Why and How Kevin Trapani’s Insurance Company Has a Social Purpose
The Redwoods Group Uses Insurance Company Data to Serve Youth Organizations
We sat down with Kevin Trapani, founder and CEO of North Carolina-based The Redwoods Group, which insures youth-serving organizations and uses the data insurance companies have to help policyholders lower their risks. We wanted to know what potential the insurance industry has to do good in the world, and Trapani should know: Redwoods has a 97 percent customer return rate and wins about 70 percent of new clients it seeks, with an announced mission to be a conscientious business and insurer.
Trapani isn’t settling with his already impressive success. Fairfax Holdings, a $10 billion insurer, acquired Redwoods in April 2015. Trapani aims to scale the Redwoods’ mission through the global Fairfax footprint.
A shorter version of this interview ran in the Fall 2016 issue of B Magazine. Here’s the full picture, from Trapani’s chair.
Why and how did you start The Redwoods Group? What inspired you to do good in the world with business?
I grew up in a family that saw service as core to who we are as human beings. My dad ran veterans hospitals and really saw caring for veterans as a calling for him, and that’s really what I saw as my example for what work was about. I also grew up in the world as a YMCA kid. My dad being a federal employee, we lived in a lot of places and moved from place to place. Everywhere we went we found a church and a YMCA. I grew up in the care of others in youth-serving organizations.
I also spent a career in the insurance business and had so many experiences where I saw how important it is for the insurance industry to do good work because we have so much data, quite frankly, concerning how people are harmed. So combining those things was really easy for me because if we have great data about how kids might be harmed, why don’t we use that data to work with youth-serving organizations to keep kids more safe?
What is the extra challenge mission-drive companies face?
There’s a sense sometimes that you can wear Birkenstocks and eat granola, and everything is going to go OK. But this is hard work. If all you’re trying to do is solve for profit, that’s a math problem. But if what you’re really trying to do is create a higher purpose, and a purpose that moves like the horizon — you never reach it — that’s hard work. It requires rigor and discipline far beyond what a traditional business does. The hard work is OK because the reward is incredibly high.
Do you feel like the insurance industry is supportive? Is the industry seen in the world as trying to do good?
There are lots of examples of the industry using data for good over time. I’m in a car right now that has probably 500 different technological safety advances that are results of the insurance industry sharing data and making it clear there were better ways to do things and as a result, fatalities on American highways are much lower than they were.
Now having said that, I think the industry, like many businesses, is focused first on profit and second on purpose. And I think that’s unfortunate, because we have lots and lots of data we use for the purpose of making an additional profit for our owners. There’s nothing illegal or immoral about that, but often it deprives the very people who could most benefit from the data the customers or potential victims of injury from the insight that comes with that data. So I think the way that our capital model has worked over time makes it more difficult for insurers to really unlock the potential of our platform to do good in the world.
I don’t think it has to be that way. We’ve found over the years that by doing good we’ve been profitable year over year. I think profit and purpose are not at odds in any way.
For example: From 1997 to 2003, we were only serving YMCAs. At YMCAs there were 13 people dying by drowning every year. On one hand, there are 65 million bathers a day, so 13 isn’t that many. But 13 families were devastatingly affected by a drowning every year. And if there is any place in the world someone should feel safe from drowning, one would think it would be at an American swim instructor, the YMCAs.
We spent a lot of time we even snuck onto pool decks with video cameras to find out what was going on, and we watched what was going on in the guard behavior that had people in flat-bottom pools drowning. Intuitively, it didn’t make sense. We worked really hard and gained an understanding of repositioning the guards and taught the guards to scan the bottom of the pool, where people drown, instead of the surface, as most lifeguards are taught to do. It took many years and lots of money, and on the front end, made no financial sense. We had to invest in lots of people traveling thousands of miles and making thousands of visits to pools. But, today, only person dies every three years, instead of 13 people a year. One is still too many, but it is a significant improvement.
We now retain almost 97 percent of our customers every year compared with an industry standard percentage in the high 60s. When we have an opportunity to attract a new customer, we win nearly 70 percent in an industry where 15 percent would be normal. Our risk-bearing profitability has been pretty consistent over all of those years … we run a profitable operation. And we sold Redwoods to Fairfax Financial Holdings just a year ago, at an excellent multiple in our space. It’s an example of how choosing to work on the most important things drove all of the financial metrics in our favor.
