Good Investing Talks - Can JDC Group digitize the insurance industry, Sebastian Grabmaier?

Episode Date: December 8, 2022

JDC is a German company trying to digitize the insurance sector with its software and service approach. Together with the co-founder Sebastian Grabmaier, I could do a deep dive into the company.

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And what else you can do, you can find wider link below. Please check it out and support if you create a account, Good Investing. And now without further ado, enjoy our video. Dear viewers of Good Investing Talk, it's great to have you back for another episode of the podcast. Today I'm having another interesting European company on. Mr. Carpmeier, great to have you here. Your company is called... It's called JDC or JDC.

What is the right spelling of the company? Whether you are, it depends whether you're German or not. You say Yodice or JDC group is fine. Okay, that's great. So you have been in the position of the CEO of this company for 17 years now. So let me ask the first question about your motivation for running that long and staying at the same position that long. So what drives you out of bed every morning with a level of ambition to,

work and challenge with this company? Well, my partner Ralph and I, we founded a company in 2002 and went public in 2005 when we developed the first digital, which was a consolidated account statement in the fund industry. So we were the first company in Germany to tell our clients and customers the performance of different investment funds that were located at different investment companies. And from there on, until 2008, we founded the leading investment platform that's sold one billion investment funds in 2008, so the biggest platform apart of the German banks.

When Lehman happened and we had very challenging times after, we started from scratch in the insurance industry. And what really drives us is to deliver our customers, so the final retail customer, a full 360 degree on his financial assets, both in investment and insurance, which is much more complicated in insurance, to have like a real financial home for the clients. So we are a completely client-driven company, and in our business model, we enable all kinds of intermediaries to deliver this tech developments that we internally develop to our retail clients. This already brings the bridge to a chart I have prepared with my high-skilled possibilities here. It's a printout of your stock price chart, and maybe you can explain a bit the phases

in more detail you've already touched in your answer. So what phases the stock price has been going through? So we never were a real startup company because we started in merging three existing companies with roots back to 1958. So we were an existing sales company. But then we had the first wave of digitization until 2008 when we had a very steep development when after this little tech investment we made, we attracted 10,000. thousand brokers and we were the success company in the german investment markets only to find

out that after this booming times out in 2008 we had a terrible downturn followed by Lehman and to be honest right if you if your sales drop by 80 percent at same cost base we almost couldn't make it and with a very yeah you could see it in the chart where the share price dropped to 150 at the lowest low Ralph and I did a buyout and refinanced the company to have enough investments to start from scratch in the insurance realm. So now we have the leading tax-stack platform for the processing of insurance companies, and then you see that the share price now takes it up again. And now we have a very good prospect to be the winner in the platform business for the processing of insurance contracts. Before we go to your good story, maybe let's stick a bit in the face of 2012 to 2016,

where you had really financial problems and issues. What did you learn from this time that helps you today? Well, it's a lot of meekness, if you want, right? It's like when you start up a company and everything runs well, you're enthusiastic and you have even higher targets but then when markets go completely in another direction and you have extrinsic shocks such as in 2008 2009 you're way more aware of what was really important in building up a company being more profound and now it's it's very important that we not only relying on one asset class such as investment or if you

look at the hyperport story right now the problems they have because they have like mortgage only so now we are quite diverse diversified in our product portfolio and therefore we rely on a huge number of very small cash flows like aggregating all these little cash flows of these insurance contracts that's on average 35 euros right so not it's not we're not dependent on a small number of big clients we're not depending on on a small market because we are now in the overall broad market with with like yeah in the end it's 4 million very small cash flows so but more balanced and recurring revenue, so much more stable than it ever was. Are there any other lessons you took away from this time on how to build the business today or even in the future? Well, in 2008, we were part of a bigger group and we were conquering the world. We have five partners, had offices in four continents and had different, very different

business models and now it's all about focus, focus, focus. So Ralph and I bought the company out of the partnership. We're now doing one thing only. It's only the processing of financial products. So it's not like a thousand business model or not even three, but it's one model where we think we are now the market leader. And we follow this path. And from that point on, it's much easier to take the right decisions. It's a bit of a tricky question.

And it's focus, focus, focus, yeah? So that's that's the key learning. It's a bit of a tricky question, but if your younger 2006 self would meet you today and ask you for venture financing, would you give that to him? Oh, definitely. 2006, we were the new kids on the blog, hot shit. So that was the thing to finance or to put my money in. I think looking back in 2006, nobody could have. imagined that 2008, a real banking group would go bankrupt and banks would not lend money to each other.

So that was not, it was not in our minds. So with the same historical learnings or mindset, for sure, that there was really a company to put the money in. And it's the same today, right? It's now, let's say 12 years later or 14 years later, we are at the same, well, the company is more stable and we are well more. matured, but from the prospects on, it's even much better than it ever was because the insurance market that we are now in and that we are very successful in is much bigger than any investment markets or mortgage markets. It's 10 times the market, and we are at the same point in conquering this market that's basically vacant still. You already mentioned this with a small

note that you and your partner took some, I think, private money to refinance the company in 2012 or something like this. Why did you do this? Maybe can tell a bit more about this. At 2012, we were in a position where we knew that the investment world would not recover that fast and we knew we had to put money in to develop what's now the leading tech stack in the market. And from this view, we knew it would take about 20, 25 million euros. So what we did is we pledged all we had, all our private homes, everything we had in our small bank accounts, and found some investors that gave us money on the private side that we then put into a capital raise in the company. And this is when we started the tech platform. So it was

very high risk from our side, so a real venture financing from our private side. But we believed in the digitization of the insurance industry. And now, our after like in a yearly basis, investing another $6, $7 million a year after like a complete invest of more than $70 million, we have now a complete platform for the processing of insurance contracts that's just turning to be very profitable. Why insurance? Yeah, because the insurance industry is interesting because it's huge. It's 6.5% of German GDP, but it's very slow.

