Understanding Insurance Product Development

Season 2 Episode 18

Understanding Insurance Product Development with Cabe Chadick

Season 2 Episode 18


Intro/Outro: Welcome to the Insurance Leadership Podcast. The podcast is designed to bring you perspectives and principles from leaders in the life and health insurance industry. We trust you'll enjoy today's episode.

Ryan Eaton: Good morning, and welcome to another episode of the Insurance Leadership Podcast. I'm Ryan Eaton, your host. Honored to have you listening in with us today, we have Cabe Chadick who has been in the business for almost 30 years, helping insurance companies take products to market, whether it's setting up reserves, helping with filings, or actuarial. There are so many different things that come into place when you're helping get a product approved with a different department of insurance. And Cabe's got all the experience in the world for that. We are thrilled to have him with us today. And with that, let's go ahead and get started. Well, Cabe, welcome to the show, buddy. It's an honor to have you on. 

Cabe Chadick: Thanks for having me. 

Ryan Eaton: Look, I was, uh, hoping to kind of get kicked off. I said we got your bio on the website. We'll have all the information there, but I'd love for you to give maybe a little information about yourself, what brought you into the business, and then maybe we can hit on Lewis & Ellis a little bit, and kind of what services you guys provide and who comes to you, maybe hit on that a little bit.

Cabe Chadick: Sure. Well, I'm originally from Louisiana. Grew up in North Louisiana, went to LSU, and got a math degree from LSU. My dad was a math professor. I did not want to teach for a number of reasons. And heard about this thing called actuarial work and got an internship with the traveler’s companies in Hartford, Connecticut by junior- it's the last summer of college. 

Ryan Eaton: Okay. 

Cabe Chadick: And they offered me a job to come back after college spent three long years in the Yankee state of Connecticut and, uh, came back south and I've been here ever since. Spent a little bit of time in Louisiana with an insurance company. You're probably familiar with Penn American Life in New Orleans.

Ryan Eaton: I am. 

Cabe Chadick: But I've been here in North Texas with Louis and Ellis for about 23 years. It's been a great ride. 

Ryan Eaton: I knew it. What type of, uh, clients do you service at Lewis & Ellis? Where- Are you having mostly insurance companies, TPAs, and government entities? What kind of- or do you kind of touch all of it? 

Cabe Chadick: It seemed like I touch all of them. When I first came here to Lewis & Ellis, it was primarily small insurance companies and small health plans. And I still have them as clients, but ever since Obamacare came to the forefront. That's really ballooned a number of our government clients, especially state governments. Yep. And also, the fellow government center for Medicare Medicaid services is my largest client.

I help them with their Medicare program for seniors and their Medicaid program for our unfortunate, poor, uh, citizens in the United States. 

Ryan Eaton: Wow. Wow. That's a big program right there. 

Cabe Chadick: It is. It is. 

Ryan Eaton: Largest health program in the country. Isn't it? 

Cabe Chadick: Uh, definitely Medicare and Medicaid combined, it's massive. 

Ryan Eaton: Well, one question before we kinda hop into everything, what was it like going from Louisiana Baton Rouge, Louisiana to Hartford, Connecticut? I know that had to be, that was, that was a game changer for you. I'm sure. Especially growing up in Louisiana. 

Cabe Chadick: Yeah, it was. My claim to fame at LSU was, is, uh, I think I was one of the last 30 students allowed to live in Tiger Stadium. So, for my last two years, I lived underneath the stands in Tiger Stadium. There was the cheapest place to live. There was no security. The fans could use our bathrooms. There was no air conditioning in Baton Rouge, Louisiana. So, I went from there to living in Hartford, Connecticut, which is- it's fantastic. You don't need air conditioning. 

Ryan Eaton: That's right. No air conditioning in the south. That is dangerous. 

Cabe Chadick: Yeah. 

Ryan Eaton: Man. 

Cabe Chadick: I had a lot of fans. I took a lot of cold showers. Spending time in the library, cause it was cold there but uh- 

Ryan Eaton: (laughter) That's great.

Cabe Chadick: But I enjoyed my time in Connecticut. It was a good training ground, but I was definitely a fish outta water. I mean, I would say stuff like I'm fixing to do this or y'all and it was- 

Ryan Eaton: Get a few funny looks.

Cabe Chadick: I got rid of some of my Louisiana speak, but not all of it. 

