Flooding Insurance with Positivity

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Jim Albert, data whizz kid and innovator in multiple industries. Lately, he’s turned his attention Flood Insurance going up against the behemoth US national flood insurance and winning. His company, Neptune Flood Insurance was recently named on the CNBC Upstart 100 list.

As an engineer and mathematician by training, Jim enjoys patterns. From a career standpoint, he’s led a pattern of transformations, along the way creating significant value for customers and investors. A common thread to the success of any business is how that business embraces and seeks out innovation and change.

At Neptune Flood, we are seeking to create positive turbulence in the flood insurance world, by creating a super simple customer experience, offer compelling coverages not available elsewhere, at a price that is a discount to the National Flood Insurance Program. Great user experience, great product options, and great prices. And we do all this having a lot of fun and acting like the tech startup that we are, rather than an insurance company.


    Flooding Insurance with Positivity

    Rob Brodnick: Welcome to the Positive Turbulence podcast, Stories from the Periphery, where we journey to the edge, talk to Turbulators about their experiences creating positive change.

    Karyn Zuidinga: Hi, I’m Karyn Zuidinga, your co host. For most of us, thinking about insurance doesn’t typically spark our drive to Mostly it’s something we wish we didn’t need and are glad we have if we need and we hope we never will.

    Not so for Jim Albert, who saw that flooding due to climate change was about to become a much bigger problem in more places than it has ever been in the past. The existing National Flood Insurance Program was complicated and inadequate for most people. And there were both the data and the technology solutions to do much better.

    Much much better.

    Rob Brodnick: Hi, I’m Rob Brodnick. If you’ll pardon the pun, Jim Albert has been making waves in the insurance industry with the launch of Neptune Flood in 2015. His seven person startup has rocked the insurance tech world by delivering an effective easy to use product. His story and the company’s 100 times growth is amazing.

    But before

    Karyn Zuidinga: we head into Jim’s story, a quick word from this episode’s sponsor, Neptune Flood Insurance. Making flood insurance easy and accessible all over the U. S. Head over to NeptuneFlood. com and buy flood insurance online in 3 minutes or less.

    Rob Brodnick: Also, we’d like to thank Mac Avenue Music Group as a contributing sponsor.

    To hear our theme and other great music, visit

    Jim Albert: MacAvenue. com. And the idea was that there was such a big opportunity in the insurance space for the use of data analytics. If you think about insurance, it’s an ages old industry. It actually started up Primarily in, in the Lloyd’s coffee shop in London and under wrote large shipping ventures that were going to the East and West Indies.

    Wait a minute.

    Karyn Zuidinga: Yeah. Lloyd’s started

    Jim Albert: in a coffee shop? Yeah. The Lloyd’s coffee shop. Yeah. No idea. What? Actually, one of the guys that was the technologist behind the whole thing was a guy named Edmund Halley, who you may recognize as Halley’s Comet. So he… claims to have discovered Halley’s Comet. He really clearly didn’t discover it, but he was recognized to the world every 76 years.

    Yeah. Yeah. Yeah.

    Karyn Zuidinga: Wow. Okay. So this venerable insurance company started in a coffee shop. I just had to back that up for a second.

    Jim Albert: Cause absolutely. We can understand that. The number of ideas that come out of coffee shops these days, it’s all coming back full circle.

    Karyn Zuidinga: Well, yeah, and we keep thinking the world is new, right?

    And we keep repeating, like, it’s not all new stuff. It really isn’t.

    Jim Albert: The history of insurance is kind of

    Rob Brodnick: like a betting person’s game, right? It’s kind of one step away from the poker table in the sense that you have something of value, you have calculated risk, you have historical

    Jim Albert: records of probabilities, likelihoods,

    Rob Brodnick: and then you’re playing at the margins, right?

    So unpack the insurance industry for us.

    Jim Albert: Yeah, well, it is statistics as is roulette and blackjack or statistics as well. You know, it’s interesting. Some of the things that come out of it. I was over in London just about a month and a half ago and went to the Lloyd’s building and there they have this gigantic book that is 200 and some years old with the names of all the ships that they put in.

    And you know, they’re called underwriters, Lloyd’s underwriters, and this term is one of those many insurance terms that is just. Perplexing like where did that come from? Well, so they have this big book and on one page You’ve got the Titanic and you see all the people that put insurance on the Titanic and it’s sister ship The page I happen to have open was 1918 when the U boat campaigns were still going and there were six ships that went down in the same day, but the insurers would write their names and how much they’re willing to insure under the name of the ship.

    So the underwriter. Wow. I know. That’s where underwriters came from. That’s it. That’s it. Yeah.

    Karyn Zuidinga: So sorry to interrupt you. I got distracted by the whole coffee shop thing. Again, like how many meetings have you had in a coffee shop where you start talking to somebody like, Oh, that’s really cool. We could, you know, Anyways, back to your story, Jim.

    I apologize for

    Jim Albert: sidetracking. So the opportunity and insurance that both Bill and I saw was that the over regulated, historically very paper based industry was now ripe for intervention, ripe for some positive turbulence and disruption. On how things had always been done and the flood insurance business is primarily driven by the National Flood Insurance Program, which is a government entity is part of FEMA.

