Flood Insurance, Sold the Way You Buy a Shirt

Jim Albert and Gilad started with a shared observation: both of them host podcasts, and both learned that the sweet spot is about 30 minutes. Jim runs the Digital Insurance Leaders Series, which he began in January 2020 as the pandemic hit and people needed other ways to have engaging conversations. Inviting guests, he said, nearly always gets a yes, and even a bulleted script reliably goes astray in interesting directions.

They also traded the same experience at parties: tell someone you work in insurance technology and an hour later you are still talking about it. Jim’s career is a good example. His background is all technology, he entered insurance in 2012, and in 2016, after only three and a half years in the industry, he started Neptune.

About Jim Albert

Jim Albert is Chairman and Co-Founder of Neptune Flood Insurance, the largest and fastest-growing private flood insurer in the US, selling residential and commercial flood coverage through agents and direct.

The Opportunity: A Giant Greenfield

Jim laid out the problem in numbers. The US has about 120 million homes, and roughly 60 million are at moderate to extreme risk of flooding, yet only about 5.5 million carry flood insurance, mostly through the National Flood Insurance Program (NFIP), the government program that began in 1968. About 90 percent of the people at risk have no coverage at all.

That makes flood unlike homeowners or auto, where almost everyone is insured and any new entrant has to take share from an incumbent. In flood, Neptune could grow by reaching people who never had a policy and didn’t know they were at risk.

For decades the risk looked unmodelable: no one knows where a hurricane will hit, so exposure is geographically random and the losses are enormous. What changed was technology. High-speed computing, web-based commerce and data analytics came together over roughly the last ten years, so flood risk can now be modeled and sold online without sending an inspector to the house.

Jim’s founding idea was to bring the Amazon-style buying experience to insurance, with serious analytics behind it. He compared the usual insurance process to shopping on Amazon and then being told, after a few easy minutes, that a representative will get back to you in a week to say whether they will sell you the product and at what price. Neptune issued its first policy in January 2018, grew quickly, and now writes in 48 states.

An MGA That Behaves Like an MGU

Neptune is an MGA, though Jim refers to it as an MGU because it does the underwriting: its own pricing model, risk selection and billing. The only thing it doesn’t do is take a layer of the risk.

The company spreads that risk across multiple buckets of capacity, five in all, including a program with Swiss Re behind it and programs with Lloyd’s entities, all on A-rated paper. The reason matters. An MGA or carrier with a single source of capacity runs out of room quickly if it sells a lot of policies in one place, such as Miami-Dade County or Orange County in California. With five buckets, Neptune can place policies across them and keep selling.

One Second, 150 Variables

Neptune’s API does the work that normally takes days. When someone enters an address on the website, within about a second the system looks up 150 variables, runs the rating engine and risk selection model, calculates aggregation, prices the policy and displays the rate, with no further questions needed. Agents can then change coverages or deductibles and see the price refresh in seconds, to test what-if scenarios with a client.

AI in Aggregation

Asked where AI comes in, Jim pointed to the part Neptune applied to patent a year and a half before this recording: aggregation. In insurance, he argued, the biggest problem is often not getting pricing right but over-aggregating, selling too many policies in a small area so that one event produces a loss that jeopardizes the business and its policyholders. Most insurers look backward at the end of a quarter or year to see how many policies they wrote in a county.

Neptune calculates aggregation in real time, so a policy simply isn’t accepted if it would exceed an aggregation limit. That also gives agents a benefit most carriers can’t offer: a quote that is genuinely good. Neptune will never have to tell an agent that a quote from 30 days ago can’t be honored because too many policies were sold in the meantime.

Version 120 in Three Years

Jim spends much of his time finding technology partners and data sources, since the risk selection and rating engine was already on version 120, only a little over three years in. He is interested in data that could predict flooding days ahead, such as how a rainstorm in Tennessee will affect a town in Alabama three days later, and he knows companies that are getting close. Because Neptune is a surplus lines insurer, it doesn’t have to file its rates, so improvements ship without a filing cycle. Rates are visible to anyone who runs a quote, and the market acts as a check on exorbitant pricing, since no one would buy.

Agents, Carriers and Realtors

Nearly all of Neptune’s business comes through agents, with a direct-to-consumer site launched that April. Many of the direct shoppers turn out to be real estate agents or lenders checking what flood insurance would add to a transaction, and anyone who doesn’t complete a purchase is referred back to the agent channel, so the direct line creates demand for agents.

There are four routes to a Neptune policy: carriers (Jim named Liberty Mutual and Hippo as partners), MGAs that distribute the product, retail agencies, and direct. There are also embedded channels: realtor.com now links to a flood risk check that offers a quote. Gilad tied this to embedded insurance, where coverage becomes a small step in a customer’s journey rather than a detour.

What People Don’t Know About Flood

Neptune has surveyed thousands of people for two years in a row. The biggest finding is that most people believe flooding won’t happen to them. In Hurricane Harvey, 80 percent of the homes with losses had no flood insurance, and many were in zones that were technically non-mandatory. Everyone, Jim said, is in a flood zone; some are just at higher risk.

The other surprise is how much damage water does. Flooding is the most common cause of property loss in the US, ahead of fire and wind, and one inch of water in a house averages about $25,000 in damage as carpets, baseboards and wallboard are lost.

Private coverage also offers real advantages over the federal program, which Jim said is tens of billions of dollars in debt. Neptune’s price is lower about two-thirds of the time, limits are higher, and optional coverages such as replacement cost and temporary living expense are available, which the federal program doesn’t offer. Nobody wants to replace a waterlogged seven-year-old couch with another seven-year-old couch.

Claims as the Moment of Truth

Neptune is involved in every claim. It tells policyholders ahead of an event what they can do to limit their loss and follows up afterward. Jim noted that insurance is a product you can’t touch: you interact only when you buy and when you claim, and the best outcome is no claim at all. A well-handled claim is the next best thing, and takes psychology as well as speed. Gilad agreed that claims are the cheapest chance to earn a customer back, because it is when they genuinely need you.

Advice: Customers Will Use It Their Way

The episode ended on a lighter note, with a conversation about Jim’s Fitbit, a gift from his wife, which he uses mostly as a nudge to stand up each hour. Gilad’s takeaway is a product lesson that applies to startups: customers use a product the way they need to, not the way the company planned.

Key Takeaways

• About 60 million US homes are at moderate to extreme flood risk, but only about 5.5 million are insured, mostly through the government’s NFIP, so the opportunity is to reach people who never had coverage rather than to take share.
• Neptune acts as an MGU: it owns pricing, risk selection and billing, and spreads risk across five buckets of capacity so it doesn’t run out of room in one geography.
• Its API looks up 150 variables and returns a price in about a second, and its patent-pending aggregation model works in real time, so quotes are always honored.
• As a surplus lines insurer it doesn’t file rates, so it shipped version 120 of its rating engine in about three years.
• Private flood is cheaper than the federal program about two-thirds of the time and offers higher limits and coverages like replacement cost.
• Most people believe flooding won’t happen to them: 80 percent of Harvey’s loss homes were uninsured, and one inch of water averages about $25,000 in damage.
• Claims are where an insurer proves its brand, so Neptune stays involved in every one.