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:0:04:42}  I'm reasonably familiar with NSM’s insurance business overall and the different segments. If we could hone in a little bit on the classic car piece, specifically, I'm trying to just like to get a sense of magnitude. In 2021, I think they announced roughly 344 million of that was in the specialty division for premiums. But what is that, in terms of the actual classic car, because I know it’s a little bit mixed in there?

{audio:0:05:18} Exactly. Their tow truck divisions is in that same space and so is true transport, which is another owner-operator trucking kind of thing. If I were to guess, I would say that maybe a third – and that'd be a generous third of that number you shared – is the classic car division. I would say that that includes the acquisition of JC Taylor.  

{audio:0:05:52} That kind of aligns; I've heard roughly, 110, 120 million. I know White Mountain’s exploring the sale here and shopping around. Why would they be doing that today? What's the motivation to sell today? 

{audio:0:06:17} They are timing geniuses. When they sold OneBeacon, when they sold Sirius as a reinsurance play, they always went top of market and they believe this is the top of the market. They believe that they will maximize their return by selling now. I think there's also a little bit of a glitch, that no one’s speaking to. One of the big divisions of NSM was their coastal condo or real estate portfolio, and that thing's sucking some wind from a market perspective; they lost AIG as their main carrier partner and they've had losses in that space. Not that the losses hurt NSM, but they hurt the future of the program because it's all about the carrier partnership and profitability. 

{audio:0:07:06} I think there's a little bit of being blasé with the social services division, which has always been kind of middling; it's never really been an exponential play. And the UK thing, for the first couple of years was an abject failure. I have a feeling that that's a bit of it, that White Mountain is seeing that it's top of market and a time to unload the asset. 

{audio:0:07:34} Who's the logical buyer for this?

{audio:0:07:36} There is no logical buyer. The best solution is that they sell it in pieces and sell the pieces to the people who want the pieces, because it makes no sense on what they've done. It's a genius conglomeration of divisions that are completely unrelated. There’s next to zero symbiotic relationship between one silo to another. You could put all the classic car divisions in one silo, but they do nothing for the social services division; it does nothing for the A&E division. It's really a better asset split up, but is there another White Mountain out there that says, hey, I want to have a billion-dollar premium organization in one cutting of a check? Maybe, but I couldn't tell you who that is. I'm not that smart in the M&A space to know who that is, but I don't think it makes sense for one group to take the whole thing. I think you cut it up in pieces.

{audio:0:08:42} With the classic car piece there specifically, is there a logical buyer? Is it something like a Geico would go after? Or is it that no one would want to partner with American Collectors or Condon Skelly because the premiums are going to Geico?

{audio:0:09:03} It’s funny that you asked it that way because all of those markets have laid off or outsourced their classic car operations to groups like Hagerty, American Collectors or Condon Skelly. Farmers makes a bit of sense, for two reasons; they've got size, but their current layoff of their classic car space is Haggerty which may or may not be public news and it's not like it's a secret. But what just happened with Hagerty going public and having State Farm, taking a big chunk of Hagerty's ownership, Farmers has got to say, I’ve got to get rid of Hagerty's business. and give it to somebody else. And wouldn't it be neat if I gave it to an asset that I own and then just went from there. 

{audio:0:09:55} When I was at NSM, I tried to talk to Farmers, to try to get them to move off the Hagerty conversation because I knew it was a conflict of interest of sorts for them. Then the State Farm ownership of Hagerty happened. I saw something like that coming; Farmers was too slow to move because it wasn't a big enough thing for them and they weren't concerned. 

{audio:0:10:24} The industry is not classic car related, but it's something else in that space. Maybe it's yachts or other toys and they can make something better of it. What's the sports company? K&K. Maybe it's someone like that that says, I want to own four different car brands and then put it in my sports space and make my whole world better. There has got to be some other relationships that make sense, but I don't think it's an insurance carrier, that's not of significance size, like a Farmers. State Farm already has their ownership in Hagerty and there's only a couple other folks. Geico has been trying to lay off their classic car operation to others for years. 

{audio:0:11:19} I think they write through American Modern through Munich Re. I think there's a lot of historical personal relationships between Berkshire Hathaway, Geico and Munich Re, so that kind of makes sense. Would it make sense for Hagerty or NSM to want to sell it those to a Hagerty? 

