Richard McCathron on how Hippo Insurance has reimagined home insurance, why insurers need to listen to customers and the meritocracy of a good idea.
- Hippo has modernized the homeowners insurance experience, including the customer experience, the policy itself and a high-touch claims experience.
- The company has grown to include a call center in Austin, Texas. Call center employees are incentivized by net promoter score, in order to align customer experience with employee compensation.
- From its founding in 2015, Hippo has learned that it must be willing to change. It adopts a hypothesis-based approach, and constantly tests, learns and adapts.
- Rather than build everything in-house from the start, Hippo partnered with an actuarial consulting firm and a digital product development agency. Smart partnerships enabled the company to focus on building its internal technology capabilities, including its policy administration system.
Being customer-centric, with Richard McCathron
Hippo Insurance was founded in 2015 and launched in 2017. In 2019, the company raised $100M in a series D and became one of the few insurtechs to surpass $1 billion valuation and become a “unicorn.”
In this episode, Richard McCathron, Hippo’s chief insurance officer, explains how a culture of experimentation has contributed to the start-up’s success.
The following transcript has been edited for length and clarity.
Welcome back to the podcast. I’m your host, Eagranie Yuh, and today I’m speaking with Richard McCathron. Richard is the chief insurance officer at Hippo Insurance, a start-up that’s modernizing homeowners insurance. Richard has been in P&C for over 25 years. He is a chartered property and casualty underwriter, a certified insurance counselor and has held senior executive positions at several well-respected insurance companies.
Thanks for joining me, Richard.
Thank you so much for having me.
I understand that you grew up in an agency family, and as I just said, you’ve spent more than 25 years in the insurance industry. What has it been like to see the industry change over that time?
Oh goodness. It’s interesting, because as I talk to people that are newer in the space, I let them know that when I first started in the insurance industry, we didn’t have rating mechanisms. We manually rated insurance policies with the use of a rate card, pro-rated wheels, carbon paper and if I was lucky, a calculator to go along with it.
So from those days of rate cards and carbon paper, you’re now the chief insurance officer of an insurtech. Tell me about Hippo.
At Hippo we are modernizing the homeowners insurance experience, soup to nuts. So everything from onboarding the customer, the application process, getting the policy, all the way through the coverage itself.
We went in and modernized the coverage to meet the needs of the consumer today. Most people, when they look at their homeowners policies, they’ll notice that it covers you for things like fur coats and pewter bowls, gold bullion, stock certificates, crypts and mausoleums. Things that maybe were relevant to our parents or grandparents but less relevant to the consumer today. If you look at the consumer today, they want additional coverage for home electronics. One out of five Americans works from home, so they want to know that they have proper coverage if they happen to work from home.
We take that modernization all the way through a proactive, inclusive relationship with the customer. So we keep them informed. We help them protect their greatest asset, which is their home and the place where they raise their family. So we have a very proactive approach to handling that relationship, whether it’s one year, five years, 10 years or 20 years.
We have a relationship on a proactive basis with the customer and that goes all the way through the claims process. Look, let’s face it, most people don’t really want to have a claim. The best claims experience is avoiding the claim entirely. We recognize when you have that claim, that’s when you want to have that very high-touch human approach to make sure you and your family’s taken care of. So the whole process has been modernized within the Hippo value proposition.
I’m curious, why the focus on homeowners?
We felt that homeowners insurance would do the most good. We have a desire to help people on things that are somewhat complex but are so important in their everyday life.
So, when you look at auto insurance, there are some companies that have done a pretty good job modernizing auto insurance. You can go online from a few of the big players, you can get a quote quickly, you can buy the policy quickly. It’s a very streamlined, simple process that most people kind of understand, because most people have had car insurance for a long time.
With homeowners insurance that’s not necessarily the case. It is a much more complex process that most people don’t really understand. There’s a lot of different factors to consider related to the home. Where is it, how is it made? Is it in an area where you have and are prone to catastrophic exposures like flood or earthquake or hurricane, tornado?
