Connecting Risk and Capital for Better Protection: Interview with Blueprint
Our CEO and co-founder, Hemant Shah recently spoke with Blueprint’s Vik Venkatraman for their Conversations with Champions video series. Hemant is excited to be one of the speakers at the Blueprint Conference 2021 coming up in October. For more information on Blueprint, check out their newsletter here.
You can watch the video or read the transcript below.
Vik Venkatraman: (00:04)
Welcome to Blueprint's Conversations With Champions. I'm Vik Venkatraman with Blueprint. Thank you so much for joining us today. Today, we've got Hemant Shah from Archipelago helping large property owners rethink and ensure risk across their portfolio. Thank you so much for joining us.
Hemant Shah: (00:22)
You're welcome, Vik. It's a pleasure to be here. Thanks for this opportunity.
Absolutely. So why don't you tell me in as many words as you'd like who you are and what you're up to?
Thank you. I'll try to be brief. Commercial real estate owners spend considerable amounts of money securing coverage for their properties, and premiums have been rising for years. To get coverage in insurance markets, they need to provide significant amounts of data about each and every single one of the properties in their portfolios. Insurance underwriters have a voracious appetite for this data to underwrite and price their risks, and each and every year it's like Groundhog day. They're running around gathering data about their properties, emailing it, spreadsheets are attached, photographs, documents. Insurance underwriters are getting this information. They're trying to make sense of it. We're reimagining and transforming this entire experience across the value chain, how the owners integrate and extract high quality information from myriad source documents about their properties, how they share in permission access to that data to their insurance underwriters, all to help the process be not only far more efficient, but help the owners get better outcomes from their insurance markets.
Got it. That's very cool. Your previous company, RMS, also in insurance, you were there for a long time. How does it feel like to be transitioning to something new?
Well, it's a fun experience. I've just got two gigs on my resume. As you mentioned, prior to Archipelago, when I was a grad student at Stanford, I co-founded and then led Risk Management Solutions, and we built the leading catastrophe risk modeling firm in the world and served hundreds and hundreds of insurance companies and reinsurance companies, helping them to quantify risks to real assets and property. And that whole experience taught me a lot about earthquakes and hurricanes and floods and fires and tornadoes and terrorist attacks, but it also helped me understand the critical role that data plays in how risk markets work, which led to the core thesis for Archipelago: that if we can transform this whole experience around high-quality data sets, driving more discerning decisions about how risks are underwritten in pricing, we can create more efficient liquid markets that provide real asset owners more abundant capacity at a more cost-effective price, which increases the resiliency of their properties. And that's the mission that we're pursuing.
Sure. And I guess that makes sense. I would assume that through your insurance lens, whenever there was an incident when something got damaged, it was property. And so was that the connective tissue that brought you from RMS to Archipelago?
Yeah. I used to look at the world with a pair of glasses where everything was a peril. It was an earthquake, it was a hurricane, it was a flood. But the common denominator in all of these risk assessments were the properties. Okay, earthquake is important, but what is the underlying data about the actual asset being insured? And that led me to think, "Hey, let's go upstream and transform how the whole insurance industry is able to access high-quality, actionable data sets about these exposures. Let's empower the owners who actually are the customers of the whole insurance industry to take more control of their risk." Not only the insurance placement process, but across the life cycle of their property. They develop these properties. They own these properties. They manage these properties and they want to manage the total cost of risk of these properties, including more cost-effective access to insurance.
So re-envisioning the whole process from an insurance-centric approach, helping an insurance underwriter with a model to an owner-centric approach, empowering the owner with their own data to get better risk outcomes across their properties has been a lot of fun taking that next step.
You guys very recently came out of stealth mode, and you were in stealth mode for what seems like a long time. Can you share, what do you think of stealth mode in general, and what were you guys doing under stealth? What made it the right time to come public?
So I am a believer that there's way too much hype in early-stage startups, whether in the prop-tech sector or the insurer-tech sector. And at Archipelago, I and the other co-founders, we've been around the block and we've got some scars on our backs, and for us, the coming out of stealth, the milestone wasn't, when do we get around to building a website or issuing a press release or doing our first demo? Our core customers are very large institutional owners of commercial property and very large commercial insurers. This is a serious enterprise-class B2B ecosystem, and for us coming out of stealth was, let's go in deep, work with a group of foundational customer partners. Let's build the platform. Let's deliver it. Let's go through a whole cycle of adoption. And coming out of stealth is when we can actually let our customers speak for us about the value we've created. And that was the milestone. So we were in stealth for over 18 months developing and delivering value, and only when we had referenceable customers prepared to say, "This is real, it works. I'm getting better outcomes," then we launched.
I was reading an article that you had written, I forget how long ago, and you talked about how this business is really about underwriting trust, and I thought that was an interesting phrase. I wonder if you could tell me a little bit about the role you think trust plays in real estate, and how you propose to underwrite it.