You know, most insurance companies, they still live on heritage systems. IT systems that are 30, 35 years old. This means that there is no standard data because it comes out of the machines just as it's developed. And it's the only industry that completely slept in digitization. And well, if you say that there is industries that will not digitize at all, right? Then we are not the right company, but logic tells you that everything is digitizing and where everything goes into platforms, insurance has not.

So if you buy an investment product now, you know, 15 years, 20 years ago, you would fill in a paper and send it to whatever fidelity or Templeton, right? And eventually two weeks later would come back. Today, you would have the expectation as a customer that at the next cutoff time, like next day in the morning, the fund sits in your depot, right? But in insurance, same day, you would still accept to have to fill in paperwork, right? And this is not very modern. And it's easy to say, as you can save about 30, 40% cost of everything insurance spends in digitization. So it's very logic to just make insurance processes much more efficient and just start digitization. And today, our biggest clients are the insurance companies themselves, which is not really, yeah, doesn't come to you at first point, but that we offer insurance processes to insurance companies.

But that's exactly the point where the industry now uses. our systems to improve their efficiency. Let's talk a bit about time and also time to success. We had this experience in the fund industry where we all came out of this small bubble we had last year, but things go quite rapid. Prices go up and down and also like cash flows from this kind of business that go up and down. And then there's the insurance industry where you said it's quite, let's say stable.

and their timeframes are different. Maybe you can try to compare both timeframes from the both worlds, or especially what kind of time frame investors have to think when they think about structural changes in the insurance industry, winning business there. Yeah, so there is already a big base, right? So there's 450 million insurance contracts in the German market alone, right? $450 million.

And it's a payment, it's a premium. volume of 220 billion euros in what's paid by customers to insurance companies every year. So that's a huge number. What people do not know is out of these 220 billion, almost 30 billion, 3,0 billion, are paid to intermediaries as commission and other payments. So it's a huge pot of, and most of it is recurring. So two thirds come year over year over year with the automatic renewal of the contract. So it's a huge money stream that's just very, it's, it's just coming in very small portions that's these 35 euros each.

So it's a huge industry that develops slow because even if growth figures, you know, on a 450 million base contracts and move up by 5%, you know, you don't feel it in the in the huge amount of insurance contracts. So it's all about aggregating existing policies and not so much on new business. So the waves are much slower. But in the end of times, right, you have less volatility and a smooth development of growth. And so that makes the market really interesting because there's no way that, you know, your insurance policy never became cheaper, right? So your car insurance goes up, your household, your building insurance, everything goes up with inflation or more than inflation. And as commission is a diving link to the premium, it's a like an inflation protected model. When entering the insurance market, what mistakes have you made and where have you corrected them?

Well, we didn't have any sales volume in insurance at first. So we had to buy a number of companies just to get the entry barriers to get top conditions with our insurers. So we bought like a full number of, of like sales companies, which gave us a starting point. And as you can imagine, by when you buy like a number of companies, a very small time frame, not every company was a good idea, right? So this is what you also can see a lot of, yeah, on our balance sheet, a lot of impact is like these companies that we bought with a big tax shield, for example, with a loss forward. and then it's that's that we still have but then we sold a company without it so you still can see it

in the balance sheet and i think there was no alternative um to developing this way and um but there is the one or other company that we shouldn't have bought maybe that's a learning okay and it's all about the people right it's about the managers that sit on the companies and if you look um very thoroughly at them you might see where the company that really is and and what the development might be. Let's take a look at your current business angles that you currently have. Maybe let me start with- I like the paper charts, by the way, Terman.

Yeah, it's the problem I can't show it here in digital, but in the video we'll see it as a slide that's embedded. What kind of problems are you solving with these businesses for the customers you're serving? you're serving. So let's say if you are a bank, right, there's or a broker, there is hundreds of IT programs out there, right? So, but we are solution providers. With us, a customer gets IT plus data plus processes, right?

And all these three together make sense for the customers, because with one, we say plug and play, right? With one plug, with one contract with us, that for a broker is two pages long, you get access to all of our tools in all of the financial products in the German market. So there's more than 18,000 products of almost 1,000 product providers. So this is a solution that encompasses all kinds of legal and data protection and compliance things.

You wouldn't think it at the beginning, but we do this in the highest industry stranded, which is apt for banks, insurance companies and all kinds of corporates. So our customers are Lufthansa, Volkswagen, BMW, and therefore we have the highest data protection levels or information security levels. And this is something that doesn't come naturally if you look at a broker-customer relationship tool. But you also have this other business lines like gelt.e,

money.money.de to translate it, it's a direct to customer. So you have B2B to C businesses. And you have D2C business, or is there anything I missed? Yeah, so the B2C business is less than 2% or 2.5% of our P&L. So we bought Gailte, so like Money, UK, like an insurance supermarket. We bought it as a contract portfolio, and we just got the platform on top. But we used this by integrating all these end customer tools to our platform, offering our B2B clients a better use for their end clients.

So we're not marketing our platform to retail customers, but contrary to this, we use the tools that we bought, integrated them in our B2B platform, and now we are on a B2B2C model only. So because if you want to grow, right, so let's put it the other way around. If you can spend a lot in TV ads or Google ads, right, and then you can acquire customers very, So it's about 120 to 250 euros a customer so that it has to, let's say, amortize over the years.