Ryan Eaton: Oh man. Well, Cabe, look, you've been a partner of ours for years, helped us for over 20 years with on our insurance company side, develop products, take products to market, and that's really, I wanted to get you here today because you have so much wisdom. You work with so many different companies and helping them take products to market. I'd like to hit on that, but I thought it might be fun if we started maybe with a story of, I know with 23 years of doing this, uh, I know you've seen some different insurance companies kinda drop a ball or get a black eye in some form or fashion. 

Without naming any names, could you kinda walk us through maybe a process that you saw with a carrier where they kind of cut a corner, took a shortcut, whatever, and it didn't work out for 'em? I think that might help us kind of get into some of the questions. 

Cabe Chadick: Sure. This is a common story. I've seen this a handful of times from my earliest consulting career. It's still gonna happen. Cause it's, it's just human nature. You've got a small and medium-sized company that wants to grow their line and they look at a big carrier. That's been doing something, they've got some benefits package product, and they'll get a certain rate and commission scale and they're selling it like hot cakes.

Ryan Eaton: Yep. 

Cabe Chadick: And they figure since they're a big company. They look at their bottom line in total, they know what they're doing. They're making money at the bottom. You know, they see their so reports or otherwise, and they figured I wanna copy that just like them. or otherwise, and we tell them that's you really can't follow them.

In fact, I've even had a client tell me I wanna do that when they wanted to copy another client of mine. Now, confidentially, I can't tell them what's going on with this other big client. But I know privately that they're losing money. Yeah. 

Ryan Eaton: I'm just like, you do not wanna do that, but I can't.

Cabe Chadick: Yeah. As you probably have heard, they shadow prices.

Ryan Eaton: Yeah. 

Cabe Chadick: Exact same benefits, exact same price, unfortunately with exact same commissions, and yes. More than not, they sell a ton of it, but then they learn very early on. Uh, now this big company was losing money as well, or just, or I'll, I'll get a phone call back saying, how are they doing this? We're losing our shirt.

I said you're still assuming they're making money. 

Ryan Eaton: Yeah. 

Cabe Chadick: Uh, so that's probably the worst thing I've seen and it's gonna keep happening. It's human nature, right? People assume others know what they're doing and or making money and they follow them down that same path. 

Ryan Eaton: From a business standpoint, you obviously can't tell a company, Hey, they're losing money. You don't want to go down this price. What lesson would you tell carriers? Or what advice would you have for carriers who are looking to shadow price to maybe do some due diligence, so they don't end up in the same spot as these carriers who shadow price and then end up with a bad loss ratio? 

Cabe Chadick: Well, we, I strive sometimes you can find publicly available information about how they're doing. 

Ryan Eaton: Right.

Cabe Chadick: There are more and more reporting requirements in states. And so, if I can grab something out there through Google or through a state DOI website, then it's no longer kind of information. And I can say, "Hey, look at this." 

Ryan Eaton: Yeah. 

Cabe Chadick: Look at how they're doing in this one particular snapshot and that maybe open their eyes.

Ryan Eaton: Yep. So go to a DOI, go to am best, go to wherever you can. And maybe be able to find out that information prior to- 

Cabe Chadick: Yes. 

Ryan Eaton: Committing to the shadow pricing, so to say. 

Cabe Chadick: Yeah, but what's tough is some of those, like you mentioned AM Best, which is a great place, but it's a- if you're talking about a massive company- 

Ryan Eaton: Yeah.

Cabe Chadick: You're talking about hundreds of product lines all gathered together. So, you really don't see it. So, you sometimes you have to do some esoteric searches and try to find just that particular product line. And the DOI website, sometimes there are some states in Florida's, one of 'em maybe Tennessee, where you have to go back and tell the state after you've been writing business in that state, how you're doing. Florida's a great one because you have to tell Florida about most accident/health products, how you're doing in Florida and how you're doing nationwide. So that's my first go-to state. Now as a client like yourselves, you hate reporting that information because then your kind of sharing your dirty laundry or your good results with everybody. 

Ryan Eaton: That's right. 

Cabe Chadick: But that's a great place to go to. 

Ryan Eaton: (laughs) Let's copy this and let's not copy this right now that makes it so talking about the filing of products there and with Florida, does every department of insurance require you to file a product that's life and health? I mean, do you, if you wanna sell in Colorado, obviously you gotta file a product there. Do all 50 states require that? 

Cabe Chadick: It- it's gonna be, it depends. Let me go to the extremes. There are some exceptions like you have some group nonmajor medical products that, a state like Arizona, I think is one of 'em that just trust companies that are licensed to do in that state. And you can just file it and be exempt and you're off to the races. Now, if they find something out to the fact through a complaint or market conduct exam that you're not in compliance, then they'll have to go back and reverse that. So, there are exceptions we can just file and move along. And then there are other states that are close to that door, they don't put much into the review. They ask very little questions. 