{audio:0:11:41} I don't think so because Hagerty is a lifestyle brand and the others aren't. It's really a completely different space, even though you say it's classic cars, the world of Hagerty is all about membership in Hagerty. It’s reading the magazine; it’s going to their events. It's seeing Hagerty at a joint event. There's very little passion that comes from American Collectors people and Condon Skelly people. For them, it's an insurance transaction.

{audio:0:12:16} For Hagerty, it's a lifestyle. You go to Hagerty, but someone might present you American Collectors. It's a completely different space, even though they might insure the same exact thing. 

{audio:0:12:16} Maybe just going back to the potential sale here too, I think I've read some of the insurance publications out there talking valuations at roughly 20 times EBITDA. Does that make sense? If I remember correctly, White Mountain paid 12 times EBITDA for the business and they'd said that that was a full price.

{audio:0:13:06} It makes no sense. The math doesn't make any sense, especially in the classic car space, because I don't know the exponential growth of that industry. You use a 30-year rule to make it classic, but think about what's coming out. 30 years ago, those are classic cars. Like a model T is a classic car. But a Honda civic? Think of what's coming up. The Lamborghinis, all the Jags, all the British cars, sure. American made cars, which are huge, aren't classic in that space. I don't think the industry is growing. It might be contracting and some people might be getting bigger in this space, but what's coming on line as the industry goes forward isn't the same as it is when you look back. The passion of a 65 Mustang, that's not happening in 2025, going back 30 years, if you think of it that way.

{audio:0:14:26} I don't see the industry having that growth. It'd be hard to see someone who specifically wants to look at the classic car asset of NSM and say, I want to pay more. I want to pay the 20 times EBITDA when someone bought it for almost half that four years ago, six years ago, whatever was.

{audio:0:14:47} I think that makes sense. Maybe talk about that market size and competition a little bit. In some of their presentations, Hagerty have talked about roughly 43 million cars in the U S could be considered a classic or collector. I think, in the US, they insure about 1.8 million vehicles. What does that scale to for NSM? A little less than a million cars total. We're getting close to three million, but that still leaves 40 million potential cars out there. What does competition look like in this space?

{audio:0:15:30} Yes, there's competition but either you're in that lifestyle brand and you want to be part of Haggerty so you moved your cars there, or you don't care about the lifestyle brand. The average account was $425 as a premium, per one classic car. But a Lamborghini wasn't going for 450 bucks. Lambo would go for like a thousand bucks for a collector car policy. But that $425, for a 1945, valued at maybe $30,000, it's not sexy. There's no reason to be competitive on a $425 policy and maybe one owner owns 10; that's $4,300 of premium. There's not a lot of margin to be competitive; there's not a big delta between the different markets. JC Taylor, Grundy, American Collectors and Condon Skelly were within 10 points of each other on 400 and some dollars a premium. It's not competitive. There is not someone saying, I want to write all the classic cars and I'm going to charge half the premium. That's competitive. I'm going to roll a book of business over from Grundy to American Collectors. That's competitive when you're going after a book of business and you're saying, I'm going to cut the rate out by a lot. No one's doing that. Sure, there's markets and there's competitors, but it's not competitive. 

{audio:0:17:19} Is it that they're not really competing head-to-head with each other so they're not really trying to steal each other's kind of policy holders. Is it just to further penetrate classic cars that are sitting on a traditional policy?

{audio:0:17:37} Right, and that's why the 43 million cars is such a misnomer because they're not classic. They're out there and they're 30 years old or whatever, but they're not classic and some of them might not even be drivable. But that was the argument. Whether you were sitting in Hagerty's chair or American Collectors’ chair, 75% or so of the market is not insured on a classic car policy. It's with State Farm as a State Farm policy; it’s with AAA in a regular channel. The policy holder didn't care because they were probably well off. They didn't care that there was going to be a relative claim adjustment that their car would be depreciated, if they were sitting with State Farm versus sitting at American Collectors where your agreed value would be a $100,000, but then 30 years later when you depreciate that asset, State Farm pays you $15,000.

