[00:00:00.08] SPEAKER 1: We want to be helping carriers ultimately improve their combined ratio and either that's through lowering expenses or helping them grow premiums or sometimes even doing a better job writing business.
[00:00:14.24] Narrator: This is the Insurance Technology Podcast where we bring interesting people from across the insurance ecosystem to discuss and debate technology's impact on the industry. Join us each episode for insights and best practices from industry stewards and tomorrow's innovators. Now, here's your host, Reid Holzworth.
[00:00:35.13] REID HOLZWORTH: Welcome to the Insurance Technology Podcast. I'm your host, Reid Holzworth. In this episode, we're going to meet Luke Magnan. Luke is the co-founder of Combined Ratio. I recently met Luke, and actually, he was referred to me by one of our previous guest. I got jumped on a call, got to know Luke. An, man. he's a really smart dude, knows this industry very, very well and, once again, seems like a pretty good guy.
[00:01:01.21] So he's on. In this episode, we're going to get to really learn about Luke himself, childhood and where he came from and how we started Combined Ratio. Stay tuned. Really excited to have Luke on the show. I met Luke recently. Your referral from a previous guest, and spent a little bit of time with Luke and, yeah, really enjoyed our conversation. So I'm really excited about getting into it today, Luke. So thanks for joining. Welcome.
[00:01:33.59] LUKE MAGNAN: Yeah.
[00:01:34.78] REID HOLZWORTH: All right. Before we get into all of your insurance and insurance technology knowledge, especially as the chief insurance officer, let's learn a little bit about you. Let's learn a little bit about Luke. We like to start off-- The listeners love to really understand the person and get to know your background. So Luke, why don't you just tell us a little bit about yourself. Give us a little bit about your kind of early childhood background. Where did you grow up? What was family like, wife, and favorite hobbies, sports as a kid? So tell us a little about yourself.
[00:02:06.80] LUKE MAGNAN: Sure. Yeah, no. So I grew up in Connecticut, not too far from where I live now as an adult, your very typical '80s, '90s middle-class family in upbringing, live with my folks and my sister. I played sports but certainly never excelled in them and nor was it ever my interest. I was into video games. I had a great group of friends.
[00:02:39.77] I was like a theater kid, sort of starting that young and getting a little bit older. And I guess maybe relevant for this is I always had an interest in computers. My parents, they wouldn't buy me a video game console, a Super Nintendo like everyone else had. they gave me this old computer. And in order to play games on it, I had to learn a whole lot of things. And I think that really started me on the path that I'm still on.
[00:03:08.69] REID HOLZWORTH: That's pretty cool. Do you still play video games? We'll get into this a little bit later. Do you play any video games now, Luke?
[00:03:13.16] LUKE MAGNAN: Yeah. No, I'm a video game guy. Yep, absolutely. And I've got two-- Oh go ahead.
[00:03:19.28] REID HOLZWORTH: What are you into now? what are you into now?
[00:03:22.01] LUKE MAGNAN: Oh, yeah.
[00:03:22.49] REID HOLZWORTH: I'm jumping ahead.
[00:03:23.60] LUKE MAGNAN: Yeah, real quick. So I'm into this Baldur's Gate 3. I'm a Dungeons and Dragons nerd too, so that game of the year, best game I've played in a long time. There's also a game Rimworld that I love. I've got hundreds of hours in. And then the Civilization series from the first one through the sixth one now, hundreds and hundreds and hundreds of hours, creating ill-thought out and ultimately destined to fail civilizations.
[00:03:53.48] REID HOLZWORTH: I thought I knew a lot about video games, but I have no idea about any of those.
[00:03:57.89] LUKE MAGNAN: I know. You know what's funny, I try to keep the nerdiest parts of my interests like to myself. But now, as I'm like in my 40s, I'm like, oh, who am I trying to impress? I'm just out there.
[00:04:08.75] REID HOLZWORTH: That's awesome, man. All right. So what did you want to be when you grew up when you were a kid?
[00:04:13.01] LUKE MAGNAN: Yeah. I mean I wanted to be an actor I think up until I was well like I'd say up until like solidly middle school like that's what I always did it was my hobby I thought I was all right at it. That was sort of my early plan.
[00:04:27.95] REID HOLZWORTH: OK. All right. So tell us about high school, man. Who were you in high school? What was your favorite band, first car, you know? What did you do? Tell us about Luke as a high school kid. I think we got a glimpse of it already. But go ahead.
[00:04:40.52] LUKE MAGNAN: Yeah. No, I'll give you more though. So like high school, you know, again-- so I'm in high school from, what? '94 to '98, so I was very into that grunge '90s rock scene. If anyone listens to SiriusXM, like that lithium radio station, that was 100% my scene then and very much still to this day. I was a drama club kid. And I had just a great group of buddies. there were eight of us. We still hang out all the time to this day.
[00:05:13.33] But yeah, that was it. In high school, I was also one of those kids who-- so I guess related to the car, so I had a car, a '96 Mercury-- I'm sorry, '86 Mercury Sable. But in order to have it and drive it, I had to get a part time job. And I was one of those kids that got a part time job and probably put too much of myself into that job. I loved it. I loved working. I've always had a job every minute of my life since. But yeah, I think that was me in high school.
