they raised twice as much money as their current market cap, which is just shows you how hard this is. When you think about how much money was spent to go grow these businesses build these businesses, it's just so humbling.
[00:19:40.95] And so we have a lot of respect for what those teams are trying to do. We've looked at them, called you about many of them, tortured ourselves saying, god, are we missing it? But think whether we're too slow moving or we've got too high a benchmark for what a good company is, we stayed patient like you were saying and invested in a mix of businesses that we're really excited about.
[00:20:05.34] REID HOLZWORTH: I don't think it's slow moving, man. You're just really calculated, Jesse.
[00:20:09.30] JESSE WEDLER: I appreciate that.
[00:20:10.38] REID HOLZWORTH: All you guys are just you sit back. And it's been good, and it's paying off for you guys, I assume.
[00:20:18.99] JESSE WEDLER: Thank you. Well, if you find any more good ones, we're looking for more. We're trying to grow the portfolio.
[00:20:24.54] REID HOLZWORTH: Isn't everybody though? Let's talk about that quick. There's not a lot they. I went off on a tangent not that long ago about where's all the innovation, guys? Come on. Bring it on. And like, once people got mad at me about it, I mean, not really. But then I'm like, all right, well, show me. I haven't been seeing a lot of that.
[00:20:47.19] It's a little bit frustrating because it's you want it to come out and you want the industry to get better in those ways, but I'm just not seeing a lot of stuff that's out. I'm not seeing new stuff nor am I seeing existing stuff that's really taking off and doing big things. That's me.
[00:21:06.24] JESSE WEDLER: I share that point of view. I think there's an open question. What will I do for insurance? My guess is that there will be a new hype cycle that comes out of it of new InsurTech funding from generalist venture capitalists who say, wow, this is a huge application, huge end market. Let's go do it. I bet some of them will work.
[00:21:27.22] I think it's also an open question. Should it be independent companies that really take advantage of AI within insurance or will be the platform companies, the Applieds, the Duck Creeks, the Guidewires? They have the distribution.
[00:21:39.74] And I think the biggest learning we've also had is, anyone trying to sell to carriers, man, it is really hard to stand up a small company and go sell to carriers and go through those implementations and be able to do it repeatedly. It's a tough market to serve and really scale quickly into.
[00:21:57.73] I think the other thing is there's a mismatch between how people like to fund build venture companies versus how the insurance market works. The venture market is built around rapid scaling, rapid iteration, failing fast. The insurance market, man, if you scale rapidly and try to iterate quickly, there's only a certain number of customers that ultimately matter.
[00:22:18.76] If you get a bad reputation early on with those customers, good luck. And so you think you have to be a lot more slower, methodical, go after very specific use case, and just be best in class for that use case. And think a lot of people who are new to the space just try to move too quickly and don't appreciate that.
[00:22:35.83] REID HOLZWORTH: Selling to carriers is next to impossible, man, starting out. You have to develop a reputation. Here's the tip for everybody. Listen, you want to sell to carriers, you first need to get the distribution in your back pocket. You need to get their brokers and agencies saying, hey, I need this thing. Can you go help me do this carrier?
[00:22:57.28] They'll pick up the phone from those big agents, especially the big ones. I hate to say it, but the big ones are the ones that move them or a ton of small ones. But if they start getting noise from their distribution that your thing helps them, they'll be all about it. But other than that like, dude, good luck.
[00:23:17.98] JESSE WEDLER: The other approach though I think that has real value is, you'll find a very specific use case. And you might not be venture scale, but you can still build a great business. And you take the right amount of funding. And there's this whole mindset around startups like, oh, you got to go raise a bunch of money and try to go for the stars.
[00:23:36.22] But in reality, some businesses, they'll be better off if they raise a modest amount of money or no money and build into a very specific lane with a lot of value. Their agent channel, find something that's going to make agents way more productive. It can be a small tool. And go figure out an efficient way to sell to agents and build a good business out of that.
[00:24:00.12] REID HOLZWORTH: They need time.