{audio:0:18:43} They didn't care. There was just an ambivalence and I think that's a concern that people haven't figured out. Maybe the people in the space who are in it do, the senior leadership of all these markets we've spoken to. But if you're an outside investor and you're saying, oh my God, there's another 30 million cars available, that's not true. It doesn't come out in the transactions. Insurance agents aren't saying to the masses, oh, there's a great three or four markets that you need to spend time getting a quote from because your car is 35 years old. There's just a big ambivalence and an apathy that I don't think people fully appreciate.

{audio:0:19:28} It is a concern that we've kind of uncovered in terms of, it takes a little bit longer to write one of these policies and is the incentive there for the agents. What role do the partnerships play in kind of growing business today? When I think of the State Farm deal, the partnership, they're essentially rolling over 460,000 of these policies and then incentivizing their agents to write existing policies as they roll over in there, plus new ones. Is that the model? Is that the way that this should work?

{audio:0:20:12} Yes, but there's so much to it. There's the car clubs; there's other affinity relationships that do exist out there. We talked about how some markets – like Geico or Farmers – outsource their classic car division. Nationwide's been doing it for years with Hagerty as well. I believe MetLife does it with Hagerty. But there's insurance carriers that are laying off hundreds or thousands of policies to a competitor and there's still more work to be done there. If you're American Collectors, you want to talk to Geico and MetLife and earn those affinity relationships. You want to talk to the Mustang Club of America and go get that endorsement and have that club talk about your program as a partnership where there’s an affinity discount, then there's a membership benefit. There's now 100,000 Mustangs that could be insured by American Collectors that never were.

{audio:0:21:23} So yes, there are opportunities like that and book rollovers, but the other piece of it – and this is the disconnect – if you're HUB International and you're an insurance agency that has a huge, private client group, where there's a lot of high-net-worth people and they own 10 to 20 classic cars themselves, and those cars could be anywhere, HUB is only earning 10% to 15% commission on an average policy size of $425.There's no math that makes any sense for HUB to roll that book of business over and move it all to one carrier, unless the carrier did the work. And that's not how it works. But they could; they could strike a deal and it have someone sitting in American Collectors’ office and go to every HUB office in the US and say, I will spend three days in your office and take over your system and move all these accounts and issue policies on behalf of American Collectors. The staffing doesn't exist for the classic car companies and HUB might not want you to jump into their system, their proprietary system in the first place, but there's zero incentive for all of those huge insurance agencies to make that book transfer to one carrier. The policy premium and, therefore, revenue is so small, they just don't care.

{audio:0:22:53} On some of these affinity groups and maybe even some large carriers, does it make sense for them to go with whoever is the largest at the time, because they can offer more benefits, cheaper price? What's really the main incentive for them?

{audio:0:23:13} I think it goes back to that the lifestyle brands thought. Does the Petersen Museum in Los Angeles, where I'm sitting, choose to trade out their Hagerty relationship to have a different brand represent them, like Heacock Classic, which is in the same vein, because it's a racing brand versus Hagerty's lifestyle brand? But Hagerty already put in a million dollars to the museum, to create the basement. There's a Hagerty basement that has 300 cars that are all specialty one-off things. Hagerty insures all that. What would Petersen's motivation be? Then there's a classic car museum in every state, or maybe 10 times every state. Who's going to go do that work to incent the museum to make that transition and what would it take, financially, to make that deal happen? You'd have to buy out Haggerty, or buy out the museum’s branding exercise and is there enough money? 

{audio:0:24:26} I don't know that it's a size thing. It's really about who's done the work on the front end and Hagerty beat everyone to the punch. Hagerty has got the best marketing play in the industry. They saw, they had the staffing, they had the budget, they saw what made sense to the Hagerty brand to go to every one of these monster museums and say, I want to give you X amount of dollars because I want to insure your collection for 10, 20 years, and they've succeeded. Whereas American Collectors, Condon Skelly, Heacock, JC Taylor and Grundy just did such a little bit of that, that it never amounted to anything. 

{audio:0:25:12} If we think about the big insurers here, you mentioned how they're all just offloading these policies to the more classic specialty folks. What's really the big incentive for them to do that? Loss ratios here are fairly low, across the industry, it seems. I'm assuming that that's a fairly profitable policy, on a lower premium base. Why wouldn't they just keep those in house?

