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Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:03:22} We’ve spent time a lot of time on Hagerty before they fully became public and a lot of time on the industry. Tell us about your entry into the business and your depth of experience here?

{audio:0:06:31} To give you a little bit of a background for me, I've been in the insurance industry now on the customer facing side for a little over 15 years. We're a fully private brokerage now operating out of six US states. We've been open for about six and a half years. It is my third insurance startup and we now have approximately eight agents that work with us. We’re just like an independent insurance agency. We have a retail business and we also have a franchise independent agent program that we have been growing which allows independent agents to be able to go work for themselves but they operate through our business and have access to all of our different companies and carriers and things like that to place business. They can, essentially, work from home, do their own thing, have their own business and have the support of a large company behind them without having to actually operate everything on their own.

{audio:0:08:14} We have I'd say approximately 1,200, 1,300 clients which probably equates somewhere into 2,500 to 3,000 insurance active policies on the books. We have a book of about 3.5 to four million as far as the size. I would say that we’re past a small agency but we're not quite in the large agency category, so I guess a medium-sized brokerage at this point.

{audio:0:09:10} Of those 2,500 or 3,000 actual insurance policies, would each one of those be a vehicle or would it be 1,000 are vehicle, 1,000 homeowners?

{audio:0:09:27} That's just full policies and policies can have anywhere from a single vehicle up. That's full policy so that could mean a lot of things. We work in the property and casualty space only. We work with businesses, we work with cars and we work with homes. Primarily, with a home policy that's going to be a single home, unless it's a commercial account which could certainly include multiple buildings on one policy. 

{audio:0:10:02} In terms of auto policies, in those 3,000 we're still going to count that as one policy. For personal individuals that could mean that they have just a single auto on that policy. It could mean that they have four or five vehicles on that policy, so the vehicle count in and of itself probably much higher than that.

{audio:0:10:27} Let’s say there were 3,000 vehicles as a reference point. What percentage of vehicles you guys have in the book would be considered for a Hagerty policy? 

{audio:0:10:46} It's not a large percentage. It is likely 5% or less. One of those things I will touch on here is that vehicles that are considered for Hagerty, it is a very niche market that they're going after. You’re looking at things like classic cars and whatnot, oftentimes that's going to be very limited run production, 20 plus years of age or more, just to be considered more of a classic vehicle. On top of that, there are going to be other stipulations that are going to be required to be able to go with a Hagerty or be able to go with American Modern, another company that we work with that’s very similar. There's going to be mileage limitations on that. There's going to be usage limitations and, often, there's going to be the quality of those vehicles as well. That might be a good place to touch point on when we know that a vehicle might be appropriate to put over at a company like Hagerty or not. It is a very small percentage and the reason for that is that companies like Hagerty in that niche marketplace, they're not just looking for any car that's an older vehicle. They are looking for vehicles that are true collector vehicles, so there’s things they look out for.

{audio:0:12:54} One of those is certainly the mileage that's being put on those vehicles. Those companies don't want you to be using those vehicles as daily drivers. We do even run into folks like a guy that has a ‘67 Chevy Camaro which absolutely would be considered a collectible vehicle, but if they are driving it to and fro work or even using it four or five times a week as somewhat of a regular use vehicle, it's oftentimes not going to qualify for a company like that. 

{audio:0:13:35} That's often because the risk of it being out on the road is too great. That risk is not just their risk of how they drive but also the gross risk of being out there on the streets where there are other human beings driving around and there are other vehicles moving. We often find that there should be less than 3,000 miles a year that are being put on those vehicles. Sometimes you can get a little bit more, upwards to 5,000. Occasionally, for an extra price, they will offer that you can extend those miles above and beyond but usually, I would say, 3,000 is probably a good upper limit of where they want; often less than 1,000 miles a year. That mileage is the very first thing that you're looking at. If they're using those vehicles often, they'll kind of push off to a standard insurance company rather than coming to a specialized company like Hagerty.