[00:24:02.02] JESSE WEDLER: They need time.
[00:24:03.75] REID HOLZWORTH: I'll say this, Michael Howe said this to me one time. When I first came over to IVANS, he said-- Michael Howe is now the leads product at Guidewire. He used to be at Applied. And he says to me, he goes, Reid, selling the carrier is not like selling a broker's. It takes a really long time. And he said so don't get over your skis on that.
[00:24:25.77] And he was 100% correct, even with the relationships we have. Even with the relationships we have where I can call these people on their cell phone and be like, oh, what's up dude, it takes so long to get deals done.
[00:24:39.27] JESSE WEDLER: It takes so long. It's also really concentrated market. The top 20 carriers within P&C are 80%, 85% of the ultimate tech spend budget. And so if you're patient, like you're saying, you can get huge contracts with those top 20.
[00:24:53.70] But it's not going to be overnight. It's not going to be in a year. It's going to be a multi-year slog in a lot of cases. But I think there's still big companies we built there but just finding the right mix of the right product and the right patients and the right efficiency.
[00:25:09.64] REID HOLZWORTH: That's really good insight, man. So let me ask you this. What do you feel your role is in insurance, insurance technology?
[00:25:19.81] JESSE WEDLER: Yeah. I think, as investors, we are long-term patient capital. We don't have a specific fund life or when we have to return the fund. We've been Applied for five years. I hope we're in for another five at least based on how they're doing.
[00:25:35.77] I'm here to provide capital, and my role is to find the right investors that we want to invest in, give them the right resources beyond just capital and also be a patient, helpful voice around the table, help them find the right people to add to their team.
[00:25:49.87] Help answer tough strategy questions when we're making a decision about the right direction to go in and remind them that it's OK to find the right pace of growth for each business because each business is unique, and that there's a big prize at the end for the ones that get it right.
[00:26:07.78] REID HOLZWORTH: That's great, man. That's great advice, really good. So if you could fix one problem or issue in the insurance industry today, what would it be and why?
[00:26:16.33] JESSE WEDLER: Oh man, I think the problem that I want to fix is probably what we're aiming for with the investments that we make, which is, enable this industry to be much more modern cloud-architected, the ability to move faster because I think there's a lot more efficiency you could get from this industry when we get to that phase. It's not an if. It's a when.
[00:26:43.52] I think there'll be a lot more innovation, efficiency. It'll make the whole industry more competitive. But it'll be incredible in terms of just what it does for the existing businesses and both how end customers and insurers are served with new products and pricing. But I think that is the promised land. Like I said, it's a question of when, not if.
[00:27:06.07] I don't have a super catchy phrase, the one liner of what that is exactly. But I think that's what excites me about investing in it. And I think that's obviously what we're going. It's just a question of how do we enable that to happen faster. But the potential when we're there is going to be incredible.
[00:27:24.94] REID HOLZWORTH: Yeah, it was interesting what you were saying before about the spend is the largest in financial services and that they're also way behind as far as modernization is concerned, which creates a really great opportunity and to your point here, helping that move forward. It's awesome.
[00:27:48.73] JESSE WEDLER: I think it's better for the industry. It's good for the technology providers that enable it, and it's better for the customers at the end day. And so when you have a situation like that where everyone wins from it, that's what gets us motivated. But it's tough. Where we are today, there's so much legacy code that needs to be migrated and legacy systems that need to be maintained.
[00:28:09.04] The amount of teams or the percentage of teams that focus on maintaining and migrating, it's a huge headwind for the industry right now. And so that will be 5 to 10 years. And then there'll be new platform. And instead of cloud, it will be a new architecture that we're working towards. But I think getting to modern nimble architecture for majority of these businesses will enable huge change.
[00:28:35.80] REID HOLZWORTH: I've said this before, but people don't realize, especially with the incumbents, how that legacy code and the legacy platforms that are there, how hard it is to modernize that and how long it takes.