Or you can buy portfolios, or which is our way, you can just get the customer for free by cooperating with a number of intermediaries that then you have to split up the commission with. And that's our model. So we don't use our money to acquire customers, but then we rather share our revenue with our, um, intermediaries and that's for us the cheapest way to go you have another nice chart in your presentation that shows a bit the positioning in between the different customer groups so what kind of in the value chain where are you positioned with your services and where they take place as to run the machine yeah we are we are classical platform business like in the platform economy so we we link the product providers with the retail customers right and then whoever

owns customers is our most preferred client and we looked at the list of people or companies that have the most clients in germany the most clients are sitting with the savings banks right it's by far the biggest banking group in germany as you know but but maybe the people abroad would not know so they sparcastle and folks banking as germans say yeah yeah that's right the spar customers and savings banks have 5-050 million Germans as customers and the Volksbank have 30 million these zero million Germans as customers so together theoretically if you have these two groups as customers you can yeah so you can present your platform to every single German customer in the market and that's

where we started out and as you know you there might be a question this we now won the savings banking group as a customer and we also won the cooperative banking group as a customer by attracting the insurance companies behind these groups to become our customers. But then we will still add customers from the corporate side or the private insurance side on top. I have done this insurance comparison. And if you think about the platform, it's hard to really do insurance comparison well because

insurance is especially like house ratfersichung, I think it's the protection of the things you own. There are so many levels you have to get right. So how as a platform, your job is to standardize this kind of products and a lot of still like you said legacy systems, not standardized. So how much work was it to standardize this and get this at a workflow that makes things more productive than just like making everybody mad? Yeah, that's a very good point because other than in the security side or investment, there is no Morningstar S&P delivering data, right? So the only ones who have the data really is the insurance companies. And then that's our first task to standardize all the data and make it comparable,

both on the product side and on the individual contract side. Because there's some things that it's only known to you as a customer, like your health conditions and the insurers. So we need the insurers to deliver data. Then we have to validate the data because especially on the product side, some insurers, they tend to cheat, right? So they have the product in their window a little bit better than it really is. So we have about 20 mathematicians that recalculate the terrace.

So we get a real comparison on the terrace. And this is also what we're standardizing in showing the customers a real comparison of the real facts of the contracts. And this we make really easy and very easy to use. Like you get just an overview, narrating on every product. And then with some clicks, as we have all your data in our system, you can really have a comparison under your individual risk facts. Is there a certain data fly wheel you're having when like onboarding new contracts? So Nuremberger Versaigurung is, for instance, launching a new health insurance contract and they ask you to evaluate it and onboarded.

Is it getting better your system over time? Oh, definitely, because the 10 leading insurers already use our, that's our subsidiary Morgan Morgan. They use them to, before they launch a product in the market, and in the end of the designing phase of the product, they ask us to compare the products with all others, because when they bring it, you want to be among the top three products in this product line, right? So, and if you're not, you can just stop launching because then it makes no use because nobody buys it. So people would just use the comparison calculators and just buy the top products of the best providers. And this is how the sales cycle works. And so we start to deliver benefits of our data pool very early in the product design design phase instead of just having existing products in our tools. Walk me a bit through the sales dance you do when you try to onboard new customer.

and win them for the platform. So how is it arranged? How long does it usually take till you're dancing together and not apart? Yeah. So most projects start with a real tender, right? So the big institutions, the big insurance companies, they ask the entire market to offer,

to issue offers. And until now, interesting enough, we want every single tender of these big institutions by going to all these faces and then have the decision taken on the worldwide holding board, Lufthansa, for example, you go to the worldwide holding board twice. You go up, like, during the tender office, then you get the departments of Lufthansa check, whatever, the legal, the data protection, the compliance side. And then you're up for the decision the second time.

So this circle normally takes up to two and a half years, and on average, it's no project is much faster than 12 months. So the sales cycle until you really have natural, organically growing business of this very big clients just starts after three years. So from our very big clients, only the first two or three are in an organic growth phase and all others are still in a ramp-up roll-up fix.

You have a lot of cost with this on your side. So how much does it take to do the sales good cost-efficient? Yeah, so there's more than 60 people working in these onboarding projects, right? So it's a huge, yeah, a task to talk to all these departments of these very big organizations and answer their questions right. So, and this is cost that we have now, knowing that the turnover and the earnings will come two, two and a half, three years later, right? So if you look at the first set of AT savings banks coming with our first provincial projects,

after now two and a half years, we're just onboarding the savings banks, knowing that the conversion of clients only comes after and earnings comes even after that. So the real impact on our P&L will be four years after starting into the projects. But on the other hand, you can imagine if you have these hundreds of banking institutions

on your platform with thousands or even millions of contracts, then it's very hard to leave. So it's a very stable business once you have it, but you know the downside is that to acquire it it's quite some effort maybe let's talk a bit about the world of the sparcasten and it is a bit like you said on your slide you won 100 sparcasten saving banks and sparcasten are they look united but honestly from my experience it are small like landlords who are fist and tumor as the german saying like they sit on different regions they own the regions and if the boss isn't really satisfied he doesn't do what the central

organization does how you're going about this tensions to really like it's 100 sparkassen but it's is it really like you can do business with all of them and how is the implementation done with all of the small uh rulers yeah that's a very good point so the indeed so the individual savings banking institution in the field is makes a decision what um process platform to use. But they are all combined in associations and also the public insurers or the insurers behind these savings banking associations have some say in the in the in the in the way they decide because a lot of business now comes from the insurers behind these savings

banking associations for the example like the now the first client is the provincial insurance companies that just merged so so provincial has. or is the home delivery or the home product provider for about 110 of these savings banks in western and northern Germany, right? And then it's Physicions Kamabaya and VKB that has about 90 savings banks in the south of Germany. And then the list goes down on all these public insurers

because they provide the sales support within the branches of the savings banking groups. So as you know, so our way was to track the very big public insurers behind the savings banks that have about 300 of these 370 banking institutions and coming through the door of the established sales channel with the insurance sales specialists in the branches, that was our way to attract these savings banks

instead of going from one door to the other of these savings banks in the villages. Give me a bit more details on how you earn money with your customers. Like you said, you have many small cash flows where are they coming from? So if you look at your insurance portfolio, you would not know that indeed you have more than eight, seven or eight insurance products in place, right? First, you think that you're building or household, but then you have a car, you might have a boat, you have a bicycle, you have a travel insurance, you have accident insurance, you have disability insurance. So a normal German has seven to eight insurance products, and each of them on average pays 35 euros.

So we take in these commission streams and then we normally we take up up to 20, 25% stays with the platform. We pay out 75% to the intermediaries. And this is how the money comes in. Once we transfer the contract, your contract, your platform, which we can do by reading out your bank account, and then just transfer it with two clicks. Then at the next due date, we get the commission.