{audio:0:15:11} Let’s say there’s somebody who has a collector car who meets the mileage and age and all that. From your side and the agent’s side, is there incentive for you to place it with a Hagerty or an American Modern versus a traditional policy in terms of incentives for the agent? Premiums are going to be higher for a traditional policy.

{audio:0:15:34} For the agents, not particularly. The true incentive for the agent is making sure that things are being done properly. The overall incentive of going with a company like that is often that the vehicle's going to be insured on what's called an agreed value as opposed to what they call actual cash value. Your standard insurance company pays an actual cash value meaning that, at the time there is a loss, they're going to look up in the valuation books and they're going to say, okay, this type of vehicle, this type of age is worth X amount of dollars. 

{audio:0:16:27} That is typically not the kind of vehicle that Hagerty and other classic car insurers are looking for. They're looking for vehicles that have grown in value and they're going insure it on an agreed value, stating that if my 1972 Volkswagen van is crashed, in a Kelly Blue Book or something to that effect, if they go look at that value, that thing's going to be worth $500 in metal; but if you actually go look at the thing and it's in a good condition, if it's in moderate condition you might sell thing for $4,000. If it's in very good condition I’d sell the thing for $8,000. If it has been completely redone and it just looks like it's coming off a showroom floor, that thing might be worth $25,000. 

{audio:0:17:30} That's the kind of vehicle that Hagerty is looking for and they're going to insure it on an agreed value. Upfront when they place that business there, the insurance company and the customer are going to decide this is what the car is worth and if there is an accident, if this thing gets stolen, something happens to it, we're going to pay out based on that. That is the incentive to place the business over there. For the agent in particular, I would not say that there are incentives for us to do that. In fact, I might even go on the opposite end of things because there's more work to place the business there. A lot of big things in this industry are price driven, so Hagerty is okay price wise, as far as things go. They will advertise and state they are 30% lower than insuring at a regular company.

{audio:0:18:51} But in all cases, that could or could not be true. If a customer's not really driving their vehicle much, they could put it on low mileage somewhere else or they could suspend it with what they call comprehensive coverage to be able to protect it while it sits there. That can be even much lower of a cost to the customer than what Hagerty is providing year-round. Again, that customer's not going to get the agreed value. 

{audio:0:19:21} Agents might be incentivized to place more business over there or at least be reaching out a little bit more if they were incentivized with more money. I'd say an average percentage that agents are paid is typically 10% to 15%; 10% to 15% of whatever the customer pays out, that's going to go into the agent's pocket for placing the business there. One thing that those companies like Hagerty could do to incentivize agents to keep a little bit more of an eye out for their business is to increase the commission amounts that they pay agents. 

{audio:0:20:13} From my knowledge, I believe that they're just in the standard market; they pay out what any insurance company would, so there's not necessarily an incentive for the agent. For the agent itself, I know that we might look out for a customer like that because it's taking care of the customer and doing what is correct, as well as the fact that the owners of those kinds of vehicles typically have an attachment to the vehicles themselves. Typically, you don't find guys that own those cars because, “It's a good investment for me.” It's usually a passion project of theirs. They love the car. They're driven to own the thing. They put a lot of work into making it better, taking care of it over time and ensuring it's in top shape and things like that. For them, they understand that it is with a company that understands that, that is going to upfront agree that it's worth a certain type of value, that they know the they're going to get that value out of it, especially when they've put 20, 30 grand into the car to make it worth 10 or 20 grand, to make it worth less than what they've put in almost. 

{audio:0:21:40} When they can have that appreciation and know that it's being taken care of, the customer is going to feel good and that might create a bit more a mutual trust between them and their agency and knowing that things are let's just say insured properly or that they'll get more out of it if something happens to it.

{audio:0:22:10} If all of them are paying 10%, 15%, if I had that same ’67 Mustang, it had substantially higher value than the actual cash value that I can get out of it. If we said that a Hagerty policy was $500 a year for that, what do you think a traditional policy would be for that same kind of vehicle?

