Episode 106: Disrupting Dental Insurance with Alex Frommeyer

Jon Prial: Of course, every market can be disrupted. It can be disrupted by product innovation. Hey, Apple. Process innovation. How's it going out there FedEx? Or technology innovation. In my job, I'm not going to take the bait and suggest just one here. But today we are going to be talking about disruption, disruption in the insurance industry, and how that industry has changed and yet continues to change. And the lessons learned are universally applicable. So if you want to hear about data, privacy, automation, personalization, stick around. I'm Jon Prial, and welcome to the Georgian Impact Podcast. With me today is Alex Frommeyer. Fro is the co- founder and CEO of Beam Dental. One of Georgian's most recent investments. Alex, welcome to the show.

Alex Frommeyer: Hey, thanks for having me on excited to join.

Jon Prial: Now, we're happy to have you. So we're going to get into dental, but I'd like to step back a bit and kind of ask a more general question. I mean, for the most part, everybody, and that includes customers and companies, they strive for relationships that are win- wins. Some might be harder or more confusing than others. People give up personal data for what's perceived as value. Social media apps come to mind. Maybe somebody wants to do something better, like a targeted advertisement, or somebody wants a good product reference to buy. But now IOT, it enables an entire world where win- wins get much more interesting. So since you're an insurance guy, let me start with something more visible and hopefully understandable to our group, the automobile insurance industry. So pre- IOT, one company says, they'll look back at what you've done over time, and if you're a good safe driver, they'll give you a rebate over each year. Now that's pre- IOT. Now we'll take another company, I'll call that very IOT. They'll put a black box in your car and they'll monitor your driving and bam savings, I hope. So Fro, what do you think? Are these good trends?

Alex Frommeyer: So it's a really interesting question. And you're right, in the auto space, there's much stronger familiarity with this idea that your premium, or the quality of your insurance coverage is going to be dictated, or changed, or altered by data collection. And this is happening in both a third- party proxy way by your auto manufacturer themselves. Tesla right now is talking about offering their own car insurance products specific to Tesla ownership, because they have so much proprietary data, but then also Progressive snapshot, which is a pretty long time ago now actually. It's like a decade old program of theirs, and all the major auto insurers have some sort of black box program that affects your premiums based on behavior beyond just did you get in a wreck or not, but breaking, acceleration, turns, et cetera. And ultimately this just happened when we announced our fundraising a couple of weeks ago with Georgian Partners. Immediately, there's this whole crowd, which I of course get tagged in all of these things, on Twitter. There's this whole crowd that anything that sounds like corporate data collection and the surveillance state immediately gets this reaction that is something suspicious or onerous must be happening with this data. When in reality, every day, all the products, not all the products, many of the products we use and auto insurance is a great example of this, there's a data collection component to it, sure, but what you are getting from that data is material, and valuable, and the customer, who ultimately should and can make these decisions for themselves, is calling it a deal that is worth doing. And I, myself, I've put the black box in my car, and I've saved money, and I call that a good deal.

Jon Prial: Now you're also quite public though, as I look at your website about privacy and your data use policy. So there you are being very upfront about it. So tell me a little more about that.