But again, these are products that are not say senior citizen-focused, right? They're not, uh, ACA or major medical focused. They're not, they don't get a lot of public pressure. Anything having to do with senior citizen med-up long-term care, Medicare Advantage, that gets an intense amount of focus.

You're going to get a lot of questions. Anything having to do with ACA or major medical, you're gonna get a lot of questions. But there's a lot of products and your company does a ton of them where you just don't get as much, uh, scrutiny. 

Ryan Eaton: That's right. No, that makes sense. I‘ve never thought about that before the senior products getting that much scrutiny makes perfect sense. Everyone wants to take care of the- 

Cabe Chadick: It makes perfect sense. These folks are on a fixed budget. Yeah. It's not like they can go out and make more money from this or that. And they're purchasing products that are intended, especially long-term care to last for years. They made one big purchasing decision and they need that for the rest of their life. That's a big decision. 

Ryan Eaton: That's right. 

Cabe Chadick: Medsep, fortunately, is an annual decision. You can change carriers, but senior products get a lot of focus. And I, I would say rightly so. 

Ryan Eaton: Does it also have to do okay with policies that have short tail risk or, or limited exposure? So, you know, a $10,000 life policy, our final expense policy, it's not huge. It's not gonna sink any company's ship. Does that also have something to do with that as well? 

Cabe Chadick: I would definitely say so. Yeah. It, it, the amount of the payout. Yeah. I mean, major medical policies have millions of dollars sometimes and often unlimited payout, as opposed to a limited benefit, critical illness product that five grand or some supplemental medical, again, a five grand max payout.

Ryan Eaton: Yep. 

Cabe Chadick: You know, a DOI has only so many resources they could allocate to things, and they, you know, they allocate it appropriately. 

Ryan Eaton: No, that makes sense. So when a company, uh, you said you worked with a lot of, especially at first, you worked with a lot of small and mid-sized companies. When these types of size companies are bringing products to you, they have an idea for a product, they want to take it out. Are they coming to you a lot of times with all the information that you need to kind of get the actuarial data? Do you have to guide them through the process? Are you asking 'em hey, what size groups? Is this a guaranteed issue? Simplified issue? No health? I mean, what's kind of that process typically look like kind of start to finish?

Cabe Chadick: I would say most clients don't have all their ducks in a row. They really haven't. They have more, I thought again, they, they saw a competitor and they wanna do this and this, and they wanna tweak this but then they have like you said, they haven't thought about their group sizes or their markets. And there are a lot of questions. I gotta compliment Morgan White and your management. You guys have more products well thought out than anybody else. It's really nice.

Ryan Eaton: Well, that's very kind of you.

Cabe Chadick: And then you have some clients who have two-thirds of the product design done. And this is especially for the larger ones. And then it has to go through committee and they'll, they'll call me up and say, "Hey, can you do this right away?" and I was like, sure. And I'll clear my deck and say, let's get going. And now I gotta go through committee, through committee and it is... it takes a year for them to make their pro decisions and, and if they ever get it done. 

Ryan Eaton: Okay. 

Cabe Chadick: It can be a frustrating process. 

Ryan Eaton: So you just took me down another rabbit trail I wanna chase that you just said that I've never really thought of before. So, when you're working with a large company and there's, you know, maybe a new business committee and then there's a board, do, do you see that process slow down? Because the insurance company's having to, I gotta go through this process, then this process, then this process, it sounds like it could be. A year process to get a new product even approved to go through filing. Is that, is that what I'm hearing? Correct? 

Cabe Chadick: Absolutely. You've got, more often than not, that to make sense. You got some sales VP, that's heard the rumblings and the rumors. We need this to really compliment, we need to improve our so and so, and so he or she, the sales VP pushing.

And so then it hits this brick wall with the actuaries, unfortunately, that is inside the company. And it just goes through committees there. I remember one client, it took 'em like six months and they finally had it down, but they had this one risk control committee. I don't know who made it up. It was like three or four individuals and they shut the whole thing down.

Ryan Eaton: Mm. So you mentioned something there as well, internal actuaries. Where do you see companies start adding internal actuaries? To me, kind of from my side of it. And this may just be outside looking in, but I don't know why a company would really want to necessarily have an internal actuary, maybe just looking at their stuff. To me, the value comes from having someone who's outside who's seeing all these different companies and all these different products, but again, I may be missing something I'd love to kind of get your opinion on that. 

