“The insurance industry has been taken advantage of by service providers who frankly bill by the hour and are incentivized to take as long as possible to implement something. That’s not our business model. We implement in 8 weeks and charge a flat fee. The longer it takes us, the less money we make. Our incentives are completely aligned with our customers.”
— Will Ross, CEO & Co-Founder, Federato
On this episode of the Profiles in Risk Podcast, Will Ross, Co-Founder & CEO of Federato sits down with host Tony Cañas to talk about how Federato’s lightning-fast implementation is challenging the status quo in the insurance industry, and why he and co-founder and CTO William Steenbergen are passionate about the power of portfolio management, AI, and machine learning to solve what he calls “a big, hairy, no-good, nasty problem.” Will also shares real-world case studies from leading insurance carriers and MGAs like QBE who are leveraging Federato’s RiskOps platform at scale to improve underwriting precision, eliminate tech debt, and achieve superior results in record time.
“No risk is good or bad in isolation. Every risk has to do with its portfolio risk.”
Will Ross, CEO & Co-Founder, Federato
Key Takeaways:
“So, eight weeks is what you guys aim for when it comes to implementing. Yeah, that is just lightning fast for our industry, and for connecting with our systems, whether they’re mid-90s or truly mainframe. Fantastic!”
— Tony Cañas, CPCU, MBA, AU, ARM, ARe, AIC, AIS, Host of the Profiles in Risk Podcast
Listen to the Full Episode
To tune in to the episode, click play. You can also read the transcript below.
Read the Transcript
Tony: Hello and welcome to “Profiles in Risk.” This is your host, Tony Cañas, and today I have with me Will Ross, co-founder and CEO at Federato. Will, thank you for joining me today. How’s it going?
Will: It’s going well. Thanks for having me, Tony. Excited.
Tony: So, we always let our guests give the elevator pitch. What is Federato?
Will: Yeah, sure. So, for those of you who’ve never heard of Federato, and Tony, I know you haven’t spent that much time with us in the past, Federato really has its origins in portfolio management. So, myself and my co-founder, William Steenbergen, were both graduate students studying, broadly speaking, optimization mathematics-type topics at Stanford University in the 2019-2020 timeframe. We started to be very, very interested in how evolutions in machine learning were not just helping topics like natural language processing and extracting text out of documents but were actually playing a huge role in optimization-type problems, the type of problems that help optimize, for example, portfolios. And through all of that work and some work we were actually doing at the time related to wildfires in California, we became very, very interested in the Property and Casualty sector.
“Something that really stood out to us was that insurers have fabulous plans of what they should do relative to a book of risk, but their ability to actually implement what their actuarial analysis tells them to do is quite poor. They’re often relying on PDF underwriting guidelines or broad instructions given out to human underwriters with very little in terms of systems of control.”
— Will Ross, CEO & Co-Founder, Federato
So, we set out to build a system of control. Now, through time, we eventually realized that, wow, there really isn’t a dominant underwriting workflow in today’s ecosystem, right? We have policy admin players, but that’s really not the tool being used by underwriters. You know, it’s really more of a back-office tool set for underwriting assistants or even people in pure operations roles. And so, we saw this opportunity to not only build what I would call a system of control to help insurance carriers better manage their portfolio risks, but something that actually could be present in the day-to-day underwriting deal flow as well.
So, we’ve built up Federato over many years and thousands and thousands of hours of interviews with underwriters trying to be kind of the one-stop shop for everything an underwriter can do, but always with that idea of this having to be in the context of the portfolio, or it simply isn’t adding the value that people ultimately want to have. You know, our goal has never been to be a workflow app first, it’s been to be a workflow app as a means of basically communicating this more macro portfolio strategy that, again, it’s just so unique how insurance is this kind of ultimate portfolio management problem.
Tony: Okay. This is very interesting, and I don’t even know which way to approach it. I love your LinkedIn description of your role at Federato, “Running headfirst at a big, hairy, no-good, nasty problem.” So why is it such a hard problem? Is it that we have a ton of data but not the right tools? Is it...
Will: I think that’s it. I think you’re there. Boom. Done. Like that’s it. That’s it. At the end of the day, insurance is one of the most data-rich industries I’m aware of because we do have the data, right? We have lots of factors and, in fact, insurance goes a step further.
“Unlike a lot of other industries, we occasionally get our act together and get that data organized and draw linear correlations. Thankfully, we’re only really predicting one thing ever, which is loss or loss cost, right? The problem comes in when you have to do something about it. And the cycle of admitted rates, rules, and forms is so slow in the insurance industry that we’ve historically relied on other means, i.e., risk selection, appetite guidelines, etc., to do that. Well, there’s never been an effective toolkit to go and implement these aspects of underwriting in the actual underwriting workflow.”
