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The meeting was one of the best in years, and a recent acquisition, FirstComp, was the main reason why. Below, I'll share some of what makes FirstComp special and why Markel shareholders should be very happy about this acquisition.
FirstComp CEO Luke Yeransian provided a 15-minute presentation on how he built the company and what has led to its success. He left Berkshire Hathaway and founded FirstComp in 1997. Worker's compensation is not normally a field you would consider Markel to enter. It's highly competitive -- basically a commodity offering. However, Markel found something special in FirstComp. Here's what's unique:
FirstComp uses technology as a weapon. Because it services small rural agencies, and because its typical client has only one employee, the company must be ultra-efficient. So FirstComp created a browser-based system that can be accessed by their 9,100 agents. If they provide a quote within one minute of the request, FirstComp will land the deal 52% of the time. That percentage declines with each passing hour. If it takes more than 24 hours to respond, the close rate goes to around 30%.
The company's browser-based model means it was one of the first insurers to go paperless. While competitors utilized paper and had a quote time of two to three weeks, FirstComp was quoting business in minutes.
FirstComp's model is similar to Paychex in that it targets smaller clients -- small accounts the big boys can't touch. Many of its clients have just one employee. Lack of competition means it can charge higher rates for its services. Combine its low-cost provider status with excellent positioning and you get a combined ratio of around 82%. Basically, FirstComp can charge more because these are smaller accounts and it's the cheapest, most efficient provider.
Markel hasn't exactly embraced technology, so this presentation was music to my ears. During the meeting, it was clear that Markel had gotten the religion. As a shareholder, I'm hoping Yeransian can be a great resource and provide strategic help in bringing the rest of Markel in line with the technology needs of today.
FirstComp looks forward to leveraging Markel's name, financial strength, and cross-selling into its list of clients. For that, Markel gets some tech-savvy folks, $300 million of gross annual premiums, and $257 million in assets. This has all the makings of a long and fruitful marriage!