Alex Frommeyer: One of the burdens of, and I shouldn't even frame it as a burden, because the whole sentiment here is that I think this is a really good thing. The sentiment from the customer and from the public has been changing, is changing, and it's happening dramatically fast on the amount of data that we as a public are comfortable letting other companies consume about us, and how and what they do with that data. It's really becoming a front and center political topic. I think we'll see this really apparent in the 2020 presidential election. And I just can't imagine, with a digitally native generation growing up and becoming adults in the United States at least, I just can't imagine this topic going away as something that is at minimum of interest to the public, and at maximum a real concern. And so because of that, and you're building a company in this era, you can kind of do that in one of two ways. You can either try to hide everything or you can put everything on the table and make it super clear to your customer what data you're collecting and what you're doing with that data, and it gives you an opportunity to articulate why you think your business model was a good deal for the consumer. Every day, I don't know the number, but Google gets some number of hundreds of millions of searches put into the Google machine. And the customer has clearly decided that for better or for worse, they know that data is being collected in the background, and it's being used to influence what ads we get and all these other things, the customer has clearly decided that the bang for the buck they are getting, and the trade off that is happening is worth it. Because getting the answer to my question, the getting to the website that I want or discovering this new product, or service, or whatever the case may be, the search is worth the backend data collection. The customer has also rejected this in some cases, Facebook's probably the best example of this, where their data collection practices and how it may be influencing everything from politics to consumer habits is not worth it. And so, people have left, right? And I think that's a really good thing. And in the context of this little corner of the world called dental insurance, we've chosen to be really transparent and out front about how we think about data. And the answer for us is we think that if you are interested in demonstrating, in a totally voluntary way, if you're interested in demonstrating that you're taking great care of your teeth every day, and that you're engaged with your daily dental health, that both we, as your insurance provider, and you as a consumer, should be happy to display that information and get something for it, right? Because today, if you have someone else's dental insurance product, you get essentially no credit for taking care of your teeth, and we both know that you're lowering your risk for needing 10 root canals at some point in the future, and I would rather just give you credit and value for that instead, and that's one of the underlying thesis of the business.

Jon Prial: I think you're articulating a little bit where, okay, I sort of know behind the scenes that I'm doing this search and getting something useful, I'm getting a good recommendation. We'll sort of leave Facebook out of this for a second, but it seems like we're going to get to the point now where people will actually see the benefits first. The benefits will be the lead with, and then that will drive their willingness to share data versus, Oh, I gave the data now I'm sort of happy. It sounds like we're going to flip the paradigm a little bit and kind of get the benefits out in front.

Alex Frommeyer: Many venture capitalists and tech enthusiasts frame data as the 21st century's oil. And in that same way, you see the benefits of the oil upfront, right? You get your gas goes right into the car and now you can drive around, and you can get to work, and go out to a movie. So I think data when it's built into a good business with the right business model should be no different.

Jon Prial: Cool. So we should talk about dental a little more. I definitely want to understand more, so in my naive way, I get my policy. I get my policy through my employer, every year I pray it's going to be twice a year cleaning. I can't believe you jinxed me talking about root canals here. So where's the opportunity for you and being dental, and how do you see this evolving now in terms of groups, and your customer set, and the like?

Alex Frommeyer: Beam provides dental insurance to small and medium size employers. And there's a bit of a range on this, but we really like focusing on very, very small employers. So under a hundred people is really our core target. And we're operating today, we have regulatory approval in like 30 or 32 states around the country. By the end of the year, we'll be able to access over 90% of the US population. So this is a big expansion year for us, just kind of taking the product that's already been built and that product experience, and introducing it broadly around the country. And how we think about from a differentiators perspective, from how the market works today, most dental insurance is distributed through employers to the employees and their dependents as an employee benefit. And so your employer is probably offering some sort of health insurance, major medical coverage, a dental, maybe vision, maybe life and disability, and then a handful of other benefits that are not insurance products, like a 401k plan or whatever. And of course that differs from employer to employer. But Beams fundamental goal is when the dental conversation comes up, we need to draw a clear distinction between how the industry works today and what Beam's going to offer in juxtaposition. We do this in a couple of ways. One is just that the digital stack, which is both for people that are kind of in the business, this all seems really obvious because the digitization of everything is like a really, it's kind of like a baseline way to think about what you can almost build an investment thesis on anything that's not digital, invest in somebody trying to digitize it, right? And in general it'll work out.

Jon Prial: Today's a disruption day.