{audio:0:25:39} I ask that question myself. They always said was they didn't believe that they had the claims expertise and the relationships with the specialty repair shops, to do justice by the policy holder. It was easier to offlay it to the markets that already had those systems, divisions and departments in place. In my opinion, I thought that was lazy. I was talking to Farmers for a year, on and off, to try to make that transition happen. The question that always came up was, why don't you guys do this yourself? Why are you so intent on laying it off to Hagerty and why are you taking my phone call once a month to try to make it happen with American Collectors?

{audio:0:26:31} They just continue to repeat that they don't have the claims experience. They don't have the repair shop relationships across the country, to make this work for the benefit of the policy holder. That's the rub of the road. That's where, if you piss off the policy holder, then you lose everything and they didn't want to do that. But it would have taken such a little amount of work to get that expertise in-house. They could have hired the claims guy or gal from Hagerty. They could have hired the same person sitting at York Specialty that probably did all of NSM’s claims. It wouldn't have taken a lot to build out the platform but I think it's just sheer laziness.

{audio:0:27:17} Going along those lines I get where, if new policies are coming in, and they say, okay, this is a classic, we just offload it to Hagerty or American Collectors. But going along the same line of thinking where they don't have the claims expertise, why are they not actively going into their books to find the ones that qualify and saying, hey, let's get you onto a classic policy so that we don't run this risk of, if there's a claim, we screw it up.

{audio:0:27:46} That's a great question. When I was talking to Farmers, they recognized the need to do that and they just said that they were honestly too busy to do the work, to represent what you just shared. They said that they had other bigger projects that were creating more responsiveness to the shareholders. They just couldn't spend the time. They were intrigued by my sales call, to say they needed help and they recognized the help and they recognize how they could have gone down that path. It was summer of 2019 when I was talking to them and that occurred in the middle of their system conversion. It was going to take them six to nine months to even think straight once this thing happens and it was six to nine months out. From their timing, we were a year ahead of the conversation. They said, thanks for the call; can you put us on your calendar in March of 2020, but by that time I was gone. They were too busy. It wasn't important enough for them. Isn’t that crazy?

{audio:0:29:02} It is crazy. It is potentially understandable, in terms of the magnitude of premiums for whatever classics could be compared to total. It's an interesting dynamic that could be an opportunity for any of the classic books. 

{audio:0:29:23} For sure. You need someone who has the wherewithal to do the work and to marshal the right resources and to say, for example, I need these five people. I need someone who's great at IT, that could transition a regular Farmers’ policy to a classic car policy by just putting information into a system; someone who's familiar a CSV file. However the work is done, you need a claims expert, you need a sales and marketing expert and you need one or two other people just to get the work done. It wouldn't have taken much, but you could have put a little project team together and gone to three or four different carriers and said, here's what we're going to do. We've created the project team. We're going to go in there and going to take the 300,000 vehicles that should be transitioned from your book to a classic car book. We'll do all the work for you. Here's your SPIFF. It wouldn't have been a lot of work and we've talked to Farmers with that exact idea and they ate it up but said, we're too busy.

{audio:0:30:41} It's interesting because I think that's what Hagerty and State Farm are doing right now; building that system. My understanding is that it's going to be a single unified platform that can do that. If that's successful – and I think the initial turnover is 460,000 accounts – what kind of impact do you think that could have if Hagerty turns around and goes to a Progressive or a Farmers or an Allstate and says, we did this at State Farm, a massive batch turnover in one go? Would those guys be on board for potentially doing that? 

{audio:0:31:27} I think the answer is no, and it would be solely because they would look at the relationship and say, State Farm is my nemesis. If you are Geico and Allstate and Nationwide and Farmers, they're your biggest competitor. Why would you partner with your biggest competitor? When I've had a couple of these consultation calls for collector cars, I think there's a tremendous opportunity, if you're everyone but Hagerty, to pick up books of business against Hagerty because of the partnership with State Farm.