We cannot be apologetic about adequately monetizing our work. It’s really important for high-purpose organizations to understand that profit is an essential metric of sustainability. If we can’t be profitable, then we can’t be here to do the work that we came to do. So if we see profit as something we don’t want to talk about or that is unnecessary or in some ways even counter to our mission, then we’re not treating our purpose with the respect that it needs to have. So, for us, we exist to serve. We’re here to keep kids safe. The next thing under “serving” in our mission statement is to make a sustainable profit. They are not at odds at all, it’s just that profit isn’t the reason we exist; it’s a metric of sustainability for us, it’s what gives us the ability to exist.
I’ve seen in purpose-driven companies like ours that we don’t achieve incremental improvement on metrics. We smash the metrics. If we think a child in the care of The Redwoods Group is going to be safer than in the care of another insurance company, then it’s really important for us to find new customers and work with them and help them develop better practices. So growing the business, finding new customers, is essential. But we invest an unbelievable amount in a prospective customer. Lots of time on-site working in a consultative way with them before we deliver a proposal, which is very unusual in the insurance industry. But as a result, when you get nearly 70 percent sales success ratio on your business, again in an industry where the success rate is normally close to about 15 to 20 percent is exceptional all of a sudden you’re three or four times what the industry norm is.
What’s the potential for the insurance industry to have a positive impact? If you were able to speak to all the insurance industry leaders, what would you say to help them?
If I had the CEOs of the top 100 insurance companies in front of me right now, I would ask them to close their eyes and ask “Do we matter?” As a company, do we matter?” And the reason I say that is because, in most cases, for most insurance companies, if you dried up and blew away tomorrow, would it make any difference? Now there are thousands of employees that might be disadvantaged, so it’s fine to say, “We matter because we provide work and compensation for however many thousand employees.” And I get that, I understand that. But frankly, it has to go beyond that, because those people would get jobs at some other company and it might not make any difference to them at all. It might look very much like working for your company. So who cares? You don’t matter in that regard.
We have to do work that matters in some meaningful way. Otherwise our only strategy is to be the low-cost provider in a totally commoditized business. And that’s, first of all, not very rewarding. Secondly, in the long term, it’s not profitable. So, the first and most important thing we have to answer is why we matter. Once we get to that, then we get to open our books and find incredibly powerful data, that, if we use it properly, will help our customers be safer. And we can transform communities through the work of our customers. And that means we matter; that’s the core to transforming our industry.
The insurance industry has made itself a commodity. At the end of the day, when a customer decides to pick one commercial insurer over another, and they look at a spreadsheet that details coverage options, and they all have the same options, so the customer goes with the lowest price. Then when something bad happens, a person is injured, claims people’s purpose is often just to save companies money. So, someone who has been injured, they are in an adversarial situation, at the very moment they need the most help.
So, if we can use data to prevent bad things from happening, and then despite our best efforts, when something bad does happen, if we can show up with empathy and help people heal, that’s the power of our industry to help make a difference in the world.
How is the merger with Fairfax after a year? Is The Redwoods Group mission secure?
Sometimes people get worried when a B Corp gets sold that they can lose their way. We were very intentional upfront and said “no” to some really nice people and some nice financial arrangements because it wasn’t clear that we’d be able to maintain our mission. So we went into this deal with great hopes, and I have to tell you that sometimes you go into something with great hopes and the results are even better than you’ve imagined, and that’s been the case with us.
We have access to resources far beyond what we could have developed as an independent organization. Our whole delivery system has become more efficient. We’re more price-competitive for our customers, but we’re also able to staff adequately, to invest in systems and technology in ways that we couldn’t before.
As for the mission, it’s clear that Fairfax, while there are many ways they can make us better and have in terms of our rigor and business practices, they’ve also invited us in to help companies all over the world to find a way to sustainably embrace purpose in a more intentional way. So we’ve worked with people in Egypt, Poland, Slovakia, Canada, Brazil on this very topic. I’ll be with a group of them in a few months in Canada to talk about how Fairfax globally might be able to engage a specific social purpose and really have significant impact. Of the things that we identified as to why we wanted to do a deal of any kind, the first and most important was not just to maintain our mission but to scale our work. And so all of a sudden within Fairfax we have a canvas on which to paint that is far beyond anything we could have imagined.
You’ve maintained your independence through the deal?
Redwoods is still an independent brand I still get to be the CEO. There were no layoffs. But there are a bunch of areas where, quite frankly, being independent wasn’t that great of a deal. We’re not the smartest people when it comes to building insurance-processing systems and financial-accounting systems, so we’re gladly taking on some of the more robust infrastructures provided to us by our parent, and that just makes us better.