[00:28:51.60] Everybody, even I used to think this way, I was ignorant in thinking this way, but I used to think like, these guys just don't innovate. They're not doing blah, blah, blah. And they're never good. They're just raising rates and squeezing everybody.
[00:29:05.55] And in some cases, that's kind of true. But the reality is, it is really, really hard and really, really expensive to modernize, especially on these insurance based solutions that are so complex. It's not like a simple doodad. That's probably why financial services in general is so behind is because of that.
[00:29:31.70] JESSE WEDLER: Totally. But can you carry, the lift and shift it to the cloud, it's not some simple transition. I was talking to one large company in this space. I won't say who. 500 engineers in their team, 2/3 of their team is just focused on maintaining the existing legacy systems. Can you think about that? The tax on just your P&L first of all but also on the ability to go invest in innovation and experiment. You're just always sliding.
[00:30:02.40] REID HOLZWORTH: That's wild, man. So what tech do you see having the greatest impact in insurance in the next year or two? You look at a lot of stuff, Jesse. And you're involved in lots of things.
[00:30:16.50] JESSE WEDLER: I think that there's so many point solutions that are interesting, but I think the biggest question is the broader question. And I think the reason why this is relevant, granted it's totally over-hyped right now, we're in peak hype cycle. But I think the reason why it's interesting and relevant for insurance is, first of all, in terms of the legacy code migration and just maintaining legacy systems.
[00:30:36.92] There's a lot of engineering efficiency that comes from AI assisting the engineering teams. We talk to teams, mostly outside of insurance, I haven't seen this in insurance. But teams outside of insurance where tasks that used to take an engineer two weeks to do, they can now do it in three hours using some sort of copilot or assistance from AI.
[00:30:56.57] And so that could have a huge impact in the backend. Customers and the insurers won't really see it, but then you start thinking about the front end use cases and the way people interact with their policy, the way people interact with their carrier, with their broker, there's a lot of just new opportunities for customer engagement that we haven't even started to scratch the surface on.
[00:31:18.17] You can start thinking about underwriting. You start think about claims, talking to a couple early stage companies where it's still very early, seed stage, where they're building an underwriting assistant. And so, hey, let me take this corpus of data that you just got for some commercial policy. I'll synthesize it through a large language model.
[00:31:35.57] Depending on the parameters you care about, I'll search for these words. I'll tell you what is a potential red flag in this business. So the person's still going to be human underwritten, but it's going to be AI assisted. And I think that's an important thing as teams are thinking about how to apply AI to this space.
[00:31:52.94] Carriers don't want AI to go replace the secret sauce of their business. Just like if you talk to the legal profession, there's a bunch of going after legal tech right now. Lawyers don't want to be told how to do their job. But they definitely want something that's going to make them a lot more efficient in finding that needle in the haystack and going through a bunch of information.
[00:32:11.58] And so I think that's where there's a bunch of opportunity. But it'll for sure create a new hype cycle and a wave of craziness and funding probably within InsurTech. I think the question is, what are the models that actually have long-term staying power or there's just clear ROI.
[00:32:29.98] REID HOLZWORTH: Absolutely. This whole AI thing, man, is really interesting. It is like so over-hyped right now but for good reason. I think it's funny. I had a buddy who called me yesterday. Freaking guy's blowing me up. He's like, dude, I got the best business idea ever. You know Trace commerce, Trace commerce. He's saying all this. And it's funny. If you know that, that's funny.
[00:32:54.46] JESSE WEDLER: Yeah, from Silicon Valley. But, yeah, on the AI thing, I think, it is super interesting because it's an equal playing field where everyone's starting from the same spot. Everyone's figuring it out right now. I think if you're an incumbent, you've got to go experiment with it. You got to figure out what the use cases are so you're not flat footed with it.
[00:33:12.47] But I also think it's so interesting with the Silicon Valley lens, all these early stage AI investors are like, aren't you worried that AI, people are going to build and replicate businesses like Applied or other great software businesses? I'm like, no. Maybe you'd be able to replicate interfaces quickly using that but to replicate the domain expertise and the connectivity.