    It was created in the in the mid seventies. It actually been talked about since the 1920s, but they finally got it going in the late sixties and early seventies. But the process hasn’t changed too much. You fill out a form that has 54 questions, and they ask you a lot of questions that you don’t know the answers to, so you have to go do some research.

    Someone comes to your house and takes pictures of your house. Give me a, for

    Karyn Zuidinga: instance, like what, arcane questions are on this flood insurance

    Jim Albert: form. Oh, well, one is, have there ever been any flood losses at your house? Well, I just bought my house. I have no idea. So, do you… Just say, I don’t know. Do you go do a ton of research on it?

    They ask, what is the elevation of your first floor? And nobody really knows that. Most people don’t even know the square footage of their house. You’re asked the square footage of your house. You’re built. Often people don’t understand exactly which year it was built. And particularly if you had significant renovations at some point, then what year was your house?

    Essentially constructed. So you get asked these 54 questions and then you have to pay for an inspector to come out to your house and do this elevation certificate that determines what the level of your first floor is. And then from that, they develop a price for you. And 30 days later, you can have your insurance that made sense in 1980.

    As a process, there wasn’t a better process, but now with the availability of data everywhere, and this is what I did when we founded Neptune, we just pulled the public records data that’s available in every property assessor’s office in every county, pretty much in the entire U. S. And then you can buy data from other very large data sources that do not include any personally identifiable information.

    It’s not social security is not credit cards. We don’t need any of that, nor do I want to. Store or handle any of that information. But if you pull this information in all of a sudden, those 54 questions pretty much get answered. Almost everything gets answered already. So the user experience, if you think about it from the standpoint of web design and the process, how annoying is it when you deal with a bank and they forward you to somebody and you’ve already entered your 17 digit account number?

    Don’t get me started on

    Karyn Zuidinga: that, that particular

    Jim Albert: rant. They forward you and the next person says. Could you tell me your account number? Well, why did I put it in already, then? Well, we don’t ask any of those questions. In fact, we either display the answer already, In cases that we think it needs to be validated or we just don’t even show it at all.

    We already have the information, so there’s just a few questions we need to ask. And so what we did was we took a 54 question process down to about four questions and that’s it. Our vision was to use that data to have a tremendous user experience, but also do an excellent job of risk selection. Because insurance, if you choose bad risks and you write insurance on properties that are going to take lots of losses, then you’re not going to have an insurance company very long.

    Karyn Zuidinga: Can I ask you a question about those four questions and trust? So again, from a user experience perspective, on the one hand, hey, wow, this is so easy. Four questions, bam, I’m done. But on the other hand, only four questions? Like, are you for real? Do you get that? How do they respond to just four questions, I guess, is my question.

    Jim Albert: Yeah, there’s a lot to that question. It’s a good one. So what we do is, later on in the process, we want to get you to a quote as fast as possible. And it’s a real quote. It’s not one of these, here’s an indicative quote, and then you enter a little more information. It’s not even remotely what you were shown the first time.

    It’s a real quote. You can buy a policy. For that number, but it does come across as so easy that some people think we’re not really doing anything. Where’s the value? Where’s the value? That’s right. So actually, what we’re adding right now is something to our site. That shows while the rates calculating, for example, we’re getting a geocode for your house, now we’re calculating the elevation, now we’re determining a risk factor and price for your home, and here’s your price.

    Something like that that shows that there are a lot of complicated… There’s math going on. Yes, there’s a lot of computer software behind a curtain that goes on to make things real simple.

    Karyn Zuidinga: Right, you’re going to expose that that thinking is happening.

    Jim Albert: So there are a couple other things happening, though, at the same time in 2016 when we had this idea.

    This was, if you remember, uh, what was Katrina 2004? 2004 or 5, yeah. And then Ike, and then there was Sandy, and there was Irene. There were some fairly significant storms, but there really weren’t a lot of storms that occurred. In that 10 year period, the hurricane type storms, but you had global warming going on and climate change, and as a result, there actually were a very significant number of floods occurring that period.

    So the awareness in the country of the risk of flooding was rising up dramatically. You know, most people don’t ever want to buy insurance. It’s one of those products that your best outcome, think about it, your best outcome is that you’ll get zero return. Yep.

    Because really a worse outcome is you have a claim and you’ve got some significant damage and trauma in your life. That then you get money back, but nobody wants that. So it feels like pouring money down a hole. Yet with flood insurance, all of a sudden the conversation was changing. There are roughly 5 million flood insurance policies on homes in the United States of 100 million homes that are out there.

    But the number is going up now because of the awareness of the risk of flooding.

    Karyn Zuidinga: I want to back that number up for just a second. So there are 100 million homes out there in the United States that are at risk of flooding?

    Jim Albert: There are 100 million homes in the U. S., period. Right. Give or take 20 million, depending on who you ask.

    But there are about 100 million homes. Of those, 5 million have flood insurance policies right now. So only 5 percent of homeowners in the U. S. have flood insurance.