And this is how we earn these, whatever, 7, 8 euros on each of these contracts that you own as a customer. So in the end, we collect all these little euro bills, and then we deduct our 25. percent and we send the rest to our intermediaries. A friend of mine who is also working in the industry, I talked to a head of the podcast and he said he thinks you are slightly a bit more expensive on this side with the service you're offering.

What do you, would you say in comparison to the service of others? Well, it depends what the range of services is, right? So execution only is the business we like best. So where we just take in the data and we throw it out in our own systems or by an API structure to the systems of our clients, we are quite cheap. We are rather speaking about 10 to 12 percent of this commission base. So that is the – and I think nobody can do it better and cheaper. But what we do is we add on services if the clients want it. We do a full outsourcing.

So we staff the call centers and do all the communication around the contracts. and then our margin goes up to 30% where we do everything for the clients and that's more expensive because there's really human beings who have to pick up the phone and it's not digital only. But in a pure play,

which we can offer, I think nobody is cheaper for the performance we deliver. Let me follow up a bit on the question how you earn money and you have this nice slide again in your presentation. Can you maybe walk me a bit through this? and explain how long does it take to get a customer fully profitable or even maybe also then upsell from basic services?

Well, it can be very quick because the system is ready, right? It's paid for and it's by an API structure, you can very easy introduce it into your own system. So there's a very good example like Sparkas and Bremen. They wanted to change their provider and after six weeks, they were up and running on our system if you use our standard system. The other example is Provincial, who had a huge list of specifications to the platform and did a tender. And after the tender, they did a merger and then they did a new tender and then they did a pilot.

And then only after two and a half years, they started the project by founding a joint venture company and only now are rolling up the individual savings banks. So now we are three years in the projects and just are still in the ramp up phase. So it depends how big the project is. But then, as you might have read, also Provincial wants to provide one million clients to the platform. And you can imagine that huge projects like this, they take longer time as compared to just starting with new business next day. How big is your yearly cost to keep the system maintained? Like, if maintains and also not mean that it keeps running reliably, but it also stays state of the art? It's about, so our IT costs, so we now have almost 100 people in IT and in IT architecture.

So it's about IT costs about 7 million euros and half of it goes into just running the system. So you have to maintain servers, data quality is about 3, 3.5 million. And we have another, like the pure development is maybe 3 to 4 million is development of the tech stack, right? And interestingly, you have to the rest of the cost is a lot of processing. and taking the data standardization and just servicing the contracts. Where do you see the best chance to grow with the customers in the future? Well, I think it's these very big customers that quite takes a little bit of time to take them on. But once the system is up and running and that what we can see with now the first big clients we are onboarding like that's Lufthansa Albatross or

or Bavaria, BMW or Rhineland, we can see that then we can grow organically because we're improving their business. You know, we are teaching them how to do campaigns with their clients, how to service them better to avoid a turn so that the people basically are happy with the platform, adding new contracts, upselling the contracts, cross-selling it. So there's a lot of ways to then, once you have the clients, to improve their business and then grow with them. So there's also this element where you onboard a client.

and make him better? Yes, definitely. So we grow in three ways. One is attracting new clients. The second is like aggregating more business and have more share of wallet. So not only get different individual business lines, but get all of their business. And the third is really by in the same business lines to improve their business by being more efficient. So the people, for example, have less inbound calls because there's more digital services and then can be used in servicing their clients.

better. Can you maybe walk me a bit through what this could mean for a client of you if you make them better? Well, let's say you are Albatos Luftanzer, right? So a lot of time for your employees goes by receiving the letters, opening them, reading them, putting them in classifiers, right, in the closet. This can all be safe because the data comes completely digital into your systems, not only for the client, but also for your internal departments that have to process all these insurance workflows. So Lufthansa, for example, could reuse almost 40 of their employees to put in their client service department

where they could service the real client need instead of only pushing paper. So you save about 30% of costs by digitizing the paper processes. And this is what you can use. Well, you can just save it, but if you can reuse the people that are specialists in the market in outbound calls to the clients and explain them more about

how they could improve their portfolio, you have basically a double impact and have a much better customer relationship and much more benefits for our customers. You said once customers on the platform, it's hard for them to leave. But in think in 2021,

ComDirect has left you. Why? Well, ComDirect just a season. to exist by being merged into their mother company, right? So obviously Commerzbank had some financial trouble, and Comdirect, their direct bank was working very well. And just after actually the same week that we had the contract with Comdirect, the merger was published.

And now Comirect is just not existing anymore. So it's not that they were not content with the system or with their plan to digitize the business. It's just, yet, interesting enough, the most retail customers we lose because they just die, right? So it's about this, almost 2% of our customers die every year, which are very sad fact, not only because it's a personal tragedy sometimes, but it's the contract then ceases to exist. Your life insurance, your health insurance just ends when you're not living anymore. So the non-existence of a customer is a hard point we have to accept.

But as most of these of our customers are companies, they have a long life. But ComDirect, unfortunately, doesn't exist anymore. What is the second and the third reason that you lose a contract? We haven't, at least not a bigger contract. We haven't lost one until now. So conduct is really the one exception. And on the customer level, I meant this with contract. Sorry, my question wasn't super precise.

After people dying. Well, yeah. So, for example, if you change your asset, if you sell your car, normally you, you seize your car insurance and then you take out another and different than other types of contracts with a car, it sometimes goes with a car dealer, right? Or you just start from scratch because it's very money sensitive and you take another point of sale. So car insurance is the type of insurance we don't like, or we most dislike because the normal duration is only three and a half years, right? And number two is pets, for example, because they only live for seven, eight years on average. And then everything else, household building, that's very nice because that's normally 14 years plus. So we like long running contracts. You mentioned the tenders you're running or you're applying to.