Alex Frommeyer: Right? And so, and Beam's certainly doing that by being able to do things like turn around quotes and develop underwriting 10 times faster than the rest of the industry, and for much lower cost. And enrolling in the product is way easier because it's purely digital, and there's no transcribing something off a piece of paper and into a computer system, that type of thing. But then the big tangible differentiator of the product and our experience comes at the service level. So Beam has figured out using software and leveraging our data, we figured out how to cost effectively provide white glove customer service, the way that you would only get if you work for a large enterprise today, but down to that, like five, 15, 25 person company. And we do that when you're calling, texting, emailing the company with questions," Hey, is this dentist in network or not?" And," I got to get emergency work done. Is this going to be covered? And how is it going to be covered?" But also in that day to day routine care environment, which is really what our Beam perks program does. This gives connected electric, toothbrushes, toothpaste, floss, and replacement heads to our members like a subscription service. Like Dollar Shave Club. And that is really what people think of when they think of us because it's tangible, it's sitting in your bathroom every day. So you're seeing the brand and interacting with a physical product, which is much different than if you think about any other insurance company, which is a totally invisible product typically.

Jon Prial: Right. And the tech is also invisible, but it's interesting other than you're talking about that customer service side of things, which is kind of cool because I mean, there's been elements of tech and process disruption along the way that the e- insurers are like for cars, mobile apps, taking pictures of car accidents, or I mean, I guess I pay my dentist directly and then I get a check much smaller than what I paid my dentist later in the mail. So I see you're talking about opportunities for improving both the processes of working insurance, doing the back office, and then also doing that customer service. What's the balance?

Alex Frommeyer: Yeah. So a great question, because that's a very active trade- off for us too. As you know, at what level does the company want to really over- index on all the things you see and experience versus all the things you don't see and experience, which actually is what makes the experience great is that there's a bunch happening in the background that never really shows up on your radar, especially if you're the end customer. And so we actually spend, even though I think we've built a best in class customer support model and our perks program is wildly popular and very distinctive for the business. We really love, and like the meat and potatoes of the business is really our love of all that back office, the icky stuff that makes the insurance product really go. And the reason why we've chosen to focus more there, as a business, is because there is the kind of dirty secret of the dental industry is that if you look at how a dental office is staffed, there's either a person or people at any given office that do nothing all day except coordinate care, making sure somebody who walks in the front door for an appointment is actually eligible for insurance and they've got an active plan, and what are the details of that plan? That's a 15 minute phone call right there happening eight, 10 times a day. And then on the back end, they have to file the claim on behalf of the patient, and then chase down the money and make sure all the numbers add up. And there's filing cabinets and docs being scanned in. And it's a really, really messy process. Right? And what we've observed is that by automating those components of the back office for claims processing and the customer support stack, it makes our lives easier. And our company scale better, it makes the dentists' life easier and scale better, and it makes the member feel like everything's just happening in the background without any effort on their part. And so everybody wins in that scenario.

Jon Prial: I just going to inaudible back on the win- win- win in the back office of the dentist, the clerks that are no longer there. So let's move on from process and tech, and talk a little more about data because I need the data is such interesting stuff. So, over the years I remember health insurance that I would get, and you would get discounts or cash awards for healthy habits. If you took a survey, if you exercise, filled out a form, or if you didn't smoke. I think it was not that long ago the John Hancock Life Insurance now is only going to sell interactive policies. Meaning you got to use one of their Fitbits or buy an Apple watch for 25 bucks. And I guess I'd love to get you a sense with this collection of data, who's the winner here? Are we still in a win- win, or is maybe one more than the other? This is quite an evolution?

Alex Frommeyer: Yeah. Building the balance is hard in this. And most of the examples you just shared are healthcare based, and the real challenge there is most of those efforts come off as looking token, because they are. It's not anyone's fault. What everybody's trying to do is build healthier habits leading to better long- term health outcomes. And it's a totally noble endeavor, but it is also incredibly complex. There's all these genetic factors and behavioral factors, something that the medical community still doesn't fully appreciate. And then taking the Fitbit example, even if you are effective, leveraging the Fitbit and the technology and getting people up and moving around more, and walking and jogging and running and getting their steps in, that's still at the end of the day, only one of many components of what would constitute good longterm health habits. Right?

Jon Prial: Right.

Alex Frommeyer: It's still, for example, the Fitbit's not going to help your diet at all.

