The role and potential for MGAs was much discussed in 2019, with some significant fundraising and acquisitions.
Jacqueline McNamee, a former underwriter, became frustrated with the speed of innovation at her previous employer and launched C-Quence in 2017. Matthew interviewed Jacqueline for one of the keynote presentations at the Cytora conference in November last year and this episode has the highlights of their discussion.
Topics covered include:
• What is Management Liability insurance
• The sources of data used for underwriting
• Why C-Quence built its own technology stack
• The importance of speed
• The value of the broker channel
• Use of Cytora product
Information on all our podcasts can be found here. Read Matthew's article "MGAs the fast track to insurance innovation?"
Transcript for this podcast
00:02 Matthew Grant: Hello, and welcome to the last InsTech podcast of 2019. Well, no rest for us, got to keep this show on the road. We're releasing this episode in that quiet zone between Christmas and New Year, so another fairly quick one. Now, the emergence of MGAs has been much discussed in the last couple of years. We've seen some very interesting and quite significant exits. So it was great to have the chance to interview Jacqueline McNamee, who founded C-Quence at MGA providing management liability cover, a couple of years ago. We were on stage at the Cytora conference in November, which was a very well-attended event held in the delightful Saint Luke's Church in Shoreditch, which is normally home to the London Symphony Orchestra. Now, if you'd like to know a bit more about MGAs and what they actually are, I wrote a short article explaining how they work and where they fit between brokers and traditional insurance and it seems to have gone down quite well. You can find it on the InsTech London website and on my LinkedIn profile, and you'll find a link in the episode notes.
01:08 MG: Last time I was in this room, there were four people on stage playing violins. You haven't brought a violin with you today.
01:16 Jacqueline McNamee: Well, you never know, depends how our chat goes.
01:19 MG: Well, there we go. And we've also got what looks like over a 150 people here to hear about what you're up to. So you left the world of sort of relatively safe employment working for a big insurance company a couple of years ago. You set up C-Quence. And just to quote from your website, your goal was to bring radical, powerful, transformative, and highly efficient ways of trading and servicing mid-market commercial insurance, and today you're focusing initially on management liability.
01:50 JM: First of all, thank you, Matthew, for your introduction. And also, I would like to thank the Cytora team for inviting us to participate today.
01:58 MG: What was it that drove you to leave the relatively safe world of insurance and set up your own business?
02:03 JM: I did operate in the major corporate space for over 20 years, and as such, I've gone through, went through a catalogue of challenges and frustrations. And I think a lot of how the industry was continuing to operate was really targeting short-term fixes as opposed, to me, it was always kind of little bit kicking the can down the street, as opposed to you really have to get to the root causes in relation to taking on some of the challenges to kind of modernize commercial insurance. I also think, too, some of the challenges that were... As barriers tend to be put out there, is that the commercial sector is possibly too complex to automate in the same degree as, say, the personal lines industry has been disrupted or challenged, particularly from an expense and automation standpoint. I think a lot of the... Again, that the technology tools were coming more into the consumer space, as opposed to being brought into the commercial world.
03:00 JM: And I didn't really necessarily buy into a lot of those arguments. I think if you take a step back and if... I think one of the key benefits we had at C-Quence, in particular when we were setting up, is that when you do have the opportunity of a blank sheet, and you're not encumbered by legacy, it does present an exciting opportunity. So I think with that, coming from inside the industry, but also realizing that it was going to take operating with outsiders from outside the industry, that it presented a really good opportunity for us, insofar as we did really understand the gaps and some of the opportunities that could be presented, particularly around data as you can see. And that, I think, is obviously the core discussion point for today as well.
03:46 JM: So we set about... I thought was a very exciting opportunity. But equally, as much as it was exciting, it was equally as daunting coming from big corporate worlds, as some of my friends said to me, "What do you know about setting up a company?" It was a true statement at the time, but like any problem that you want to, you gotta admit it, and then you just recognize. We go in a journey just building a fantastic team around me with a real attitude of, "Let's problem solve all these challenges that are presented." There's a great array of fantastic new tools and technology. And we sat on our merry way, a couple of years ago, almost two years ago now, to set out and start to build a new type of contemporary insurance company.