So trust is a very potent word in all contexts in personal relationships, in business. It's a particularly powerful word in the context of risk and insurance. And when you purchase insurance as a large property owner, you're securing a promise to pay when something goes wrong. And the insurance industry prides itself in that trust, that honor that is being placed in them, and to deliver when the customers need compensation. The irony is that this whole ecosystem that's built on this concept of trust doesn't have a lot of trust in the underlying information that's provided to underwrite and price the risks. So you have this almost cognitive dissonance between an industry built upon this architecture of trust, promise to pay, and yet when it comes time to underwrite and price the risk, the owners are sharing data sets that are very fragmented. They're in spreadsheets. They're unstructured. They're documents.
And the insurers, they don't really trust the data. They don't know what to make of it. Is it real? Was this roof really replaced last year? Is there an evidence link? Can I verify that? Is this building really the value that it's being declared to be? What's been added? What's been divested? Is it up to date? And so, as a result of this skepticism, they end up underwriting not only for the risks they know, but the uncertainties that they fear. And this leads into a built-in conservatism in how they approach their customers when underwriting the trust in their underlying assets and the data describing those assets. And I think there's a huge job opportunity to create a shared system of trust backed by high-quality data sets that are dynamic, that are up to date, that accurately reflect the underlying granularity of these properties backed by evidence links. And by building in through data, that trust will lead to more, not only efficient markets operationally, but more efficient markets in terms of how capital gets allocated to risk in cost-effective ways.
I think that makes a lot of sense, and certainly speaks to, I think, a growing trend, probably a secular trend, in the availability of data, applications of data, to make more things known or knowable than probably would have been true 15, 20 years ago. Maybe pull that trend line out for me a little bit. What happens as we get better and better data for this space and as firms like Archipelago are able to make use of it for real estate?
So there's a lot of tactical benefits to having better quality data to inform your own view of risk as an owner, and then sharing that data to get more effective coverage from your insurance partners. The end state vision here of high-quality data sets powering more efficient markets for me is it unlocks more abundant capital to be deployed by investors, either insurance balance sheets, or other forms of risk transfer vehicles that lead to more capacity at a more cost-effective price that makes it possible for owners to get more effective coverage so they can ensure more of their properties, which not only creates ex-post benefits that when things go wrong they have adequate coverage to compensate them for the damages to their properties, but it creates ex-ante benefits, which is we are now monetizing the cost of risk in a more transparent and data-driven way, which creates the actual incentives to reduce risk in the first place.
And so, for me, Archipelago's about catalyzing a more efficient marketplace for how risk and capital connect to not only provide more coverage at more cost-effective pricing, but to create more price signals that result in risk being reduced in the first place. And God knows, risk is not going down. With climate and volatility and more concentrations of assets, we need more abundant risk and efficient risk transfer markets to meet the challenge of the next 10, 20 years, not less. And it's data, I believe passionately, can catalyze those more efficient markets if done right.
I like that a lot, and I agree with that personally. That's my personal bias in there. There are some who would say that the business model that you have chosen and designed for Archipelago is an ambitious or a challenging one. It involves lining up large players on the real estate side, large players on the insurance side. If there are entrepreneurs watching this that are maybe considering doing something that they believe to be similarly ambitious, is there guidance that you would share for such a viewer?
Some things that are worth doing need to be done right. And yes, I mean, this is the antithesis of what I would call a local optimization. There's a lot of tech that start up with point solutions to provide local optimizations, and they create value. And yet if what you're trying to do is create systems change and change behavior across an ecosystem, and in this case, an ecosystem that spans two vast verticals, the owners of real assets and then the insurers of commercial insurance, you need to think very deeply, not just about your tech and about your product and about your features, but you need to think deeply and hack the behavioral incentives that drive the system of work, and get deep into the persona and the mindset, the motives, the hopes, the fears, the aspirations of the people in the marketplace.
How do you get those nodes across this value chain to see that you're delivering a better way, not just intellectually with an ROI, of course, you need to have that, but emotionally that they as individuals in this ecosystem want to champion and advocate for? And that's how you create systems change. So with tech, sometimes we fetishize the tech, some of these big innovations it's about embracing and understanding the people and their motivations, and yeah, slipping the tech, finding your loose brick and slipping the tech into the behavioral patterns that work for whatever particular market you're looking to transform. And that, by the way, comes from hard-earned experience having done this once before.
I get it. I think that's all the time we have for today. Hemant Shah, Archipelago, thank you so much for joining us for another episode of Blueprint's Conversations With Champions. I'm Vik Venkatraman, General Manager with Blueprint. Thank you so much and stay safe out there.
Written by Hemant Shah
Co-Founder and CEO of Archipelago: Previously, he Co-Founded Risk Management Solutions (RMS) as a graduate student at Stanford University, and led RMS until 2018, building the market-leading risk modeling firm serving the global insurance industry. Hemant is passionate about risk and resiliency and serves on the Board of the social venture Build Change.