169. Jeff Arnold: A Passionate Entrepreneur Profitably Redesigns The Insurance Experience

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Is there any industry a passionate entrepreneur can’t improve and enhance by elevating the customer experience? The answer is clearly no. Economics For Business talks to Jeff Arnold, who finds insurance fun, exciting, and a source of inspiration, and who is advancing profitably towards the new future he’s imagining, where buying insurance is so enjoyable that customers will stop shopping on price and clamor for the new experience he is designing.

Key Takeaways and Actionable Insights

Passionate, creative entrepreneurs can deliver profitable innovation to any industry, no matter how static and rigid it may seem.

Jeff Arnold loves insurance. He told us he finds it fun, awesome, and exciting. Studying the intricacies of contractually trading and transferring risk for payment generated a lifetime interest and passion in him. He’s turned that passion into revenue and profit by delivering new value to customers in aspect of their life or their business that is extremely important to them.

As a good Austrian, Jeff Arnold views his industry first from the customer’s perspective.

Customer-first. That’s the Austrian way of business. When Jeff thinks about insurance, he thinks from the consumers’ perspective. They pay hundreds of thousands of dollars over a lifetime for insurance of many kinds: house, automobile, business, medical care, and more. Do they know exactly what they are buying — or, perhaps more importantly, not buying because of exclusions buried deep in the small type of the appendices to an insurance policy agreement? How do they feel about the customer interface, including call center phone trees and hard-to-decipher policy documents?

From this perspective, he is able to develop design principles for an insurance business with a better customer experience:

  • Help customers to think about a systematic lifetime plan for all their insurances;
  • Help them develop the knowledge required to properly understand insurance offers and alternative policies;
  • Give them the opportunity to customize insurance products for their needs as opposed to buying a commoditized vanilla product;
  • Help them to get the exchange value from the purchase that is right for them.
  • Give them an interpersonal experience that’s much better than the industry norm.

Jeff focuses his customers on value, not price.

Most often, buyers approach an insurance purchase with a transactional frame of mind: how can I pay the lowest price. They’ll shop around to find it. Jeff wants to put an end to “price shopping”, to be replaced with a value calculation: what coverage do I need, how did I get it, and who is the best provider?

The value calculation often entails discovering and eliminating exclusions — coverages that are excluded in the fine print of the contract. These exclusions occur in home insurance (which is especially hard to read and understand) auto insurance (there are 12-14 exclusions to look for according to Jeff) and commercial or business insurance (where many coverages are automatically excluded and must be built back in item by item, with careful attention to detail).

The value solution lies in the integration of technology and personal service.

Jeff’s latest business, RightSure, aims to get individuals the right insurance by using A.I. in combination with “famously friendly humans”, i.e., staff carefully selected and trained to deliver knowledge and service in an amenable way. The A.I. can provide a preliminary phone interface, a chatbot interface on the website, and can do an excellent job of matching customer needs to the right policies. Famously friendly people can patiently explain all the policy options, point out what’s covered and what’s excluded, answer customer questions, and help them to make informed decisions. They’re good at listening, exhibit high empathy, and can help customers navigate from suspicion to trust.

The combination of A.I. and famously friendly humans delivers a superior customer experience while also achieving high levels of efficiency. The return on investment in human capital is as high as the return on technology capital. The combination generates brand uniqueness.

Jeff represents entrepreneurship in action in the insurance industry.

Jeff Arnold is a quintessential entrepreneur. He’s driven by a passion for his industry, where he spent a career in multiple roles before launching his current business. He gathered knowledge he learned from others and from his own experience in those various roles. He innovates by having a more highly developed customer focus than others, and commits to a better experience for his customers than they can expect elsewhere. And he knows how to combine and recombine assets and resources in new ways to deliver that better experience. He continuously monitors the customer experience and customer sentiment to keep improving.

His primary skill are empathy and imagination — understanding the experience customers prefer and designing it in his mind before bringing it to life. He doesn’t need technology expertise to bring his vision to life; he can buy that on the market. It is the human factors of empathy and imagination that lie behind his superior product.

Imagining the future drives product and service innovation.

After a lifetime in the insurance industry and informed by hundreds and thousands of conversations with consumers, Jeff can accurately identify current dissatisfactions and easily imagine future products and services to address some of those satisfactions. Some of the ones he mentioned in our conversation were:

The macro policy: Why do customers have to buy home and auto and business and medical insurance I separate policies and separate transactions. What if there could be one macro policy for a family, adjustable to new needs as life goes on yet still a “one policy” solution for managing all the risks a family faces?