04:24 MG: Well, congratulations. You've survived those first tricky two years. I'm sure you've now become an expert in setting up a company. And also, yeah, as everyone knows a lot of the most successful businesses are built by people who just have this real frustration, they can't get it done on their day job, and they say, "You know what, I'm going to go and solve it myself." And here we are, a large audience, you've signed up with Cytora, and we're going to talk about some of the other partners we've got as well. So that's all fantastic news. Now, before we kind of get into a bit more about C-Quence, could you just say a few words about what management liability actually is, for those who may not understand that space?
04:56 JM: Sure. It's the first suite of products that we launched in the beginning of March, this year, and it's a modular set of five products. When we talk about management liability, we're really talking about insurance products that are orientated towards protecting the management of businesses, particularly as our segment is more of the kind of private small public company sector. It's just a range of products that really protects the management, the decisions that they make, and the potential consequences those decisions have on the organization of the entity itself. So it's modular covers like directors and officers, insurance, liability insurance, employment practices, protecting against the risks of managing your employees in obviously more of a regulated environment, managing pensions on behalf of your employees, crime, crime from inside or outside the organization, and also cyber.
05:49 JM: So it was the first five suites, the five modular, we set about instead of doing traditional way. We're going to break all our coverages down into units of risk that we describe as modular offerings of coverage. Because, again, from making the product more simple, it also facilitates the use of technology in supporting the actual product itself as opposed to just the data. We also... It's my background from an underwriting perspective. So something you're very... Kind of a lot of technical experience in, it helped in... We said, "We'll break ground. We'll use the management liability suite as our first offering," but we always built it with the design of making it the architecture or the foundation, the flexibility we're building that that and the data structure would carry through into the next suite of modular products we wanted to bring, which is through the property and casualty. So, we are currently in the testing phase of the next 10 modulars, which bring the management liability into the property and casualty sector. So we'll have an overall offering of 15 modular coverages next year.
06:00 MG: Well, thank you for that. That's helpful. And you've also... There are not many companies focusing on this particular area. So you're used to take in a difficult problem, but one where there's some opportunity out there. But just in terms of the focus on data analytics and how you position yourself, I mean, lots of companies, about every company now starting off, uses that concept of access to data analytics. But what do you think it is about C-Quence that actually distinguishes you from other organizations out there that claim to be able to do things differently?
07:20 JM: Well, I think, again, having coming from the traditional insurance sector, and I think Richard said it well, which is very manual, a manual, traditional industry, a lot of... There is a wealth of information and data that does circulate and swirl through the commercial sector, both here and globally. But the challenge is it's in a very unstructured or non-consistent, non-standardized format. And I think it was one of the very first problems as a team that we set out to try and problem solve through. And I've seen it myself in my own career, is that the very, very start, the beginning of a journey, if you get the client's name wrong and the client information or the address incorrect, you are already starting to replicate those challenges and errors right away through the life cycle and the correction and the errors and the reconciliation that comes with that. So for us, the starting point was if you can manage to build your platform, your offering that can facilitate very accurate and structured and standardized data, the opportunities were going to be really fantastic in relation to what you could do from a technology standpoint.
08:27 JM: I also think as well from an underwriting standpoint, having done it in... Coming from the world of it's deemed more of an art than a science and having done a lot of underwriting at various places, that there's a lot of repetition, and you just do it over and over and over again, and the learnings aren't really being passed on and shared to the benefits of everybody involved, including the carriers, the clients, the brokers themselves too. So it was all about for us, if... You know, it's one thing to have a much more efficient process, but you have to enable it particularly with the data and the technology. And everything we do is predicated on unstructured data. And it does flow. Like one piece of relevant information will flow now across design to flow across those 15 modulars. And also the opportunity maybe five years ago wouldn't have been as easy because there weren't companies like Cytora, for example, who were offering fantastic offerings in respect to data to enhance and enrich the platform or the offering that we're working on.