[00:05:44.02] REID HOLZWORTH: What was your first job? What did you do?
[00:05:45.90] LUKE MAGNAN: Yeah. So I worked at a department store, a company that is now Macy's up here. And I sold men's suits for a while and--
[00:05:55.22] REID HOLZWORTH: Oh, I could see it. I could totally see it.
[00:05:57.51] LUKE MAGNAN: Yeah. You know, I gravitated towards-- it's a story for a different time maybe, but I always gravitated towards commission retail jobs. And so between 16 and 20, that was a place where, if you were a little scrappy, you could make just enough more money than your friends that you sort of felt a little bit fancy. So I always did that.
[00:06:20.64] REID HOLZWORTH: That's awesome, man. All right. So was that your first job? That was your first job working at the department store.
[00:06:25.08] LUKE MAGNAN: First job, did that all through high school, yep.
[00:06:28.51] REID HOLZWORTH: Oh, that's awesome. That's great. So what about after? What happened after? So now, you're coming in to becoming an adult. So you went off to college, I assume.
[00:06:37.15] LUKE MAGNAN: Yeah.
[00:06:38.11] REID HOLZWORTH: And tell us about that experience.
[00:06:40.52] LUKE MAGNAN: Yeah. So I went to a small school in Southern Pennsylvania for my undergraduate, York College of Pennsylvania. I started there as a political science major. At this point, like well into high school, I realized that I was not going to be an actor who made any type of money or could support myself--
[00:06:59.50] REID HOLZWORTH: Why?
[00:06:59.71] LUKE MAGNAN: But I wanted to be a politician. I was thinking maybe law school, so I went to this school and started off as political science. And then had this chance run-in with a bus driver in the middle of the night, going to BWI Airport and just me and him on this bus. And he's chatting with me, and he's like, "Well, what are you studying?" And I'm like, "Oh, political science." And he turned around and he looked at me and he said, "Well, that's what I studied in college too."
[00:07:24.76] And so, I was actually on my way to fly home, and it sort of really made me think. And I went back to school. And I said, you know what? At some level, I should just do what I'm good at. And so, from there, I changed my major to computer science to be a computer programmer, something I had done since I was a kid. And yeah that's, what I did. I studied to be a computer programmer, did the standard college things, graduated a year early to chase a girlfriend who was a year older than me.
[00:07:57.24] She was going to a graduate school back where I grew up, went back home. But when I graduated school, the dot-com bubble had just burst. And there were not a lot of entry-level programming jobs out there. So my mom clipped out like a classified ad from a newspaper and mailed it to me for a programming job at an insurance company in Hartford, Connecticut. And I applied, and I got it. And the rest was history.
[00:08:26.31] REID HOLZWORTH: So first real job was a carrier.
[00:08:29.06] LUKE MAGNAN: Yep, at a carrier. And so, again, so I'm like this computer science kid, and I think I'm pretty good at programming. I wanted to do something cool. And so I get this job, and they tell me like we're going to train you up to be a mainframe programmer. So my first job was maintaining a system that was first implemented at this carrier two years before I was born. And we're talking like green screens, like the matrix, and it was not glamorous. And I fought against it for a couple of years.
[00:09:05.18] But the interesting thing there was the way that-- this was an IT department that had evolved from when IT first came into financial services organizations. And all the business analysts were all ex people from the business. They were CSRs, at the time what we called UAs. And they were customer service people and stuff. And I'm working in this group of maybe 100 people on this dinosaur of a system, but there aren't a lot of young people. And the older people that were there that had all this industry knowledge, they really took it upon themselves to give me an education on what was happening.
[00:09:42.19] So after a couple of years, you know, I'm like the only young person there. Everyone's retiring. Everyone's rooting for me. And I really made a decision. I was looking to leave the industry. I wanted to go do something more technical and cool. And I said, you know what? I'm going to lean in on this insurance thing for a bit. So I didn't get a chance to do, I guess, mildly modern programming for a couple of years there. But then jumped over to solution architecture, where my ability maybe to communicate started to become more of an asset for me. And yeah, I went and did sort of architecture and enterprise architecture, big giant project stuff at the Hartford and stayed there for just about 10 years, I guess.
[00:10:23.46] REID HOLZWORTH: Oh, wow. No kidding. No kidding. So then what happened? After, the Hartford, where'd you go?
[00:10:27.90] LUKE MAGNAN: Yeah. So now, I'll probably do my best not to name names. So at this time-- so you figure this is let's say between 2006 and 2010-- the consultants were coming in to being insurance technology organizations. And they were coming in to land fire everybody that had taught me everything I know and make everything just big and fancy. And we're doing this big implementation for a piece of software that I helped bring in. And it was just so obvious to me that, at the time, my career path wasn't going to just stay in one place and move up.
[00:11:10.80] They wanted people with consultancy backgrounds to get to where I wanted to go. So I had a great relationship with the founders of this technology company that we brought in. And one day I got frustrated, and I called them up, and I said, listen, if I could get permission and the OK from my organization, do you guys have a job for me? And they said yes. And then just like that, probably without a lot of thought, I made the transition from carrier IT to vendor IT. And so then, I ended up at Agency Port up in Boston. Yeah.