— Will Ross, CEO & Co-Founder, Federato
I mean, go to any organization in the country right now, the vast majority of appetite or underwriting guidelines is going to sit in PDFs, sitting in some cloud file, share drive, or OneDrive. Oftentimes, underwriters are downloading this stuff onto their desktop and reorganizing it in a way that makes it more searchable, which is helpful, but also tells you, wait, now that information’s out of sync. And, you know, you start to get a sense of the sorts of deep, insightful research we did early on in the company. We went, wait, what if we just organized the files the way they do on their desktop in the cloud, but then also made them actually the real-time version? That seems like a feature, right? As you study this industry, you start to see opportunities from underwriters themselves of how this job can be done. And if you always have that mind’s eye to this portfolio level objective, which is really all that matters in insurance – no account matters in insurance.
You know, I think Hank Greenberg is famous for saying something like, you know, “No risk isn’t a good risk. It’s all about how you price it.” I wholeheartedly disagree with that. But what I will say is no risk is good or bad in isolation. Every risk has to do with its correlated portfolio risks, and that is the definition of risk theory. And yeah, through time, we’ve been able to dig into the data that is available in these insurers. The way people are working today already is really important to us. And we’ve figured out ways to harness that. And look, the deeper you get into this problem, the more fascinated you become. And if you can’t tell from the alacrity in my voice, I mean, we love what we do. We really love it. I mean, we are just nerds in a candy shop. I guess nerds don’t really like a candy shop. No. Well, Nerds is actually a candy. So now we’re very confused, but, you know, we are certainly in our element.
Tony: I absolutely love the passion for what you’re doing and how you’re doing it. Okay, so any great success stories that are already implemented out in the wild?
Will: Oh, yeah. Plenty of public references and folks happy to kind of brag about what we’ve been able to do. So, in a wide variety of insurers – we service the full spectrum of underwriting entities, is how I like to say it. So, we work with very small startup MGAs, and we work with very large at-scale carriers.
We’ve worked with big carriers like QBE here in North America, in their middle market organization. You know, an organization that has several different policy administration systems, and puts the burden on the underwriter to be writing, you know, five, six different lines of business on any given account at any given point in time across all industries. You can imagine the number of guidelines and appetite grids you’re theoretically supposed to be keeping track of as an underwriter in that scenario. Pretty untenable.
And, you know, they’ve been on record as saying, these guys have completely changed our underwriting organization. We have hundreds of underwriters live in that platform every day. We are handling dozens of referrals every week for that organization. And we’re effectively the platform that is helping shape that book through time as they look to diversify a property exposure more into the casualty domain, and then look to diversify within that property exposure and within that casualty exposure as well.
So yeah. No, I mean, certainly, some well-documented successes out there. More I can’t talk about, of course, but you know, we’re thrilled with our customers, and I think, you know, the reality is we’ve been able to actually deliver for them.
Tony: Fantastic. What does the implementation look like? And for a traditional carrier, where does my system have to be tech-wise to be able to plug you guys in?
Will: A couple things I’d say here: You know, I want to start with the name of our company. Federato was named Federato for a reason, and it’s because of a core part of our intellectual property. So, when I like to talk about Federato, I like to talk about three layers of core innovation. The first is the UI or the UX. That comes from those thousands of hours of user interviews with underwriters. Great. Okay, that’s there. Then underneath it, there’s that portfolio optimization layer, right? Well, that’s what’s helping allocate and sort the portfolio through time. But both of those innovations, so both the UI/UX, and the optimization layer are very dependent upon the underlying data. And therein comes this kind of classic and obvious question of where does that data come from?
What we’ve done is we’ve built out a very unique approach to handling what we would call federated – hence Federato – data sources. Data sources that are all over and that have different time frequencies of upload. So, the classic question people like to ask, and this is kind of oversimplifying is, well, do you have real-time API connection or not? And our approach is basically, it doesn’t matter, right? We are very, very sophisticated in the way we implement with these organizations. And to take QBE, as an example, and I don’t think this would be something they’d be upset with me sharing, you know, they have three policy admin systems. They’re in the midst of a migration to one of the big three modern policy admin systems. And, you know, oversimplifying, let’s say three of their five business lines are on that today. Well, one of their other business lines is on a mid-2000s kind of on-prem hosted, but kind of newer than a mainframe era policy admin system. And then their third is genuinely a mainframe policy admin system, right?
And we’ve been able to get them successful in a matter of weeks. Now, the key to this, and people hear weeks and their mind like blows, right? They’re like, I don’t even believe you, and our customer references have been a huge reinforcing force because no one believed us upfront, but now they talk to our other customers and they’re like, it’s true.
“The reason we’re able to deliver so quickly is first because of that federated data platform. It solves a lot of classic data challenges of the industry, and we’re very good at that. But the second thing that people just can’t wrap their head around is we charge a flat fee for our platform. So, it is a per user, per month charge, flat fee. And that means that we are never charging you for services.”
— Will Ross, CEO & Co-Founder, Federato
We don’t charge you for services to implement, to go live, and we don’t charge you for services at the end of your one-year license or in the second year or in the third year. The reason we do that is because we feel very strongly that the insurance industry has been taken advantage of by services providers who frankly bill by the hour and are incentivized to take as long as possible to implement something. I’ve never seen a consultant who doesn’t bill 40 hours in a week. So, the more weeks they work, they’re just racking up more hours.
