Lessons in Risk, Leadership, and Life

I've had the good fortune to work with some remarkably talented people over the years. Some were young entrepreneurs who saw opportunities nobody else seemed to recognize. Others were seasoned businesspeople who understood that sometimes the best way forward was to challenge the way things had always been done. I've learned a great deal from both.

I've also learned that just because we can do something doesn't necessarily mean we should.

That thought has been on my mind lately as I've watched what's happening in the InsurTech world. There are some incredibly bright young people attracting enormous amounts of investment capital to build insurance organizations around artificial intelligence and other emerging technologies. Some of what they're doing is genuinely exciting, and I believe our industry has plenty of room for improvement. Frankly, some of the things we've been doing for decades deserve to be challenged.

But I find myself wondering whether some of these entrepreneurs, and perhaps even some of their investors, fully appreciate the business they've decided to enter. Because insurance isn't quite like most other businesses.

A Lesson Gina and I Learned Years Ago

Many years ago, Gina and I had the pleasure of working with a couple of young entrepreneurs who appeared to be extraordinarily successful. They were in their mid-30s, and their personal wealth was impressive by just about any standard. We insured their personal property, automobiles, and business operations.

I remember touring one of their homes. It was something like 32,000 square feet, beautifully furnished, with enormous flat-screen televisions throughout. Outside were Ferraris, Porsches, and Rolls-Royces. Everything was first-class, and there certainly didn't appear to be any shortage of money.

Their executive assistants handled much of the day-to-day communication with our office. Cars were added, drivers changed, jewelry scheduled, and everything seemed to run smoothly. We enjoyed working with these folks, and we admired what appeared to be their remarkable success.

But eventually, little things began to happen. An insurance bill might be paid late. A relatively minor automobile accident would occur, and the clients would want to submit a claim for something that, given their apparent financial circumstances, we would have expected them to handle themselves.

Now, there's nothing wrong with filing a legitimate insurance claim. That's why people purchase insurance. But with financially successful clients, we often recommend carrying higher deductibles and absorbing smaller losses when doing so makes financial sense. It can help preserve underwriting flexibility, particularly in markets where claim frequency can affect both premiums and the availability of coverage.

These clients seemed unusually concerned about relatively small expenses, considering the extraordinary wealth they appeared to possess. Individually, none of these things meant much, but collectively, their behavior didn't quite match the picture we had of their financial circumstances.

And that bothered me.

As time went on, additional problems surfaced, and we eventually learned of serious financial difficulties and allegations of misconduct involving the people behind the business. What had initially appeared to be an extraordinary success story turned out to be something quite different.

I remember looking back on that experience and thinking about how impressive everything had appeared when we first walked through that magnificent home. The cars were real. The furniture was real. The house was real. But the financial picture behind all of it wasn't what we thought it was.

I've never forgotten that lesson. Not because I believe we should be suspicious of successful people. Quite the opposite. I've spent much of my career helping successful individuals and businesses protect what they've worked so hard to build.

But sometimes the little things tell us something that the big things don't. And when the pieces of a puzzle don't quite fit together, it's worth asking why.

Which Brings Me Back to InsurTech

I'm watching some very young, extraordinarily talented entrepreneurs raise hundreds of millions of dollars to reinvent insurance. Good for them. I genuinely hope they succeed.

Artificial intelligence and other technologies offer tremendous opportunities to improve underwriting, reduce expenses, identify exposures, and make insurance more accessible. But I find myself asking some of the same questions that experience has taught me to ask over the years.

Do the financial realities match the outward appearance of success? Are the organizations accepting insurance risk supported by sufficient capital, experienced management, sound underwriting practices, and appropriate reinsurance? And are the people making the decisions surrounded by individuals who understand what can go wrong?

There's an important distinction between building a successful technology company and building a financially sound insurance organization. A multibillion-dollar corporate valuation doesn't necessarily translate into billions of dollars available to pay insurance claims.

That's not a criticism. It's simply a fact that deserves attention.

Consider the idea of an insurance technology company opening coffee shops where entrepreneurs, developers, and investors can gather. From a marketing standpoint, I can appreciate the thinking. I've always believed that relationships are built through conversations rather than advertisements.

But then my risk management instincts kick in.

Running a coffee shop means entering the hospitality business. That brings food safety requirements, employment issues, property exposures, premises liability, leases, permits, and a host of other responsibilities. I've insured enough restaurants to appreciate just how difficult that business can be.

And there's another issue. Suppose two entrepreneurs are sitting in one of those coffee shops discussing a potential acquisition, an invention, a financing arrangement, or a sensitive employment matter. Would they feel differently about that conversation if they knew the establishment was owned by an insurance organization? Might they wonder whether someone was listening or whether confidential information could somehow find its way into the wrong hands?

I'm not suggesting anyone is secretly recording conversations or misusing information. I have no evidence of that. But perception matters, particularly in an industry where public trust is already a challenge.

My question isn't whether the idea is creative. It certainly is. My question is whether the potential rewards justify the additional operational and reputational risks. And, perhaps more importantly, who was responsible for asking that question before significant capital was committed?

Who's Actually Standing Behind the Insurance Promise?

