Insurance stocks can be an excellent addition to any investor's portfolio. These stocks can perform well in various economic conditions -- from booming economies to recessionary ones.
One insurance company that has grown rapidly is Goosehead Insurance (GSHD -0.96%). The insurance agency sells insurance in a few different ways, but its newest product is what has me excited about the company's growth.
Goosehead has rapid growth and happy customers
Goosehead's business model involves selling insurance through the corporation as well as a franchise-based model. Goosehead represents over 140 insurance companies that underwrite personal lines and small commercial lines risks. Its business model helps entrepreneurs launch franchises and lends support through the knowledge it's built up since the company began in 2003. As of March 31, Goosehead had 1,268 franchises operating with the agents making 80% commission on new policies and 50% commission on renewals.
Goosehead has put up stellar growth over the last few years. The insurance agency has seen premiums increase 31% compounded annually through its corporate channel since 2019. Its franchise channel is growing even faster, with premiums sold growing at 52% compounded annually since then.
Its technology could let anyone sell insurance
Goosehead has invested heavily in technology to help agents make more sales. Specifically, the company launched its digital agent, which it believes will power the next growth phase for the company. This digital agent will improve the shopping experience for customers and help its agents -- both corporate and franchise -- drive more sales beyond its current strategy. This platform has already been available for agents, who could quickly search for quotes from over 140 different carriers. However, the platform is now widely available for the general public to get their own quotes.CEO Mark Jones claimed in the latest earnings call last month that, "There is literally nothing like it in the market."
The benefit of the technology is twofold. One, it allows customers quickly find insurance coverage at the best available prices while protecting customers' data. Reuters found that many sites that aggregate quotes like this take personal information -- leading sites to import user data and ask more questions before providing a price and routing users to an agent. Goosehead promises never to sell customer data and can give customers quotes on home, auto, or umbrella insurance coverage within minutes. Customers can complete the purchase of coverage online or get instantly connected with an agent online to discuss any adjustments they could make to their coverage.
The second part that makes this technology intriguing is how it can connect the technology to other businesses. Any business that wants to offer insurance coverage can seamlessly connect to this technology using its application programming interface (API).
For example, suppose a mortgage originator wanted to help customers quickly add homeowners insurance. In that case, they could use Goosehead's technology to seamlessly get them a quote and connect them to an agent. Other customers who could use this technology are builders, banks, and other fintechs that want to offer customers insurance without having to build up their own insurance agency.
The platform can boost Goosehead's business model
Companies like Lemonade and Progressive have their own online buying platform that leverages customer data. However, what makes Goosehead's platform unique is the fact that it is an insurance agency looking to connect customers with a range of carriers, as opposed to Lemonade or Progressive, who give quotes on policies that they write. As a result, Goosehead doesn't take on the risks involved with underwriting policies and instead makes commissions when they sell policies.
Goosehead also has an attractive franchise-based model, which allows the firm to earn higher commissions from franchisees that stick with them for more than 10 years. According to Piper Sandler analyst Paul Newsome in August 2021, the platform isn't expected to have a material impact on the company's earnings over the next year or two. However, he did say that "if it's even just a little bit successful, it's essentially additive to Goosehead's model."
While this technology is still in the early implementation phase, it should drive additional sales for Goosehead agents in the long run. With Goosehead management focused on long-term growth at the expense of short-term profits, this could be a solid stock for investors to start a small position in today and build up over time.