    Karyn Zuidinga: And what’s your sense of the risk of flooding for those 100

    Jim Albert: million homes? So let me take you through that. The federal government mandates that if you have a federally backed mortgage and you are in a high risk flood zone, You have to have flood insurance.

    Oh, so I didn’t know that. And there are roughly, of those 100 million homes, maybe 8 to 10 million that are in the high risk flood zones. So 5 million of the 8 or 10 million people in the high risk zones actually have flood insurance. You might ask, why don’t some of them? Either they’re so wealthy, it just doesn’t matter.

    Or they own their home outright.

    Karyn Zuidinga: That’s, that’s me. I’m just, yeah.

    Jim Albert: I know all of

    Karyn Zuidinga: us are active. Right? Not. Yeah, well,

    Jim Albert: you know, in my dreams, you know. Or they have no mortgage. So, if they have no mortgage, they’re not required to have it. But they probably should have it. Let’s say that takes 10 million of the 100 million homes.

    And then there are people that live close to those risky zones and are at risk of flooding. So, if you think of Hurricane Harvey in 2017. 85 percent of the people who took losses in that storm were in non mandatory zones. Everyone is in a flood zone. Let’s be clear on that. Even if you have very low risk, everyone is in some designated flood zone.

    You’re just in a low risk or medium risk or high risk zone. But 85 percent of the people in Harvey Who took claims were in a non mandatory zone and Florence, same thing this year, and it happens again and again, Columbia, South Carolina, a couple of years ago, Baton Rouge in 2015, all of these, the majority of the losses, the majority of the damage were to people who were in non mandatory zones.

    So you hear those stories enough, and there starts to be good awareness across the market that people should be buying flood insurance, even if you don’t have to. And you see the signs on, on Realtor signs on homes that say flood insurance not required. Well, I’ve heard Realtors say, this is great, you don’t have to get flood insurance.

    But that doesn’t mean you don’t need flood insurance. And that’s the awareness, that’s one of the sea changes that’s occurring that I think is setting up what I think is a tremendous opportunity in the flood insurance space and partly why we built Neptune. We’re spending much of our time just educating on why people should have flood insurance.

    It’s roughly a dollar a day. If you buy in those non mandatory zones on or about a dollar a day is your cost to save you for 350, 000 or so of potential damage. It’s kind of a no brainer.

    Karyn Zuidinga: So possibly a naive question. But with climate change and these losses, the storms are getting worse and bigger and losses are getting greater.

    Right? Like, we’re seeing the damage, it seems to be, at least from what I can tell, worse than it was before. It doesn’t that make being in a flood insurance business risky for you? Like, aren’t you looking at the potential of really big claims?

    Jim Albert: Yes, definitely. It is risky, and it’s what’s known as a low frequency, high catastrophe line of business.

    Mm hmm. So… In automobile insurance, for example, there are hundreds of millions of cars in the U. S. And every day, there are tens of thousands of accidents. And if you run that statistical standpoint, then it’s actually very predictable. You don’t know exactly where the accident will be or whose car is going to be involved, but you know that there will be tens of thousands of them every single day, whereas in flood insurance, not the case at all.

    You can have a year of zero hurricanes that hit the coast of the U. S. And this year, we thought we might get lucky. As of the end of August, we were thinking, wow, super quiet season. And all of a sudden, Florence comes through on, on the 10th or so of September, and then Michael is the second strongest hurricane to hit the U.

    S. mainland since Katrina. So all of a sudden, a quiet season became a busy season. However, if you look at Where are the storms hit? It’s also semi random. I mean, if you’re in the Gulf Coast, you have a much higher likelihood of being involved in a hurricane than if you’re in Oregon or or New England, but it’s still random.

    And if you look at where Michael hit, for example, it was just right in the Florida panhandle, just east of Mhm. Destin and Pensacola. If it had gone through there, the damage would have been 10 times as large. Or if it’s moved to the east just a little bit and come up Tampa Bay, it would have been the worst storm.

    In U. S. History ever. So it is so random. Yeah. So back to your question of why get into the space because there’s so much need. You think there let’s say that back to the statistics. Let’s finish out on the statistics and I’ll come back to your this question, Karen. So there are 10 million homes that are in the High risk flood zones.

    And then there were probably another 10 million homes that are in flood zones that are not deemed high risk, but they still should have flood insurance. My house, for example, I’m four blocks from Tampa Bay. Technically, I’m in a non mandatory flood insurance zone. Why wouldn’t I have flood insurance? I can see the water down my street.

    So, there are probably 10 million homes in the U. S. in similar circumstances near a body of water that they’re at some risk of flooding that should have it. So that’s about 20 million homes that probably should have flood insurance, and there are only 5 million that have it right now. It’s a tremendous market opportunity, particularly with the effects of climate change going on and the awareness that’s out there.

    Now, to your question about the strength of the storms and the potential losses that occur. Storms probably are stronger now. There’s still some debate about that. But the fact that Michael, for example, went from a low Cat 1, maybe a Cat 2, and then within 24 hours was a Cat 5 at 160 miles an hour and hit the coast just one mile an hour below Category 5.