[00:11:44.46] REID HOLZWORTH: Oh, yeah. Oh, I think you did me. I forget that. Yeah, I forgot that. Got you. so you went to a consultant, not to name names and then--
[00:11:54.95] LUKE MAGNAN: No, no, I'm sorry. I was still at the Hartford. I never went to that consultancy route, but that was the decision ahead of me. it was like, if I didn't become a consultant, I was not going to be able to rise in a carrier, I felt.
[00:12:05.84] REID HOLZWORTH: Oh, I got you. I got you. OK, my bad.
[00:12:07.64] LUKE MAGNAN: So instead, I said, no, you know-- and those consultancies, God bless them, but if you don't start right out of college, I feel like-- it's questionable coming in as an experienced industry person, at least for me. So I said, nope, I'm going to go on the vendor side, and yeah. So I was 30 years old, 2010, and I jumped over to the vendor side. And I've sort of been on that vendor side, vendor software company side ever since.
[00:12:35.62] REID HOLZWORTH: So were you really early on in the Agency Port days?
[00:12:38.66] LUKE MAGNAN: No, no, no. The party was over. There were some movements in terms of private equity and some of that things. I was there for two years, did solution architecture for them, did a little product management for them. Honestly, it was a huge culture shock for me because I come from this environment, where I'm probably too fancy for my age at a huge carrier. It was meetings all day long.
[00:13:07.32] There was a budget, but you didn't fire people when you went over budget. And then I moved over to this sort of scrappy software company. It was all roll up the sleeves, get things done. There was definitely sort of a culture shock for me, but it was overall a great experience. I look back at how that organization was run every day in my company now. And, you know, I have a lot of respect for what that was and what those guys were doing.
[00:13:32.87] REID HOLZWORTH: That's cool. It's great. The Agency Port story was a great story, you know. so then, were they part at this point-- I don't know the dates of whatever. this was pre-Duck Creek, I assume.
[00:13:43.40] LUKE MAGNAN: Yes. So I left right before that Duck Creek thing happened. I was living in Boston at the time. And I was sort of living there. I was ready maybe to come back to the Connecticut area. My family was here. My friends were here. And so, somebody at Insurity had reached out to me like as a job. And I ended up jumping to go to Insurity here in Hartford. So left agency for whatever to Insurity to, again, do solution architecture for a new product they were rolling out. And then that's when I really sort of got more involved in sales, sort of sales engineering and things like that.
[00:14:27.32] REID HOLZWORTH: Oh, no kidding. All right. And so, you did that Insurity for a while. And then what? Then what, Luke?
[00:14:31.64] LUKE MAGNAN: Yeah. Yeah, we'll go through it. somebody reaches out to me, again, like a headhunter about a new job to go work for Xchanging. Xchanging is a London-based company. They did a whole bunch of technology around Lloyds, and they had this legacy product that was in some big companies. And they had a brand new core system, policy claims, billing, seating. And they were looking to really good out and take on the US market with that product.
[00:15:00.39] So I said, this sounds exciting. I jumped over and did it. It's where I met my partner now, Mike. And so, for five years, we were really out there trying to jam, you know, London-centric international software into the US market. And honestly, it was great. we had some wins and some successes. We went to a lot of big shows with fancy booths. It was a real great experience. And then they got bought by CSC, and then CSC very, very quickly merged with Hewlett Packard enterprises to become DXC.
[00:15:34.92] And while it was very exciting, I guess, what those guys were doing, it wasn't for me and my partner, Mike. So we had some time to put our heads together in a lull of work there. And we said, you know what, looking out at the industry, it doesn't seem like there's geniuses running all these organizations. Some of these organizations--
[00:15:55.55] REID HOLZWORTH: What are you saying, man? Come on.
[00:15:57.60] LUKE MAGNAN: Well, listen, some place may be. But there were a lot of goofballs out there doing it too. And we were just like, well, we're goofballs. If they can do it, we can probably do it too. So we found some funding from some guys that we had helped in that their jobs, quit our jobs. we were going to be a software company, started building this seeding platform. That money fell away due to some legal things that were going on with the money guys.
[00:16:26.12] And so, Mike and I are left with maybe two or three developers, no money, and looking for jobs. And it's like December or Christmas is coming up. We have young families. And then we said, you know what we're going to try to do? Well, really, it was our partner over in Russia at the time who was like, well, guys, what are we going to go do now? And Mike and I were like, we're going to go find jobs.
[00:16:51.73] But he's like we got to developers. Why don't you just shake your network, and see if we can do some services work with these two developers and just keep us going. So Mike and I said, listen, we're not interested in going out and finding more money. it feels fraught, and it's hard to know what any of that looks like. We're like we'll go spend three months. You know, no money, three months, let's just see if we can make something happen.
[00:17:13.31] And since yesterday, Sunday, we've been doing that same thing for six years now. So we found some people, services worked, grown from four people to about 125, 130 people and never took a dime from anybody. now, we have software products that we sort of self invested and funded to build out. So certainly, been a roller coaster, many ups and downs, but that's the story of, I guess, yeah, the combined ratio of the company and how we move through it.
[00:17:49.20] REID HOLZWORTH: So why the name, Combined Ratio? I mean that's quite a term in this industry. Why did you name it that?
