"The InsurTech Petting Zoo Is Over" — And What Comes Next

Paul Tyler (00:02) Hi, this is Paul Tyler, and welcome to another great episode of the L&A Hub. Today we've got a great guest — Mr. Nick Gerhart, Chief Operating Officer at Homesteaders Life, a man who almost needs no introduction. Nick, thanks for joining us.

Nick Gerhart (00:15) Yeah, I need no introduction, I suppose. Yes, that's good to hear.

Paul Tyler (00:19) For the handful of people who may not know you — maybe tell us a little bit about how you got to be COO. You've got a really interesting career arc.

Nick Gerhart (00:28) Yeah, well, I joke that I stumbled into insurance by accident. You know my story a little bit, Paul, but for your listeners — I often go back and say I thought I was going to be a healthcare administrator by this point in my career. I took a detour, got into insurance in 2004, loved the industry, and about seven or eight years after that, got tapped to be insurance commissioner in the state of Iowa. I loved that job — probably the best job I'll ever have in my life. Then I moved into more operational roles at Farm Bureau Financial, and my most recent role is Chief Operating Officer at Homesteaders Life Company.

If you would have said to me in college or law school that I'd be in the insurance industry, I'd have said no way — nobody wants to do that, unless your parents were in the business. But if you're from the Des Moines area, you know we have a lot of insurance companies here, and when my wife and I decided to come back to Iowa, it just made sense to start there. I told my wife I'd do insurance for a year or two, and twenty years later, Paul, here I am. It's been a great career. I wouldn't really change much, and now I get to lead a great company that's a lot of fun.

Paul Tyler (01:48) Similar story for me. We had our first child, I was consulting, and I thought — I've got this job offer in town, I don't have to fly anywhere. I'll do this for a couple of years. It happens.

Nick Gerhart (01:58) It's a stable industry, and when you have kids and things like that, things can change. My first job out of law school was kind of a startup law firm — a lot of fun, but not very stable. My wife said, what the hell are you doing? Let's go find a real job.

Paul Tyler (02:10) Exactly. Kids and a wife will certainly do it. Before we go into other topics, maybe tell people a little bit about Homesteaders Life — what products do you sell, who do you sell through?

Nick Gerhart (02:20) So we are a pre-need insurance company. We do funeral planning and some final expense products, distributed through funeral homes and also agents. We'll do about $700 million a year, so we're pretty large in our little space of the world — but compared to some of the bigger carriers, not that big. We have about $4.5 billion in assets, roughly 400 employees, and we're a mutual insurance company, which I love. We're very good at what we do in the end-of-life space, and we're really looking to expand outside of our core business into how we help more families with their end-of-life journeys.

Paul Tyler (03:05) Interesting. We talk a lot about tech coming through here. You know, you did a lot of really great stuff to promote innovation in the Des Moines area. I was fortunate enough to get to know you when we re-domiciled an insurance company into Iowa. The Global Insurance Accelerator popped up — Brian launched that. And I think the first insurance symposium was one of the first of its kind.

Nick Gerhart (03:28) Yeah, that was kind of my baby.

Paul Tyler (03:30) That was yours. And you were a regulator at the time. We were all told regulators didn't do stuff like this. Now you're in the operator seat, actually driving the crane. What's different?

Nick Gerhart (03:42) It's interesting. I grew up in an entrepreneurial family, and even when I was at Sammons Financial Group and American Equity — before I became commissioner — I was involved in what you would have called insurtech back then, though it didn't really have a title yet.

When I talked to the governor in 2012 about being commissioner, I said, Des Moines has a great core of insurance companies, but I could see around the corner that we had to figure out ways to integrate technology to keep these Iowa carriers relevant for consumers in the future. I outlined a plan to do the symposium, help work with founders on accelerators, and we found the right business executives to take some of those things off the ground.

And when I was commissioner, you spend a lot of time on solvency — obviously, if you can't have solvent carriers, nothing really matters. But I remember sitting in meetings in 2013 and 2014 talking about international capital standards and Solvency II equivalency, and raising my hand saying — these are important issues for international markets, but the biggest issue I saw even back then was what was going to happen when technology came in, whether it was Amazon or Google.

I had the privilege of going out to Google and driving one of the first Waymo cars in 2014 or so — which was scary as hell back then. About two weeks ago, I took a Waymo cab in Arizona. Much better experience now.

Paul Tyler (05:10) Unbelievable how far it's come.

Nick Gerhart (05:13) Yeah. I was telling my peers back then that the industry was going to see more transformational change in a decade than in the last hundred years. At the same time, I realized that dislodging these huge carriers was not going to be easy. In 2014, I gave a speech saying, fast forward ten years and the ten largest carriers by direct written premium in life and P&C would probably be the same — which was mostly true, other than maybe swapping paint.