    That kind of pace of an increase in strength. Is really unusual. That’s what we’ve been seeing over the last couple of years. The other things that are happening are title changes as well. So each year in Fort Lauderdale in Miami, there was something called a king tide that would happen once or twice a year, and the streets would flood to a foot or so of water.

    Well, now the king tide occurs every month. Yeah, the tidal swings are bigger as well. And then the storms of seeing a storm like Harvey dropped 59 inches of rain on on Houston or 40 inches of rain on North Carolina from Hurricane Florence that occurred in the past. But not in the frequency that it is right now, there’s a term called 100 year storms, and we’re seeing 100 year storms happen once or twice a year, every year, and we’re seeing that

    Karyn Zuidinga: everywhere.

    It’s like not just Florida, not just the East Coast. We’re seeing on the West Coast. We’re seeing. Yeah,

    Jim Albert: same with fires. Say the same thing for that. So now back to your point, though, the way to manage Risk in a flood insurance book and the beauty of insurance is that it’s got layered protections in it So you’ve got your primary insurer, let’s say neptune flood, but we use what’s called reinsurance And we reinsure actually at a hundred percent So, you know all the risk is taken by lloyds of london or by some of the larger reinsurers in the world Well, what do the reinsurers do?

    Well, they just take a little piece of it and they sell other pieces of it to other reinsurers So in the end, let’s say they take a billion dollars of risk of flood, but then they sell 900 million of that to other re insurers. And they all spread their bets all over the board. To our original comment of it’s like betting.

    They spread them all over the board. And the same thing is done in managing a book of flood insurance. If I put all my policies in Miami, that would not be a smart thing to do at all. Might look great this year because nothing really hit Miami. But someday a storm is going to hit Miami and the losses would be catastrophic and I’d be wiped out.

    But instead, if I had 10, 000 policies and I put each one perfectly spaced across the country, away from every other policy that I have, then the odds of any single storm taking out a large piece of that book of business is very, very low. And as a result, insurers can make reasonable returns. And they can make great returns in low loss years, but in general, they can just make reasonable single digit returns by spreading their book around like that.

    And that’s what we do. That’s part of the beauty of our data analytic model is we do great risk selection. We have an extremely good user interface that’s super simple to use, but also we manage what’s called aggregation in that way by spreading it out all over the country. That’s why we’ve pushed so hard to be not just a Florida flood insurer, but in 21 states.

    Thank you. And soon to be 40 states in early 2019. Did

    Rob Brodnick: you know that Neptune flood offers coverage to protect you for items not covered in the national flood insurance program? Like the contents of your basement or structures not attached to your home, like your garage, pool house, or shed. It can also include greater amounts for your home and contents.

    Visit neptuneflood. com to learn more. And, you know, if you’re spreading your bets across the board and trying to balance that risk. How do you account for

    Jim Albert: the uncertainty

    Rob Brodnick: though, that comes with these increasing pace of storms, they’re increasing, uh, destructive power and whatnot, because it, it’s some kind of curve, right?

    Jim Albert: But we don’t know how far out that hockey stick occurs or to what extreme it’s going to be. So talk a little bit

    Rob Brodnick: about that, predicting what’s uncertain

    Jim Albert: or unpredictable. Yeah, it’s a chaotic market. It is a system of chaos. That’s for sure. And we have to find a way to get some predictability to it in order to have success and have the emergent factors come out of it.

    One side note is that flood insurance policies are one year policies. Oh. So you can’t go buy a 10 year policy for your house. Because of the changing nature of the risk, everyone is protecting themselves. To a degree by only having a single year policy. So it’s very possible that next year I’ll have to buy my flood insurance policy from someone else.

    And maybe someone else the year after that because of the changing nature of the risk. Private flood insurers stayed away for the longest time. Rob, to your point about the chaos and the extreme risk associated with it. So the National Flood Insurance Program, or NFIP, was actually ideated in 1927 when the huge floods hit the Mississippi River Valley, and that’s really the event that drove Herbert Hoover, was I believe the head of the response team, which then made his name, and he became president after that.

    But in typical government fashion, a short 40 years later, we had the national insurance program. It took a little while to pull it together, but eventually it was done. And private insurers. Lacking the tools of weather analytics, of access to data, of lost histories, of models that would show the potential effects of storms.

    I mean, just imagine how blind everyone felt in that situation. So having the federal government create a program was absolutely essential. And it was critical, because otherwise no one, who would build in any of these zones? Right. Anywhere in those zones, if you didn’t have some confidence that you would have backing in the case of a catastrophe.

    The federal government created, underneath FEMA, the National Flood Insurance Program in 1970 something, and so over 40 years, it’s been a very effective tool for people to get flood insurance. But private insurers would stay away because of that unpredictability. As with most government programs, though, it eventually became very big, very bloated and didn’t change dramatically with the times, whereas all these analytics tools and the weather modeling and some of the other factors that we talked about did change and created the opportunity for private insurers to get in.

    That’s the opportunity. I don’t think I could have started Neptune 20 years ago. There just wasn’t enough information to be able to do it properly, but now with the availability of the data and the modeling and the analytics, it absolutely is potential

    Rob Brodnick: kind of reminds me a little bit about some of the things we’re seeing in fintech where these new tools and the ability to parse out.