Who else is also running for this tenders and who then also often gets that song as the German say or just like doesn't win it? Yeah, which I think we can talk about it because they published it themselves. It's a very good company called Hyperport, right? That had some maybe some downturn, but not not so they they are ended up a very, very good second a lot of times now. but it's a company that we like because they have some they started a little bit earlier than us in the mortgage side and then there's two companies that also started as broker pools well you might have read a foreign finance because they were just bought by HD Capital so they will be there eventually and there might be so competition and somewhere down the

road so you haven't for imagine you have a new person coming from university who is also set to work on the tenders and to scan the insurance industry for tenders. Where would the advisor to this new person say it doesn't make sense to look for tenders there because we have a real bad chance to win them or there's already competitor who has taken the position? Is there any part of the insurance industry like this where you would say it doesn't make sense to allocate time for the tenders? Well, the smaller, it's just a volume play in the end, right?

So the bigger the customers are, the more sense it is to follow up the tender because there is some effort with it. So this is why we're focusing on the very big tenders. And then down the road, sometimes you have individual brokers that are quite some hassle on board because they look at 10 different platforms and ask you 100 questions, and then they just send you four contracts a year. This is not what we are really specializing. We love this because we have seen.

16,000 of these individual brokers, we love many of them, but we more focus on the ones who send more than 10 orders a year. So the bigger the clients are, the better they suit our systems. Let's take with another slide I've prepared also a look at your system or platform. What are the ingredients that make this platform you've built better? than other platforms and other technical offerings. Yeah, so I like this slide because it explains the business model best. So as I said, we started out as a marketing and product platform,

but what it means today is that you are a data processor. So our core task every day is to take in all the data of 220 insurance groups, all the alternative and, well, the SMBF platforms, the alternative product providers, the mortgaging back. So we take in the data, we standardize it, we process it, and then we throw the data out to different visualizing systems, either our own or the systems of our clients. So think about Amazon for financial products, right?

That's exactly what we do. And there is no data standard. So we have to, as I said before, you have to get the data from the individual product providers. And then you do a lot of the data, right? You show the contract data, I show you your data as a customer, then I show you all the documents behind the products. So you have the entire things that's piling up on your kitchen table normally.

You just can bring the bin and then use your little app or website to really have all this information out of your contracts. And yeah, so that's rather a platform business today than a, a sales company that you might imagine. You mentioned Amazon already. So I take the example because some investors in the US think Amazon will enter the insurance market with all the data they have. So let's say Amazon, they have a lot of money. They have the technical capabilities. But how long would it take for them to replicate something you have built?

Well, the first thing they need the entire contracts to every individual. insurance company and one for the data and the second as a sales is a broker intermediate so that's a lot of running around then they have to reprogram the platform we build and then you have to do it right so the chances this is happening is not really big so for them it would be way cheaper and to take a participation for example in jdc then to start on their own right so so if if you and now as as we have programmed this platform for the last 10 years, I think it's a very high hurdle for them to enter the market now. How much trust does a competitor, not only Amazon,

need to be able to get all this data in the insurance industry? And how long does it take to build the trust that you're accepted as a player? Well, quite a bit because as an. And you have to give them business also, right? So why would Allianz transfer contracts to our platform only that only because they know that the customer service is better when they are both digital and personal and then that the churn rate is lower or the retention of the customers higher once it's on a platform.

So this is the only reason why a insurance company would give me their client, right? And if you cannot show them that you're good for the client and you have a lower turn, then they just wouldn't do it. So if just enter the market and just, I want to aggregate the contract just to do something, move them into other industries or other products, then this will not happen. So it's a lot of, yeah, but it's very typical for platinum from business, not only about the retail clients or intermediaries, it's also about the trust of product providers. Let's go five years back and think about the quality of your processes and like the speed.

where have you gotten better also with more data and where has your flywheel gotten better on the platform so when our first milestone client was luftanza albatross and they transferred 400,000 contracts of these 120,000 luftanza employees and first there was an individualization list to our platform there was like 95 points on it which made us reprogram the platform quite a bit and they had completely different standards for information security or data protection and also documentation. So we reinvented the platform to make it industrial and make it in a banking or the Lufthansa, it's in, yeah, it's in, yeah, air travel standard. And the saying what Lufthansa says, well, we are an airline.

So it's not a 99.9% system, but it's a 100% system. So our data quality and our processes are, I know, you cannot really compare it how it was when we just did it for individual brokers. And are there other parts where you've gotten better with your systems over time? Yeah, well, what we're measuring is the rate of contracts or processes, we just do automatic, right? So the things we do not use human beings to process. And this, our rate is now by more than 80. 5%. So, which is good news because it started at zero. And now we, most of our processes now are automated, automatized. But still, we have 15% of processes that we need someone to look at,

right? So whether the data is right, whether the little, the fill-ins of our brokers are right in the contracts. So, and we start, we try to become more and more efficient. And in the end, to put in numbers, we can reuse about 20 to 25 employees, about 5% or more than 5% of our employee base and can bring them to more service and customer-oriented task because we just have the machine learn to do their job. Is there anything where you might need to grow the workforce to do future business better? Yeah, that's what we said. if we do execution only, right,

this very low margin but highly automatized business that we like, right? We can charge about 12% or 10% of the margin in this realm. The costs are very low. It's about two percentage points. For example, if we take in this 1 million

contracts of Provincial for these, with 100 million of turnover, then margins only 12 million, but there's only 2 million costs. So you hardly need anyone to really like support the process teams. But then on the other side, if we add, which we do with our joint venture EGV, or EGV, we add service components where we

offer a call center or service centers that answer emails, you will need up to 100 new employees to staff these service centers. And this is expensive because this costs up to 15 percentage points of your of your turnover and and and maybe you you earn about three to four percentage points so the the earnings quality is much better in this execution only models let's jump a bit to the level of your market the insurance market how digital is the market in your way to rate it maybe 10 is super digital and one is like all is done by paper and fax maybe three there's a long way to go and

even if we are fast our market share is like 0.5% right so and there's a lot of way to grow and and it's platform like ours that will grow you know right it's very fast to like normal levels of of of market shares and but the insurers themselves for them it would be a very long way to to digitize has the speed of digitization changed over the last years got it faster this transformation up for like from two to three well COVID really was a catalyst for digitization in the market because until then a lot of people had them penny know the customers want to see a intermediary and and this has to be all in person that's not true right customers more than half of all customers like digital and do not want to see in a sales rep in their