In playing around with your website, it’s pretty easy to get a quote. You input your address, answer a few basic questions and you get a quote.
That’s correct. And what’s interesting is if you go to a traditional provider of homeowners insurance, you generally talk to an agent. And the agent will ask you what your address is, and then through that process they will follow up with somewhere between 80 and 130 questions about that address.
The difference with Hippo is, the second we have that address, we go out to multiple data providers and get questions answered about your house that are publicly available. That avoids us asking you a question that you might not have an answer to.
Let me give you an example. Every homeowners insurance company asks, “How old is the roof of your house? When was it replaced?” Well, let’s think about it. If you’re getting ready to move into a house that’s new to you, you have no idea how old that roof is.
So as an insurance provider I’ve done two things. I’ve created friction because now I’m asking you to answer a question that you don’t know the answer to; and since I’m insisting that you answer that question, I’m likely getting an incorrect answer.
Whereas at Hippo, we get the age of your roof through variable data sources, so we know how old it is. Not only am I removing that question and that friction, I’m also getting an accurate answer. It’s a win-win for both sides.
I’m going to play devil’s advocate here and say that sometimes public records are incorrect. Sometimes there’s a transcription error, or I don’t know, there’s a State Street and a State Avenue and they got mixed up. How does Hippo deal with that?
That’s a really good question and one that we experienced early on in Hippo. We’ve solved for that a couple of different ways.
First of all, we don’t rely on a single data source to get a data input. Let’s use square footage of your house as an example. We can get square footage from multiple data sources. We can get it from county records, we can get it from Zillow, we can get it from a home inspection that was done the last time the house was sold. Lots of different sources. We triangulate that data input from multiple sources and through our AI, identify which one we believe most. And that’s the one we display to the customer.
Now, of course, you’re never 100 percent perfect and you’re never 100 percent right. So we create a mechanism where if the customer says, “No, that’s incorrect,” they can go ahead and correct the information. So if they want to go with the data we have, which generally is correct, then they go with it. But if they have different information, we welcome that data input from them.
Are you able to talk about the types of big data sources that you’re bringing into the process?
We use a varying amount of data from some of the traditional insurance data sources. There are large companies that have provided insurance companies with data for decades. We use all those sources.
We also use really cool data like high-definition aerial imagery of the house. We can look at a house and know how big the house is, what is the roof age, roof condition. Is there brush encroaching the house? Is there heat escaping from the house? So we know that there is a soft spot, so to speak, in the roof.
We’re very collaborative with our customers when we come up with those answers. We reach out to them. We tell them, “Hey, it looks like there’s a new pool that was added to your house. Or a trampoline.” First we congratulate them, of course, and then we make sure that they have the appropriate coverage, so when the neighborhood kids are coming over, swimming in their pool and heaven forbid something happens to one of the children, that we’re able to make sure that our customer is well protected.
Let me give you another example. One of the major rating components for homeowners insurance goes back to that age of roof question. Somebody decides they’re going to replace their roof. But how many of them think to reach out to their insurance company and say, “Hey, I no longer have that 20-year old roof. I’ve got a brand-new roof”? You’d be surprised to know that very few actually reach out.
Well, when we get a refresh of our data, we’ll notice that the roof was replaced. So we reach out to our customers, verify that they did in fact replace the roof and then at renewal, we give them a discount on their policy because they have a brand–new roof.
It’s that proactive, ongoing relationship that ensures that customers are well protected as their life changes. Because let’s face it, life is not static. It’s dynamic, things change, needs change. So does your insurance coverage. So we do everything we can to make sure that we are working with our customers to protect those two points.
You’ve mentioned that the claims process at Hippo is human-driven and that’s quite different from a lot of the conversation that’s out there, where people are experimenting with AI and chatbots and you can file your claim in five seconds, or whatever the number is now. Why did Hippo decide that humans were important?
We think that high-touch empathetic approach to claims, especially when it’s homeowners insurance, is so important.
There are other types of insurance that are less personal or less dramatic. And in those types of insurance, using technology makes sense. But let’s say you’re going home some evening. You have a child in one arm, it’s late and it’s raining and you notice somebody has broken into your house.