Expanding liability coverage: It seems like lawmakers and courts are continuously finding new things the rest of us are guilty of, like saying bad things on social media. Liabilities are expanding — Jeff called it social inflation. What if our policies could keep up without us having to adjust them in new transactions?

New payment systems: What if we bought automobile insurance by the mile instead of in a lump? Or what if we got refunds based on good driving habits (which is beginning to happen with telematics)? Generally, the payment system of lump sums for coverage over a time period can be replaced by behavioral measures of consumption.

These are the kinds of innovation Jeff is imagining, and working hard on bringing to market. Entrepreneurs make the world a better place.

Additional Resources

Jeff Arnold’s author page on Amazon.com: Mises.org/E4B_169_Author

Jeff’s website, Ambassador For The Insurance Industry: JeffArnold.com

The Art Of The Insurance Deal by Jeff Arnold: Mises.org/E4B_169_Book

RightSure.com

We Crave Value. They Give Us GDP.

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All human action is purposeful. Those are the words of an economist – Ludwig von Mises – not a preacher. Every one of us has goals we are working towards, many goals at many levels, from achieving lifetime status to getting our kids into a good school, to looking forward to a nice dessert after dinner. 

Economics is the science of achieving our purpose. It’s the science of choosing the right goals and choosing the right ways to achieve those goals. Economists call these ends and means. When we feel like we have chosen appropriate ends and found the right means to get there, we experience value.

Value is what we want. Value is what we crave. Value is a feeling, an experience of satisfaction, especially if the learning process to define good ends and effective means is a long one, a path of challenges and errors. Think of the value of completing a certification in some skill or profession, for example. There’s a lot of work and a lot of time that goes into it. It’s necessary to choose which certification to go for, necessary to sacrifice some things you’d rather be doing than studying or putting in workshop time or practice, it’s necessary to pass an exam or a test of some kind with all the stress and preparation that precedes it. Then you get the certification. That feeling of accomplishment, of pride, of a new pathway opening up in front of you, that’s what the economist calls value.

The purpose of every firm engaged in commerce is to generate value for customers. In reality, it’s the customer that creates the value because only the customer can experience that feeling. No customer, no value. The firm is a helper, a facilitator of value. The firm can produce the means for the customer to choose in order to pursue desired ends.

Value becomes a process – a process of interaction between producer and end-user. The end-user is learning what to want by prioritizing the importance of their own ends, comparing alternatives, weighing up opportunity costs (what would they choose if they didn’t choose this and switched to something else?), and assessing actual value in use compared to what was promised by the producer. The value learning process never stops.

Value seekers are rigorous in their evaluations. They’re willing to take time to get to the point of value. That’s why producers are constantly trying to persuade them to “buy now”, or yelling “offer ends this week” or otherwise trying to generate urgency. Value seekers are willing to save now for the future, when they believe value might be higher (they can buy something more valuable with their savings) even though our hedonistic society seems to assign more importance to immediate gratification. Value seekers are willing to make trade-offs, foregoing even attractive propositions when they are confident in their relative assessments of what’s better for them. There is self-discipline in value-seeking.

The private sector of entrepreneurial firms strives to help customers to realize value. Entrepreneurship can be defined as the creative pursuit of new customer value.

The greatest enemy of value is government. At the base of their anti-value stance is the measurement and pursuit not of value, but of a metric the government publishes under the name of GDP. GDP is the antithesis of value, quantitative not qualitative, numbers not feelings, about prices rather than value and spending rather than value experiences. Because GDP reflects spending, and because governments have justified their intervention into the economic activities of their citizens by expressing the goal to “grow GDP”, they urge us to spend, spend, spend. When we don’t, they “stimulate”, with more government, spending (using money conjured out of thin air) aiming to encourage more personal spending. 