{audio:0:22:41} It depends a little bit on the details of things because if it’s apples for apples and they're being placed at a normal company, but with that normal company it's still being driven only a thousand miles a year and things like that, it’s maybe not the only car. If you have one vehicle with Hagerty you can get those prices. At a normal insurer, if you have one vehicle on the policy and that vehicle's being added to another policy where they have a few other cars, I would say, pricing wise, you would probably get oftentimes a similar cost as far as what you're paying day to day. It could be a little bit more if it's just the one vehicle that somebody owns, although oftentimes that's not the case. Those vehicles are a third car, fourth car or something.

{audio:0:23:58} I guess they’d have to be if they can’t be a daily driver. Along those lines if it’s not their daily driver and they have multi-car policies, whoever it’s being placed through, the comparable price probably isn’t that much different.

{audio:0:24:17} It could be very similar. In fact, regularly, we can see that the pricing at the normal insurer could even be less, because of things like that where they have multiple car discounts and they have a homeowner's discount and they have all these other things that add up. Yes, I would say that price wise that's not probably the competitive nature in those companies. Yes, it can be a little bit more at a normal insurer, but it can also be the same price. I'd say, overall, the premiums as far as what dollars the customer pays out to the insurance company, that is not the competitive nature with a company like Hagerty or American Modern; it’s more likely to be that agreed value settlement option. That is 80% I'd say of the incentive to go over with a company like that.

{audio:0:25:27} On the agent side, the premiums are potentially going to be the same but it’s that guaranteed value versus actual cash value or agreed value. If something happens to that vehicle on a traditional policy and they get $500 for their car that they know is worth $10,000, they come to you and say, “I heard I could have had this Hagerty policy.” Are the clients going to be upset at you as an agent or upset at the insurance company? Is there an incentive there that you should look at these actual or guaranteed value or agreed value because of this?

{audio:0:26:19} I suppose a little of everything there. Let's take one of our agents. Our guys tend to be relatively trained in the industry. Those guys may have been at insurance companies for a number of years or they've owned an agency of their own for a few years so they have a good amount of experience. With that, when a customer comes to us and they might say, hey, I have this old vehicle, the agent has kind of the wherewithal or the place of mind to say, can you tell me a little bit more about that vehicle in particular?

{audio:0:27:12} Is it just an old crappy 1972 Volkswagen van that's falling apart or have you done work to it? Is it in good shape? Does it have a lot more value than normal? That's kind of where that conversation will open up. I think that one part of the industry that is not good for consumers is that it has been somewhat trivialized and with advertising campaigns like Geico’s 15 minutes saves you 15%. With those companies, customers are either going online and purchasing things on their own, or calling into an 800 number where people have some very basic training and that's it. They may not be told that hey, there is a difference and if something were to happen to this old vehicle, you're not going to get the value out of it that you think.

{audio:0:28:17} I would say 99% of the car insurance industry pays on that actual cash value or whatever it's worth at the time and they look at the Blue Book value. That might be one positive to having either an experienced insurance agent or an independent broker who are typically just going to be on another level because those people can recognize very quickly, hey, you have an old vehicle that might be worth a little bit extra. Do you have any idea as to how this stuff works? If something were to happen and the customer got an actual cash value, one there's not much they can do about it because whatever coverage was active at the time that they had the loss, that's what they get. There's no changing things after the fact. Who will they be mad at? Anyone and everyone other than themselves. We kind of laugh about that stuff all the time and we say, well hey, where's the common sense if you own a vehicle like that that's going to be worth $40,000. If you have a 1960 Jaguar in your garage, you should have the common sense to think that you should probably ask some questions about it before you just go throw it on a Geico policy online. 

{audio:0:30:09} They are often going to be upset with the insurance companies first and foremost for not telling them, for just not giving them a fair value. I think insurance companies get a lot of flak about that because customers think that the insurance companies are evil and out to just make profit hand over fist and that's what they do. But often, insurance companies are very clear about their intentions. Things are put into contracts for reasons and they pay things on a very regulated basis. They have to file regulations with the states that they work in that they'll pay things on a certain basis. It's a very regulated industry. But generally, I'd say those customers get mad at the insurance company for not giving them a fair value and for “cheating them” out of what their vehicles were actually worth.

{audio:0:31:04} Would they leave for that?