Do you really want an AI or a chatbot answering the phone when you call? Or do you want a person asking you the questions: are you okay? Is your family okay? Have you called the police? Would you like us to call the police for you? Are you uncomfortable in your house tonight? Would you like us to make you a hotel reservation?
It’s the same thing when your house burns down. The last thing I’m concerned about is talking to a chatbot that’s going to ask me questions that are irrelevant to the stress of the tragedy that I just experienced. I want somebody to take care of me and my family from the start of that process until I’m back in my house, back where I belong.
One of the things that we do is we assign a claims concierge to you. It’s the same person throughout. You have their cell phone number. They’re available 24/7. And if you have any questions throughout the claims process, you have an advocate that is there making sure you understand the process, that you’re taken care of.
And we do it in a proactive way. Oftentimes, before a claim exists. For example, when the California wildfires hit, we have an electronic feed from the state that lets us know where there are any active fires. We overlay that feed with where our customers are, and if we see customers that are in harm’s way, we reach out to them proactively and let them know that there is a fire approaching, that they’re either in an evacuation zone or they’re very close to an evacuation zone. We let them know what they need to know in the event that they get evacuated, they need a place to stay or they have a claim.
It’s that proactive, empathetic, high-touch experience that we think blend the worlds of human and insurance and technology.
Richard, I’d like to switch tacks now, and talk about how Hippo has gotten itself to where it is now. It was founded in 2015, launched in 2017 and in 2019, raised $100M in a series D. It’s also one of the few insurtechs to surpass $1 billion valuation and become a “unicorn.” What success factors have gotten Hippo to this point?
It’s interesting because there are so many different inflection points through our life of Hippo that we’ve learned from.
Let me give you an example. When we first started at Hippo, we thought that all we needed was an address and then we would automatically give a price. The customer would buy the policy. It would all be done online. There would be no human involvement, unless they had a claim, and it would move through that process very quick and easy.
What we found is that customers don’t necessarily trust a new brand. If you put your address in and then I tell you your homeowners insurance is $850 a year, you’re not going to trust that because you’re used to the experience of spending an hour on the phone with an agent asking a hundred questions, getting back to you the next day with a quote Instead of a real-time solution.
What we learned is, we have to share and display the information we get from the data sources, so the customer becomes comfortable with, “Oh, they know something about my house. This is for real.” We learned that we needed more involvement with the customer, not just some black-box rating algorithm that made it happen in 20 seconds. That was the first thing we learned.
The second thing we learned is that customers still want to talk to people occasionally. So when we started the company, we started with the idea that this would be direct-to-consumer, online only. And we learned very quickly that some customers want to talk to people. So we spun up our call center in Austin, Texas, that is all populated by licensed insurance agents that understand what it’s like to have a home, to have homeowners insurance and stand ready to assist the customers.
We don’t do things like monitor how long the call duration is, and did you close the sale? We focus on the customer first. In fact, we bonus our employees every month, not based on sales, but based on net promoter score. We want to make sure that the customer’s experience is aligned with the compensation of our employees.
So throughout the entire process we’ve learned that we have to be willing to change.
We have to have a hypothesis. If it proves out, great. If it doesn’t, let’s take those learnings, always with the customer in mind, and apply those learnings to augment what our hypothesis was.
I like the word hypothesis a lot and I’m wondering if you have other examples of how that has worked in Hippo’s development. Like a product hypothesis, for example. How did you test it and what was the result?
I’ll start with my favorite story at Hippo. We called each of the first hundred policyholders directly, just to understand their experience. One of our hypotheses was that Hippo would resonate well with the millennial homebuyer or the first-time homebuyer. So we thought that everything would lean towards that direction.
So I’m looking at our policyholders and I see a woman named Carol. [Editor’s note: Not her real name.] I decide to call Carol. I could tell by Carol’s voice she was not a millennial. It was a lovely conversation. It lasted about an hour.