09:25 MG: Good, and I think it's no coincidence that, in the video, you've got a lot of references to speed of what you're actually doing. You've got a story about some of your own experience about consumer or customer lack of speed. But yeah, particularly these are the ones that stood out for me was less than two minutes to quote bind and then one-tenth of a second to get the documentation driven out. But it sounds that that's something you use a key metric for building the business and as you sort of talk to your own customers about how you provide some differentiation versus what they might do.
09:55 JM: Yeah, and it was about... It's not... One of the really differentiated selling points that we're looking to build as a business is the service platform that new tools, new technology, new techniques can provide. And I think probably setting the bar or give an example which we were chatting about this morning is we were purchasing our own Dino insurance last year. So from the date that we put a call in and a request that we require Dino, we were ready to pay for it immediately. It took us actually 244 days from that phone call to the date that we received our policy documentation. And we're not exactly a big, multi-national, complex business.
10:33 JM: So that's frustrating when you see... And there wasn't like when the policy was three months late, that there's any kind of apology for not sending your documentation. So when you see something like that, then there's a real opportunity in respect to improving service standards. But again, when you have your offering, your platform, your data, your structure, you've all these new tools, it does help to facilitate that. So I think one of the big differentiation was again part of the big problem solving that we did at the beginning was, how do you take all of this underwriting experience that we have collectively accumulated over long periods of time, and how do you embed them into technology?
11:11 JM: So it was a lot of work in breaking down and structuring all of the underwriting experiences, scenarios, types of referrals, reasons, what you need, supplementary data, and actually codifying them into our platform so that the system is offering that... Making those decisions. Either A, it can go through an immediate automated platform which does... You can get a quote bind issue in less than two minutes if it meets certain risk characteristics and all the data is predicated to facilitate that. And even in that process, we use around 600 algorithms and a lot of external data points that are populating, allowing that decision-making process and your documentation to be built in less than two minutes. And then in relation to targeting the referrals, which again is a lot of the falldowns happen in the industry, is that we've codified all the responses of what trigger referrals. So again, when the underwriter gets a referral, they get a notification immediately whether it's on their iPhone or their iWatch. And a lot of the answers are pre-programmed which help facilitate and speed up decision making.
12:13 JM: And then if the underwriter doesn't like what the machine has so far suggested, they can obviously modify and amend it and then we have AI machine learning pattern recognition sitting behind that to make sure there's a constant evolution and pattern in relation to the decision making. So it does show that you can improve the 244 days to less than 2 minutes or 15 minutes. And in some more complex cases, we may require additional information. But once that information comes in, then we have to start thinking about our SLAs again.
12:41 MG: I want to come back and talk a bit about your technology stack in a minute. But what's interesting is that massive difference from, what's that, you said nine months to... It's ridiculous to get your documentation back to you're talking now like in fractions of a second or in minutes. It seems like the people who get this, it's not like an incremental benefit. It's we're going to save you 25% on your time and you're going to get it in six months, and that's ridiculous. It's actually, really... It has to happen now.
13:08 MG: So you're an MGA, and you use brokers to distribute your product. Yeah. There's a theme out there which says, "Brokers should be disintermediated if we don't need them," but you've chosen to go through that channel very specifically. Can you just talk a bit why you've done that rather than try and go direct to your clients?