{audio:0:31:08} Is that going to be the initial kneejerk? I’m swapping over everything; you screwed me?

{audio:0:31:15} Yes. That does happen quite frequently, I'd say. It's a learning experience for them. We do have customers that come to us because that exact scenario happened, “I've been with Allstate for 20 years. I had an incident with my collector vehicle. I was only paid X amount. They didn't tell me. I knew it was worth more but they didn't tell me they were only going to pay me $2,000 for what I know is worth $12,000.” That will often incite their actions to go look for somebody different. We will get calls about that afterwards because then people will go online and they will search for either an independent broker because they hear or learn that these guys are on a different level than just having an insurance agent or going to a company directly.

{audio:0:32:25} They'll learn about that or they'll search up collector vehicles or whatnot, find an agent that works with a company that does those things. But yes, it will often incentivize them to go and start looking for something different. If you go to a company directly like Hagerty, they're going to talk to you about that one vehicle that they insure. If they were to end up being in touch with one of our agents, that's going to incentivize talking about that one vehicle, but that is going to bring into the conversation everything that they own, and talking about what other things are you missing out on?

{audio:0:33:28} You said someone maybe has Allstate and this happens to them. What’s interesting to me is Allstate has a partnership with Hagerty, so why wouldn’t Allstate go into their books, find everybody that is eligible or should have a Hagerty or American Modern policy? Why wouldn’t they do that proactively if they’re risking losing that entire book of business if someone thinks they screwed up?

{audio:0:34:03} A couple points to that. Let's address that at both the company level and the agent level. Let's first go to the agent level. Most of the time, insurance companies are what we call a captive company. That is just a company that, at least predominantly, writes at one place, at their own place; so like an Allstate, a State Farm, a Farmers, an American Family. Those companies are captive and they typically place the responsibility of ensuring things to the agent. 

{audio:0:35:00} If things need to be done correctly, that responsibility is placed on the agent, that liability is placed on the agent and the insurance company just writes whatever the contract is. What you would find is that it's often not done by the agents because they don't know what they're doing. Insurance is a saturated market. I will always compare it to real estate in the US where there are a hundred different agents that are out there and available, and of those hundred agents probably 15 of them know what the heck they're doing and five or 10 of them are writing 70% of the business out there. 

{audio:0:36:02} That may not be caught because when you go to an Allstate agent, either the agent themselves has no idea or you're talking to a low level staff person that doesn't have any idea, they've maybe been in the industry for only a couple of years or are very new to it and they just don't have the experience or the training to know when they should be saying something to the customer about, “Hey, are you aware that this is how things are covered?” They just don’t proactively open up that conversation and direct the client to a specialty company. 

{audio:0:36:48} That's probably the biggest piece. There is also the insurance company side and I can say that likely, in part, they might have a very, very small action towards doing those things. They might put out a newsletter every six months that might have a little blurb that says, “Hey, we provide the opportunity for customers with these specialty vehicles to go over here and there.” Those things often get skipped past once they actually make it down to the agent level. They may do that but they're just not as proactive about pulling out the business on those vehicles themselves and putting a list in front of the agent saying, “Hey, you should do something about this.”

{audio:0:37:51} I would believe that likely there is just a value incentive for that because, at the end of the day, as an insurance company, if you are making $10,000 by insuring 200 vehicles, would you rather pay out $10,000 if there are claims on a bunch of those vehicles and break even; or would you rather pay out $45,000 on those same vehicles that are insured properly because they're valued properly. As we talked about earlier, the pricing is typically going to be the same. That customer's probably paying about the same amount of dollars in total to ensure that vehicle whether it's on a normal policy or whether it's on a specialty Hagerty policy. 

{audio:0:38:55} They're going to add the same amount of value, but if it's insured on a normal vehicle, the company's only going to be responsible to pay the actual cash value of it. If it’s insured properly, then they're on the hook for the agreed value which is often four, five, 10, 20 times more than whatever that actual cash value is. 