Through that process, I pulled up Carol’s demographics on our system and I realized Carol was 92 years old. And I thought, that is certainly not a millennial. At the time we only wrote policies through our online flow; we didn’t have any agents. It was that early in the process. So at the end of our conversation I asked, “Carol, how did you hear about Hippo and what made you come to Hippo?” And Carol’s response was, “Oh Richard, I saw a Hippo ad on my Facebook. It was so easy. I bought the policy and I tweeted all my friends.” True story. I said, “Carol, you rock. That’s awesome.”
Carol still calls me every few months on my cell phone. She wants to make sure her policy’s fine and I tell her, “Carol, you got my number, you call me anytime.”
What I learned from that, and what the Hippo team learned from that, is simplicity and ease transcends generation. So everything we do, we try to make it easy for the customer.
Now, behind the scenes we have all the insurance intelligence that every other insurance company has. We get all the data. We make sure that the policies are priced properly. We have a sophisticated by-peril rating algorithm. All the insurance lingo that people talk about. We do all of that. But to the consumer, we are fast. We are easy. We are friendly. And we take care of them at time of loss. That’s one of the things that we learned.
Here’s another example. We thought that customers would want to have choices in the offering. So when we originally started, we had these sliders. People could slide their limits from one side to the other. What we learned is most people don’t know anything about homeowners insurance. And we didn’t want to motivate people to select coverage that was below what we would buy ourselves if we were buying coverage.
So we changed that approach and we said, “We’re going to automatically put some coverages that other insurance companies only add if requested.” Things like equipment breakdown, utility line protection, water backup—things that if you don’t ask your agent, they don’t put in. Because we want to take care of people and when they have their claims six years down the road, they don’t call an agent who says, “Oh, you didn’t buy service line protection. So unfortunately, that big tree ripped up your water line and now you have a $20,000 repair bill, and it’s not covered.”
We try to make sure that we are providing the coverage people need. And oftentimes, they don’t know, so we help them through that process.
I love that Carol story as a reminder that people are far more complex than basic demographics like age. Going back to the idea of hypotheses and experiments, how do you distinguish a good idea from a bad idea?
You try them. You really do. We A/B test everything. If it works, you’ve just come up with something new and unique, and if it doesn’t, you move on to the next idea. The only way that you know what works and what doesn’t work is testing it.
Often I find executives unwilling to stick their neck out there, try something that’s a little bit different. And I think that’s one of the challenges that the incumbents in the space have. I think they are so concerned with either their position in the company or the results of their company, they’re unwilling to try new things.
If you’re not moving forward, you’re falling behind. And it takes the incumbent insurance companies—and I’ve managed very large ones—forever to implement changes, whereas the entrepreneurial, open-minded thinkers can change things 10 times before the incumbents get around to changing once.
I think you’ve got to have an entrepreneurial spirit; you’ve got to try new things. Try it out and if it works, great. And if it doesn’t, you’re no worse for wear. You stop doing that and do the next thing.
I think it’s much easier to have that spirit of experimentation within an insurtech. Any comments on how it might work for a more established insurer?
You have to be open minded; whoever comes up with the ideas is irrelevant, if it’s a good idea. One of the things that I’ve always embraced, and we embrace here at Hippo, is the meritocracy of an idea. Is it a good idea? Does it have merit? That’s far more important than where it came from.
I learned this early in my career when I was an underwriter for Mercury Insurance Group. I had just over a year of experience working in an office with people that had decades of experience and I saw a work process that I thought was broken. I suggested a change to my manager; he thought it was a good idea. He talked to the vice president, who ended up talking to the CEO of the company and within a few short weeks, a massive billion-dollar organization shifted the way all of its policies were underwritten, because of the idea of a 23-year-old kid.
I think it is so very important not to be grounded in our own beliefs, but be open-minded and understand that we don’t all have all good ideas. I have a lot of good ideas, I have a lot of bad ideas, and I think that goes for everybody. So I think being open minded to change is so important.
Cool. Let’s shift a bit from that external view to an internal view. Hippo has grown significantly from its early days. You now have two offices, one in Austin and one in Palo Alto. And I’m wondering, what has that process been like in scaling the company and specifically, maintaining the culture?