living room so and into their view up to 80 85 percent of all business can be done digital so this was a wake-up call for many board members who would have said, well, you know, my contract is another five years in this board and I will survive this with not re-changing the entire company because it's not only a change of processes, it's a huge culture change to, you know, to not ask the client for data, but get the data where it is with the insurance company. So this remodels many of your, the ways to do business with an insurance company. Let's maybe go back again to this. slide a bit because COVID, like I think 2020, most people were busy with just managing the

pandemic somehow. And maybe at the end of 2010 they started to make decisions towards more digitization or how do you see the timeline here and also with like your two to three years timeframe of onboarding and stuff like this. Hey, Till money here. I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community good investing plus good investing plus is a place where we help each other to get better as investors day by day if you are an ambitious long-term oriented investor that likes to share please apply for good investing plus just go to good minus investing dot net slash plus you can also find this link into show notes i'm waiting for your application and without further ado let's go back

to the conversation. But you also have to win the brokers or the broker pools. It's like insurance business, the customer relationship is really your thing. You want to have your fingers on and control it. And don't give the emails of the customers out that another person can message them and try to get them away. So this leads like digitization leads to a certain transparency in the platform. There's also, we see with Amazon that the platforms can play foul there and the smaller businesses can lose the ownership of the customer data.

How do you go about this tension? Well, 80% of your needs as a customer are quite standard, right? You have one car with the standard as cars insurance. You have a house well, it's more individual, but in the end, it's all about size and square meters. So you can do it electronically. And insurance intermediaries should concentrate on this field that is very individual, your personal pension planning, right? Your life planning. Maybe you want to do a sabbatical or you want to have your fourth kid.

And this is where it's really worth to spend time with between the client and the intermediary to talk about these important things. But 80% of all talks and time is wasted by talking about your car, household, whatever, building insurance. That's just standard and can be done with a small number of clicks. And this is what we do. Your data, if your client with the platform, your data is already completely sitting in the system. And we cannot, we don't have to ask you for all these, you know, whether you own pets or how many kids you have, how much size you need. So this is all in the system already. So it's just with like one or two more data points in about four minutes, I can re-insure your car.

Or with like two minutes, I can re-insure your household. So it's very, very efficient, and I can spend my time with you as a client in just talking about the things that really move you and where you're different to all other clients. Maybe you walk me a bit through if you have a customer-facing insurance broker and their client comes, says, hello, I want to become your new client. What is on the customer-facing side happening with your systems involved? So Dieter-Muller comes and once I have a new insurance relationship with the advisor. Yeah, so there are two ways of customers. One is Dieter Miller comes to me, says, I bought this new car.

I wanted insured and I have three minutes, right? So that's number one. That's easy. But then people that come to you said, well, I don't want to have anything to do with all these paperwork. I don't understand it really. I do not want to spend time help me with organizing it. And then we say, well, just let me read out here, sign me a broker proxy.

Let me read out your account. Here I show you like within like very short of time. I see your account. After two minutes, I can tell you how many insurance premiums you pay out of your account. And then you were aware of the customer for the first time how many insurance contracts you have. Because obviously they are paid at certain different time periods. Most customers have no clue how many contracts they have. So for the first time as a customer, this Mr. Mueller has like a full view on his insurance portfolio. Most of times he has two or three accident insurance.

because not only his best friend, but also his brother-in-law sold him one, right? And he has three different life insurance products that don't fit together. And maybe he doesn't have a disability insurance or a liability insurance, which he definitely needs. So with a, let's say, the DIN norm, so with the, a group of German scientists and industry, they issued standards, how he should be insured at this point of age. and so he gets a comparison of what he already has and what he should have. And so at some points he's double in three times insured and there's a gap. So very easy, I can show him what he should have in his product portfolio

and then can take out with some more clicks, take out new insurance or cancel insurance, which is double insured or three times in short. And after a process of between 25 and 45 minutes, a customer is very happy to have it all clear and very transparent. And as we give our customers also these comparison tools, he can even check it up whether he has the best insurance and the best price performance relationship. And this makes very, very happy clients that whenever they have a problem

in their financial or insurance world, they come to me as an intermediary and use me as their number one intermediary. Let's also look a bit on the broker side, the insurance broker side, the insurance broker market, I think the demographic clip you have in Germany, there's a demographic canyon because I think 40% of the insurance contract, 140 million, will have to look for a new advisor because a lot of the advisors retire. It's a quite old cohort that has like customers in their age group as well a lot, but a lot of these people will retire and their insurance mandates will look for new advisors. So what do you think about this as a chance

for you and what does this demographic shift mean for you? Yeah, as you say, there will be much more market for the individual intermediary, right? So in the broker side, it's even worse, though every second broker will go out of the market. So he cannot really do it non-digital because they do what they do and they're already like full-time working on the clients they have, but there will be the double number of clients and therefore contracts on the individual broker. So the only way is to cope with this development is to become more efficient in their daily work. And instead of using 60 to 80% of my time as a broker to do all this administrative stuff,

to reduce this to maybe 30 to 40% and for the rest, do value creative stuff and talk to clients. So also we will see more aggregation. So there will be bigger broker like partnerships or big brokerage houses. And they need different tools because they have. they need workflow management and become modern companies and so demography alone is will be a huge driver for digitization in this field and and then if you look at environmental arguments you know it's crazy that in your household half of the correspondence half of the letters um is paper and is insurance papers right it's insurance changes of contract or or information to you as a client