    A moment to a smaller moment and capitalize on the difference between those moments. I mean, it’s really the technology That is creating these new opportunities. It’s the new layer of the economy So do you think neptune fits into that that new space

    Jim Albert: in the economy? Absolutely. Yep. Absolutely. We do.

    There’s a conference called the insurer tech connect conference every year. It started three years ago It’s in Las Vegas. I know it’s a hardship to have to go to Las Vegas for a conference, but it started three years ago and had a few 100 attendees. The second year, which was 2017 at 3500 attendees, and this year it had 7000 attendees.

    The people that go more and more now are the big insurers and the big data analytics firms. But the first couple of years, that’s not who it was. It was similar to a FinTech. Explosion of ideas and technology and tools that could change the way businesses are run or change the way businesses can start.

    So we went as a startup as an insured tech startup to look for other companies in the space that were doing unique things with data and what we found. Are every year we find 5 to 10 companies that we end up doing business with this year. There was one that’s doing completely unique things in the way of weather analytics, and they can actually take the National Weather Service weather alerts, but then they can extrapolate it forward and say this is the risk of flooding in a very broad zone.

    And this is how much it’s going to flood on a property or geographic basis as a result of that storm. No one had that until them. Other examples are companies that are using drones. It’s a big one in insurance right now, and you probably saw it if you watch some of the videos for post Michael. That was all drone footage that went over to literally assess damage.

    But the claims companies are using it to go right down to the roof of the house and look and say, okay, You’ve had damage here that an inspector probably won’t be able to see just from a street level view of it. They’re also using that kind of technology in advance. So when a consumer buys a homeowner’s policy, some companies are actually using a drone to inspect the house even before a claim just to say, okay, this is the status of your roof now.

    So in case you have an event, we know that that tile was already missing, for example, and claim it in the future. We go there and be in SureTech space because we get tremendous ideas and we can move very, very fast. We’re only seven people. So we’re able to just be very nimble as a company by having access to those kind of brains, and we keep in touch with them all year.

    Karyn Zuidinga: Cool. I’ve got, like, a bunch of questions, and I’m having trouble identifying just the one question. You’re having

    Rob Brodnick: a blown mind moment, Karen.

    Karyn Zuidinga: I am. I am.

    I hadn’t really tuned in to insure tech, right? Like living in the technology world as I do, I’m kind of like, how did I miss this? Like it just like FinTech. Okay. I’m all about lots of good technology over in the hospital space. So Jim, as a, as a technologist, as someone who’s got an insurance business now, where’s it going?

    Like what’s on the

    Jim Albert: horizon, do you think? Oh boy. Boy, that’s a good question, Karen. I think that Insurance is maybe the last bastion of untouched area for some of these technical innovations. Banking certainly got their retail way out in front with some of the marketing stuff that goes on and the fast payments and the blockchain and that kind of thing.

    But the extreme regulation of insurance and the fact that If you did a straw poll of the most hated industries, I think insurance generally comes right up near the top of that list. So the regulation is the primary driver of stifling the innovation within the sector.

    Karyn Zuidinga: But yet you can’t not have the regulation.

    Jim Albert: Can you like where? Yeah, it’s a blend. The regulators actually. So there’s a National Association of Insurance Commissioners conference that occurs a number of times a year, and I’ve spoken with many of the insurance commissioners in the various states and asked them about their view of the use of technology and, for example, setting rates.

    Usually their concern is that Insurers will will set rates in a way that disadvantages the general populace or the policyholder and takes too much profit for the insurer. That’s usually what they’re trying to do is protect the ability of the policyholder to get a fair deal and also ensure that their claim gets paid.

    Mm hmm. They fill an essential role in that. What they also need to do, and what many of them are doing, Florida’s doing a good job of this, Texas, a few other states are doing a real good job of accepting the use of these analytical models in setting rates. Because there’s now enough use of these kind of models that they’re proving to be able to generate lower rates for the consumer and more availability of insurance products that benefits the consumer and therefore the regulators are comfortable with that kind of solution.

    It’s a slow, slow burn, but that wave of change has occurred over the last two to three

    Karyn Zuidinga: years. It feels a little bit like a trust thing. Before, when insurers were doing their calculations kind of in their own world, we didn’t really understand what they were doing. We didn’t really trust what they were doing, so we needed heavy regulation.

    But now that It’s not some guy making it up as he goes along in a coffee shop. There’s real data behind it that maybe, it sounds to be what you’re suggesting. Look, now we’ve got these other tools and we can relax the regulation and allow the tools to do the work of the regulation.

    Jim Albert: Yeah, that’s right.

    That’s right. So think of some of the statistics here. I think it’s worth highlighting them. If you think of what’s come out of the chaos of all those storms of the Florence and the Harvey and it was a chance that created a ton of market turbulence there were companies that went out of business because of the extreme loss that occurred because of those storms and these were companies that had rooms full of people.

    That we’re evaluating risks on a one by one basis. I think that just like IBM’s Watson doesn’t take the doctor’s judgment out of a medical situation, the use of analytics and insurance doesn’t take human judgment out of it completely. But it can take 95 percent of the solution and accomplish it for you.