One of the hardest things to maintain when you have a company that grows as quickly as Hippo has grown, is maintaining that culture. Our founder, Assaf Wand, one of the things that he says is, “Look, entrepreneurial work is hard. There are two things that you can control. First, who you work with. And second, what culture you have in the company.”
Despite our growth, we’ve been able to maintain the Hippo culture internally, which generally is about a customer-facing, customer-centric mindset. And we bring in people that share that culture. We create champions within our organization that are Hippo champions, making sure that our customer comes first, that everybody understands what has allowed us to be successful. We never lose sight of that ultimate goal, which again is customer, within a highly regulated, compliance-driven mindset to make sure that we are treating everybody in that value chain properly.
We’ve done a good job. When I started, there was about 10 Hippo employees, and 9 of the 10 were programmers and developers starting to build our system. Today we’ve got well over 100 employees, quickly approaching 200 employees, and I got to tell you, the type of people that we bring in, that also want to share in the vision of customer-centric insurance, has been just refreshing. We have more people wanting to join Hippo than we have positions. And I think that’s because of the culture we have.
How does culture at Hippo support innovation and how do you make sure that you are bringing in new people that further this culture of hypothesis and experimentation?
A lot of this simply is how you’re designed and how you’re laid out. In either one of our two Hippo offices, we have no private offices. Our CEO sits on the floor just like everybody else sits on the floor. Our engineers and developers are commingled with our underwriters and salespeople. We don’t have a traditional call center environment. It’s not a cubicle farm.
We have a very open environment where everybody can hear what’s going on. And when you allow the people that are doing the job, on a day-in and day-out basis, hear what’s going on, they’re the first ones to bring suggestions on how to improve.
When we interview new employees, it’s not a hierarchical interview process. It’s people who will be working with them, people who will be leading them, people that will be working for them. We get everybody involved in the process and ask a lot of questions that have absolutely nothing to do with technology and nothing to do with insurance. Just to make sure that person is the right cultural fit with the organization.
Let me give you an example. I hear our call center employees every day because they sit three feet away from me. Sometimes I hear them on the phone for an hour with a customer and at the end they say, “You know, I think you should stay with company X. I think you’ve got a great price. They’ve taken care of you. I don’t think that we can do a better job than that particular company in your particular circumstance.”
I look at that as a win. We have just reinforced a customer’s decision to stay with somebody that they were comfortable with initially. That’s a win for me because when that customer gets off the phone they’ll say, “You know, I didn’t buy the Hippo policy, but I got to tell you, they were helpful. They were professional. They truly had my best interests in mind.” Those are the kinds of people that we need at Hippo.
It sounds like that culture has been good for recruiting people. What about retaining them?
I’ll share one statistic with you. We have had our call center opened in Austin, Texas, going on two years now. We have not had a single voluntary resignation in our call center. And these are people that are on the phone eight hours a day talking to customers. That’s because we do a very good job of making sure we bring people in that share the culture, the mindset, the goal, the objective of what we’re trying to do at Hippo. When you’ve got a group of 100 call center employees: to have zero attrition in almost two years, I think that says something about the Hippo culture.
In preparing for this interview, I found a few stories saying that Hippo had gotten help in places that I think most start-ups would be inclined to take in-house. For example, your partnership with Work and Co, which is a digital product development agency, and with Milliman, which offers actuarial consulting.
As I said, I think there is an inclination on the part of start-ups to say, “we’re going to build all of this ourselves,” and it seems to me like Hippo has not gone that route. I’m wondering if you can talk about that decision and why you decided to go that way.
I can. I think it’s foolish for people to think they know all things about all things. I think it’s foolish for people to think that they have an expertise and know what the customers want without talking to customers. I think if you truly care about your customers, you will bring world-class problem-solvers to your offering.
Now, sometimes you can grow those internally. Much of our technology is all internal. We built our policy administration system. We do the data links with our data provider. All of that full-stack technology application, we do.