[00:33:36.32] So I don't worry about disruption from AI. I think it's really just a question like, what are the use cases that are actually going to work in this industry and who should be the companies to build and own that. And I'm sure there'll be some really exciting new upstarts.
[00:33:52.22] I think distribution will be the key question for them, back to what you were saying, because whether you're selling to carriers or agents, you got to stand up a big sales team. And that's where the incumbents are going to have a lot of advantage. And so everyone's trying to figure it out.
[00:34:08.69] REID HOLZWORTH: Stand up a big sales team. Where everybody fails going after the incumbents is migrating all the data and migrating everything that business has today, all their workflows, everything that they do. Everybody thinks if I just bring out to the street this new shiny thing and it's cool and it's smart and it's better than whatever, it's a long road to get people to actually move over on that.
[00:34:37.19] And I like what you said though. You're right. It's a level playing field. And like I said in my body, it's like, dude, everybody's after this right now because it's not super expensive to go spin up a team to go get after this. It's like when data started to become a big thing. It's always been a thing. But as it's gotten bigger, it's like building a big data science team is no joke, man.
[00:35:00.65] But this AI stuff, we're taking existing engineers, really smart people. Dude, they know it. They're getting after it.
[00:35:08.39] JESSE WEDLER: Totally.
[00:35:10.61] REID HOLZWORTH: And the big incumbents, they have resources to do so. And their customers are demanding an answer on this. And to your point, they're doing it too because they're a little bit afraid. Like, oh, what does this mean for us? We got to start figuring this out and have an answer for it.
[00:35:26.48] JESSE WEDLER: It's a mix of fear and opportunity, which I think is healthy. But it's going to be a fun time to see what actually percolates and ends up being good use cases.
[00:35:36.32] REID HOLZWORTH: So how about so how about Google in this? And maybe you're not the best one to speak to this, but Google definitely playing in the AI space overall. It's interesting because Google is so enterprise how Google is packaging this whole thing up. It feels different than the others that I've talked to or seen.
[00:36:01.72] JESSE WEDLER: So I can't speak on behalf of Google. I can say my own thoughts as an investor. I think Google Cloud obviously wants to gain share in the cloud market with AWS and Azure. AI very important new trend. Google has incredible AI technology.
[00:36:20.59] I don't think you'll see them building productized solutions for specific industries. They want to be the infrastructure provider to enable teams and incumbents, startups, everyone to go build new solutions, new AI based solutions on Google Cloud. And they've got a good argument for it because I think they've got probably the best platform for enterprise AI.
[00:36:42.04] Microsoft did a lot of interesting stuff. Everyone's working hard on it. I think that's where you'll see Google play in this is, how can we really leverage these capabilities to enable the next generation of products to be built on Google Cloud?
[00:36:54.83] REID HOLZWORTH: I think that goes back to what we were talking about earlier too about the fear in the industry about Google and like Google Compare and all that kind of stuff. Guys, this is where Google wants to play. This is where the real money is. It's not in becoming an insurance agent. I hate to say it like that. But this is where they make the money.
[00:37:15.94] JESSE WEDLER: And they try that and it didn't work. And so you think about being a product manager inside of Google to go propose something like Compare again and they're going to be like, didn't we try that 5, 10 years ago? It didn't work last time, why do we want to do it again?
[00:37:30.15] It's a people run organization, and I think they want to go be the infrastructure to power the industry. And that's where they know they're good at competing. I think that's where you'll see them compete.
[00:37:41.34] REID HOLZWORTH: And they're getting after it, man. They're focusing on insurance specifically with GCP. And and this is just AI, the whole platform there. It's another one.
[00:37:53.67] JESSE WEDLER: Yeah, well, you got guys like Nigel Walsh and his whole team who have been trying to sell GCP infrastructure to the insurance industry. It's like, shoot, now we've got something really new and exciting that you can use from GCP. And so yeah, they're going out swinging and working hard.