{audio:0:32:08} NSM – or whomever the new owner is – needs to create that project team and go to all those we just mentioned by name, including MetLife and the top personalized carriers and say, your biggest competitor is partnered with Hagerty and yet you’ve got a tremendous amount of an affinity book of business with Hagerty. It's like us buying Russian oil right now. It's the same kind of conversation, although a lot less politically sensitive, but why would you fund your enemy? And that's what's happening in the classic car space? I don't get the, the malaise, the ambivalence to it. If I were sitting in Paul Choi's shoes – who is the president of NSM’s Collector Car Division – I would have put that team together a year ago and I would be having these sales calls and proposals and whatnot to make that pitch happen, to 10 different insurance carriers where you have a potential book roll of a million cars and double your sights. 

{audio:0:32:08} Maybe to push back on that a little bit in that I think, in 2019, State Farm wrote about $65 billion of premiums and the investment that they have in agri is like 500 million. When they think of the size, compared to the balance sheet of a State Farm, it’s really not meaningful in terms of growing the business. It's really not going to give state farm more bullets to fire.

{audio:0:33:52} No, it's emotional. When you are sitting at JC Taylor, you realize that you're getting your ass kicked by Hagerty, and you're trying to find out how do you do something different. The doing something different would have been to go grab Farmers’ book of business. It would have been the go grab the MetLife book of business, the Geico group book of business. Or even to grab AARP’s book of business. That group has a huge amount of classic car business because it's all retirees. They have the class the profile of the classic car owner; age over 55.

{audio:0:35:08} But anyway, point being that, no one's doing that work. It doesn't move the needle. But emotionally, when you're sitting at American Collectors or Condon Skelly, your competitor isn't just Hagerty; it's Farmers, who's giving business to Haggerty. You could affinity partner with Farmers, but they're not doing that very well. In my opinion, there's still big book of business to be swiped away from Hagerty but I don't see anyone trying to do that. 

{audio:0:35:46} How easy is it to swipe a book of business? I know some of these contracts are longer-term; there's some that are five, 10-year contracts. How feasible is it to swipe a big book of business and what would the timeline have to be for that?

{audio:0:36:05} It has happened. MetLife fired American Collectors, I think it was, and moved their business to Hagerty or American Modern. The firing happened on one day, the deal was transacted the next day and the book of business took a year to roll over because they do it by expiration dates. It's really the front-end sales job. That would require a little bit of work, maybe 30 days to put together the right pitch, because you have to have the right people in the right chairs to tell a MetLife why this transition is going to be easy for you. American Collectors et al would have to have three or four different resources in the right spots, to make the transition work, probably by putting someone in a MetLife office and every time the next day in the calendar came up, look at the expiration list – is this a classic car opportunity – and have an American Collectors employee type it into a database, spit out a quote and issue a policy? 

{audio:0:37:12} The technology's there; it's just the effort. You put together that transition team and you start pitching that transition team to every big carrier. Someone then strikes a deal. The deal is going to be, I'm going to pay you more commission to do the work, but I'm going to use my resources to make the work happen and then it happens over a 12-month period. It's really the blueprints there. 

{audio:0:36:05} What's the risk for, let's say a Farmers? Is there a risk for them to switch over partners to American Collectors or something from a Hagerty?

{audio:0:37:51} A little bit and the reason is because Hagerty has all the information. You could see Hagerty, potentially, say, it's my policy, my expiration; I'm going to try to keep it. You could see a little bit of deviousness happen if you're the losing partner, if you're the Hagerty, and you know, your book has now been sold to an American Collectors. Does Hagerty walk away like a gentleman or do they say, I'm going to fight tooth and nail for my expiration lists that I earned?

{audio:0:38:30} Are there any big partners through NSM? When I was doing some research, it looked like USAA kind of partners directly with American Collectors?

{audio:0:38:43} I cannot confirm nor deny. 

{audio:0:38:46} I think it's on their website. Do those type of partners make up big books of business, typically, for an NSM? If you had to think of the top three partners, what percentage would that make up? I think Hagerty lays theirs out. Obviously, you can figure it out with a State Farm; that would be a big one. Is USAA a small or a big partner?

{audio:0:39:21} That range is going to be between 25% and 45%. 

{audio:0:39:31} Of total NSM or just American Collectors? 

{audio:0:39:34} Just American Collectors. 

{audio:0:39:43} Is American the biggest of all the groups within there? If we think roughly 120 million of premiums, is that like 40 or 50 million American? I think JC Taylor's about 30.

