Pie Founder Talks About Entry into California Workers’ Comp Market
The launch in the state marks the ninth market entry for the Insurtech in six months.
Pie Insurance seems to be slicing its way through workers’ compensation markets in state after state.
The Washington, D.C.-based insurtech is a direct provider of workers’ comp that touts its ability to leverage “data analytics, easy-to-use online features, and a seasoned team of insurance experts to create an insurance model that’s as easy as pie.”
Pie, which is backed by Greycroft, Aspect Ventures, Sirius Group, Moxley Holdings and Elefund, began offering insurance policies in 2018. The Sirius Group provides insurance backing with $2.5 billion of premium capacity.
In October, the company entered California, its ninth market in six months and what promises to be its sweetest opportunity, offering the largest confection of workers’ comp premium in the nation. A recent report from the National Academy of Social Insurance shows Californians accounted for 19.6 percent of all cash and medical benefits paid for work injuries and illnesses in the U.S.
Pie’s launch was driven by John Swigart, CEO, who was part of the executive team that led Esurance from a start-up to a $1.3 billion in premium online agency that was sold to Allstate for $1 billion in 2011. Swigart spoke with Insurance Journal about the company’s growth, it’s entry into the Golden State, how Pie works and why he doesn’t think Pie will put agents out of their jobs.
This has been edited for clarity and brevity.
Insurance Journal: California is the 9th market that Pie has entered within the last six months. Why such rapid expansion and why was California next?
Swigart: Well, we’ve always had a picture of being a national company, and so California was able to hit the mark for us. We didn’t want to launch in California and then have it be our first state, just because the size of the state and we wanted to be a little bit more stable in our operations by the time we got there. So we launched in a number of other states around the country.
We did it in California, and it was always very high on our goal list because it is the largest workers’ compensation market in the country. Almost 20 percent of all premium is in California. Obviously, it has the largest population, but it also has the highest premiums in the country, as well. So, it’s a very, very important market, nationally, for worker’s compensation across the board and it will be a very key and important market for Pie for years to come.
IJ: You say in your marketing materials as you head into the Golden State that you’re bringing transparency, fair pricing and convenience to California small business owners. Can you talk about what kind of transparency you’re bringing to California business owners?
Swigart: Sure, well just first of all that we think transparency comes with access and we think there just are not that many places where small business owners today can easily shop and see real quotes for workers’ compensation insurance in a digital environment. Most of the offerings from the different insurance companies today are provided through independent agents and not in a digital easily acceptable way. So, if you’re a small business owner and you’re sitting at home on a Thursday night at 11 p.m. and you need to deal with your workers’ compensation insurance, which is a required coverage and every business that has employees has to have it, you don’t have many options and opportunities.
So that’s one way we bring transparency to it, another way is through jargon free information about workers’ compensation broadly and about workers’ compensation in California more specifically and trying to make it clear and comprehensible to small business owners what the coverage is, what the protection affords them, and how it’s very important insurance coverage for them to have and the benefits of them and their employees.
IJ: Can you give us an example of what a policy costs for a typical small business? Maybe a janitorial company and computer repair shop in California?
Swigart: The (Workers’ Compensation Insurance Rating Bureau of California) sets the base rates that all companies start with and that’s by class of business, a percentage of payroll. It is charged on an annual basis and so for a janitorial firm, they’re gonna sort of be in a mid-range and the range is for like an accounting firm or an architecture firm or something like that. With office workers sitting at desks with computers, they might have like less than 1 percent of their payroll that they’re paying in workers’ compensation.
I think the average in California is 2 to 3 percent range, maybe just under 2 percent depending on the mix of payroll and it goes up into the higher risk businesses, so you get plumbers, electricians, auto repair shops, restaurants. Then that kind of mid-range, 1.5 to 3 percent kind of range. Then you get riskier businesses painters they might be going up on ladders, general contractors, all the way up to roofers, which are obviously one of the most expensive categories. They could be paying high teens or even in 20 percent of their payroll for workers’ compensation insurance.
One of the things that we are bringing with Pie is sophisticated, segmented pricing, so that we are identifying not only the class of the business, but information about the business within its class that we are using to have our underwriters to determine whether we think that the business deserves what’s called a credit or a debit, which is the discount or surcharge on that base rate.
Then fundamentally a big piece of what we are doing is just operating in a much more modern, much more technology driven, more efficient environment. So the average expense ratio for commercial line of insurance nationwide and all line of business is about 42 percent. That means 42 cents on the dollar for customers premium is going to the pay the expenses of the insurance company, not paying for the losses and the claims that the customers are actually having, and we think that we can operate at a meaningfully more efficient structure than that and fundamentally just deliver that savings back to the customer in a lower policy price and think that delivers a lot of value to them.
IJ: What about agents? Do you see them still fitting into the insurance distribution model?
Swigart: A hundred percent, yeah, I think agents play a real important and valuable role. For some customers I think what is true, I saw this in my day with Esurance, where I spent 13 years. Customers are different and some customers wanna do things directly and some customers wanna do things and delegate it to an agent and it will never be only one or the other and so I think there is absolutely a role for agents forever in the long-term.
I think more and more of this market will shift to direct, essentially none of it happens direct today, and so there’s lots of room for direct model to grow and expand, but I certainly see agents playing a key and important role for a long time to come.