This Week I Worked On A Massive Financial Model For An Insurance Agency Company.
The Flowing Power of High MRR.
Whatever I hear the word insurance, I somehow and for some reason just imagine evil. Maybe it's how the market perceives some industries like insurance, banking, and such.
In some countries, everyone is forced to pay insurance and gets sort of reward. You can insure practically everything.
People travel around and there's a travel insurance.
If you want to insure your home for any cases or anything that happens, there's home insurance.
If you're feeling risky, you could do a life insurance.
All sorts of insurance systems are exist.
The idea of insurance stems from a certain fear inside the human being, which is part of our genetic instinct. When you think about it, we're afraid that something would go wrong.
If you see a lion in front of you, you're immediately going to get a rush of adrenaline and you're going to feel fear over what could happen next. What the insurance industry is doing is that they're not putting a tiger or a lion in front of you, but they are making you feel that this is a possibility and that there is a way to save yourself.
That's why this sort of fear is what drives this industry and has been driving it for quite a while now.
The Financial Model of Insurance
So I worked with a company on building their financial model for their captive insurance company, which I won't get into the details of what it does, but it insures other companies for anything that might happen in the future. Additionally it insures employees in case of any claims and so on.
So that's the basis of what I've been working on and the more I dig deep into the model, the more I realized that insurance is a massive industry.
As a financial model, I have seen a lot of financial models in my 15 years of work - some in gaming, some in technology, some in agriculture. I have never witnessed healthier financial models than ones that are in insurance. It's one of those industries where if you do everything correctly, if you land the right customers, if you have enough capital to start, then you'll be able to build a very big and healthy cash flow in the upcoming 10 years. I won’t dig into the ethical aspect of it though, that’s between you and yourself.
The Stability of Monthly Recurring Revenue
Expenses don't really change that much.
Operations don't really change that much.
What it does need at the beginning is a specific amount of cash flow, which is similar in banking as well. You can't really just decide to open a bank tomorrow.
You need a lot of authorizations and quite a big amount of capital injection. Insurance is not so different in this sense.
But it does show you that having such a monthly recurring revenue, the fact that people pay you per month and for your services without even thinking twice about whether you deserve it or not (because they subliminally deem you the protector of their fears) is what makes this financial model and industry one of the most financially-lucrative that I have seen.
You read online and see technological companies, you see FinTech, you see AI, all sorts of industries, but I've yet to see an AI company’s cash flow that is as positive with little churn as insurance.
Yes, companies like AI image software Midjourney has thousands of subscribers, hundreds of thousands of subscribers, GPT as well. And they are making monthly recurring revenue that is healthy, but at the end of the day it's kind of a product that is something every person could live without.
You could easily cancel your GPT subscription tomorrow. That is not really that big of a deal, but can you really cancel your insurance tomorrow? or better yet, are you allowed to?
We live in a society where it even isn't that easy anymore. They always bill you per year or sign contracts with you to ensure their sustainability as well. On paper, one could learn one or two things from how the monthly recurring revenue of insurance companies works. It's like a continually streaming river that can't stop or slow down that easily.
Startups thrive for years to achieve this, only to fail. There’s something there to be learnt.