{audio:0:39:28} On the flip side of that, wouldn’t that be they’d pay out the actual cash value. It’s not much. They only lose $10,000 total; they break even. But now that customer is pissed. They didn’t get what it was worth but I’m assuming the client who has multiple vehicles or a collector vehicle probably has a larger overall book of business with an insurance company than someone who doesn’t?

{audio:0:39:57} What happens if they leave and take that away?

{audio:0:40:00} Exactly. By doing that aren’t they shooting themselves in the foot?

{audio:0:40:06} I'd say no, and it's because you're looking at the law of large numbers and the flow; the give and take of how business comes in. The insurance company themselves are probably not going to lose all of the customers that have an issue. They may lose a portion of them, sure, but they're not likely to lose all of them. Also, are they going to lose the entire account or are they just going to lose that one vehicle that then is transferred over to, let's say, a Hagerty. 

{audio:0:40:54} Insurance companies are looking at the overall; the dollars out and the dollars in at the end of the day. If they lose some of that business, yes, they may not have as many dollars coming in in the future but they have already gotten the money in from the customers in the past. They have not paid out all the money that they've taken in and if that customer leaves, they'll wash their hands of it. They have a positive cash flow in their pockets from the customer because, over time, that customer's paid than they had to pay out, at the end of the day. 

{audio:0:41:46} If that customer leaves, that's usually fine. If they only paid out $10,000 this year but they've made $50,000 over the last few years, they're leaving at a net positive. Sure, they don't necessarily want that customer to leave but they have likely taken in more money than if those policies perhaps were on an agreed value basis.

{audio:0:42:23} It is more of a short-term focus for that then?

{audio:0:42:25} It is more of a short-term profit-based focus. That's why when you do go to a Hagerty company, where there is the agreed value, there is a higher bar to pass to get those vehicles insured like that. They won't just be 15 minutes online, to save 15%. You can't just go in there and type up a couple things, pay a bill and you're good to go. Often, when you're placing business with a Hagerty or an American Modern or things like that, they're going to ask for proof of such. When we place a 1942 pickup that might be agreed and valued at $43,000, there are going to be pictures that are wanted from the front and from the back, outside and they're going to want a picture of the interior of the vehicle.

{audio:0:43:26} They're going to want a picture under the hood. They want proof of what the mileage is on the vehicle. There's going to be a few extra steps in order to ensure that whatever business is being placed on the books is actually valued at that. That's why there are also limitations on those miles to make sure that the customers aren't driving those things much, and there's also limits on their usage where if they're doing a daily driving to work thing they won't even be eligible. Typically speaking, they want those customers to be using those vehicles on parades, car shows, exhibition shows, different things like that; maybe an occasional weekend drive in the summertime but really not a heck of a lot of personal usage. 

{audio:0:44:25} There is more underwriting that is involved to get to a specialty company like that where they will do that. To get back to the prior point, I'd say that's likely why those insurance companies are not more actively trying to pull that business aside. Firstly, they're not doing a lot more underwriting research on it. They're getting just as much money out of the customer at the end of the day. They're pulling in just as much money, but they're also likely paying out less money.

{audio:0:45:07} From an underwriting standpoint, I don’t know what the average time it takes to underwrite a traditional car policy, say it’s an hour. If the baseline is an hour, what would be the time it takes to underwrite a Hagerty policy given these other aspects?

{audio:0:45:27} I'd say, in today's market, you might find that the Hagerty policies are the one that takes an hour and the underwriting at a normal company might be five minutes. You're finding that the insurance companies are moving to automated underwriting. Based upon the answers to an application and based upon metadata that comes in from the past; who is the vehicle titled to, do the names match on who's on the application versus what came back from the DMV. Does the address that's being insured comes back with just the names of the people that are insuring things or are there are five other names? That might be because you're in an apartment complex, because you have child drivers, because you recently moved there. There could have been somebody else there recently. 

{audio:0:46:42} If that data doesn't match, then a human might have to step in and we might have to pay that human to start underwriting things. I would certainly say that there is a larger underwriting expense to the insurance company themselves when you are insuring based on an agreed value like a Hagerty versus if you are just insuring it normally. I'd say, in this industry a large amount of it now – at some companies probably upwards of 60%, 70% of business – is issued through automated underwriting where a human isn't even touching things.