So we can save tons and tons of paper and the energy, all this fuel in the mail trucks, if we use digital tools. So if there's an issue with a lot of brokers going out of business, it means that also like the other brokers have to pay more. And maybe after the drought, there comes a flood in the security of the markets. Do you think that many more young people will then enter the broker space? or do you think it's hard to really get like young people into the space? Yeah, so it's not attractive at all for a young person to get in this paper closet room

of their parents maybe who are brokers and look how they do business. But we see that if we fully digitize the business, then an insurance broker is actually a very nice job because you talk a lot of people and you have real need of the clients that are very grateful and it's a very clean and and value creative job right but still there is the old picture of someone sitting in a paper crowd overcrowded room with a lot of boring work and this is not really attractive and this is the reason why there is a drought because young people choose to work for many companies but not for an insurance agent or broker i'm jumping a bit back now to the Sparcasten because I got this idea of the so-called direct for the direct

sale of like funds for instance DECA funds and stuff like this with your tools it is a global comparison you're doing you're providing for the service providers and not as like that certain products are focused that are in-house products that they want to sell especially DEC has a very good example right so 15 years ago or 20 years ago a savings spring would offer DECA only. So the only just one product line, right, and with one product provider. Today, if you go into savings banks,

you can buy every single fund that has an AISN worldwide with your savings banks portal. So very modern, well-developed, and that's what I expect as a client that I have a modern partner in my advisor, in my financial advice. Funny enough, if I go to an insurance side, there's only one product in the shelf. How can this be, right?

And it's very easy to say the reason why the savings bank are having third-party products because at point of sale, they're selling more and have more trust of the retail clients. In the end, the business volume is much more to a point where even DECA is benefiting, because in absolute terms, even if they now sell maybe only 80% of products sold in savings banks, is DECA, the absolute number of fund transactions with DECA is higher than before because there's more customers using the savings banks as their portal for the investment cycle. The same will happen in the insurance side when they allow third-party business and have the customers see their third-party products, then there will be more volume of insurance

business done in savings banks branches and in the end savings banks will place more business for Provincial or VKB and all these other insurance companies. So it's a very natural thing in benefiting, you know, benefit for all market participants. It also helps Sparkassen to win by customers that have left because the offering wasn't like especially tailored I have left then and went to a special broker because it was more in my interest to get a better selection than Sparkas I had. And I'm a good example also. I'm a savings banks customers.

You remember these trucks, right? the buses that would drive around in the elementary school and would give you a five marks credit if you open account. So basically that's how they attracted their customers. And I went away with my investment business a lot to go to a specialized bank. But now I'm back because my accounts are with the savings banks and my credits are with the savings banks. And it's very convenient to do all my normal investment business

on a savings banks platform that's very modern. It would be even more convenient. And this is, I think, the strong strength of savings banks because in Germany other than in other company, once a week people take their cash out of an ATM machine in a bank branch. So there's real customer contact. You mentioned this big pools that are now generating of insurance brokers and that need special tools for the needs like workflow management and stuff like this.

Is this also something you're thinking off as a business line or is this out of your focus focus focus as a platform well what's happening now is is that um as the tech development is so expensive there's uh like platform businesses joining up with money that's private equity coming in um and and some of the product providers to have these um big market participants that will form like own platforms and um in our view same as in other markets there won't be another what like today there's maybe 30 broker pools my belief is that as the tech investments are becoming more challenging and also the regulation investments are becoming more challenging the number of these platforms will go down rather right and they will have a full stack of services and products

and combined with money pots given by private equity companies they will also heavily buy in the markets so they will become relatively way bigger than the market participants today we are mostly talking about the german market at the moment but there's also europe around you like i'm not sure if there are many european countries that love insurance like the germans do but like if you look in the different european markets and their own dynamics which market could be a kind of a role model for you would be possible in germany or might be like five or ten years ahead of germany Well, we don't believe it, but in this insuretech side, Germany is really market leader. So there's no other company that has such, so much digitization in the insurance industry as we do.

So even if we are slow, let's say, let's put it this way, other countries are much slower. So we are one of the markets in Austria and we have some business in Czech Republic in Slovakia, so we can see that there is not as much, well, maybe there's some Scandinavian countries that are, that are, that are more digital, but they are much slower. So, and if I speak to my international investors a lot, a lot of people like in Singapore or in the US would say, like, wow, that's fantastic. I would like to have this as a customer.

So we could export the platform and will do so after like just, yeah, grabbing all these low-hanging fruit here in Germany. Yeah, we start, we'll start to expand whenever we find good management teams in different countries, such as, the Netherlands, Switzerland, we'll talk to these teams and then maybe acquire smaller companies because there is no other insurance platform like this in Europe. What is your playbook if you think about expansion, like how you're going about a market? Are you going like that there's a pull from the market that is pulling you in?

Are you looking for the management teams just as you explained? Well, the easiest is to grow in Germany, right? So we have a 0.5% market share of all the insurance business in the markets. And for us, it's very easy to grow whatever, 2, 3, 4, 5% and why not 10% to grab like quite some chunk of the German market. And only with the contracts we already have, savings banks and cooperative banks and these other big customers, we will grow fast in Germany. But then if you find platform teams in neighboring markets, yeah, we would buy these small platforms and then expand from there. So on the international level, there's no competitor you would, so to say, fear or that might be challenging for you, you've spotted? Well, we don't know any.

And also the investors we have don't know any. That's more advanced. So no, there is no big fear. There's always talks about when Google comes into the market. Why should they, right? So their insurance business is running perfect, but just selling ads. So why would they do the hassle to buy a tech or to build up a tech platform? So I don't believe that they are coming.

So these talks are gone. Right now, it's a very good market positioning for us because we are winning all these tenders, meaning we have the leading tech stack. And this is what we can roll out in other European countries as soon as we are deep enough connected in the German markets. Because right now it's all about getting all. all these big customers in Germany, but then we'll not stop but go abroad. Maybe let me ask you, what do you think of your business will be in five years?

So imagine we are having a chat again in 2027. What will you tell me where you're positioned and where you also laid the fruits today for being positioned in this matter? Well, if you look at developed platform markets, right? So it's not really rare that big platforms have 25. 30% of the market. So we know now, five years or not, we will be way bigger than we are now. So if we only take in the contracts we already have, savings banks, corporate banks, again,

all these big players. So it's very easy to think that from this $250 million, we once gave as a vision for $25, why should we not have $500 million in turnover earning about $50 to $60 million, right? So you can see that once the platform scales up, it's much easier to earn money. So now the platform is paid for. There's no CAPEX anymore needed to develop any further. So with the existing platform, it's no problem to take in these volumes. And then it's a very profitable company with a very nice valuation.