Jon Prial: Right. Right.

Alex Frommeyer: Now we're talking about at least a second tool and realistically, there's probably 10 tools in there on the diet front. And there's just a lot of, it's a very multi- threaded, multi- variable problem.

Jon Prial: I think the solution for the Fitbit is to strap it to the leg of my dog and get my steps in easily.

Alex Frommeyer: It's a very popular hack, yeah.

Jon Prial: But you're right about how it's one tiny lens into a bigger issue.

Alex Frommeyer: Right.

Jon Prial: And I want to come back to dental, but I'd love to stay just a little more. Do you think we're going to get to the point, and this is scary. I mean, it's a highly regulated industry. And you have to have actual reasons for increasing rates. Are we going to end up to the point, and this is maybe the draconian side of things, where they're going to pick just the most profitable customers and hiking rates for those that choose not to participate for example. I'm curious, what do you think where this piece could end up then?

Alex Frommeyer: Yeah, it's a really interesting question because right now the big trade off, and one of the challenges in the major medical industry is, there's protecting the customer, which is like a political topic, right. And making sure that preexisting conditions don't become abused and making sure that everybody can get coverage. And so there's some really important like health equity components to healthcare. And then there's the innovation piece, which is, well, we want to help people that are displaying the right characteristics and doing the right things every day. We want to give them value for it, because they're helping lower the risk of coronary heart disease. So that would save the insurer, from the insurance perspective, that saves us a million bucks. And if all I have to do is pay for a Fitbit, it's a slam dunk, right? The ROI is clear, but you've got to make sure that, to your point, at scale, this doesn't turn into a thing where insurers can justifiably and legally deny coverage and care to people that aren't using the Fitbits. And so what we really need to get to, which is the tricky part of this, because there's kind of a balance on both sides. If we were to theoretically have tomorrow a perfect and complete picture of a person's health and have perfect risk prediction, and a perfect model of that prediction for outcomes, then it would be, I think, quite obvious what happens next. Which is that if you can perfectly model this, you knew exactly how to price. It almost kind of destroys the industry by perfecting it in a way, because you can perfectly price a person or a family into the market because we know exactly what's going to happen and when. And so, it would reorganize the distribution of care in a really efficient way. The pursuit of building a much more efficient market though, is going to be really, really difficult because of the political component of it and the health equity component of it.

Jon Prial: So I'd love to hear more particularly relating to dental here, but so it's interesting, this conversation is fascinating, because insurance, to some degree, has always benefited from everybody in the pool. Distribute the risk over the larger audience. But we could be evolving and maybe benefits go to some user who might save money. So is there a play here, where not only you going to, we talked about the customer sees the distinct benefits of a Beam solution, for example, and they're happily giving up their data. Is there more? Could they see the benefit of pooled data? And see more protection, whether it's differential privacy, or maybe there's a greater good and everybody's doing well, and everyone's premium goes down, how are we going to evolve in this what's happening with what everyone in the pool is, or isn't going to be?

Alex Frommeyer: To vastly over simplify the Affordable Care Act when it was passed in'09, I guess, right? When the Affordable Care Act passed, what it essentially did is it created new pools and a bigger pool for mean reversion. Meaning that we were going to play the law of big numbers on previously uncovered populations. Have younger, generally healthier people balancing out the aging care market and chronic disease patients. And the whole thing would work out. Keeping those pools healthy, in and of themselves, meaning that they're balanced between care and care consumption, has proven to be super difficult because it is, and because there are so many variables that go into it. I think what we're picturing, and what Beam's trying to build specific to the dental vehicle is a much more efficient market where we don't need to play the law of big numbers because that's what our competitors do, the large dental insurance blocks of business are essentially saying like," Yeah, you know, a bunch of people are going to need root canals, and if you get enough. If you get 20 million people into a large pool, we don't know exactly where the root canals are coming from, but we know we're going to get about X thousand of them a year or whatever. And so we just need to make sure we can cover the cost." And that does work. I mean, people, I mean, do have coverage in the tens of millions in the US, and it works in general. But we see a pathway to cross the chasm, to get to the other side of the equation, which is where, instead of playing the law of big numbers, we should actually be doing the exact opposite. We should be doing a bottoms up approach to the market and pricing individual people efficiently into the market, because we can do a much better job of telling who is going to need the root canal specifically, not how many root canals are going to be consumed on a book of business basis or on a pooled basis. And that's really what Beam at its core, especially if you look out on the longer horizon, so this might be a 10 year dream, but on a longer horizon Beam believes we can fundamentally flip the market into one that cares about how I, as a human am being priced into the market in a really efficient and appropriate way, which should actually allow for more people to get coverage, as long as they're displaying those characteristics. And everybody will get coverage, but get coverage at the right price for me, because I'm displaying certain characteristics and consuming care in a specific way, versus needing to play the pooled game, which is always like kind of zero sum in a way, because as long as there's a lot of people in the pool, you're going to be priced regardless of the healthful behaviors that you may or may not be displaying.