{audio:0:47:49} If you say a traditional is five minutes and Hagerty’s an hour, is that a true impediment for somebody who’s looking at these type of policies where they’re hey, I can get this policy in five minutes, but there’s added work of having to get pictures?

{audio:0:48:07} For the customers, yes, they are going to have to go out and take recent photos of the vehicle. Again, when they want to update the price and the value because maybe they spent some money to replace a few more parts and now they think that vehicle's worth $30,000 as opposed to $25,000. When they update, they are going to have to go and take photos of things, submit receipts of things, submit proof of mileage once a year. It is somewhat of an additional piece of work for those clients to have the policy like that. The industry's kind of become commoditized so that people think, “Hey, it should be quick and easy and it shouldn't take me more than 10 minutes to get all of this knocked out and out of the way.” That's what somewhat incentivizes people to go use particular companies.

{audio:0:49:36} I am interested to hear of your perspective on the choice between a Hagerty or American Modern? Talking with independent agents and insurance companies we have heard that independent agents will hunt amongst the State Farms or the Progressives or the Geicos for these type of customer profiles with multiple vehicles, a classic that’s insured under a traditional policy and they will leverage a Hagerty or an American Modern policy to pull them from State Farm. What are your thoughts on that? Is it true or hyperbole?

{audio:0:50:27} It's not a bad plan, all in all, and that is likely because again having that one vehicle, that is likely not the reason why they're hunting. A broker or something is likely not going to go try to just hunt out that one vehicle to get that one vehicle.

{audio:0:50:50} They want the whole household. We’ve being told that is a leverage point to get the household.

{audio:0:50:55} Absolutely. Often that is because a customer, who was otherwise unaware that they should have anything different, that they will be paid $1,000 versus $10,000 for this collector vehicles of theirs, when they were completely unaware and their agent didn't say anything and their company didn't say anything or they've gone through those claims already like we spoke about, will be very unhappy at that point. When somebody, like an independent agent, comes to them and says, “Hey, here's the realistic sense of what's going to happen and for the same price as what you're paying, sure there's sure there's an extra 10 minutes of work on your behalf, we can ensure that you're going to get paid out $20,000 as opposed to two grand for this vehicle.”

{audio:0:52:04} And again, people with those kinds of vehicles, they're attached to those things. They have them for a personal reason. If I've been completely unaware and I'm pissed at my company for not telling me that I was going to get paid less, then I'm pissed at my agent for not telling me about this lower value, if somebody comes to me and provides me a solution and provides me help and gives me something of much greater value for approximately the same cost, then yes, why am I not going to go and then trust them with my other things? If I'm being screwed in this way, I'm probably being screwed much more in other ways that I don't realize. 

{audio:0:53:03} Do you think that dynamic drives some of the bigger insurers to partner? State Farm is partnering with Hagerty and took a piece in the company. They used to offer their own classic car policies and they don’t do that anymore. If you look over their history, they have been losing market share. Is that a piece of it?

{audio:0:53:30} I think that that certainly could be a portion of it. I would say, overall, there's probably a number of things and I'd say the greatest piece of it is likely the dollars, at the end of the day. Again, there's more underwriting involved which means there's more manpower, which means there's more price to pay humans and staff, so maybe we’ll make less. If we don't have a very big market share in that section then maybe we will make less dollars on each policy if we're essentially partnering and giving it to Hagerty to place. But there's less expense to us, as the insurance company, to operate this whole other segment and now we don't have to pay the additional staff and we don't have to pay for underwriting and for the analytics of things. We don't have to pay the data analysis to figure out whether we are making money on this? 

{audio:0:54:49} They get a commission too?

{audio:0:54:51} Exactly. If Hagerty can take care of it and Hagerty has the brand name and the experience, they're known in the industry so they have that and they can do all of that work and they're so specialized to do that work, so why not partner with a company like that if we can still make a little bit of money on the side? But we don't have those expenses and so what that looks like in those partnerships is that Hagerty may still pay the State Farm agent just as much as they pay any other agent, but they may pay a little bit of an override to State Farm, let's say, in your scenario.