[00:17:54.92] LUKE MAGNAN: Yeah. Yeah. And I'll just tell you, it is embarrassing how when you're starting a company, how much time we spend thinking about what the name should be. So like we were all over the place on what we wanted to do. So this last company before it got bought by CSC, the brand we were operating under was Xuber, X-U-B-E-R. And that was like a cool tech sounding name, but it meant nothing.
[00:18:19.97] And it sounded too close to Uber. And i guess my preference was just we're industry people. I've spent my whole career in insurance technology. My partner, Mike, started off as a producer and then went to the agency technology side. But we wanted to differentiate ourselves on being property casualty people. And so, we wanted to choose a name that reflected what we were doing. And I was shocked that Combined Ratio was available for a domain name perspective.
[00:18:51.72] But when you think about it and what our vision has always been is that we want to be helping carriers ultimately improve their combined ratio, and either that's through lowering expenses or helping them grow premiums or sometimes even doing a better job writing business so there are fewer losses. That's the level that we want to be communicating our value at as opposed to just doing big giant projects or this and that. We wanted to be more focused and aligned on what our customers wanted. And so combined ratio sort of came up.
[00:19:23.84] We did do a little pivot at first, like our URL, our domain name. It was Combined R-A-T dot I-O. And I love that. I thought it was modern and great.
[00:19:35.99] REID HOLZWORTH: That's so nerdy. Nobody else would get it, but yeah, it's good.
[00:19:39.71] LUKE MAGNAN: The way that I found all the employees were telling people their email. It was something dot something at combined rat dot I-O. so my partner Mike is getting all agitated with me about it. And I'm like, if we could get combinedratio.com, I would have done it. But it's not there. And then he's like, are you sure? And so, this is like three years after we're in business.
[00:20:00.63] And so, I just go to GoDaddy and take a look. Sure enough, combinedratio.com is available. So we snapped that up and made the pivot, but I miss the old one still.
[00:20:10.64] REID HOLZWORTH: That's awesome. So tell us a little bit about your business, your role. What is Combined Ratio do today? Who is your customer? What do you do? And then what is your role and how are you impacting the industry? That said.
[00:20:22.49] LUKE MAGNAN: Sure. So we have two silos. The biggest silo by far is our services silo. So this is where we're really doing a couple different things for predominantly insurance carriers, although we do have MGA clients as well as big giant broker clients. But we'll go in, and one of the things we do is, if there is a technology need that is not easily solved with off-the-shelf software, we'll do bespoke builds for insurance companies, right?
[00:20:53.75] So there's a couple things that we've done. These are things typically where companies are like, we think that this is a differentiator for us. We don't want to do what everyone else has done, and we need a little help to build something that's enterprise caliber. That's something that we'll do. oftentimes, companies have already built these systems, and for whatever reason, they're an older technology. And when they go to market to try to find a replacement, they can't find something that works exactly the way they need it to.
[00:21:21.84] So we also do a lot of legacy modernization. This is typically full re-architectures, full rewrites, getting things from legacy software, legacy back ends into modern cloud native architectures and then handling the hosting, future development, things like that. The third thing that is really one of our services tenants is around configuration. So everybody wants to buy configurable that used to be, now, it's like low code, no code type platforms. And the sale makes so much sense.
[00:21:56.43] It's like, hey, you don't need expensive technology people. Just let your business people do the work or maybe let your BAs do the work. The reality is that the best of these systems still requires a little bit of a technical mindset. And so, where we've been very successful is getting lower cost people who don't have what it takes to be maybe developers in some of the geographies where we source from but are still people with computer science degrees, who understand how an SDLC works, and getting them really up to expert level on configurable systems, and giving people a little bit of scale there.
[00:22:30.74] Too many words, those are the three levels of services we really offer now. And then on the product side, we have built two products. One of them, we say it's an agency engagement platform. It's really a insurance-specific CRM system, something that puts the agent in the middle of the transaction as opposed to making you shoehorn the agency in later, helps you get a handle around your distribution centers that's impacting gauge. And then we have a policy system to very lightweight, very configurable very inexpensive. Made quick speed to market, get up, get some business on the books without having to do big giant core system implementations.
[00:23:15.84] And then, I guess, relating to your questions, how are we changing things, we built those products again without investment, without venture capital. Nobody is sitting on us saying, we need you to get X amount of return on those products. it's the products are finished in production, premium running through them. We sort of looked at, OK, what's the next step? do we do we find some money or invest our money in big marketing plans and go to the shows and start competing with some of these well-established guys or well capitalized guys? And it just felt like that was just more of the same for the industry.
[00:23:54.16] So what we're actually pursuing now, and it's a little early days we'll have more as we get to the end of the quarter, is that we're interested in donating this software to the industry. particularly the policy tool, nobody's policy system is a differentiator for them. No one's like, I'm in love with my policy system so much.
[00:24:17.64] The thought is, if we just donated this software to somebody-- the source is available, instruction. You could get this up and up on your own for something very quickly and give it something the industry could take, it do what they want. We've got some organizations we're talking to about managing this for us. If people were interested and took care of it, we could just offer a level of enterprise support if people are interested, like the Red Hat Linux model. That's something that we think is it's just different. I think it feels like a little bit disruptive.
[00:24:49.98] And we hope that it starts a conversation about how much technology really should cost for these commodity-type functions, back office functions. Put your money into grabbing excellent third-party data. Put your money into your distribution channels. but if it's about processing endorsements on a workers' comp or a GL policy, that's something that feels like it should come in at a much lower price than what it comes in today.