But as I sit here today and think about ten years from now — I don't know if I'd make that same speech. I think we're finally going to see some real pressure on some of these larger carriers that have kind of lost their way. Some are catching up and doing a great job, but you're finally seeing that some could get dislodged. Not all of them, but the needs of consumers have greatly changed. They don't really care about our processes. We have to figure out how to be relevant.

When I left office, I got involved as an investor and advisor in startups — had some good exits over the years, which has been fun. Now it's more about: what can we do as a carrier to bring these solutions in to make our efficiency better and the consumer experience better? And then — what are the greenfield opportunities that other people aren't seeing, and how do we go serve those families?

Paul Tyler (06:45) Yeah, a lot there. The big versus the small carrier — there's so much inertia in this business. People pay their premiums no matter what. It's not like other businesses. But I do agree: whenever there's a big change, smaller companies have the opportunity to compete with larger ones. I've worked at a huge company — 20,000 employees. Great news: we had a lot of money, anybody would answer the phone. But it was really hard to do things. Smaller companies with the right leadership have massive opportunity.

Nick Gerhart (07:20) Which is why I came to this company. The opportunities are there — we can go do the thing. And if you have the right vision, the right strategies, and the right people to help push the boulder up the hill, you're going to be pretty successful.

But there are so many shiny toys. One of the terms I coined many years ago was the InsureTech Petting Zoo. A lot of these firms set up Innovation Labs — great, but it was just a petting zoo. Here's the founder, here's this cool thing they've got, and they had no idea what to do with it. We've seen that kind of go away, which has been good. Now you're saying, okay, how do you actually drive a strategy for the outcomes you're looking for?

I always say — at the end of all these contracts, whether it's P&C, life, health, no matter what, there's a family. There's somebody that needs this service, and usually on that day, it's a pretty bad day for that family. Nobody's calling to engage with their insurance company unless they need something. And usually when they need something, it's because something bad happened.

All the ways we can make this more transparent, easier to use, easier to onboard, serve underserved markets — I've spent a lot of time thinking about how you help families that don't even know they should have these products, and make it more culturally aware and available for them.

The smaller carriers can just go do the thing, because we're not as mired down in the bureaucracy. Hopefully we've got a team that works together and knows what their North Star is. If you talk to friends at large carriers over a beer, you hear a lot of horror stories.

Paul Tyler (09:02) Oh yeah, absolutely. So if we come back to your core priorities as COO — growth, efficiency, customer experience. If you had $100 to invest, where does it go?

Nick Gerhart (09:20) First, let's back up — you've got to figure out the data. Every carrier has immense data, a lot of it siloed, a lot of it unstructured. You've got to get the governance and the data set up right. After that, you've got to spend quite a bit of those resources on making your operations more efficient.

We were just in Italy last week, and I can transfer $1,000 to my daughter in two seconds from my phone — but getting a 1035 across the finish line at an annuity carrier could take six months. All of those kinds of things need to be solved on the consumer experience side.

And then, to your point, you've got to look for new opportunities to grow. For us, we've thought a lot about this: we're not going to swap paint and try to get into the annuity business. But we're going to build adjacencies around our core — things we know, things we have expertise in, relationships we already have.

Because in this world, distribution is everything. I was talking to a founder this morning with a really great product who's getting no traction because he has no distribution. And then think about direct-to-consumer — huge opportunities there, but people don't wake up thinking about these products, and they probably should. So how do you actually get someone to raise their hand?

We spend a lot of resources on what I call the top of funnel — taking people down curated journeys from retirement planning all the way through end of life, and making it a holistic offering with no wrong door. The bigger opportunities are going for the 90% of people that don't know what they don't know, and helping them get down the right journey.

We actually partner with other carriers to sell their products through some of the things we've built, because we don't want to manufacture everything. You have to have a pretty open mind and know what you're good at. Be who you are and do what you do well — and don't try to create every mousetrap.

Paul Tyler (11:35) Tell us a bit more about the end-of-life experience. Cremation's way up, traditional burial is down. What do you do online versus offline? My wife has had four uncles pass away in six months, and every single one was handled completely differently. What does this experience look like five years from now?

Nick Gerhart (12:05) It's all of the above. We lost my father-in-law on Christmas Day last year.

Paul Tyler (12:10) Ugh.

Nick Gerhart (12:12) Yeah. He had paid for and planned a direct cremation. The funeral home owner did what they were supposed to do — they picked up the body, and here's your dad. And as you go through the experience, you think: there's so much more they could do.