    And then you apply the last 5 percent of human judgment where warranted. So in the case of Neptune, we were the company really started in 2016. But our first policy was written in 2017 and October sometime in 2017. We ended the year of 2017 with about 54 policies. This year we’ll finish with somewhere over 6, 000 policies.

    So that’s a growth rate of 120 times, not 120%. It’s a 120x. And we’re able to do that with seven people. We started the year with people. But what you can do is you can. Enter an address and you can literally be buying your policy in three minutes. You can get a rate back in one second. Everything happens via our API.

    We do multiple data calls. The second you enter that address, we validate the address, we geocode it, we go. Determine the rate. We determine the risk. We determine how high the water will be in a hurricane surge. We determine what’s your risk of flooding from a river or from a rain event. We determine how far you are from the coast.

    We know you’re, you’re built. We get all this other information about your house, and then we deliver a rate to you, all of that in one second. We went from one state to 21 states in the span of about four months this year. And at the same time, we built the only direct to consumer offering. for flood insurance in the U.

    S. It does not exist anywhere else. No one else has the ability to enter an address and get a quote and then buy your policy right there online. Are you the only company doing

    Karyn Zuidinga: this globally?

    Jim Albert: In the U. K. you can buy a policy online and there may be other countries that you can as well. Right, but not in the U.

    S. Other than with Neptune and about 400 people took advantage of that opportunity with us this year. I’m pretty happy with the way it played out. But those accomplishments doing that with from to the ultimately seven people in a year. Had to involve the use of technology. If we were manually doing everything, it would not be possible at all.

    And yet judging by traditional business metrics and insurance of what, how much loss did we take in Michael and Florence? It actually performed extremely well. Our addresses that we selected were, we did take some losses and we pay the claims immediately. That’s critical. We want to have an outstanding claims process as well.

    But the quality of the book was really, really good. And that was largely due to the quality of the technical platform that we built. It sounds like you’re

    Rob Brodnick: turbulating the industry for sure. Being the first, uh, maybe not the first to market with a particular product, but the way the product is designed and leverages technology is pretty amazing.

    I imagine. Others are, are watching what you’re doing and trying to replicate and get into the space. So, yeah, how do you plan to keep the turbulence positive as you go forward? Because there’s going to be people chasing you and trying to put your model in better, faster, cheaper. So, what are you doing as a

    Jim Albert: company to continue the turbulence?

    Well, absolutely. I mean, that’s part of it. We have to have a lot of positive turbulence for one thing. And we got to stay away from the negative turbulence. That’s always a challenge. If you saw my whiteboard in the office, it’s just, you know, we painted all the walls with whiteboard paint so we can put the stickies up there and work via, just use sprints all the time, every day we’re just using, we’re going old school and we put the yellow sticky on the wall and we use Jira and we use Trello and other tools to keep track of all our projects that are going on, but we try and keep every project very small.

    So that might be a rate change or it might be adding some additional technical capability to determine the first floor elevation of the house, or how do we determine where the floods are going to occur by monitoring the National Weather Service. Each of these things we have on Very small little projects.

    We don’t put them all together into omnibus kind of bills that take months or even years to get done. So it’s continuous change, continuous positive movement of our business model. So yes, there are a lot of people that are trying to get into the flood insurance space. And most of them, as an aside, most of them are bigger companies that are starting flood as a sideline to me.

    That’s Usually not the most focused way to go about it. And so generally they’re a little slower to it or they’re stuck through old business models or stuck to their technical platform. It’s a lot easier to build a new house from a vacant lot than it is to have to tear down a house and put another one up behind it.

    So we’re staying ahead by constantly, continuously. Innovating will also be adding some new product lines in 2019. So that will be coming out to me. It’s a measure of success. If there are a lot of others that come in behind us, and I actually want that to happen because that market going from 5 million to 20 million.

    We can’t do all that. Every insurer is limited in the amount of capacity in the form of insurance policies that they can write. And none of us want to write all the policies in Miami, for example, Thank you. So it has to be shared across the industry. I would love to see there be more private flood insurers that come in with similar but maybe not quite as good models.

    But I’d like to see more flood insurers come into the industry that validate private flood as a really, really good solution for consumers because it is. It’s easy. It’s fast. It’s technologically sound and it opens up the market to more people than is currently available. I

    Karyn Zuidinga: love the story. I’m sure there are people listening who have like a great idea and want to get it going and do something with it.

    If you had to sort of thinking about the elements of positive turbulence, those 10 elements that Rob and Stan identify, could you pick one and say, okay, you know what, focus on that one and keep coming back to that. Like, was there one element of positive turbulence that you think really moved you along or keeps coming back as a theme in what you’re

    Jim Albert: doing?

    Yes, there were actually two. One was, uh, emergence or emergent from chaos. And I kept thinking about that after reading Rob’s chapter and then thinking about how that applied to Neptune. I mean, this is chaos theory, this whole sector of infrequent But high impact events and you just don’t know, even within a few 100 miles where it’s going to hit, whose house is going to be lost and whose isn’t.