[00:38:09.95] REID HOLZWORTH: It's awesome. It's an interesting time in this industry and just in technology in general. Who could have imagined, like you said, back in the '90s, the world wide web. You're like, what are you talking about? That wasn't that long ago.
[00:38:26.99] JESSE WEDLER: '95 the spider web of information is slow load times like, what are we doing here? Now, it's crazy. You think about 20 years from now, that'll go by in a blink of an eye. Like, what will this industry look like then?
[00:38:41.24] REID HOLZWORTH: I don't know, man. We'll see.
[00:38:45.41] JESSE WEDLER: There will always be people involved. It's a people driven industry. There's always going to be a lot of people that need to power the underwriting piece of it to make sense of it. AI is not going to replace risk underwriting . Entirely but there will be a lot of automation is my guess. There will be a lot of customer interactions that are entirely powered by technology.
[00:39:04.52] There'll be a lot of connectivity between different services, carriers, and brokers that's all powered with technology. So I think the IT budget will increase. The efficiency of the industry will go up. And it will take a long time and a lot of pain to get there, but it seems pretty inevitable.
[00:39:24.21] REID HOLZWORTH: I agree with you, man, totally agree with you. So any advice you have for entrepreneurs coming into the insurance technology space?
[00:39:34.07] JESSE WEDLER: I give this advice to any friends or early stage entrepreneurs but I think especially within insurance, which is, pick your lane, have incredible focus, and just find something that you can be great at and stay focused on that.
[00:39:48.08] And I think there's so many opportunities around insurance, but you've got to really understand the domain. You got to make sure you do your homework and talk to prospective customers and then you just got to stay focused and be patient.
[00:40:02.33] REID HOLZWORTH: So you hear that, listeners? You come talk to a guy like Jesse Wedler, you better have your shit together. Don't be like, oh, I'm thinking about doing this other thing. We're doing this, and this is working real well but we have these other nine opportunities that could be good and blah, blah, blah, blah, blah, blah. It's almost complacency. Is that fair to say? Get after what's good. Don't get me wrong. There's other opportunities.
[00:40:28.27] JESSE WEDLER: I think that's a good summarization. The best pitches that we hear are, we're doing something really well and look at how well it's working, not we're going to go do five different things and we've got all this opportunity. And a lot of companies try to be platforms when in reality they're point solutions.
[00:40:44.29] And so you can make pretty PowerPoint and show how you're going to be some platform and all these flywheels and interconnectedness, but just show me the one thing you're great at that you're going to keep being great at and why that's a big opportunity. And if we get big with that then there's going to be adjacent opportunities that come up.
[00:41:01.81] REID HOLZWORTH: What opportunities do you see through your lens, Jesse?
[00:41:05.86] JESSE WEDLER: So outside of just the different technology components like we've talked about, I think the other interesting question is, what are the verticals where there's big opportunity, where they're either underserved or they're still emerging verticals. And so I would put small commercial under that, large existing opportunity that's underserved today.
[00:41:22.99] I would say something like cyber, we're seeing several companies doing really well there. And the incumbents are doing pretty well too. But there's going to be, I think, a lot of growth in just the size of that market and a lot of opportunity for people to get good at that for specific segments and how they serve it.
[00:41:39.68] And then there's also interesting new verticals like, think about covering California. There's companies that are trying to focus just on California wildfire, a company like Kettle and others. And so that to us is where we see most of the innovation.
[00:41:52.97] I think going after personal lines with an MGA approach feels hard. And so it's harder to serve verticals where we're seeing a lot of smart teams focus on it. And I think we'll see more from there.
[00:42:04.34] REID HOLZWORTH: It's interesting to hear from your lens when you say small commercial, cyber, you're looking at it in that way. That's interesting. It's wiedzy in a way.
[00:42:17.84] JESSE WEDLER: It's wiedzy, but I think that's back to the whole point on focus is, if you're trying to take on an eventual carrier type model starting MGA-- what I don't want to hear is a team that says we're going to go after all these different lines and we just have a really good Google AdWords acquisition strategy for acquiring new customers. That's not going to scale.