[00:25:18.62] REID HOLZWORTH: That's interesting. So I want to dig into this. But before we do, so basically for the listeners, what you're saying is you built a policy system that you're going to give away. and, in turn, you'll get services work out of it. But before we get into that, because I really want to beat that up a little bit, what are mostly the-- if you had a list a few of the systems that you mostly work on at Combined Ratio today, what would they be? Like policy systems? Like are you working on Salesforce? So like most of what you do-- Yeah.
[00:25:51.17] LUKE MAGNAN: Most of what we do is on the core system side, so policy claim, billing. And most of what we do is probably on the policy side. And, honestly, we've done a bunch of personal line stuff. Our specialty is in commercial lines, and our niche is in the excess and surplus non-admitted market. if I had to say that in a more succinct way, it's underwriter-driven property casualty business. It's stuff where an underwriter is in there making real decisions. And it's more complicated risk maybe than like this flow business that can just come through and get automated submission through issuance.
[00:26:32.41] REID HOLZWORTH: That said, the system that you built that you're going to be offering for free, essentially, is it good for that market?
[00:26:41.18] LUKE MAGNAN: Yeah.
[00:26:41.83] REID HOLZWORTH: The surplus--
[00:26:42.79] LUKE MAGNAN: It is. because you know what? It's good for, again-- I need a better word than commodity business. It's good for the more interesting types of property casualty business. It's for things where, if you look at the big vendors out there and they've got their templates and they've got their constraints, and you're like this isn't going to make sense, our product, it's built to be able to easily model any risk and any workflow.
[00:27:09.44] So I think it's, if there are small things that would cost you a fortune to get into your big admin system and you're like I just need something that gets the dollars on the books, this would be a good solution. It doesn't have all the bells and whistles of the big guys for sure, but it's got enough of what you need to go through your submission quote, issuance life cycle, partners for rating. It does all the document issuance and all that stuff.
[00:27:35.84] Real quick. But so complicated risk right there, number one. Number two is, if you need something low cost-- like if you're testing the market, if you're just out to market for something and you're trying to get a feel for what this is going to look like before you want to spend $5 million on one of the big guys, this is something where we could get you up to speed with something in two, three weeks, or you could take it and do it yourself pretty soon. And you could at least have the controls that you need to satisfy yourself that data is being handled appropriately. There's security, that policy constraints and underwriting boxes are being met and get out there fast, so that you can have some time to test out the market and feel out what you want before you make a much bigger investment in something else.
[00:28:17.44] REID HOLZWORTH: That's interesting. Was it a strategic decision to focus on that specialty side of the house? Or did you just kind of in battling it out in these large carriers and whatnot or just carriers generally? Just ground was soft there for you and you started to develop a reputation within that? Because I would assume it's hard to really compete with some of those big, big, big, big, big SI relationships.
[00:28:43.87] LUKE MAGNAN: That's exactly right. I'll tell you, while there are vendors that we work with on an SI basis, we've typically stayed away from getting into the big SI game with the big core systems. It's hard to compete with the big giant guys. It ends up being like a race to the bottom in terms of pricing and everything. And honestly--
[00:29:06.02] REID HOLZWORTH: Totally.
[00:29:06.28] LUKE MAGNAN: --you typically don't need people of the highest caliber to get some of that in for the easier business. So that excess and surplus specialty market stuff, it just sort of naturally came to us. So again, we're differentiating ourselves based on being industry people, where we hire our industry expertise here in the States. We've gotten very senior, very well respected people. And you need those type of people for the more complicated, not cookie-cutter business cases out there. So I think it naturally evolved that way.
[00:29:39.64] REID HOLZWORTH: Yeah. No, that's interesting. So going back to, hey, I'm building a policy system. I've built it, and I'm going to give it away. And now, will you allow other people to wrench on the system? Will you allow--
[00:29:53.27] LUKE MAGNAN: Yeah.
[00:29:53.60] REID HOLZWORTH: --other vendors? And so you're not just like holding it, hey, only us can do work on it. This kind of thing. It's, hey, here you go.
[00:30:01.86] LUKE MAGNAN: So again, it's early days on this for us. But the important thing, I'll want it out there. I want it for free, right? I want a one button Azure deployments, and everyone can take and do themselves. And we want the source to be out there. But I do think that, because of just the nature of the industry, throwing it just completely open source out on GitHub, everybody's making their own, commits to the thing, we got to be a little bit careful with that because we don't want it to get to a place where it's crazy.
[00:30:30.11] So we're talking to people right now. We'd like some organization in the industry, some not-for-profit organization. And we've got a few institutions of higher education or there's a few good not-for-profits to be able to take it and do just some level of shepherding around it. So here's what absolutely-- day one, people can take it. Build it up. It's a modern system built on microservices. There's an extensibility framework and integration framework. And anyone can take it and build whatever the heck they want around it.
[00:30:59.04] Where we just want to be careful is, if people build cool stuff and they want to bring it back into the product or, again, donate to the industry, we want people to have that capability. We just want to be a little bit mindful that we've put some controls around it so that it doesn't become crazy. Right?