{audio:0:55:39} Maybe the agent makes 10% on the policy which might be what a normal agent makes, but they might pay a 12% out; that might be what the deal is. Hagerty says sure, you know what? You're a big company like State Farm, you have a ton of business and things like that so if we partner with you and you bring all this business in, instead of paying 10% out on commission, we'll pay out 12%. 10% will go to the agent and then State Farm can keep the 2% override. For State Farm, yes, we're making 2% instead of making 8% overall, but we don't have to pay staff. We don't have to worry about that piece.

{audio:0:56:25} The retention side, potentially.

{audio:0:56:26} It's completely offset to another group and to State Farm. It also provides at least an avenue for them. I know State Farm does it or used to do those things on their own, but if you maybe talk to a different company that doesn't have their own venue, at least they have something now that their agents can provide to customers or that their customers can go to and use for those particular case scenarios. Again, the insurance company is not having to burden the expense of running a company like that.

{audio:0:57:16} It leads to the next piece where Hagerty has these relationships with nine of the 10 top insurers. The only one they don’t have a relationship with is Geico and they run through American Modern, so why is it that there should be more than one type of insurer here in terms of classic cars? Hagerty obviously is multiple the size of an American Modern. Why shouldn’t they get the entire market?

{audio:0:57:46} Capitalism. More choices can often keep pricing down. If Hagerty’s got 90% of the industry and there's really not many options other than them, Hagerty can set the prices and who's to say that they have to charge $500 instead of $650. In a capitalistic market, that's where other companies might see the opportunity is to say, well hey, based on what we know, we can provide the exact same kind of values and incentives and payouts and things like that as Hagerty does. But if we look at our data, we feel like we can absolutely do that for $500 as opposed to the $650 or $700 that Hagerty charges for the same thing.

{audio:0:58:57} I guess when you’re looking at a policy like this, you’re saying hey, this person needs a collector policy. It fits the entire profile. It sounds like you use both American Modern and Hagerty in your business?

{audio:0:59:12} We do. In fact, that's part of the nature of our company. Having been in the industry and having seen how things work and all of that, our agents often understand that there are pitfalls in working with a single company and that company's going to do what's right for them and that's it. I mean bless their hearts, a lot of companies want to do right and want to be better but at the end of the day, it's a hundred percent about what profit that company is bringing in.

{audio:0:59:55} That's what's guiding every one of the decisions that that company makes. Companies will absolutely leave people high and dry if that means that they don't have to have a negative profit-loss at the end of the year. We have actually decided that we didn't want to have just one avenue for really anything. We didn't want to leave our clients in that position and we want to have at least two, if not perhaps three, different options for customers. That's where we've actually gained a lot of traction in the industry because while, if you go to a State Farm, again Hagerty themselves, overall good company, good reputation but maybe Hagerty won't ensure the car at the value that the customer feels it's worth. 

{audio:1:01:12} Maybe the underwriting itself, they're being much more particular about and heavy handed in what needs to be given, or maybe the cost is dramatically more. I think based on the different data sets that different companies have, sometimes they're similar, but sometimes you find stark differences and you're not going to know that unless you have access to multiple markets that are providing the same thing. 

{audio:1:01:46} Would you say it typically comes down to a price point between a Hagerty and American Modern for one reason or another?

{audio:1:01:55} Often yes, that is more often than not the distinguishing factor. But there are sometimes nuances here and there and, again, for those things we just talked about.

{audio:1:02:15} Maybe they even recognize the Hagerty name or have been to the shows or something.

{audio:1:02:19} Yes, or we have customers with a 1990 Jeep Wrangler, or in this case less than 20 years, so let’s call it a 1995 Jeep Wrangler and they have, $40,000 of equipment added to it and the customer says, “Hey, my Jeep Wrangler's worth $20,000 by itself because it's in mint condition and low miles and all that, plus I got 40 grand of equipment, so it's a $60,000 a vehicle.” I can say that for a ‘95, that doesn't fit the 20 years or more that Hagerty's going to want.