13:27 JM: There's probably two answers to that. The first is we did absolutely set up intentionally to be a B2B model, a business-to-business, and we firmly stand by that. And there's two reasons to that, too. One is probably the sector that we're offering a range of products to are in the small and the medium, and it goes into that large or medium space. These are clients that do have more complex risks that do require a specific advice. We're kind of in the business of providing the insurance solutions, not providing the advice. So it is very important to us that that advice and that the expertise that the broker does bring in relation to consulting with their clients is very, very important. And also, too, it's a distribution play for us, too. Because in a B2C model, you are going to start swapping dollars or pounds in relation to... Your acquisition costs are going to have to go into your branding and your self-awareness and your advertising. So you are kind of, to a point, moving some of the money around. Whereas for us, the brokers, we have the network, we have the contacts with them, they have the boots on the ground with the clients.
14:32 JM: So what the broker to us is more like our client, but our theme is if the broker's really satisfied with the customer service that we bring to them, then by default, their clients are going to be happy. And I think the second point, too, which kind of goes to your point in relation to talking about disruption of the brokers. I think if you look at the overall commercial insurance chain, there's a lot of aspects to it that make it a very long chain. And it is between whether you have brokers that are consulting with clients, placing brokers, you have carriers, you have MGAs, you have reinsurers, you have reinsurance brokers, you have retro, you have retro, you have software houses. It's a big chain. And customers are funding, I think, that the point was already raised this morning about that 40, 50p that's going into feeding that chain. So there's a lot of opportunities within that chain to shorten us and to disrupt us.
15:22 JM: So we know the brokers are caught up in the inefficiencies that the administration, the bureaucratic processes that the commercial industry is that, by default, if you bring them a better experience, you're helping them about the top line, the bottom line, you're helping them differentiate from a customer service standpoint too. And they tend... It's like anything. If you give them good... Really good service, they're going to come back.
15:43 MG: And within that broker community, and feel free to name names, how do you find the spread of those organizations that really understand it and embed it their own organization? You talked about all different types of brokers in there. Are you seeing some quite strong differentiators amongst the brokers, big and small, those who are really driving and motivating their teams to use technology in companies such as you, versus those that maybe talk about it but actually don't really deliver when it comes down to it?
16:11 JM: Yeah, very much so. I would say there is still quite across breadth in relation to, I guess, attitudes and behaviours maybe or opportunities. I think, from a distribution model standpoint, again, being a small, lean company, our predication on being really efficient, we're not going to be all things to all people. And we don't have the resources to run around to be a big sales organization. So for us, it was always about having come from the commercial industry, leveraging the network that we already had and re-identifying partners that had a similar attitude in respect to really a desire to change the service spectrum, probably more than anything, or even the simplicity of the product and the product offering. And obviously the opportunities that the data execution can bring.
16:56 JM: So there is a spread out there. We found very early on, when we were kind of nothing but a concept on paper, there were certain brokers that really embraced what we were doing. They said, "We really like where you're going. This industry has to change, and we want to partner in your design work with you because the train's going to leave. It's pulling out of the station, and we want to hop on, otherwise, it's going to be difficult for us." So there's that kind of area. And that involved... And actually, one of them was one of the global brokers, not the largest, but global broker and then obviously large independent. Then you have the ones who said, "We really like what you're doing, but we've got so many things going on, please come back to us when it's built and ready, and we can press the on button."
17:38 JM: And then there's another bunch of brokers that are just entrenched with how it works today. There's a desire to protect the status quo. They're quite involved in closed software service providers as well, and they don't have that opportunity to open up. So it is quite a mixed bag, but that works for us because we're not going to be all things to everybody. We look to diversify in... To make sure geographically-wise that there's opportunities. We operate with a couple of the large globals. We have some of the network brokers that we're just dealing with the network, the wholesaler themselves and accessing their network. And then we have some of the larger and medium size independents. And again, it really embraces... We signed on a broker a couple of weeks ago that, even after the first meeting, they just said, "We want to turn up and play straightaway. We love what you're doing. We want to start moving. We want to start using you as alternative in all of our business quotes going forward." So there is a real appetite with some, and there's another... There's a lot of protectivism that's still going to go on in this industry, too, in respect to, "Don't rock the boat."