[00:42:39.92] Show me the loss ratios and show me you've gotten great at underwriting a specific line and that you know how to do it and then we'll figure out growing distribution. I start by saying, what are the big potential verticals that I could get excited about where there's enough there and it's not overly competed by the incumbents today. And that's where I think there's opportunity to build business.
[00:43:01.76] REID HOLZWORTH: And it's funny because everything small commercial is just on fire right now. It's super hot. That's the stuff that's-- but to be fair, it's been out for a bit. People have been trying to solve small commercial in a lot of different ways.
[00:43:14.04] JESSE WEDLER: And it's hard. And I like those gritty markets because in the gritty markets if you find a team that understands how to do it and do it well, that's where you've got opportunity.
[00:43:25.08] REID HOLZWORTH: That's awesome. What else, Jesse, what else would you like the listeners to know?
[00:43:31.08] JESSE WEDLER: The other trend that we talked about briefly that we expect will see is M&A. And because there's so many companies that were started over the last 5, 10 years and the funding spigot from Silicon Valley is off, only the companies with the best business models are going to have access to capital. Even though there's a lot of capital on the sides looking to invest, there's a lot of discretion in terms of who gets funding.
[00:43:52.75] And so I think you'll see a lot of M&A of good products that maybe didn't have big businesses built yet that start getting picked up because teams reach a point where it's either sell or go out of business. And I think there's a lot of decent M&A to be done.
[00:44:09.44] REID HOLZWORTH: What are you what are your thoughts on the spigot, if you will? When do you foresee that starting to turn back on or do you see it even turning back on?
[00:44:18.56] JESSE WEDLER: Yeah, it's so interesting because there's so much committed capital to venture and private equity funds. There's a lot of capital available to be deployed but just a lot of caution in terms of, are things going to get worse in the macro? Are things going to get worse from a valuation perspective? Everyone's focused on the rates.
[00:44:35.15] I think as soon as we have certainty over what the rate environment is going to be and then the public markets will have certainty over what valuations should be and that'll trickle down into the venture and private equity markets. But right now it's like, shoot, are we going to have more rate hikes and more of a recession? Are we going to stabilize? Are we going to cut rates?
[00:44:52.94] And that uncertainty creates this bid ask spread between companies looking to raise money and investors. And there's kind of this standoff. I know the spigots will turn back on, but it could be several months or into next year.
[00:45:10.62] REID HOLZWORTH: What do you think? I'm going to put you on the spot here. What are your thoughts?
[00:45:14.88] JESSE WEDLER: I think you're not going to see much for the next six months. I think it's going to feel more of like what we're experiencing right now. And then after you get in deeper into '24, I think we'll see rate stabilization by then. We'll have more confidence in what the macro economy is going to be. And then you'll see more of a cycle.
[00:45:30.93] It might not be at prices that entrepreneurs like. It might still feel expensive to investors. But I think when there's more of that consistency and just predictability of what the near-term future looks like, then you'll see more activity. Because you think about it in, these funds have all raised all this money.
[00:45:48.03] It's committed from LPs. They want to be in business. They don't want to sit on the sidelines forever. They need to go deploy capital, so they have a business to keep raising new funds. So they're going to find ways to do it. And in the near term, they're just going to be highly selective over the businesses that they do fund.
[00:46:06.18] REID HOLZWORTH: That's awesome. Thank you for that.
[00:46:09.98] JESSE WEDLER: I think that'll probably be the biggest threat. AI will be the hype. The M&A will be the most real trend in the next six, nine months.
[00:46:20.90] REID HOLZWORTH: We've looked at a lot of stuff and there's not a lot out there from what we've seen from our side.
[00:46:26.75] JESSE WEDLER: I think there'll be a lot of smaller companies where it's like, it's a few people. They couldn't really raise that series A. You're like, oh, that's a nice little tuck in. There's not a lot of like, wow, this is a really good business. There are some good businesses, and they will eventually be willing to transact at a price that makes sense to everyone.