Jon Prial: You clearly are on the thin edge of the wedge here, and I agree because, and it's probably not fair for me to keep kind of asking healthcare type questions, because that doesn't quite fit. Everybody in the pool in automotive insurance, but you do get different price based on your car, where you live. Everyone's got to buy house insurance for the most part, whether they're forced to by the bank, or they're just not idiots and they buy house insurance, that also changes. So yeah, we are on that direction. So it makes a lot of sense too.

Alex Frommeyer: One of the unique components of the market is that auto insurance, you have to have.

Jon Prial: Right.

Alex Frommeyer: If you own a car, it's like inaudible, right? And home insurance, the bank to your point, forces you to have that, and most people, I think, reasonably because it's most people's largest asset. They want protection for it. Dental is a bit more of a consumer market, because you choose to participate in it or not. And if you want to, you can pay cash at the dentist, they'll happily take it. So because of those dynamicisms that exist in the dental market versus some of these other more traditional insurance product lines. It gives us, I think, an opportunity as a company to be much more flexible and dynamic along with consumer choice in a way that's not really present in major medical, in auto and, in home insurance.

Jon Prial: Just to close, I want to ask you one more question. We talked a little bit about product innovation. We talked about process innovation. We talked about tech innovations, particularly around IOT. So just to close, give me your final view of what it really takes to disrupt an industry.

Alex Frommeyer: Every industry is different and I think business model design is the one that I've been spending a ton of time on recently. And it's only because once you've checked a handful of other boxes, I mean, I think everything needs to be thought of as digital first, once you've got a unified data stack across all your different customer cohorts and different stakeholders in the value chain. Once those pieces, those bricks have been laid in that foundation, what gets really interesting is how can a business model influence who the customer is that you're inviting into your business, how they interact with your product, and your service, and how they may evolve over time. So one of the things that we're talking about, thinking about, and working on a lot as a business right now is that employers tend to want to buy not just dental insurance in a vacuum, but they want to be able to bundle it with other lines of insurance that are similar and thought of by employees as popular employee benefits. The next most obvious here would be vision insurance. And so we partnered with VSP two years ago, it was the largest provider of vision insurance in the country. And we built a Beam vision product. And so today you can bundle Beam Dental with Beam Vision, and it's an example of a business model thing. We didn't invent a fundamentally different or better vision insurance product, that's not part of the vision of our business, but what we did was we put together a package with a slightly different business model attached to it that allows for our core customer to get even more value and enjoyment out of the product stack. And so we really think about disruption as a series of those, after those foundational layers are in place, it's a series of business model, evolutions and tweaks to get something that can change an industry into its kind of long tail of optimization, or it's long tail of innovation.

Jon Prial: Nice. Know your market and make sure you're looking left and right to know those adjacencies, because crosstalk opportunities and there's risks. Alex Frommeyer, Fro, pleasure talking to you. Thanks so much. Good luck with what's going on at Beam Dental.

Alex Frommeyer: Thanks much. Appreciate it.