That’s not our business model. Our business model is we charge you a flat fee. The longer it takes me, the less money we make. And so, our incentives are completely aligned with our customers. So, yeah, the combination of all those things really allows us to quote an implementation timeline of eight weeks. We’ve done it faster. We occasionally have things go out slower. We’ve had clients come to us and say, we’ve got a busy period, we need to go heads down. From an underwriting perspective, a lot has happened, but yeah, I mean, again, QBE NA, a large legacy carrier with three different policy admin systems, public on the record. You can go check it out in Carrier Management. Weeks to deliver. It’s a totally different model, and it’s the only reason I’m here talking to you, Tony. We want to get out there, we want people to understand that there’s a better world out there, right? I think a lot of the industry is living in Plato’s Cave right now.
Tony: So, eight weeks is what you guys aim for when it comes to implementing. Yeah, that is just lightning fast for our industry, and for connecting with our systems, whether they’re mid-90s or truly mainframe. Fantastic!
So, for the listeners, what’s the next step they should take? Should they download the white paper from the website, The Underwriters’ Guide to RiskOps? Is that kind of the next step to learn more and then reach out?
Will: Customers are welcome to reach out to us. Certainly, keep an eye out for us at any conferences, etc. I welcome anyone to send me an email directly. My email is wlross@fedarato.ai. We’re not hard to get in touch with. By the way, the contact email on the website forwards to someone fairly senior on the team, so we’ll see your notes.
But, you know, I encourage people to read the literature on us, check us out. But probably the best thing you can do if you’re listening to this episode and this sounds interesting to you is, you know, it’s very public who a lot of our customers are. Check out some of those logos on those websites. These are at-scale implementations.
“Go find your underwriting buddies, go find your colleagues working at these organizations and ask what they’ve heard about us. I think you’re going to want to reach out at that point. And again, I just don’t think there’s enough reference selling in this industry, and that’s because there’ve been a lot of terrible solutions and a lot of nightmare implementations that go on for years and years and years.”
— Will Ross, CEO & Co-Founder, Federato
And we’ll look you in the eye and be very confident about whether you want to talk to them before you even reach out to us in the first place, or you get three meetings in with us, and it sounds too good to be true, you know, we’re going to lead with that because it’s what we have that others don’t. And it’s really, you know, we can tell you as much as we want, but our organization is kind of about showing you what we can do and not telling you what we can do. Is there a barrier to entry? Yeah, there is. Our price point’s high. We’re a premium product. Not everyone can afford us. But I’ve never seen someone who could afford us regret it. And we’re very proud of that and we’ll keep that wrap-up for a while.
Tony: Okay. So, are there any other types of underwriting organizations who are just not a good fit other than, like, they can’t afford you?
Will: Yeah. Well, so right now, we don’t do Life, we don’t do Health. By the way, from the ‘can’t afford us’ perspective, we see very few of those. I’d say the only ones we see are MGAs nearing end of life and just trying to put every dollar of profit they can into their owners’ pockets. You know, pretty much anyone investing in innovation I think can justify the expense. But yeah, we’re not a Health-focused company, we’re not a Life-focused company. We’re solely focused on P&C today. We do all lines, and we’ve done all lines since very early on. Occasionally we’ll run into something new. We, at this point, can confidently say we’re not really seeing things that aren’t just a different flavor of something else, right? You know, a lot of things have different names for very similar classes of business in terms of how you think about exposure, loss, and loss control. Those are really the only excluding criteria.
“If you are an organization that employs underwriters, doing the job of P&C underwriting, whether it’s small business, straight through processing and you’re trying to manage flow, or it’s large complex risks, national accounts, or the middle market where frankly, we’ve done a lot of our earliest business because it’s just that nice sweet spot in between, we’re happy to take your call and it’s quite likely we can do things for you. We’ve touched surety, we’ve touched financial lines, cyber, you name it.”
—Will Ross, CEO & Co-Founder, Federato
Tony: Okay. Awesome. So, well, you mentioned the conferences. Off the top of your head, but will you be at Insuretech New York coming up, Insurtech Hartford, both of those?
Will: Absolutely, we will have a presence at both of those. I really encourage folks to catch us. You know, we’re more than happy to talk. We’re more than happy to show you a live demo right then and there of our software. No email required, no anything. You know, if we’re not knocking your socks off, we’ll absolutely respect that distance. But yeah, look forward to seeing folks there. Will you be there, Tony?
Tony: I will be at InsurTech Hartford. InsurTech New York, unfortunately, is at the same time as CPCU Leadership Summit, which I never miss. And ITC, I’m guessing towards the end of the year.
Will: Yeah. Look, come see us at ITC. We sponsor the beer garden. You know, we’d like you to have a good time while we’re there. But yeah, we’ll have everything on display.
Tony: Okay. And ITC LATAM in Miami, or are you guys U.S. focused?
Will: That’s a good question. We’re internationally focused and we’ll have some people in Miami for ITC LATAM.
Tony: Okay. Fantastic. I’ll be there, too. Awesome. Thank you so much for your time today. It sounds like you guys are doing awesome stuff. I look forward to seeing you continue to spread through the industry.
Will: Great. Thanks so much for your time, Tony.
Tony: Awesome. Thank you.