We have 3,000-plus funeral home partners. We're really looking at how can we help them succeed, because when they succeed, we succeed. At that moment of death, there are a hundred things a family has to do — from getting death certificates, to estate matters, to memorialization, to what you even do with cremated remains.

We have partnerships with what I'd call alternative disposition. Think of companies that turn loved ones into diamonds, or there's a whole movement toward what they call human composting. For the funeral operators, we're trying to help them serve their families more, because at that moment of death, they become an integral part of that family's life.

We have platforms that communicate with the family after the death — how did the service go, do a Google review, have you thought about estate settlement? And if you think about the wealth transfer coming — 80 to 150 trillion, depending on who you listen to — there's a lot of money in motion. Something like 80% of advisors get fired within 90 days of a death event. We have a product now called the Beneficiary Liquidity Plan, and we'll pay 75,000 claims this year, all without a death certificate. We've taken that into other lines of insurance now.

We firmly believe if we can help that advisor succeed, they have a fighting chance of keeping those assets. We're at a very unique point in this value chain.

We're also launching a platform called the Love Always Project to help people plan ahead, and another called Pillars that will connect you to a local estate planner, CPA, or whatever you need.

A decade from now, cremation will probably plateau at 70–80% depending on what part of the country you live in. The funeral homeowner is still very important to that community. How can we help that individual do a little bit more and serve that family better, including the next generation?

Paul Tyler (14:50) Yeah, I've seen some innovation on the pre-need side. You know, somebody who shows up to talk to a funeral home director probably also needs some financial planning help. The funeral director's not trained for that. And technology — if you put it at the point of offer, you're making promises about technology that may be delivered 10 or 15 years from now. How do you think about that lifecycle?

Nick Gerhart (15:20) It's something we deal with every day. One of the things we work on is solving for the exit, especially if we like what's happening. A lot of the deals we cut give us a first right to buy if we want to. If we like what's going on, we go ahead and take it over.

We do other deals with founders where we can be their capital provider — so they don't have to go raise capital. We don't do those a lot, but if it's something we think is core, we can have a controlling stake while letting the operator do what they're passionate about.

We've probably got fifteen deals like that. Because we've all seen it — the founder decides to go do something else, and the thing goes away. Insurance is a promise business. We've got to be there for the claim. If we're putting something in front of a family, we want to make sure it's still there. We do a lot of creative financing and structures to make sure that if we like it and it's going to be core, it can still be there.

Paul Tyler (16:30) Let's shift gears to regulation — your favorite topic. The fiduciary rule finally went away. Let's talk about some of the AI rules in place. The NAIC was way out in front putting the governance framework together. A lot has changed — AI in the last six months alone has changed dramatically. What's worked in that framework? What should or shouldn't be changed?

Nick Gerhart (17:02) I'm a big proponent of state-based regulation. I think most states do a really commendable job, and they did a good job getting the framework out. But as a regulator, you don't always know what all the stakeholders are managing behind the scenes — P&C has different issues than life, and health is a whole other beast. They're trying to solve for an entire ecosystem.

Looking ahead, I feel like the genie is out of the bottle. I'm in Claude, I've got my own day trading apps. I'm not sure how you regulate that, to be honest. But most states still have enough regulation on the books. The things regulators care about most go back to solvency and consumer protection — how is the data being used, is it being used to redline different groups of people, those are the issues they're going to spend most of their time on.

I've said for years — and I said this ten years ago — that insurance is a pool of risk product, and a pool of one is not insurance. But I've personally seen and invested in companies that can do a pool of one. That's something else entirely. We're going to see a lot of interesting questions around what is insurance, even? What is a risk transfer?

If I were a commissioner today, I'd be spending a lot of time thinking: what are the table-stakes consumer protections I have to have for a functioning market? And where is that bleeding edge in terms of hurting consumers?

I look at AI and say — if it's used to help the consumer experience and make claims faster, regulators should be all in. If it's used as a barrier to make people give up in a war of attrition, that's a problem.

At every carrier, you need people who understand what's in that black box, and who is really making the decision. At the end of the day, for most of this stuff, there still needs to be a human at least overseeing and understanding why Nick's claim was denied. I gave a speech to commissioners probably eight or nine years ago and said we need to look at something like the Fair Credit Reporting standards — if something happens, I have the right to go back and challenge it. Why did my insurance get dinged? Why did I go to a different table?

That might be a utopia we never get to, but if something happens on your credit report, you get to refute it. In insurance? Forget it.