{audio:0:39:59} JC Taylor became the second largest brand, once acquired. Historically, it was ACI, Condon, Heacock and then JC Taylor took the number two spot from a revenue standpoint when that happened. 

{audio:0:40:21} If you think just from a competitor standpoint, what is your opinion of Hagerty as a competitor? If you're just putting up NSM and Hagerty head-to-head, what are your thoughts? 

{audio:0:40:40} You know the “I'm not worthy” from Wayne's World, when you are genuflecting in front of the statue, that's Hagerty. Hagerty is the best and I would take it beyond classic cars. What they've created is a business model of success. They were just a startup; they were a nobody. They tapped into a passion that nobody else tapped into and they created other things around that passion. Then they added so much more to it where they're at every car show and they have gone to every car museum to put their plaque on the brand of the museum, so they're a partner there. They've got their channel on the Speed Network; they've got the magazine. You can rent a classic car through Hagerty's classic car rental brand. 

{audio:0:41:42} In my opinion, it is one of the best marketing stories ever created in American business, never mind insurance. They just happen to sell insurance at the same time. If you're a Haggerty member, yes, you're buying insurance, but you are buying a lifestyle. You're buying into a lifestyle. I can't say that any more than I have already because it's impressive as hell. Nobody's recreated that in the classic car space. Even American Collectors and Heacock who had different opportunities to do so in their niche or their lane, they couldn't get there. Heacock’s thing is racing and they do have a neat following and a niche carved out, but they could have taken that times 10 and they didn't have the staffing to do it. It was, effectively, done by one guy and that one guy's gone. But they didn't ramp it up. They could have, if they staffed it, and they were too cheap to do it. Whereas Hagerty probably overspent on their marketing budget, but look at what it has created. 

{audio:0:42:55} I think it's interesting in that, last year, it was roughly $18 or $20 million that they spent on advertising alone. If NSM’s total written premiums are close to a 120 million, 130 million, that's a huge hurdle to have to try and overcome if you want to catch up. I guess the logical question is, can somebody catch up? Can somebody recreate what they're doing or are they kind of inevitable?

{audio:0:43:29} I think there's levels of success. I don't think you recreate it. I don't think you beat them, but I think you can take a slice away. I mentioned the affinity perspective of a car club. If you put all of your energy into, I want to insure Porsche of America, Alfa of America; XYZ car brand. I mentioned Mustang earlier with Thunderbird. You could pick any or all, and have a marketing and sales platform to put all of your eggs in those baskets, in a sales perspective, to say, I'm going to own that car brand. I'm going to go to Porsche of America and pitch to the board of directors. Here's what I'm going to give them to have us sponsored as the only insurance brand and, effectively, try to kick out the people who own a Porsche, but are still loving that lifestyle brand of Hagerty, but they also have the similar passion to their car club.

{audio:0:44:37} I spent some time with Jaguar in LA and we won the deal with Heacock. I went to three or four different functions, I got the board of directors to sign off that they were moving their relationship from, I think it was Grundy, over to Heacock. I had a booth at all of their shows, I went on their car rallies, I drove with the president of the club and he took me around Los Angeles in his cool ass Jag and had a great afternoon of it. You just have to do that. You have to invest the time. And that time is multiple bodies; I couldn't do it by myself. That was NSM’s problem; they wouldn't commit to a staff to do that kind of work to pick off different car brands, but you could. 

{audio:0:45:34} Does Hagerty become a stronger or weaker competitor, over time?

{audio:0:45:43} Stronger because no one's going after that. They're allowed to maintain their excellence in the marketplace. 

{audio:0:45:53} If we had to think about market share just in the collector car universe today, we're saying Hagerty is the largest and then I'm guessing American Collectors is number two? Or are JC Taylor or Grundy number two?

{audio:0:46:13} Grundy could be number two but what might be missing is that it could be State Farm or AAA that are larger but they don't report because, although they have a classic car division, they’re not a classic car standalone. From a branding standpoint, AAA is not saying that they are a classic car brand, but American Collectors probably is number two or three, depending on how big Grundy is.

{audio:0:46:50} Between a Hagerty and, let's say, a Grundy or American Collectors, which gains more market share over the next five years?