[00:31:14.52] REID HOLZWORTH: Yeah. Yeah. No, absolutely. Yeah, they could totally get out of hand. And so, you need oversight to some degree around that. That's pretty cool, man. That's really cool.
[00:31:25.79] LUKE MAGNAN: You know what? It's different. Like. It's all level. we're sitting around. We got this product, and it's like we always said that we were going to do this company differently. we weren't going to preside over failures. We weren't going to do the same things that all the other insurance software companies did before. But when you get into it and you're dealing in the day to day, and it's about making sure you know money's coming in and payroll is getting met, it's easy to lose sight of that.
[00:31:50.66] So the end of this last year, maybe beginning of fourth quarter last year, we're like we've got these two assets. We got to make a move on what we're going to do with them. And it's like this is just the best opportunity to do something that other people aren't doing. And, honestly, Reid, maybe we're going to do it, and no one's interested, and it becomes like a big humbling moment. But it seems like there's low risk in at least trying.
[00:32:15.23] And, again, this is related to-- even just for our core services business, the best work we do is with relationships that we have as opposed to just strangers that we've convinced to buy things from us. And so, I think that this is the year where we're less interested in doing some of the typical sales and marketing things.
[00:32:42.11] And I think that we're more interested in investing in building credibility in the industry and becoming a part of the organization-- sorry-- becoming a part of the conversation as a better way to drive revenue. And I don't want to become part of the conversation by talking about AI or blockchain ledgers or anything like that. It feels like this is just a more meaningful thing we can do that is closer to actual pain points than some of the other conversation out there.
[00:33:10.94] REID HOLZWORTH: It's interesting. so many services companies out there have tried to become software companies by building products. a lot of it is pushed by their ownership, the investors in the business. Because we both know that the valuation of software, especially SaaS software, is way different than a services company. In your case, you and your co-founder you guys bootstrapped this with, like you said, literally nothing. But you guys started this. And so you don't have people that are pushing you to do this thing to drive a higher valuation that may be kind of unnatural for you and your business.
[00:33:55.31] Because, by the way, for those that don't know, that is not ever-- I don't an example-- and I'm sure they're out there but at least in our industry-- where that has actually worked. Right?
[00:34:06.98] LUKE MAGNAN: But, Reid, I couldn't agree more. let's all calm down. Our interest in building products is because of a potential future valuation for an exit out there. And I'll tell you our pivot, our pivot was-- I don't know. We're still mid 40s. I just think we're so much less interested in an exit, and it changed all the math. Then we've had a couple conversations.
[00:34:33.48] It's all about getting the things to look right and to be able to say, well, this is how much we'd want. How can we justify a valuation? what are the multiples on subscription revenue versus anything else? And, at some point, it just felt so separate from the actual work of making insurers' lives better, which is why they give us the money. And we just said, you know what? Let's just focus on the money that's coming in the door and less worried about this hypothetical exit we might make based on these valuations for these products.
[00:35:04.63] And so, yeah, I mean guess that that's why we're here. It's a logical conclusion to us stepping off the path that you mentioned, which I agree with you, rarely works.
[00:35:16.32] REID HOLZWORTH: It's pretty cool, man. It's very free for you to be able to run your business the way you want to run your business, you and your partner, as opposed to the way that the board and the investors and everybody that's invested their money in. And it's not to say that any of them are wrong. They just want a return on their investment. but you're saying, look man, this is more of a lifestyle business right now for us. And we want to keep doing what we're doing. Hey, maybe there's an exit inside in the future, but we don't want to pivot and transform our business and the way that we operate it to do so. is that fair?
[00:35:53.16] LUKE MAGNAN: Yeah. I mean I would say, listen, it is not that we don't want to aggressively scale and grow and get bigger.
[00:35:59.28] REID HOLZWORTH: Of course.
[00:35:59.55] LUKE MAGNAN: I think that we want the money to come from actual revenue as opposed to hypothetical investor revenue. we want to do the thing. So yeah, I mean it's freeing some days, and some days, it's terrifying without that support. I can tell you, this is a personal thing, I spend several years quietly jealous of all the people that went out and got good money from good, you know, angel and venture firms and became a part of a community of people that could help and get you into the right conversations and get you invited to the right parties. We didn't have that.
[00:36:43.14] We weren't a part of an accelerator. We didn't have venture capital. we were never like in the cool kids' club. and so, I'm still like dealing with that a little bit, certainly this environment. It's hopefully showing that we made some good decisions. But I will just say I think that there's tremendous advantage in being able to have bored people and this or that giving you a level of structure and support.
[00:37:06.12] But most days, we're happy not to have it and to be able to do whatever we want, take the swings that we want to take. And if something doesn't work, it was just our time and money. We didn't have to feel accountable to somebody else who put their trust and investment in us. It's really us making decisions for ourselves and our employees and our current customer base.
[00:37:28.77] REID HOLZWORTH: I think one of the ways to combat that, what a lot of people do that are bootstrapping, they don't want to really take money from the street, you build a really badass advisory board. and then you and then you give them a piece of the action. You bring them in to the business. You give a little piece of ownership. That can be pretty powerful. Have you done any advisory board stuff?