18:36 MG: Okay. So you've got a lot of people here, some of who I'm sure are buyers of management liability insurance, and they want to go and find a broker offering C-Quence. Could you direct them to anybody in particular or...
18:51 JM: I think it would be unfair to direct them to one or two. There's some excellent brokers out there, and you can always go to our website. And we're happy to... Contact us and we're happy to give you some very, very excellent suggestions based on your geographic or your particular risk-appetite profile. So nicely skirted that one, didn't I?
19:07 MG: But I guess, on a slightly more serious note, as a brand, C-Quence, do you expect that you become a brand that's valued by the end buyer? Or are they still seeing their key relationship with a broker, and then they rely on the broker to find the best product? You're less concerned about what the end buyer once... Your real target is to get the broker to...
19:29 JM: Yeah. We designed our offering and our platform for brokers. We designed with brokers for brokers. We did certainly consultant and engage. We didn't want to build something in the lab, in the back office, and come out and say, "Ta-da! Look what we have." And they go, "We don't want that. That's not of use to us." So we did a lot of engagement to re-identify what the pain points of brokers were, what could make a difference to them, what were their key challenges. And if we brought this to them, would they really embrace us? So it's is designed, yes, specifically for brokers, but it's also very much predicated on... Obviously, we have strong capacity behind us. It's very much predicated on if you give the broker a differentiated experience, then they bring that to the client.
20:11 JM: We also... Even our product offering is different in that modular suite set that we approach, but it's also... We took having come from a lot of technical experience in the commercial world, we decided to simplify the product, too. The management liability suite wording we have is we took it from 70 pages to 15 across five products. The same we're doing with the property and casualty suites and making it simple, so the customer gets their product, gets their insurance product in a timely fashion. When they read it, regardless, they don't have to be an insurance expert. I'm clear what I'm covered for, and I'm clear what I'm not covered for, and make it a less cumbersome, legal heavy weight document.
20:51 MG: And so just talking on the technology side then, you talked about 50 data sources, and then there a lot companies now, they're offering broker technology systems, pulse administration systems for insurers. I think you built your own technology stack, didn't you, rather than go out to a third party?
21:10 JM: Yes, we did. Very early on we made the decision, and again, it was predicated on the team that formed C-Quence in the early days, coming from inside the industry but also coming with a lot of technology and data skills too and mathematical skills. And we did make a decision very early on to actually design and build it ourselves for a couple of reasons. And we do have an excellent development team in Toronto, and it was for a few reasons. We know the challenges we're best positioned to problem solve and really build solutions for those, as opposed to abdicating or outsourcing to software houses or consultants.
21:51 JM: And also above all, apart of being in charge of our own destiny, we wanted to build... We wanted to prove that we can execute big complex technology projects, deliver on time, deliver under budget, don't overrun. It's an agile, very flexible. It's a service-orientated platform with a lot of open architecture. And we wanted to be able to continuously improve it and have that flexibility, and also part of it too is to protect our own IP. But it takes the speed of execution for us, and also it's designed exactly how we decided we want to build in relation to which... What we want to offer from a product data, a service standpoint.
22:38 MG: Well, that wraps it up for 2019, and we've got some great speakers already lined up for 2020. We'll be bringing you the highlights of our next event on the 21st of January, "Innovations in Payments". And if you're interested in getting to know some of the best and emerging companies or people in insurance and technology, and you don't already know InsTech London, there are lots of ways to get involved. You can just follow us on LinkedIn or Twitter, you can check out our weekly newsletter with the partners insight. You can come and join us at one of our monthly events or one of our breakfast events. You can become a member or you can track down Robin, myself, or one of the team and let us know what you're up to. We're always on the look out for fresh ideas, interesting people, and success stories.
23:22 MG: And finally, this podcast wouldn't be possible without the wonderful Peter Roach of Visual Monkeys, who does some excellent editing of our podcast in the last year. All contact details are available in the episode notes.