{audio:1:03:08} So you have to find something else? 

{audio:1:03:11} Maybe Hagerty doesn't want that or they'll consider it but it's going to take a lot more effort to get that through and maybe they won't insure it for 60; maybe they'll ensure it for 45. If we go to American Modern – or maybe even a company like Progressive who I believe does their own underwriting on those things – they might say yes, we will absolutely ensure it for 60 grand instead of for 45 and, as well, we just need two pictures of the outside of the car as opposed to pictures of the outside plus the interior plus the hood plus receipts and so on.

{audio:1:03:58} That’s what’s interesting, a Progressive and a Nationwide and Allstate, if you look for classic car insurance on their website, it brings you to Hagerty. They say we do all ours through Hagerty. It’s definitely an interesting set there if it doesn’t quite meet the 20 years.

{audio:1:04:23} That's one thing but there's a lot of nuances. I'd say most of the time pricing is where that comes down to and for the customer, especially in our world right now where everything gets more expensive, the majority of humans out there are not making more money but yet prices continue to rise on them. Lots of times, price is a very high driver in the industry as to where people are going to go with things and that also talks about the rise and fall of companies because that's how companies gain market share, by lowering the prices that they're offering.

{audio:1:05:18} Which is tough on the insurance side.

{audio:1:05:20} There’s almost a cyclical nature in the insurance industry where they want to gain market share so they will drop their prices and tons of business will come flying in. They'll get a lot more market share and, at some point, it will catch up to them and they will realize, “Well, heck, we have not been collecting enough money and now if the losses that we start paying out start coming to fruition, we’ve got to stop bringing in people for such low money and we’ve got to start raising prices a bit to cover our losses and still make some profit.”

{audio:1:06:03} People start shopping and then they might leave and so there's often a very cyclical nature to different insurance companies and how they're going to place that and what they're trying to accomplish, whether short-term or long-term gain. Certainly, that's another thing that, on our side in the independent world, how we consider what companies are like. Safeco – who do their own stuff – their mentality is that they want to be very consistent and they have a very long-term vision as to how they're going to do things. 

{audio:1:06:46} They're not going to fluctuate as much and they might take slightly larger hits more frequently as to their pricing and things to keep themselves where they need to be, compared to other companies that might say hey, we need a quick buck right now. We need to make a bunch of money this year so that a lot of people can make some bonuses and stuff like that, so let's lower the prices and bring all this stuff in and we'll worry about those losses in another couple few years when I'm probably going to be leaving the company type of deal.

{audio:1:07:19} Some bad incentives. If you had to think of your time in the industry of Hagerty versus American Modern, what percentage would you say, when it comes up to a classic policy, you would place with Hagerty versus another like an American Modern?

{audio:1:08:09} In that industry in particular I'll tell you, for us it's probably relatively equal. Hagerty might have the larger percentage but let's just say, between Hagerty, American Modern and Safeco – and I know all three of those companies do their own work and we have access to all three of them – for us, Hagerty might be 40% and Safeco might do 35% and American modern might do 25%. It’s relatively a good split and Hagerty doesn't have a significant hold over the others. It's just that in the marketplace, most consumers like yourself, if you go shopping, you don't have a brokerage like ours that has access to all three different options. 

{audio:1:09:37} You're going to end up using whatever option is available to you and Hagerty's done a great job at, as you mentioned, making the right types of partnerships and being a very big brand name to the industry. But if you were to come to a brokerage and ask us, we're going to check two or three of them for you and come back and say, “Hey, here are your best options, here's the best pricing.” If there's a downside, we'll give the customer that information but often it does come down to pricing for folks and a lot of these companies position themselves deliberately. 

{audio:1:10:31} American Modern wants to provide every bonus or provide everything that Hagerty provides and while there are nuances here and there, in the big picture they are often providing the same type of coverage. Then it would come down to pricing and it's just that most places just don't have access to them all. That's where like a company like ours succeeds, in having multiple options for customers so that they can really have what's best for the consumer themselves as opposed to just what's available.