[00:46:45.59] REID HOLZWORTH: That's great. That's great advice, so good. A lot of people really, really appreciate that, no doubt. So a couple more questions. In your opinion, what insurance tech influencer should I talk to next on the show?
[00:47:02.27] JESSE WEDLER: Well, two people come to mind. First of all, I would say Nick Zerbib, our friend from Stone Point.
[00:47:06.32] REID HOLZWORTH: He's already lined up. He's coming on.
[00:47:08.45] JESSE WEDLER: Great. Nick's fantastic, knows the industry better than anyone I know.
[00:47:14.00] REID HOLZWORTH: He knows it inside and out.
[00:47:16.34] JESSE WEDLER: And whenever I have a question about how some relationship or how something works, he's studied it. He knows about it, and he invested in some company that did it 10 years ago. He's wonderful. And the other person I would say is Guy Goldstein. I don't know if Guy. He runs Next Insurance.
[00:47:29.88] REID HOLZWORTH: Oh, yeah, I know Guy.
[00:47:31.74] JESSE WEDLER: They are doing some really impressive stuff around small commercial. It's working. And I think you'll hear a lot more from them over the course of the next six months, year. And think you should talk to Guy.
[00:47:42.22] REID HOLZWORTH: He's crushing it, man. I do know Guy. I've been on a bunch of calls with him. And they're making moves in a major way. That's a good one.
[00:47:52.47] JESSE WEDLER: They're such an interesting example where they start at the same time as Lemonade, Hippo, and all these other companies. And they focused on small commercial because they thought it was structurally just a less serve, a more underserved market.
[00:48:04.59] They knew it was hard to underwrite and hard to make it work. They didn't try to grow out of their skis in the first few years. They just stayed diligent, focused on automating the underwriting, building a great product, and now it's paying off. And now they've got a great product. They've got good metrics and big marks to go after.
[00:48:25.53] REID HOLZWORTH: That's awesome, man. Those are good. Those are good. I'll definitely reach out to Guy. And I'm looking forward to told Nick Zerbib. I love Nick. He's a good dude. He really is.
[00:48:33.96] JESSE WEDLER: He's got a podcast voice too, that soft buttery voice.
[00:48:37.41] REID HOLZWORTH: Totally.
[00:48:41.16] JESSE WEDLER: And soothing sound, Nick tell me about insurance.
[00:48:46.86] REID HOLZWORTH: All right, Jesse, last question. What's your drink of choice? What's your poison, if you drink?
[00:48:53.97] JESSE WEDLER: Two drinks of choice, I would say. My daily drink would be water with element. You ever tried element, the electrolytes, taste amazing. Poison of choice would be whiskey, just whiskey neat, maybe some rocks depending on the type, but keep it simple.
[00:49:10.50] REID HOLZWORTH: That's awesome, man. Well, hey, Jesse, thanks again, man. This has been really, really great. I appreciate your time.
[00:49:17.79] JESSE WEDLER: Thank you, Reid. I appreciate the invite, great to chat. Talk soon.
[00:49:23.41] REID HOLZWORTH: All right. Thank you, man. All right, Jesse Wedler folks. What a great episode. Jesse was our first guest on the finance side of the house, and he's not going to be our last. We actually have another one coming on in the next episode that doesn't even know about that he actually suggested. His name is Nick Zerbib.
[00:49:42.26] So we're going to continue down this track a little bit. But, look, wasn't it great Jesse's outlook on the economy? Jesse's feedback to startups, like, hey, pick something and focus on it and stay focused. That is so hard for entrepreneurs to do. It's hard for myself.
[00:50:02.45] You see so much opportunity you want to go after it, but he's like, no. You got to go after the thing that you can be best at, do it. Great advice. Well, Jesse, thank you for joining us. It's a great episode. We really appreciate you. We'll see you out there.