{audio:0:47:01} I don't think it's Hagerty because I think there are at risk with the fact that State Farm has that ownership stake. I’ve I got to believe that Nationwide and Farmers, at a minimum, and maybe more, are going to say, boy, if I really had my druthers, I would move away from this Hagerty relationship. I think the other markets are poised to pick up chunks of market share from Hagerty and those are chunks where that's a needle mover for that division. If JC Taylor picked up $2 million of premium, that's a big number for them. It's a drop in the bucket for Hagerty. I think, as a percentage of, there's no doubt, the rest of them have a much bigger opportunity, but they've got to put the effort in and I don't know if they're going to.

{audio:0:48:01} If JC Taylor has 30 million of premiums and we call the average $500 per premium, roughly, that’s about 60,000 cars. Can they even handle a Nationwide coming over if they brought over 300,000 policies and said, here you go, one time?

{audio:0:48:26} It's not one time; that's the misnomer. Every day there's another policy or another 10 policies. It rolls. No one would do a midterm cancel; it's too clunky for the policy holder. The policy holder is going to say, hey, I'm happy to move from carrier X to Y because that's how the conversation's going, but my policy expires in December; I'll see you then. These are very low touch, easy to transfer from carrier X to carrier Y because it’s 10 data points and someone, who makes $20 an hour, just types it in and it goes. 

{audio:0:49:14} The bigger deal is the sales team to make that happen and the senior leadership to say, I'm going to spend a couple more dollars than I normally would. The underwriting manager to say, I'm going to take on all this car activity, regardless of how it really looks. Forget about claims activity for a second and just say, I want the whole book. You have to have that commitment. You have to have a few bodies that are going to go and do these pitches, whether they're Zoom calls or physically going New York or Los Angeles. Once you make the commitment of the team, the transaction piece is a slam dunk, in my opinion.

{audio:0:49:59} On the claims side, I would expect going from 60,000 policies, let's say, even if it's kind of bleeding in over a year, as things renew, to 460,000 – and I use that number because I think USAA about 400,000 policies – seems like a massive increase in manpower, just to be able to plus that up. Hagerty's talked about over $70 million that they've spent, so far, just setting up this State Farm thing because of all these policies coming over and they're the biggest. I’m trying to understand how feasible this is and on what timeline? Is this a one-year problem, a five-year problem or a, hey, five years from now, everybody forgot about it and it's no longer a problem?

{audio:0:50:59} You would have to trust that the leadership team could hire the right number of hands on deck to make it work. You wouldn't do it prospectively. You would have to have that deal in hand and say, we're going to start this in 90 days, so you had time to staff up and train. One of the keys to this claim story that you spoke of is that all the claims is outsourced. You'd be asking the claims company to just add to staff or to redirect some resources so they would be ready. 

{audio:0:51:36} Claims don't happen on the first day of the policy either; there's always a lag there. But there is the transition of the underwriting, even though it's transactional, that would happen over a 12-month timeframe. But on day one, you would have an extra 100 policies or whatever the math is. You'd have to have a little bit of added staff, right off the bat, but you'd also know that you already struck the deal and the contract ink is dried. If you do it the right way, you wouldn't be saying, oh my God, I struck the deal; it's April 15 and now what do we do? You're going to be doing that effective July 1st and you've got ramp up time. I don't think it's a big deal, but you'd have to commit to knowing you've got to make all those staffing decisions at the right time.

{audio:0:52:24} Who's the ultimate decision maker? Is this a CEO, CFO decision, so it's those relationships and getting in front of those people, that's going to matter?

{audio:0:52:38} I was talking to a senior vice president at Farmers that believed he had all the decision-making power to make the transition. I'm sure he would report up to a CEO or a senior level person, but it, it was a division within Farmers Corp, so you need to find that right person. At NSM, the CEO had to sign off on everything. Jim Kruse – who ran Condon Skelly for quite some time – had zero authority to make that decision to go after that next affinity partner. He could make a sales call, but when he knew that he had to have a team that looked like what I've described a little bit – three, four or five people to make it – it was sorry, that's not happening here. We're not going to do that. I will not approve your budget. We will not put the effort towards that growth initiative. It was insane. 