    How do you build a business around that? And how do you take the risk? How do you comfort yourself that you’ve accounted for the risks to a degree that you would bet your business on it? And that’s what we did. We tried to take all the variables, How And think about the controls that we could put around those variables to ensure that we would have a successful business model.

    One of those is in the user experience. The second one is in the technology behind it with the data analytics and the availability of both weather modeling and risk determination. But the third is actually in the area of compliance. So the number one thing that takes down startup businesses is actually not strategy or a good business plan or even access to capital.

    The number one thing is actually lack of compliance. And they get caught up by, oh, not having thought about regulatory items, or filings that they should have done, or tax considerations, or contract law, or a lot of those things that take a lot of time and are really painful. Mhm. Built into our business model from day one.

    I have a chief compliance officer in the business, even with seven people, we have a chief compliance officer. So one is that emergence from chaos. I think they’re probably opportunities and every business sector everywhere for similar situations like this. But within flood insurance, this time is just this little window of years.

    To do a land grab and emerge from that chaos with a new market and a new business model. The second item from positive turbulence is the thought that turbulence can either be disruptive and negative or turbulence can be positive. And we’ve really, really tried to work on that because it has been a super intense couple of years.

    Not many days off, including Saturdays and Sundays in that period, it’s just relentless in the change and challenges and opportunities that are in front of us that we want to take care of every one of them. We want to take care of everyone today. So there’s a significant risk of burnout or change fatigue.

    That occurs within startups in general and certainly that’s been the case within Neptune as well. It’s definitely not all, all wine and roses, but turning that turbulence and emphasizing the positive outcome that comes even from some setbacks because they do happen. We have surprises in our radar. How did you write a policy on that house or, you know, those kind of things, you know, those happen and you go back and you look at it and out of it.

    You come out with controls and positive outcomes that will just make it better in the future. So that really resonated with me, the positive turbulence and the every day having to manage that balance between the emotional risk around the negative effects of turbulence with the opportunity and upside associated with it as well.


    Rob Brodnick: done some amazing things that are, I think, intentional. And, uh, you’re obviously a master of positive turbulence in the fact that you’ve seen this coming, you’ve had,

    Jim Albert: or seen this future you’ve chosen

    Rob Brodnick: to be, become an agent and enact and create.

    Jim Albert: So you’re a creator of this company and you leverage

    Rob Brodnick: it well, but there’s also unintentional turbulence and, you know, it can be positive and it can be negative.

    Is that intentional versus unintentional? Any is that resonating with you in any kind of way? And we can put on the cutting room floor if it’s not. But

    Jim Albert: yeah, yeah, well, there definitely are some unintended consequences of some of our technology changes. I’ll try and think of a good example for you here.

    While we talk and we can maybe come back to that absolutely a handful of examples where we made changes to our Algorithm or underlying technology and then tested it and then put it into implementation And all of a sudden one or two or three days later said why is this happening? Yeah. Oh, no. Oh, oh, wait,

    shoot. Oops.

    Karyn Zuidinga: So how did you know? So you talked about mitigating your risk by really understanding all of the inputs, all the things coming in and sort of dealing with all of the elements. How did you know you had dealt with enough of them? Because any startup is risky. And I see a response from people.

    They just kind of It’s not really a throwing up of hands, but it’s kind of a willful, like, I’m not even going to bother dealing with that. And it’s sort of this blindness. And I think a lot of that comes from, I’m fearful. I don’t really want to deal with it. And it becomes overwhelming. I never know when I’ve covered it.

    How did you know you covered it?

    Jim Albert: Well, that goes back to another positive turbulence concept, which is. And I’ll paraphrase, but a co collaboration and using experts both internally and externally. If I’m competing with Allstate or Nationwide or any of the giant insurers that are out there, Chubb and Ace and I mean, they have legions of people that do data analytics, let alone design pricing plans and do agent marketing.

    They have thousands of people that do. What we do. So the co collaboration is a real critical principle that we’ve been able to rely on. And what do you mean by that specifically? I’ll give you a specific example. So when we first started Neptune in early 2017, we went over to London. And what Lloyd’s does is they bring in the world’s top flood insurers and re insurers, and they basically interview us.

    We pitch our business plan and the basis of our analytics and the basis of our risk selection, and they give us very intense, personal, instant feedback. So we did that, and it’s very dynamic and nonstop. You have one hour for your hour and a half meeting. Generally, that’s about how it works. You have less time than you need.

    And just when you finish your one hour meeting, coming in the door are the people for the next one hour meeting who also want to hear your story and poke holes in it and ask how you handled this and that and the other. So our learning was I think everybody loves it. Occurring very, very fast, but also we were getting feedback from these absolute experts.

    No one in the world has done more flood underwriting than these people that we were meeting with. And they’re saying, you’ve got a tremendous model. If you Fix this one thing, then we’ve got a plan, or you could enhance that and you could improve that. We learned so much. That’s just one example using the Lloyd’s flood experts.

    But reinsurers provide us the same thing going to the insure tech conference and talking to top data providers and data analytics modelers in the world really also help us. And that gives us the validation Karen to know that you know what? I think we’ve got something here that they believe is far better than what’s currently in the market.