Cabe Chadick: Well, once you reach a certain size, it really does make sense to have your own person. I mean, I'm really blessed to be compensated by my clients well, but I'm more expensive than an internal actuary.

Ryan Eaton: Right. 

Cabe Chadick: And so I actually like, and I keep my clients longer and when I teach them certain things that they can do for themselves, I'm more than happy to do it. I love getting paid to do certain things, but if I can teach, especially they're non-actuaries, I can teach you how to do certain things, I just don't want, you know, I appreciate the income, but let's develop a long term relationship where you can take over certain things and let me just handle some of the more esoteric things.

Ryan Eaton: Yeah. 

Cabe Chadick: But on the actuarial side, maybe I can teach them their staff to do things that we do four or five times during the year. It's just a rope process. Why, why have we done it? We appreciate the income, but for lack a better word, our consulting bill gets too big. They're gonna maybe fire us. So, I like to develop a long-term relationships. Let me have you take over some things internally. 

Ryan Eaton: So what, when you're getting to that point where the company has the resources, maybe to be able to bring someone on, maybe help with filing or actuarial or whatever the case may be. What's kind of the first thing you start with letting that client take over? What's the first thing you see insurance companies typically saying, "Hey, I can bring this in-house. We feel comfortable with this". Where does that start? 

Cabe Chadick: It's a very boring area. Setting your claim reserves. So, for every action health block, or all your policies, you have claim reserves, and you report numbers on a quarterly basis. So, you have figured, okay, at the end of this quarter, how much money do we need the bank to pay for claims that have already been incurred? We just haven't paid out the check yet. 

Ryan Eaton: Yep. 

Cabe Chadick: It's a rote, teachable process. It's not exciting, but you know, something has to be done by an actuary. 

Ryan Eaton: No, that makes sense. So, kind of going on how do actuaries really come up with the rates at the day? I know a lot of people think there's just some big book that people grab and look from and kind of pull that. And I know everybody's different. Walk us through that process, what it looks like, 'cause obviously there's different products, life and health are completely different. What does that look like kind of putting all those rates together and then developing the reserves based on that? 

Cabe Chadick: Well, hopefully, the client has some similar business to that. So I mean, if it's a client like Morgan White and you're just tweaking the existing product, we can kind of look, say, okay, that's really gonna change the rates 1%. We don't expect that much change. So that's, that's easy. 

Ryan Eaton: Okay. 

Cabe Chadick: On the other end of the scale, um, if it's a new product, uh it's, which is a rare thing that I haven't seen it before, we can't find some, a comparable product out there in the market, then quite frankly, we have to wet our finger and stick in the air and actually done that. So that's, that's, that doesn't happen too often, but we have to do that sometimes. And when we do that, we earn our reputation as being very conservative. We may load that, that rate a dramatic amount. That's right. But could, you can always lower the rate, especially if you're not making sales. 

Ryan Eaton: That's right.

Cabe Chadick: Which it's really tough to get behind the eight ball and go back to these clients you sold and say, "Hey, we need to raise your rates". 

Ryan Eaton: That's right. No, I agree with you a hundred percent there. So, you and I both have, uh, a friend and, and clients, we worked together with that developed a new product last year. And without saying anything about it, the, uh, it was a really unique product, completely new to the market. I'd never even seen it or even thought of it really before. And I think COVID is one of the things that kind of brought it about. Was that kind of one of the new products that you're "Hey, I, I think this works, let's go a little bit higher". Is that kinda- 

Cabe Chadick: Yeah, definitely. Yeah. Yeah. We loaded those rates dramatically. And like you said, I'm so excited about it to see it's launched. So yes, we'll see what happens. 

Ryan Eaton: No, that makes sense. Well, look, let me ask you some business advice now kind of getting closer to the end of the podcast.

Cabe Chadick: Sure. 

Ryan Eaton: You've been with Lewis & Ellis for almost 25 years. What's the most valuable business lesson you've learned with working with all these different carriers and companies? What's something that you've seen just like, Man, this is a tried and true business lesson I've seen over and over again? 

Cabe Chadick: You know, I thought about that question. I would say one, tell the truth, even if it hurts you or the recipient. 

Ryan Eaton: Hmm. I like that integrity. 

Cabe Chadick: Don't let fear stop. You. I've seen so many clients, especially as you get bigger, they get really risk averse. Don't let fear stop you. And then also I'm a believer in speed. You gotta move fast. Yeah. I love working with the smaller and midsize, especially the small ones. They move incredibly fast and they have to it's there, and it's one of their competitive advantages compared to the bigger companies. So, the other one is don't be afraid to make mistakes. Just don't repeat them. 