Paul Tyler (19:45) Right. The framework can create a big bureaucracy very quickly. If there's a law that prevents something, why create a second law that does the same thing? We've got privacy rules, consumer protection, Fair Trade Acts. A belt-and-suspenders approach makes this work really hard. Unless you've got twenty people who are deeply educated and really committed, giving twenty people who don't know the technology that well the ability to pull the emergency brake isn't necessarily going to help our business.

Nick Gerhart (20:15) I totally agree.

Paul Tyler (20:18) Now — and I'll spring this one on you — have you looked at the federal bill that's coming through that would trump the state regs? What's your perspective?

Nick Gerhart (20:28) I've gone back and forth. I understand the idea behind it. As a carrier, having thirty to fifty different jurisdictions to figure something out is very challenging. But having a preemption where it's the wild, wild west doesn't make a lot of sense either. There is some good in having governance and frameworks. If one carrier starts to go too far out on the ledge, other carriers have to follow or lose market share.

I understand the intent of letting innovation play out. But these products are the backbone of rebuilding a family when something bad happens. That's a really important business.

What I would say is: the states need to figure out a way to work together holistically. Most states have strong consumer protection laws that don't really change in my mind. And if carriers put in the right governance framework — so it's not the wild, wild west within their four walls — you can hopefully get to a system that's closer to annuity suitability: trust-but-verify, putting the right systems in place.

The federal folks have competing priorities. They're looking at AI as an arms race, and they don't want to stifle innovation. That's understandable. But at the state level, we have to make sure consumers are treated fairly and that carriers will be there when they're needed. I think most carriers I know have put in pretty good governance frameworks — some almost too good. But that's insurance. And states, if they start working more collaboratively on this like they have on financial and market regulation, they're going to figure it out.

Paul Tyler (22:15) Here's one for you. We're still a paper-based business. Everything gets filed with PDFs — digital representations of paper. Why would it be crazy for the NAIC to say, carrier, in addition to filing these PDFs, you must give us your API for quotes, illustrations, and order entry?

Nick Gerhart (22:38) Not a crazy idea at all — makes a ton of sense. And it's something that can happen for most carriers today. We're going to get to a point where it's almost immediate data sharing — one plug-in, and if someone wants to pull our entire claims ledger for a year, it's pretty simple to do.

A lot of regulators aren't equipped yet either, though. The NIIC does a tremendous job of trying to be that backbone — and I think they're going to become more and more important in helping with that kind of data call and data pull as this evolves. Think of SERFF and NIPR — those are really technology firms that do a great job for the industry. I think there are other areas where we could get to the same spot.

Paul Tyler (23:40) Hey Nick, we're right at the top of the hour. Any advice you'd give to innovators today?

Nick Gerhart (23:48) I kind of got the nickname Dream Killer from our old friend Brian Hemis.

Paul Tyler (23:54) Ha! That's quite a title.

Nick Gerhart (23:56) In all seriousness — you've got to look around corners and see where things are moving. InsureTech isn't dead. It's just more technology. It's just how we're going to do business. If you're going to be a founder, it still goes back to Vince Lombardi: this is a football. You've got to solve a problem, then be able to scale it. Business 101 is still really important. Relationships are still really, really important. If you don't have relationships, distribution, a good idea, and the ability to execute — you don't have anything.

For operating friends — you've got to have a strategy first and a goal in mind, and push yourself on that goal. Maybe you don't hit it, but insurance people are very hesitant to put big goals out there. We put big goals out there that we know we're not going to hit, because it forces us to do things we weren't doing yesterday. That's where I would challenge insurance professionals: force yourself or your company to do things you weren't doing yesterday, and you're going to move the ball way farther than doing nothing. And it's easy to do nothing in this business.

Just don't do nothing. Start doing something that's going to move the ball forward. And if you're leading a company — believe in intrapreneurship. Find the people in your organization that can solve problems, give them the power to solve them, and give them the agency to make decisions. Most people in the corner office don't actually solve the problem. But if you enable those people and give them agency, you're going to have a great company.

Paul Tyler (25:20) All right. Well, Nick, this has been awesome. Thanks for the time. If people want to reach out — LinkedIn?

Nick Gerhart (25:27) LinkedIn, yeah. Follow me and send me a message. As long as you're not trying to sell me something, I'll respond. And if I get something dumb in my LinkedIn feed, I'll feel right at home.

Paul Tyler (25:38) Alright, Nick — thanks so much for joining us, and thanks to all our listeners. Be sure to share this with your friends, and come back next week for another great episode.

Nick Gerhart (25:46) Sounds great. Thanks, Paul. Take care.

Paul Tyler (25:48) Thanks.

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