Big Data Dives Deep into the Risk Pool

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Matt Miller | Photo by Gabriela Hasbun

Many car insurance companies now offer “usage-based insurance” that gives customers a chance at better rates if they agree to install a device on their car that tells their insurer exactly how and when they drive. That game-changing piece of technology took a lot of guesswork out of risk management, and often gives consumers a break on that onerous but necessary cost.

But what if an insurer could apply that idea to a company’s entire fleet of vehicles, and then use that data to take the guesswork out of commercial insurance as well?

That “empowered auto insurance” is one of the commercial insurance products offered by Embroker, a San Francisco-based startup founded and led by Matt Miller, who received his MBA from Stanford Graduate School of Business in 2011. The company pairs data and technology with a team of expert brokers to help small- and medium-size businesses buy insurance more intelligently.

“There are opportunities to use technology to provide or create insurance products based on data sets that we can capture,” says CEO Miller, who founded Embroker in 2015 after six years working in private equity, and who now has more than 60 full-time employees. “That data can be about driving habits, or weather, or all sorts factors that could impact a business.”

Miller says that’s just one way his company is trying to modernize the commercial insurance industry, which “hasn’t really evolved much since the independent agency model was introduced in the mid-1800s.” He notes that customers who buy personal policies, such as auto and homeowner’s insurance, can expect to receive (in aggregate) about 75% of premium payments back in the form of loss payouts, while businesses receive only about 55%. It’s a space “overdue for improvement,” Miller says.

To date, Embroker has partnered with 50 commercial carriers, including The Hartford and Travelers, and is licensed in every state. The company’s fast growth is due partly to a fundamental shift in the financial technology industry. Venture capital money that once went to online lending businesses is flowing more and more to online insurance startups. The data research firm PitchBook estimates that venture capital investments in such companies rose 50 percent in 2016, to $1.4 billion, from the previous year.

In May 2016, investors led by Canaan Partners infused Embroker with $12.2 million in Series A funding. That’s on top of the $2.2 million the company received from investors in July 2015.

Investors aren’t the only ones paying attention. In July, Embroker was recognized by CB Insights, a National Science Foundation-backed research firm, as one of the 250 “most promising, private fintech companies from around the world.”

You left a career in private equity to pursue this. What made you think it was worth the risk?

From any objective standpoint, it’s a much worse job. You get paid less, there’s a lot of stress, and the risk is greater. It’s a very individual decision. I’m just better suited to it. There’s nothing about this entrepreneurial path that’s better than any other. It’s a very hard path. But my wife tells me I stand up straighter now, and I smile more.

Why do you think companies such as Embroker are attracting investment money that once went elsewhere?

From an investment standpoint, it’s a $300 billion market that can be improved in multiple ways. That’s exciting to potential investors. It’s an attractive business opportunity, not only because it’s a huge market that has seen less change from technology than the lending business, but also because of the radical change the insurance industry may undergo during the next 5 or 10 years as we increase the ability to collect more data and better weigh risk

Was there a moment when the light bulb went on for you, and you decided to pursue the commercial insurance market?

Actually, there was. I’ve always been fascinated by the idea of being able to take intelligent risks. It’s such a fundamental concept for progress. I was an investor at a private equity firm before this; specifically, I invested in one of the top-10 commercial insurance brokers, and was on the board of that company. The light bulb moment for me was when a friend asked me to help him buy insurance for his business. It was just astonishing to see how confusing it was. And I thought, if I’m on the board of this company and even I can’t help him much, then commercial insurance is probably a big pain point for a lot of people. I recognized it as an opportunity.

You once said entrepreneurs sometimes are too in love with their product, and don’t see it from a customer’s point of view. How did that affect your approach to the business?

We’ve tried to be very customer-centric in everything we do, but particularly with product design. We’re building a lot of things that didn’t exist before, so we do a lot of user interviews and get as close to the customer as possible. You don’t always get it right the first time, but what’s the point if you’re not addressing the needs of the customer? You can be in love with a design that doesn’t solve their problems.

Did your background as an investor help you raise funds for the business?

It definitely helps me see things from the perspective of an investor, and helps me speak a certain language.

You sold Embroker’s first 10 policies and have said that was valuable experience. What did you learn while out there trying to make sales?

First, it’s really hard. It’s nothing to be taken for granted. And it’s important to understand that no matter how many advantages you think you have, you have to work harder than the next guy in order to win. That became clear to me. It’s also helpful to understand the details of how things get done, and why. It’s easy to dismiss certain aspects of a business that seem old or antiquated, but there’s always nuance, always a reason why things are done that way. You need that to understand how to improve it.

You’ve said that insurance markets are “tremendously excited about the idea” of companies such as Embroker. What convinces you of that?

People are talking about it more, at very senior levels of large companies. But that said, I’m pragmatic. It’ll take a long time for all these changes to catalyze. The insurance business has been around for hundreds of years with very little change. It’s unrealistic to expect a seismic shift. The euphoria will go away, but a lot of the excitement is well placed because these changes will be hugely impactful and beneficial. But it’ll take time.

What do you look for in a prospective employee?

Intellectual curiosity, first and foremost. Then a desire to learn, and a willingness to be motivated by challenges rather than discouraged by them.

Any influential books that guide the direction of your career?

I was an English major in college and spent a lot of time studying literature. One of the books close to me is the novel 2666, by Roberto Bolaño. It’s a huge, challenging novel about a lot of things, but one of them is the nature of change we can create in the world, and about how we measure our lives at the end of them. People often think about the option value of their lives in ways that may be intellectually correct but might lead you down the wrong path. They think, “If I had this much money I wouldn’t need to work.” But I believe we all want to work. So it becomes a question: What would I use that value for, and why don’t I do that now?

Learn anything during your time at Stanford that you still use today?

I got a lot from classes like Managing Growing Enterprises, which at the time was taught by Irv Grousbeck, and Interpersonal Dynamics, which we nicknamed “Touchy Feely.” That was about being more conscious about how we present ourselves during interactions with others. Management can be an extraordinarily difficult path, and we need to be proactive about getting better at it. You’re not going to be naturally good at having tough conversations, for example. You need to learn by talking to people who have done it longer than you. It’s a discipline we all need to work on, like any other hard skill.