    Let’s launch it.

    Karyn Zuidinga: When did you know it was the right time to talk to other people? Because ideas are tender and we don’t want to bring them out too soon to get that input because then they could fall apart. And then how did you know you had enough?

    Jim Albert: I don’t know. It’s hard to hard to look back on it and really know how we came over https: otter.

    ai Anyone open to new ideas is to ask advice rather than ask for help ask for advice And so we went around to the people that we knew or respected and admired and asked them for their advice with this Business idea right amazing how much great information we got From that. Yeah, it goes back to the previous question.

    We got a lot of market validation, but we also got a lot of advice. Some of it often conflicting, but we got a lot of advice that eventually helped align and pull our business model together.

    Karyn Zuidinga: You know, the thing I wanted to point out here that I think is just worth saying out loud is the amount of compassion I’m hearing from you, Jim, around people and the kind of loss they could experience if they don’t have the right insurance or they’re underinsured or no insurance.

    And I think that’s something, you know, that I’m noticing, particularly in these interviews that we’re doing around positive turbulence and people who are thinking about positivity and thinking about both from a human perspective, as well as an opportunist perspective, as well as, Again, I talked to a lot of people who run startups and a lot of times, not every time, but a lot of times it’s just about the opportunity.

    It’s just about the numbers and just, okay, well, we can make a killing here. So let’s go. And I think that, you know, yes, let’s hope that you’re wildly successful and that Neptune just. Continues to grow and do as well as it has, but I think that this would never have happened if you didn’t have this sort of sense of compassion towards people who are facing big loss.

    Jim Albert: It’s so scary and sad when you see some of the claims reports that come in from these events. It’s 35 pages of pictures of people who couldn’t even get back to their house for a week and then they don’t know if it’s still there. They don’t know if it’s been looted. They don’t know all these situations.

    It is just heartbreaking to see. I mean, Michael was a super intense storm. You saw the pictures of houses and lots just down to the slab. Nothing there at all. I mean that’s just, can you imagine? So yeah, we try and be super compassionate in that. And I guess the other thing is, I didn’t create Neptune to flip it in three years and be, and be done.

    I don’t think that’s the way to build a sustainable enterprise or a winning enterprise. You know, whether I’m with it five years or 10 years from now, who knows, but I want to build an enterprise that will live in foreseeable many, many, many year future. And so to do that, You can’t be and go back to that nameless faceless corporation.

    We can’t be that. And I think accomplish that goal.

    Karyn Zuidinga: Apart from your investment and potentially investment from some of your business partners, you didn’t get any, it doesn’t sound like you got any VC investment, any external.

    Jim Albert: We did one round of funding in January of 2018. Uh huh. An investor came in. TRB or Neptune Investment Fund.

    They create an LLC specifically for us. But Trevor Burgess is the ex chairman of C1 Bank here and in St. Petersburg and just a tremendous successful strategist. He was with Morgan Stanley before that, heading up their IPO division for a number of years, and he knows how to build value and knows how to build sustainable companies.

    So I feel very lucky to have this single investment fund. Thanks. Firm that’s come in and I get a lot of their time and attention. They’re not just a distant entity that quarterly asks, you know, how much money did we make? But instead he’s engaged almost every single day with the company in one way or another to help ensure.

    Our success. Hmm. Fantastic. And that’s aligned interest as well, because he’s not in it to flip it either. He’s in it for a long term enterprise, which was important to me. Absolutely.

    Karyn Zuidinga: Wow. So refreshing, you know, to, to talk to, to talk to someone doing, you know, building a startup who’s not interested in, in flipping in three years, the first words out of your mouth aren’t, well, this is my exit strategy.

    Yeah. Yeah, I hear it all the time and I keep thinking, well, but okay, what can I say about that? You know, I just, yeah, lovely.

    Jim Albert: Well, thank you for the opportunity. Yeah, I appreciate it.

    Karyn Zuidinga: Neptune Flood Insurance was created in 2015 by merging technology, math algorithms and insurance expertise into an innovative flood insurance product.

    The result is affordable coverage for thousands of Americans delivered in an effortless, intuitive and on demand platform. It’s backed by some of the largest insurance markets in the world. Visit NeptuneFlood. com to learn more. Thank you to AMI, who have nurtured us in developing this podcast, is the source of so many of our guests, and of course, the founder, Stan Gruskevich, is also the author of the original book, and dare I say, the Lloyds of London, of Positive Turbines.

    AMI is

    Rob Brodnick: a pioneering nonprofit organization comprised of committed individuals who foster and leverage creativity and innovation in organizations and society. AMI identifies leading edge innovation, shares experiences. Sponsors research and recognizes innovation and creative processes. Find out more at aminnovation.

    org. And thank you to Mac Avenue Music Group, our contributing sponsor for providing our podcast soundtrack, Late Night Sunrise.

    Karyn Zuidinga: If you want to find out more about your hosts, Positive Turbulence, our guests, or check out our very cool and very diverse reading list, head over to positiveturbulence. com.

    Until next time, keep the turbulence

    Jim Albert: positive.