Another development worth watching is the use of risk retention groups and other alternative insurance arrangements by emerging InsurTech organizations.

There's nothing inherently wrong with risk retention groups. They've served legitimate purposes for decades, particularly in areas where traditional insurance markets have struggled to provide coverage. But buyers need to understand the differences.

Risk retention groups don't participate in state insurance guaranty funds. If one becomes insolvent, policyholders cannot rely on those funds to satisfy claims. Some RRGs are exceptionally well managed, financially sound, and supported by sophisticated reinsurance arrangements. Others may have very different financial characteristics.

Policy language also deserves careful examination. An RRG policy isn't necessarily more restrictive than a traditional insurance policy, but differences in coverage can be significant. And those differences matter.

A young entrepreneur may know everything there is to know about software development, artificial intelligence, or raising venture capital, but very little about claims-made policies, defense costs within policy limits, insurer solvency, or contractual risk transfer.

That's where experienced insurance professionals can bring considerable value. Insurance isn't simply a product to be purchased at the lowest available price. It's a financial arrangement intended to transfer certain risks under very specific contractual terms. And those terms matter most when something goes wrong.

Who Has the Courage to Challenge the Board?

Of all the questions surrounding these emerging organizations, corporate governance may concern me the most.

I've known some brilliant entrepreneurs and business leaders. I've also learned that intelligence, success, and good judgment don't always travel together. Sometimes the most valuable person in the room isn't the one with the biggest idea or the most impressive résumé. It's the person willing to say, "I'm not sure we've thought this through."

When I look at some of these emerging insurance organizations, I see boards populated by extraordinarily accomplished technology entrepreneurs, investors, and financial strategists. That's a tremendous collection of talent. But I wonder how much experience is represented in insurance underwriting, actuarial science, long-tail liability exposures, claims management, regulatory compliance, and financial solvency.

Perhaps those skills are present through advisers and experienced operating executives. I certainly hope so. But that raises another question.

Are those advisers truly independent, and do they have enough influence to challenge the people who hired them?

It's one thing to employ a knowledgeable consultant. It's quite another to give that person the authority and freedom to tell the board something it doesn't want to hear. And even then, does the board have the maturity and humility to listen?

I've seen organizations where experienced advisers were welcomed and respected. I've also seen situations where advice was requested, politely acknowledged, and then promptly ignored because it didn't fit the direction leadership had already decided to take.

Neither age nor professional credentials guarantee good judgment. But experience, independence, and the willingness to challenge assumptions can make an enormous difference, especially when the decisions being made today may create financial obligations that won't fully emerge for years.

Insurance Is Still a Promise

Sometimes I think we lose sight of the simplicity of what our industry actually does.

We collect premiums today in exchange for a contractual promise to respond to certain losses that may occur tomorrow, next year, or many years from now. Making that promise is relatively easy. Being financially and operationally prepared to honor it is another matter entirely.

Gina and I have seen insurance help families recover from devastating losses and businesses survive circumstances that might otherwise have destroyed them. We've also seen the disappointment and frustration that follow when coverage wasn't what someone believed they had purchased or when an insurer couldn't meet its obligations.

Those experiences stay with you.

And they're why I believe insurance innovation needs to be accompanied by financial discipline, sound governance, thoughtful underwriting, and experienced people who understand the consequences of getting things wrong.

Technology can make our industry better. I'm convinced of that. But it doesn't eliminate the responsibility that comes with accepting someone else's risk.

Is There a Better Way?

I think there is.

I hope we continue to attract bright, ambitious young people who are willing to challenge how insurance has traditionally been conducted. We need them. And I hope those of us who've been around this business for a while are willing to share what we've learned, including the mistakes we've made along the way.

There's room for both innovation and experience. In fact, I think they're much more valuable when they work together.

I'm going to be interested in watching how some of these emerging insurance organizations develop over the next three to five years. Some may become extraordinary success stories. Others may discover that raising capital and assuming insurance risk are two very different challenges.

I genuinely hope the innovators succeed, because our industry and the people we serve stand to benefit.

But I also hope that somewhere in their boardrooms, there's someone willing to ask the uncomfortable questions. And, more importantly, that there's someone willing to listen.

Perhaps three or five years from now, I'll look back on this article and see what history has taught us. I may discover that some of my concerns were misplaced. I'd be pleased if that turns out to be the case.

But experience has taught me that when things don't quite add up, there's usually value in taking a closer look.

Because the goal shouldn't simply be to make insurance faster, cheaper, or easier to purchase. It should be to make it better for the people who depend on us.

And when a serious loss occurs, the people who purchased that insurance deserve an organization that's prepared to honor its contractual promises.

That's what this business has always been about.

A Final Thought

If this article causes you to think a little differently about your own insurance program, the financial strength of the organizations behind it, or the quality of the advice you're receiving, perhaps it's worth having a conversation.

At UWIB Risk & Insurance Solutions, we work with businesses, entrepreneurs, and families to identify exposures, evaluate insurance programs, and help people make informed decisions about managing their risks.

We welcome the opportunity to share our experience, offer another perspective, or simply help you ask better questions.

If you'd like to have that conversation, please visit UWIB Risk - Contact an Advisor.

Is There a Better Way?