[00:37:51.48] LUKE MAGNAN: We have. Of course, we've got our contacts and there's people we ask for advice. At the end of the day, the services organization, our customers and the services organization and the work there has given us the best outside opinion that you could ask for. we are constantly seeing how they're testing the market, what's working what they need from us. we are not building product in a silo. we are out there in the industry because of that services work that we're doing.
[00:38:20.96] So I'd say, at some level from an industry perspective, we haven't needed it. However, there's obviously a difference in a relationship between someone on like an advisory board who's on your side and a customer and, as contract time comes, things shift. The other place where an advisory board would probably be helpful for us and something that, again, we've looked into, we've had some conversations is just for the non-industry stuff. but, again, we're doing it on our own.
[00:38:47.32] So we brought on a CFO last year, someone that did mergers and acquisitions for a huge defense contractor to come in and help us get the money right, polish us up, we're looking right, making sure we're making decisions like adults and not children. We hired somebody from a large consultancy with predominantly property casualty background, so we're really well respected in the industry to come in and really take over day-to-day operations and some of the revenue stuff, to let Mike and I focus on some other things. So I guess, what you're saying makes a ton of sense. We're doing it the hard way still, where we're hiring people and bringing them in.
[00:39:29.93] I think we're very close to an inflection point though, where we're probably looking to add a level of structure outside. And if it's an equity structure or anything like that, those are conversations that we'll have to weigh. But yeah, I mean, I think that you're right, that that's something that we need to probably move towards as we get through to 2024 and look towards 2025.
[00:39:49.98] REID HOLZWORTH: The thing that I've learned in my career is like boards, advisory board every year skin that cat or whatever. If you get the right one and you and you pick and choose, and now, a board board, if you're taking investment, you don't get to choose typically. You can choose who you get married to, but you don't necessarily choose the crew, let's just say.
[00:40:09.89] But the advisory board, it's really nice because you can pick and choose the people that have come on. And what I've found is that those people, they'll help you with things that your customers and others won't in ways. They'll make calls. They'll open up doors. They'll lift up rocks. They'll show up and put gas in your car when you run out kind of stuff, whatever you need.
[00:40:37.93] But anyways, sounds like it doesn't-- for you, you guys are crushing it. At the end of the day, if you decide-- I mean, you have a CFO I think a CFO is critical to an organization, especially as you start to scale. I mean, it's wild, like you said. I mean it turns you into adults all of a sudden. You're like, what do you mean I can't expense that? Like, what?
[00:41:00.18] LUKE MAGNAN: You couldn't be more right. It was embarrassing. the first few months were embarrassing. As he's looking through the number, like, "You guys did this?" I'm pretty sure we had a good idea of the rationale at the time. It looks crazy now. But yeah, that was a great move.
[00:41:15.64] REID HOLZWORTH: But you can always pivot very quickly. but it doesn't even matter. You are retaining so much of your equity within the business doing what you're doing now. And you're growing a profitable business because you have to-- which doesn't really exist out there. They do, don't get me wrong. But it's tough. And the other route is, hey, don't even worry about profitability. Take on money, and let's go to the next investor, and let's run down the alphabet, A B, C, D, and hopefully, we get to IPO or something, right?
[00:41:52.64] LUKE MAGNAN: That doesn't make sense. And I know that people do it. That is too different from the way that I think about money, and it sounds great, again, on the outside looking in. Yeah, it would be fantastic to have a huge chunk of change in a bank account that we just burned down. It's just not the way the-- I don't know. I don't think we're built that way.
[00:42:13.46] Our stress now is spread out across just, as the money comes in, what does our burn look like versus our expenses? But that stress is constantly spread out. Having these periods where you've got the funding and there's no stress, and then the stress slowly ramps up until you need that next tranche of money, that just feels like not compatible with what I could do personally.
[00:42:36.29] REID HOLZWORTH: Oh, well, you get the money, and then a month later, it's like you need to start hitting those numbers. you always got to hit your numbers, but like you said, there's a little more flexibility. You have to structure the business in this way. You got to look in this way. it's different. It's very different.
[00:42:52.89] LUKE MAGNAN: So for us, we were having a conversation with somebody about just sort of like a business sized transaction. And this is a guy who owned a m a really successful one. I respect him a lot, but he said it best I thought. He's like, You "guys built this thing, but you still have every chip on the table." And to me, like that's the way that I think about it. we have all our money out on the table. And at some level, it's because we trust ourselves. the team that we've built around us from the top to the bottom is amazing. And we trust our ability to navigate this industry.
[00:43:28.97] But that I guess is the thing that keeps us awake a little bit is that, without taking some money or something on, everything still remains at play. And you know what? That could go bad. Market forces could change. We're seeing things. I'm very glad I don't do a lot of property work right now. And this could all go away. And I guess what you have to be comfortable with is saying, you know what, if this went all went away tomorrow, that would be a really sad and hard few months.
[00:44:00.98] But I know what I know in the industry. I'm an employable person. If it all went away you just have to pick yourself up and get back out there as long as my family's being taken care of and I can scrape enough together for that. And it's just being comfortable with that for the time being.
[00:44:17.27] REID HOLZWORTH: Dude, you say that that's so easy. To most humans out there, that takes huge cojones, man. a lot of people don't view the world in that way. They don't. they're afraid to even go out, do anything on their own. that's easier said than done.