And then you can go away that Fidelity took in UK or Schwab and US to be one of the leading platforms and platform providers, process providers in this market. And then this can be really, really big. So that's still far out in the vision. but I think investors can see that, you know, step by step by step, we will execute on these back contracts, we will take in all these volumes, and then they will see a growth 20% plus year over year,

and this will us bring to these huge volumes. And I don't see any reason why this should not happen, right? As we know, there's a lot of things. There's always waves in the market, there's terrible things like Ukraine wars and inflation. But over time, like midterm and long term, I have a very good perspective on this. Where you're looking to protect, to do a mistake or that something goes wrong on this journey?

Is there anything you especially focused not to do or to not run into? Well, very high focus on data security and process security, right? So what's the worst, what that can happen? you know, then, you know, Russia hacks you and whatever takes away, you steals your data. So I think that's the, that's the worst. And we have high standards of penetration tests and data security levels to avoid these cyber attack world and to lose the data. Because the rest, I think you can see, you know, we have a clean balance sheet. We are net cash.

We have good cash flows. We have good customers. It's very stable. It's recurring. So I don't see big risks on the business side. As long as our screens or our machine is running and is producing data. How much, if you think about the other markets, you've proven that you can do business in Germany. But European markets are also bit like markets in themselves or nations that have way to build trust in a certain nation.

how do you think about this like it's easier to scale in the US if you have a common market with 300 million people or 400 million people but in Europe it's you have to take country by country which brings you to a stronger position because if you once I've taken it it's harder for others to enter but you have this national focus and this national trust so to say how do you think about this well the fun fact about the US is that in insurance they're also fragmented right so you have to go state by state so you start the big states like New York and California and then go state by state. And same applies here.

Well, in the perfect world, Europe should be regulated level playing field. But as you're right, in the end, it's one, every market's different. And especially every individual system of insurance companies is different. So we would go to these markets and have individual contracts with the individual insurance companies and then do this, this acquisition work to then be able. to start these platforms. But our platform works in, like, it works in, it's existing in English and Czech in Slovakian, for example. It's very easy to now translate all these little tax surfaces, the text surfaces. And it's working for all, you know, insurance. We do this for Austria,

basically, a lot of insurance transactions. And that's not a big problem. It's rather on finding the right management teams to run these individual platforms in the other market. What do the right management teams need to have, to be right? Well, they need this digital view on the industry, right? Because most people, they look at the industry and say, if we digitize it, we just copy the paper processes into digital, and that's wrong, right? So digitization means, so our system to just ping the data stream from an insurance provider, with your name and the name of your just you say you tell like your car insurance is with

alliance and under your name alliance is so nice with with one signature on your smartphone to send me all your data for example on your car under your name or all the cars and it's very easy and if you realize that the data stream can can be reversed and using the data where it is and it has a lot of efficiency gain there we mentioned COVID we mentioned the demographic change, some kind of tipping points that could go in your favor? Do you see other tipping points like this or structural changes that could go in your favor? Well, I think we have a lot of tailwind by demography. As you mentioned, one, digitization is two, and then aggregation, which is three.

So that's already a lot of tailwind there. Well, we'll see what comes. We know that regulation is not a headwind because that's, you know, IDD, Mephit that's done, right? Data GDPR, data protection is done. So ESG is rather positive than negative is some effort, but in the end, it's good to, because the clients think that way. So right now it's a lot of positive signals for our business model. Let me for the end ask a small question on numbers,

because you have many investor talks. What are usually things investor focus or ask about questions when they see your numbers or ask number related questions? Well, there's the typical German investor question, you know, why is the summer quarter always a little bit weaker than the Q2 and what do you expect for Q4? I love investors that have a midterm view on Z rather entire years and then year over year. see the path and then have a whatever three to five year horizon to really, you know, watch how the platform is developing.

And I think that most investors question are very similar to your questions. You know, it's like on all these very big projects because they are harder to understand and what's the implication of it and also understand the huge volume that is behind these contracts Because if we take these big numbers that whatever, Lufthansa transfers, 400,000 contracts or Provincial is expecting 1 million clients, it's quite an intake for the investors to really see these big numbers that are coming. Or the 140 million that will have no advisor for demographic change. It's also like a number that just like, but it's a fact, right? it's a lot of facts that are in favor of our model for the end of our interview is there anything

you want to add we haven't discussed or that comes to your mind as important well we we have we have touched upon this aggregation game that's happening right so the so in the end german insurers could have been the drivers for consolidation the market which they are not right So there's still 500 insurance companies out there, 220 of them doing business with brokers. And on the intermediary side also, there is now the first rollout models, but it's still very fragmented.

There's more than 200,000 intermediaries. And what we've seen other markets like US and UK is that there is now money pots, investors coming, buying these brokers heavily. And this is why together in a joint venture with bank capital in Great West, we are now starting our old roll-up model. And with, you know, equity piece of $150 million, there will be debt of but $350 or something million. So we have like firepower to buy now a lot of other smaller market participants to even grow the platform faster.

And this will be another fuel for our growth. This landscape that isn't consolidated is also in your favor. So we have many small players and with many small players, the platform makes much more sense. That's true. But in the end, you have to stay in front of the wave to be the one platform because it's a lot in the platform world, it's a lot of the winner takes it all, right? So next to Amazon, there's other platform, but the market leader has, and that's the one who develops their relationships to all kinds of product providers' customers and the tech the fastest has a lot of tailwind. And thank you very much for the interview and thank you much for your time. and thank you very much for the years to stay till here.

Bye-bye to all. Thank you, Timman. Have a good time. Bye-bye. As in every video, also here is the disclaimer. You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we're doing here is no recommendation and no advice.

So please always do your own work. Thank you very much.