Ryan Eaton: Yeah. Oh, that's good. So kind of the same line of questions, you know, I'm thinking what are some common threads, some consistencies that you've seen in organizations year after year that continue to be successful? What do you see among those different companies? Like, "Hey, here's the common thread to their success"? 

Cabe Chadick: They move quickly. They make decisions very, very quickly. 

Ryan Eaton: I like that. 

Cabe Chadick: Uh, and they can respond to the market accordingly. Ah, as opposed to the story I told before, where they take months if they ever make a decision. The companies that are successful don't chase what I call commoditized products. And let me explain what I mean by that is, uh, a lot of the ACA programs you see out there? The federal government and the states have largely tried to make everybody sell an orange and you gotta sell the same orange and you're just competing on price. That's a commodity product. 

Ryan Eaton: That's right. 

Cabe Chadick: And you really have to be a big boy to keep your prices, your admin expenses low, and just go after that. and so that's a dangerous game. Some people can play at wealth. United Healthcare’s of the world can play that game, but I would suggest for most people you don't wanna play, uh, selling a market that's commoditized where it's all the benefits are the same, there's no unique market. It's just, you're competing on price. That's a really tough market. And then, my more successful clients stay way away from that, unless they compete in that ball game. That- 

Ryan Eaton: Unless they're that big, right? 

Cabe Chadick: Yeah. 

Ryan Eaton: You know, I think of commoditized products and I instantly, Medicare supplements are one of the things to me that is just is price and financial stability. Right? Those are, those, the two things that the client's looking for when they're choosing. And, and if you look at it, it is, it's all big boys in that game, right? The Mutual of Omahas and all the other ones that are out there are huge. So that, that makes a lot of. 

Cabe Chadick: Yes. 

Ryan Eaton: Okay. Last question for you here, Cabe. This was one that we actually got in that I thought would be interesting for today. And so, you've seen a lot of companies. You've seen a lot of departments of insurance. What's the most common issue you've seen with departments of insurance and insurance companies? And then what business advice would you kinda suggest to people that are running into these issues over and over?

Cabe Chadick: Oh man. Uh and I'm sure it's different from state to state. Right. But, uh, what's, what's the most common? State to state, set your reserves don't get behind on reserves. Cause then all of a sudden you got a DOI knocking on your door if you don't do something above board compliance wide, admit it and move on. I mean, just correct your mistakes. It kind of goes back to that. Tell the truth. Yeah. Even if it hurts you or the recipient and correct your mistakes quickly. And it just, and that gains your reputation among the DOIs. They'll remember that. 

Ryan Eaton: No, that's good. It would- have you seen situations where, uh, companies try to work their way around instead of knitting- admitting their mistakes, they try to work their way around it and kind of not necessarily feel, but kind of beat around the Bush to kind of get through situations?

Cabe Chadick: Unfortunately. So, yes. 

Ryan Eaton: How does that end up most of the time? 

Cabe Chadick: Uh, you fudged a little bit one year and then all of a sudden, and you're hoping that it'll turn around and it's, it's almost like, okay, I bet I'm black on the, on the crap, you know, crap table, this and that. And you know, I'll get my money back. I'll double down. And all of a sudden, now you pull 'em back in your pocket and now you gotta fudge it a little bit more than the next year. And now you're really, it's not just now you're not in the gray area now. You're definitely over the law. 

Ryan Eaton: Right.

Cabe Chadick: So it's just- it catches up with you. 

Ryan Eaton: That snowball gets to rolling, doesn't it? (laughs) It gets a little bigger. Well, Cabe, that wraps it up for today, buddy. I can't tell you how much we appreciate you being on the show today. I gotta be honest. When, when we talk about actuarial work and I felt the same way about technology, you know, it's kind of such a detailed subject. You're like, oh man, how, how we gonna get this really interesting. But you know, it's such a critical piece of the market. Your information's been fantastic, man. So I can't thank you enough for being on there, and thank you again for our partnership for, for over 20 years now, it's just been a blessing to our organization. 

Cabe Chadick: Same here, Ryan. It's been a blessing to us too. I appreciate it very much for the opportunity.

Ryan Eaton: Man, thanks, Cabe. Appreciate you, buddy. 

Cabe Chadick: Bye.

Well, that wraps up another episode of the Insurance Leadership Podcast. We have more information about Cabe on our website, www.insuranceleadershippodcast.com. You can find out more about him and other speakers that we've had on the show there. It would help us greatly if you would like, share, subscribe on whatever listening platform that you listen in on, and remember that a good plan today is better than a great plan months from now. Thank you very much.

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