Worsening an already bad arrangement, government aims for inflation: the increase in prices across the board, lowering the purchasing power of every citizen. The result is less value. We buy cheaper food rather than the most healthy or nutritious food. And government encourages the Big Food producers who make the cheap, unhealthy, non-nutritious food, with subsidies (like the never-ending sugar subsidy) and programs like the Food Pyramid, and many more. Because of inflation, people invest less in their human capital of fitness and health; it’s more expensive under conditions of inflation to maintain that gym membership or buy that bike. Same with education, which is getting worse and worse, especially at k-12 level and especially in poorer neighborhoods. The scarce resource of education is assigned by zip code, not by value. In general, the government wants price inflation because it’s more value for them (they value the power they get from the money they print) and less value for us.

We get less value in foods, replaced by more cheapness 

We get less value in gasoline, they get more self-righteousness through “green” energy claims.

We get less value in transportation, via an increasingly bad experience, whether driving or taking public transportation. They get more usage by forcing it on us.

We get less value in medical care, they get more control (which they value highly) through regulation and legislation and cronyism with Big Pharma and Big Insurance.

We get less value in the landscape, and we get water rationing. They get to expand the powers of the Bureau Of Land Management.

We get less value in energy grids that don’t work, and rolling blackouts. They get monopolies they can control and to preach sermons about climate change amelioration.

Governments extract value from their citizens, and from the producers of value who serve citizens. They divert attention from their value extraction by pointing to GDP growth. There’s no need to be fooled. Pay no attention to GDP statistics. Ask yourself, is my life experience improving? Is that of my family? My community? Take your own actions to improve value for yourself. Your own subjective value creation, and value co-creation with the producers who align with your purpose, will guide you. Don’t tolerate value extraction.

168. Anthony J. Evans: Markets for Managers and Entrepreneurs

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Markets are marvelous. They’re the poetry of economics. They are one of the most remarkable technologies humans have ever built. Beautiful businesses develop new markets both outside and inside the firm. We discuss markets with Anthony J. Evans, a business school professor who teaches that all businesspeople must become economists.

Key Takeaways and Actionable Insights

A business economist is an Austrian who looks at the fields of economics and business to see how one is best applied to the other.

Aim to be a good economist and a good business practitioner. Managerial economics is the application of the economic way of thinking and the insights of economics to the managerial task of creating value. It was Shlomo Maital who wrote, “Managers can’t just employ economists, they must become economists”. Anthony Evans follows that direction and teaches his students at ESCP Business School that they’ll be more productive and more capable as businesspeople as a result of learning and applying economics.

Market system economics provides businesses with the best toolkit for success.

Businesses are participants in the market system. Managerial economists study markets in order to find ways for businesses to use market insights, harness market mechanisms and understand the signals and information that markets provide. It’s easy for firms to overestimate their ability to affect the markets in which they are participating, and don’t sometimes they don’t fully understand or properly analyze what market prices are telling them.

Prices are the most important market signals, and they can transmit information about potential futures. They can guide firms on understanding how much value they are creating relative to competitors. They can provide signals about how to increase revenue by moving process higher or lower. They can help businesses understand opportunity costs and transaction costs.

Markets are decentralized experimentation, and if some new experiments by disruptive competitors are commanding purchases from actual buyers today, that may signal more buyers and more transactions in the future especially after prices adjust to higher transaction volumes. Monitoring prices and reading the signals must be a core managerial skill.

Market tests should be applied whenever feasible. Technology can help.

Businesses should run a market test for every question that a market can answer: is this offering or initiative valued, is it preferred, can we put a price on it, will varying the price change the level of demand or acceptance, is the benefit greater than the cost, do some customers prefer a competitive offer? Run a market test — A/B test, pilot program, prototype evaluation, survey with customers, whatever is feasible.

Today’s technology provides tremendous help with low-cost digital testing methods, fast feedback loops, and efficient data processing. In fact, more and more, technology can relieve managers of the task of formulating their own understanding by automating the test procedures and the analytics and recommendations.

Markets can be brought inside the firm to improve business performance.

Markets stimulate innovation, lower costs, and efficiency because customers always want better, cheaper, and faster and competing entrepreneurial firms always want to provide those benefits in the search for profits. The same effects of the market order can be sought inside the firm. What is the market value and the right price for marketing services from the marketing department, or HR services or IT services? What’s the marginal cost versus marginal benefit analysis for one more HR staff member, or the opportunity cost of one more IT system installation versus one more sales campaign? What’s the value of the knowledge flowing through the firm?

These are the kinds of questions that the market order can answer, and managers should always be asking them. Prices can be the metric for all learning.

Market economics can also guide organizational design and processes.