{audio:0:53:42} On the NSM side, they wouldn't put the money towards it? There's that argument, it's kind of good to be competing against a division of a larger company that may not be getting the funding that they need. That's always an interesting piece. Maybe along those lines, say you guys were able to convince that SVP that this makes sense, is there a risk that McKeel Hagerty calls up the Farmers’ CEO and he's like, hey man, what are you guys thinking? What are you doing?

{audio:0:54:13} Very much so. Now it's two-fold. The first part was, that's a tremendous risk prior to the ownership of State Farm into it. The second pole is, now that that relationship has changed, wouldn't Farmers want to do that to thumb their nose at Hagerty and the rest because of the State Farm relationship?

{audio:0:54:44} Definitely a potential there. You mentioned the Hagerty drivers, the magazine and they have this membership model. I think they've got something like 800,000 members under that, and it seems as if there's an interesting opportunity in that space. Is that something that could actually be a big business, in terms of these membership models? I know there's the Porsche clubs and all of these that have a lot of members and it seems like an interesting approach. What are your thoughts on that? 

{audio:0:55:21} I don't know how big, but I know that it would spit off from it. If I'm at the Hagerty lifestyle magazine thing, I'm promoting the shit out of pet insurance and cell phone affinity relationships, and any other affinity thing I could sell in that magazine and get a piece of the action. I do believe that when you have membership, people are more inclined to hear the pitch that's happening. If you're just watching TV in general, people are still inclined to be swayed by a Budweiser commercial. But now, if you are paying money per month for that subscription and they tell you we're all about Budweiser, you're going to be more inclined to think about Budweiser now a little bit more because you spent time purposely listening to that message because it's part of your membership and your lifestyle world. 

{audio:0:56:17} I do believe there's value; how much I couldn't tell you. But if, if I'm looking at it from the ability to sway the folk, I think it's got to be easily 25% to 50% bigger of a sway. If I'm a member, I'm more inclined to follow my group, than I am just a random commercial. 

{audio:0:56:39} That makes a lot of sense. Is there anything really important about this space that we haven't really dug into at this point, either in the collector. Insurance side and where it's going or the growth in that space?

{audio:0:57:03} A little bit, and that is the other toys. Grundy would say that they insure boats. I think Hagerty says they dip their toe in the water there. I think that there is a way of expanding your footprint from an underwriting perspective and say, we're a lifestyle insurance market, not a classic car insurance market and think about all the different things they could do. The jewelry, the jet skis, the boat, the airplanes would be a bit more into that high-net-worth folk. I don't think any of those companies are trying to do high-net-worth.

{audio:0:57:48} What about homes; the second homes, the vacation homes, the fifth homes that these people have? The RVs? To me, that stuff is all relatable and no one seems to be going down all those different revenue paths. That’s not to say it's an easy transition, but it is something that's kind of in the space. If you own three classic cars, you own a bigger home and you probably own three more homes and you travel a shit ton. What about travel insurance? 

{audio:0:58:17} There's a whole grouping of things within that high-net-worth person that none of those companies are trying to exploit. Maybe they have and they failed, I'm just not sure why.

{audio:0:58:29} I think Hagerty talks a little bit about making sure that there's not channel conflict in terms of their partners. It starts becoming very hard to partner with a State Farm, a Nationwide or a Progressive if you start taking their homeowners insurance policies. 

{audio:0:58:51} Exactly. That's a great point about Hagerty, but that's not true with all the other brands. 

{audio:0:58:59} This has actually been really great and raised a couple of interesting questions I'm going to have to follow up on, on here and try and track down, particularly on the State Farm partnership pissing off some of the other partners. 

{audio:0:59:11} Potentially. I know that's what I'd be doing if I was still sitting in the chair that I used to sit in.

{audio:0:59:17} That's a good insight there. I really appreciate you taking the time to chat and it's been very helpful. If we need anything else, we'll definitely follow up. 

Hagerty vs NSM Insurance Group: Classic Car Insurance

Former Manager at NSM Insurance Group

inpractise.com/articles/hagerty-vs-nsm-insurance-group-classic-car-insurance

Hagerty vs NSM Insurance Group: Classic Car Insurance(April 30, 2022)

Former Manager at NSM Insurance Group

Interview Transcript

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