But when it comes time to modernizing homeowners insurance, we bring help in from the world’s most renowned actuarial firms, or some of the absolute best designers of website and user experience and interface. We think if we’re treating our customers like we would want to be treated, we should and do bring in world-class solutions to provide solutions.
You know a lot of things within areas of your expertise, but there’s things you don’t know. Go out and get that help. Now ultimately, once you grow and get scale you can develop that expertise internally, but nobody understands everything from day one.
What are the challenges now?
The challenges now are generally related to growth. So in the insurance world you have to make sure that you have enough capital, enough surplus, to protect the policyholders and you generally achieve that with what’s called reinsurance agreements and reinsurance contracts.
Hippo does not bear the underwriting risk. We handle everything from customer experience, programming, policy issuance, claims management—but the bank account that makes sure when that hurricane hits or that hailstorm destroys a neighborhood, that the customer is well protected. That money, that balance sheet, comes from an insurance company and a group of reinsurers.
The biggest challenge that we have with our growth rate is making sure that we get enough reinsurers bought into the Hippo model to say, “We are ready to stand up and protect those hundreds of thousands of policyholders that have chosen to go with Hippo.” When the worst scenario occurs—that horrible storm or fire—that they are there to back us up and make sure that our customers are well taken care of, in terms of paying claims.
That’s definitely relevant. I remember reading about a little niche insurer who went into bankruptcy because of the California wildfires.
It does happen. One of the things that gives us a lot of peace of mind is most of the world’s largest reinsurers are either participating or interested in participating in the Hippo vision, in the Hippo platform. All of our insurance company partnerships have a strong A.M. Best rating of A-minus or better. So from a stability perspective, and the ability to pay claims, we are as strong as anybody else out there.
We’re coming up to the end of our time, Richard. To close out, what does the insurance industry—so, insurtechs and incumbents—need to do to remain relevant and competitive?
Pretty simple answer. Listen to your customer. Listen to what your customer’s needs are, what their expectations are, what their experiences are—and then behind the scenes, put all of the fundamental insurance practice and practicality so you can maintain that in a long-term, sustainable way.
Insurance companies still aren’t very good at listening to customers. Some are better than others. Some do an exceptional job, but others still call the customer a policyholder. They don’t look at them as a customer; in fact, some insurance companies look at the agents as a customer, as opposed to the homeowner.
I think it is so very important for us to realize, as an industry, that the world has changed. The paradigm has shifted. Insurance customers’ expectations are for an Amazon-like experience, not an incumbent, hundred-question, hour-of-my-time, get-back-to-me-next-week mindset.
Recognizing customer has to come first, is I think something that our industry would benefit from.
Well thank you very much, Richard. This has been a very interesting conversation. Really thankful that you took the time today.
Thank you so much. I really enjoyed it as well.
- By using multiple data sources, Hippo can reduce friction in the quote process and increase the accuracy of the information it’s quoting on.
- Early on, the Hippo quote process was entirely online. The company learned that customers were wary of a new company, and so the process was updated to provide some feedback about how the quote was generated.
- A proactive approach enables Hippo to support and better protect its customers at quote, renewal and through life changes.
- Openness to change is important if insurers want to be adaptable, responsive and competitive, especially given the ability of insurtechs to adapt much more quickly than an incumbent.
For more guidance on becoming more customer-centric:
- Discover how savvy insurers are getting closer to their customers.
- Learn how agility can help financial institutions deliver better customer service.
- See what Accenture research uncovered about what consumers think about financial services and their providers.
We have a special episode up our sleeves in a few weeks. Until then, that wraps up season three of the Accenture Insurance Influencers podcast. Many thanks to this season’s guests for making the time to speak with us:
- Tracey Petkovic, CIO of Westfield, shared a behind-the-scenes look at two technology transformations and what they learned.
- Don Bailey, a leadership coach who’s held leadership positions at several insurers, looked at the state of leadership in insurance and keys to effective leadership.
- You can also catch up with seasons one and two of the podcast.
And thanks to all our listeners and readers. It’s been a pleasure.