Markets are dynamic and ever changing. Businesses must reflect and emulate this dynamism. Organizational design and structures must be flexible enough to enable dynamism and not erect barriers to change and adaptation. What are the forces that make markets grow and decline, and what are the forces that have this effect on firms? Organization should harness the forces of market growth.

Professor Evans’ suggestion is a constitutional view of the firm. Let simple rules of conduct emerge from a shared sense of vision and mission, codify them, and then let decentralized teams run the experiments that feel constitutionally right to them given their reading of market signals.

Subjective value is immeasurable, but can be gauged in market tests.

The purpose of a firm is to generate subjective value, which is created by customers through their own experiences and co-created by the firms and brands and services that facilitate those experiences. Subjective value is intangible and immeasurable. But exchange value — what customers actually pay in an exchange transaction — can be a proxy in some cases.

Subjective value is a hard concept to grasp for those who have been educated or trained to think of value in objective terms, as something inherent in a product. Professor Evans finds his students, when asked to describe the value of an offering or an idea, instinctively gravitate to the product-based view, citing attributes, features and performance benefits.

Taking the customer perspective is very hard, and perhaps unnatural. The economic point of view is always to put the producer in the shoes of the customer, to take the customer’s view and identify the customer’s mental model for processing information and observation. It’s hard to do, and requires significant cognitive effort. But done well, it’s key to marketing, innovation, product improvement and competitive positioning. Empathically diagnosing subjective value is one of the greatest insights economics can give to business.

Entrepreneurs thrive in markets.

Markets are the place where entrepreneurs ply their skills, and the entrepreneurial role will never diminish. Their imagination of the future and anticipation of future demand – even under conditions of uncertainty – their creativity and their judgment will always be important in the context of dynamic interactions of multiple players, offerings, and institutions within markets. The human factor is the most important.

Entrepreneurship is not an academic matter to be debated for the distinction of different nuances, but a practical matter of working and succeeding in markets. It concerns the identification of a profit opportunity via some kind of new product, service, method, or recombination of capital, and the ability to introduce this novelty into the marketplace, actively making decisions about resource allocation, cost, investment, communications and all the other elements of a business, overcoming obstacles and resolving difficult challenges. It is, as Professor Evans stated it, both ideational and implementational. Ambidextrous.

And the common backdrop for all entrepreneurs and businesses of all kinds is continuous change. In his book Economics: A Complete Guide For Business, Prof Evans states that, “Economic change will disintegrate existing combinations (of capital goods) and force entrepreneurs to find new ones”. This action, which Prof Evans refers to as “recalculation”, is core to the dynamics and agility of entrepreneurs in markets. Recalculation is the creative pulse that provides the energy for generating new capital structures out of old ones.

Austrian economists have always been acutely aware of change as an economic factor. Perhaps the business world is catching up, but Austrians have always been ahead. It’s the perspective that entrepreneurs and businesses can co-ordinate with each other fruitfully in markets where change is so pervasive and so fast that no-one has complete knowledge and yet must be able to act. Austrian economics demonstrates that good outcomes are possible, even in these conditions of bounded knowledge, for everyone participating in the market, so long as entrepreneurs are free to do their work without intervention. It’s a very powerful message.

People in business can be proud of acting as value generators and not feel any imposed need to “give back” or sacrifice themselves to artificially constructed restraints.

Additional Resources

Economics: A Complete Guide For Business by Anthony J. Evans: Buy It On Amazon

AnthonyJEvans.com

Six Traits Of America’s Entrepreneurial Culture

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The quality of life we enjoy in America today can be traced back directly to our entrepreneurial culture. The innovations of automobiles for everyone, safe, well-constructed homes, the electricity grid and all the devices attached to it, the internet and all its pages and interconnections, sanitation, medical care, airplanes that whisk us around the world and around America – whatever combination of things makes you think “quality of life” can find its origins in entrepreneurship.

We can differentiate between entrepreneurship and entrepreneurs. Entrepreneurship is an economic function, which can be considered in the abstract, separate from the individuals who practice it. Entrepreneurship is the process of introducing customer-approved innovation – including all those items on the list above, and all the many more that have customer approval, from Disneyland to cosmetic dentistry. The function of entrepreneurship comprises the desire of customers for betterment, the alertness of entrepreneurs to identify this desire as an opportunity for profit, and the implementation of that opportunity as a successful commercial business that delivers the betterment that the customer seeks. Entrepreneurship as a function begins with the customer via an unmet need, and finishes with the customer via their approval. There’s a multi-stage learning cycle: the customer learns what to want, what’s available to meet their need, and how to make accurate choices from everything that’s offered.