[00:44:35.36] LUKE MAGNAN: An appetite for risk is probably more important to the success of Combined Ratio than anything we know about how to build software or about insurance or anything. It's that we just had an appetite for risk. I think that we spent 20 years building careers that gave us the tools we needed to do something, and that was smart. I tell people that want to be entrepreneurs all the time, spend a lot of time learning about something boring that not a lot of people want to do. That that's thing number one. But then it is having just like an appetite for risk.
[00:45:05.24] And it's a roller coaster. like today's a good day. Three weeks ago, maybe I was having a bad day. You would have gotten a much different story about me. But we're still on the roller coaster. We're hanging on. And yeah, we're excited what's to come. It's what makes things like trying to get out there with a free POL admin system, it's what makes things like that so worthwhile. It's like, yeah, we got all this risk blah, blah, blah, but we're trying to do something different.
[00:45:29.58] If we only had the services work and the money was just coming in, I think it would lack-- we wouldn't have the highs to overcome the lows of the risk. But being able to go out there, take some goofy maybe swings at the plate and really try to change something, that's what's exciting. And being able to disrupt at a more, I think, honest to our organization and fundamental level for the industry, being able to take a shot at that as opposed to just say we're agents of disruption because I'm going to go in and do whatever crazy things they say, that's what makes it sort of all worthwhile.
[00:46:06.55] So yeah, I mean we're going to go out there. We're going to do something crazy. It'll make all the stressful things sort of balance out. And if it works, that's great. And if it doesn't, I'm sure next year we'll have a different crazy idea that we're going to go out there with.
[00:46:20.43] REID HOLZWORTH: Where do you think that your appetite for risk as you put it comes from? Like you said, hey, I can take on the risk and-- personally and as a leader, like I said, it's much more easier said than done. So where do you think you get that from? is it some of your childhood? why? why are you so self-confident in that way?
[00:46:44.22] LUKE MAGNAN: I'm going to go on a tangent here. Steer with me. I'm coming to this. it's going to be a short one.
[00:46:47.22] REID HOLZWORTH: [INAUDIBLE]
[00:46:49.49] LUKE MAGNAN: So Mike and I are 50/50 partners on Combined Ratio Solutions. And when I met Mike, I worked for Mike. he was my boss for many years. But when we started this, he said, no, we're going to do this 50/50. And I didn't need that because-- and maybe the way we talk about it, I'm more of an operator. I know what I'm good at. I know how to have my conversations, and I'm pretty good working in an organization.
[00:47:18.05] But, of the two of us, Mike is the one with the vision. He's audacious. And I'll tell you, and I tell him this sometimes over too many beers when it makes everyone comfortable, but he worked with me. We made some money together, but he really looked at me and said, "You know what, Luke? We're going to make this whole thing happen. We'll do this 50/50. You just got to trust me a little bit. "
[00:47:44.24] And, in the very beginning, we have young families. We're just out there. in the beginning, there's no money, and we're not getting paid. we're just doing this crazy thing. It was really his vision, and his willingness to take me on 50/50 and to do this really, and there's no daylight between us. six years in, we've never had a serious disagreement. we are partners. That's what gave me a lot of the confidence.
[00:48:05.73] And I hope that there are times where Mike would say when it was crazy that I gave him a level of confidence to keep going. But I would say having somebody to shoulder the burden in a true 50/50 way of having a company, I can't imagine doing it otherwise. I was talking to another founder, someone I respect, and I just said, "Boy, it must be lonely." And he was like, "Yeah, it can be really lonely."
[00:48:30.93] We always had somebody else. And I will tell you something. It made every risk seem easier to take. It made every idea seem a little bit better when we're both over beer saying, "Yeah, that's great." I 100% attribute it to that, to our structure.
[00:48:47.64] The thing about Mike is Mike has never walked into a room where he didn't feel like he belonged in that room. And, in the early days, that was just something I did not have. And so, 100%, people always ask me in my personal life, it's like, "Are you and Mike friends?" And it always gives me some pause, and I say, you know what? We're not friends. I think we would have been friends if we hadn't done this, but we're something different.
[00:49:14.24] In many ways, he's as close to me as family, and we spend a ton of time together. We enjoy each other's company, but it's just like a different relationship. And I think that finding that right person with a similar worldview but complementary skill sets, to me, if I was a guy who had to invest in start-up companies, I think that partnership dynamic would be one of the top three things that I would look at. I think that that's really what gets you through the bad times and helps you take advantage of the good times.
[00:49:44.62] REID HOLZWORTH: All right. Wasn't that great? What an interesting dude. It's very rare that you meet a business, especially within our space and within technology, where they're not taking investment. They are truly bootstrapping the business like Luke and his partner has. It's interesting because, when he starts talking about what he's laser focused on and what he was laser focused on or is focused on is driving customer value, he's not having to think about positioning, building, doing all this strategic if you will, if that's even a word, on packaging the business up for future investments or for sale in the future. It allows you to be free and allows you to operate how you want to operate.
[00:50:39.21] That's not to say that you can't have an investor that is really for you around it, but it's just different, folks. It is different. And it's really cool, really smart dude, very smart business, doing big things with all the freedom to do what they want. So look, in the next episode, we're going to get a little bit more into Luke and his leadership style and how is Luke as a leader. It all plays together. Really, really cool stuff. Stay tuned. You're going to love it.