Can you talk more about your ability to have impact up the chain on Fairfax, and spreading your social mission?
Fairfax has put together an investment platform called FairVentures. FairVentures is an opportunity to identify early-stage companies, particularly those that have technologies or business platforms that might within the insurance space around the world for Fairfax companies. So while we’re having those conversations, I’m on the Innovation Working Group that advises FairVentures, so I’ve heard many pitches by emerging companies. And one of those conversation points always includes, “What’s your purpose? What’s your impact on society? What obligation do you have to serve?” And those that are unable to answer those questions in a compelling way, really at the end of the day don’t succeed in competing for either our capital or our partnership. It’s a core purpose for what FairVentures stands for.
Fairfax is a $10 billion insurer, so globally pretty important. And I think FairVentures is part of the way Fairfax is innovating in the space, so it’s a pretty important thing to have at the center of what we’re trying to get done.
We’re also having conversations globally about strategic philanthropy. Fairfax is trying to align not only its charitable giving, but how the companies provide intellectual and social capital in social impact ventures around the globe. I don’t know what it is we’ll end up choosing, but we’re trying to identify what would be deeply authentic to Fairfax staff around the world, that would allow us to identify a cause, rally around a cause, engage in that cause, and really begin to define that as part of the purpose of the organization’s existence. So those are profound and fundamental things that Redwoods can’t take sole responsibility for and wouldn’t, but we’ve certainly been significantly influential which was part of the purpose.
Redwoods has started working with Boys and Girls Clubs. Tell us about that launch.
We were invited in by the Boys and Girls Club of America. We just began that in 2016, though we’ve been thinking about it for quite a while. They do very important work in some of the most marginalized neighborhoods of the country and beyond. So it’s an important way to live our mission to help them do their work in a safer way. It’s been successful; we already have several new Boys and Girls Clubs customers. We’re beginning to deepen that partnership with them and with the national organization. We have five clubs signed on at the moment, but there are 1,000 Boys and Girls Clubs.
Is part of being able to do your own underwriting as part of Fairfax Holdings make working with the Boys and Girls Clubs easier, more feasible?
Yes, it’s easier because it’s more efficient for us to do the work this way being our own underwriter, but it’s also been really helpful because there are difficult exposures to loss. Kids are at risk in any kind of institutional care, so we’ve had really smart people at Crum & Forster specifically to help us think through the products and services that we’re offering, and they’ve given us a perspective that we just wouldn’t have had independently. We’re transactionally efficient but at the same time strategically insightful.
I was chatting with a Boys and Girls Club leader early this year, and he explained that he doesn’t consider YMCAs to be their competitor. Their competitors are the streets, gangs. That was a really important learning for us. If not for the Boys and Girls Club, where would these kids be every day?
You’re committed as CEO for five more years from the merger?
Let me outline some of the financial terms of the transaction: Some of the money was upfront, some of the money will be earned after five years. My wife, Jennifer, and I have worked together for nearly 20 years. Within four or five years, there will be someone who will be a much better CEO that I can be, and I’m delighted to step aside and work in some other way. We’re here for the long pull. For people who work for purpose, what we get to do is a blessing. It’s not a burden in any way. So we don’t look at anything and say we’re relieved to step away. It’s not part of our thinking.
How do you feel this mission is going to change/continue when/if you change your role?
I’ve had one career goal for the last 20 years: I want to be regarded as the worst CEO in the history of Redwoods. I want to be sure that the people who follow me are better than I am. It’s important for us to be sure that is not a ministry of me, it’s never been about Kevin, it’s about the work. I’m inspired everyday by the folks that I get to work with. They think about our mission in really profound ways. There are not many days that go by I don’t say, “Wow, I never thought about that. What a cool idea.” So, I think that whenever the time is right for me to be operating in a different way or in a different position or title, the company will probably scale its impact faster than I’ve been able to do.
For a long time, we were a founder-driven company; we were a startup. There’s an entrepreneurial spirit that I hope never goes away, but we’ve had to be much more rigorous, much more disciplined. And those are the keys to scaling success instead of just kind of starting.
I’m not worried at all about what’s next. I don’t think people at Redwoods or our customers are either.
Kevin Trapani has also shared his views on HB2, widely known as North Carolina’s “bathroom bill,” from his perspective as a North Carolina business owner.
B the Change gathers and shares the voices from within the movement of people using business as a force for good and the community of certified B Corporations. The opinions expressed do not necessarily reflect those of the nonprofit B Lab.