There’s an individual who instantiates the function of entrepreneurship – the individual (or firm) we call the entrepreneur. The entrepreneur is not an abstraction but a real flesh-and-blood person who performs the actions of entrepreneurship. These actions include the diagnosis of what the customer needs – which is often not well-articulated, because the customer is better at identifying what’s wrong or what’s missing or what falls short in their current arrangements, but not very good at inventing the future innovation that will fix the problem. Through the use of human understanding, the entrepreneur imagines the new future that the customer can’t yet articulate, and embarks on the process of trying to bring it into existence. Entrepreneurs are dedicated to better futures.

Connecting the abstract function of entrepreneurship and the personal commitments of entrepreneurs is an entrepreneurial culture – the behavioral norms and practices and institutions that provide the social context for entrepreneurship, both in the cultural permission for customers to always demand improvement, and in the cultural approval of the risk-taking entrepreneur pursuing the uncertain market reward of an imagined future. If the consumer culture was one of accepting the status quo, there would be no entrepreneurship, and if the producer culture was one of intolerance of risk and uncertainty, the same would be the case. The consumer culture is as important as the producer culture.

An entrepreneurial culture includes:

  • Optimism for the future – for a consumer to believe in the potential for betterment in the future requires an optimistic outlook; the same goes for the entrepreneurs who believe they can deliver that betterment. Optimism is an American trait. It’s not felt so much in European cultures, for example, where existential dread and a sense of civilizatinal and cultural decline are more the norm.
  • Creativity – entrepreneurial innovation does not result from bureaucracy or linear systems of management or mathematical models or computational projections or even from scientific inquiry experimentation. It stems from creativity. Someone imagines a better future and imagines how to bring it about. A design process brings the future into the presence via sketches, prototypes, blueprints, molds, and trial and error. Americans are creative. They created a nation and a constitution, they populated empty land west of the Rockies, they created railroads and corporations and a legal system where there had previously been nothing. Creativity is a national trait.
  • An open, mobile society – the ranks of the entrepreneurs are not limited to those born wealthy and privileged and educated at the best schools. They’re not even limited to those born in America. Our society is open to mobility in multiple directions and entrepreneurship benefits from this social mobility.
  • Risk – an entrepreneurial culture does not embrace pampering or sheltering or avoidng risk. It seeks risk. It seeks the uncertainty that means it is possible to imagine and seize an pportunity withiut any guarantee.
  • Skin in the game – the reward for risk is profit, acclaim, recognition and influence. Entrepreneurs strive for these outcomes; the entrepreneurial culture grants them this level of privilege if they are successful in improving others’ lives. Skin in the game means taking the risk and thereby qualifying for the reward.
  • The right to succeed – a few entrepreneurs achieve untold riches; many achieve great financial success. The entrepreneurial culture celebtrates their success and sets them up as examples for others and for future generations. Let’s all be entrepreneurs!

The opposite traits will undermine the entrepreneurial culture. If we become pessimistic and subscribe to the idea of American decline; if we permit ourselves to be governed or managed by bureaucrats following restrictive standardized rules; if we close ourselves off to immigration or mobility of any kind; if we fear risk and give up on the rewards that come with it; if we criticize and decry entrepreneurial success because we resent the level of reward our successful entrepreneurs are accorded; these are the feelings and actions and tendencies that will bring an end to American entrepreneurship. We’ll catch the European disease of restraining entrepreneurship by over-regulating and over-bureaucratizing. We might fall into the Asian error of state-mediated entrepreneurship. We might inherit the South American fear of entrepreneurship.

The entrepreneurial culture is not something that can be governed by the apparatus of the state. It’s not something that can be taught at university. It’s much more likely to be communicated at the family dinner table, and spread by sharing optimistic attitudes and open-minded delight in possibilities. It is strengthened by open-minded acceptance of every experiment, and by welcoming innovation on principle. It’s collaboration and participation and inclusion and expansiveness. It’s the embrace of change, even when it is uncomfortable. It’s open-minded active learning.

Let’s hope we can maintain it. Let’s try hard.