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225. Bull, Bear & Beyond – JDC Group: executive interview
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In this interview, Sebastian Grabmaier, CEO of JDC Group, explains the effects of AI on the insurance market in general and its impact on the Insurtech platform company in particular. We discuss how he sees AI as the largest game changer since the internet but also how its effects may not be as immediate as feared by the market. He explains that with the access to data, infrastructure and customers, the large JDC platform is well positioned to benefit from AI. Grabmaier also highlights that JDC has already developed its own AI tools to make its internal processes more efficient, for instance in data gathering and comparison tools. With the recently acquired lead generator FMK, which also uses AI in its outreach (eg through Google), already realising large new contract numbers (c 40k contracts every month), Grabmaier notes that the conversion of AI leads is much higher than through conventional methods.
JDC Group is a leading German insurance platform, providing advice and financial services to professional intermediaries and banks and directly to end-customers. JDC provides its digital platform for end-clients and for the administration and processing of insurance products as a white-label product.
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About ‘Bull, Bear & Beyond’
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Transcript
Introduction to Sebastian Grabmeier and JDC Group
00:00:07
Speaker
Hello and welcome to this Edison TV executive interview. Today we are speaking with Sebastian Grabmeier, Chief Executive Officer of JDZ
Impact of AI on Insurance Sector
00:00:16
Speaker
Group. JDZ Group is a German listed fintech platform group focusing on bank insurance products.
00:00:22
Speaker
We are going to be focusing on the impact of artificial intelligence on the insurance sector and JDC Group in particular. Sebastian, thank you very much and for joining us today. um ah first question, um maybe to to get to a general start.
JDC's Platform Model Explained
00:00:38
Speaker
Can you give a short description of what JDC does and how the business model works? Yes, sure. um Great to see you again, Edwin. ah yeah JDC is a typical platform company, so we have one tech platform that brings together the insurance companies in Germany and all kinds of intermediaries. So we take in the data of more than 250 insurance groups, all the mortgaging banks, the ah investment companies, investment platforms. We standardize the data, we process it and we make it visible. in our um systems and also deliver ah the data up to the systems of our intermediaries. Okay.
00:01:16
Speaker
So, in short, people buy insurance for, for example, a broker or a bank. These insurance policies are processed on on on your platform.
00:01:27
Speaker
and And JDC earns a commission on this. And banks and being some brokers, they are willing to pay you a part of this commission and because of the platform function with the insurance provider selection, services administration, etc., etc. Yes, thank you. Thank you for clarifying, Adveney. So yeah, the core is a B2B2C model. That means ah there is about 16,000 intermediaries using
Understanding JDC's B2B2C Model
00:01:51
Speaker
the platform. And if a customer takes out insurance, pays the premium, the insurer ah then ah pays a part of the premium as commission to the platform.
00:02:02
Speaker
on average, that's 40 euro, 4 zero euro per ah piece of insurance. So we take in the commissions, we deduct our 10 euros, and then we pay 30 euros on average to the intermediaries that gives us the customer for free. So the good side is we do not have to pay anything to acquire customers because that's ah delivered from all these intermediaries in the market, but then we split the commission and yeah, so we don't have any marketing expense to grow in this model and then just have to split the commission after. So our top line is to commission in and then if you want to compare us with a software company, then it's commission in minus commission out this gross margin line. That's basically the de part where we can deduct costs off and then um make earnings off. Perfect. Okay.
00:02:50
Speaker
Very, very clear.
AI as a Transformative Innovation
00:02:52
Speaker
um Artificial intelligence is the hot topic at the moment and seen as a disruptor to to many sectors. um How do you think AI is going to impact the insurance world?
00:03:03
Speaker
Yeah, we definitely think that AI will be the biggest ah change and innovation in the market since the internet. But also, ah this is a little bit overstated. the if The effects will not be that intermediate, right? When this small startup, Insurify, came along and introduced a comparison tool to compare three different car insurance ah um carriers and and then click out the customers ah to some US insurer,
00:03:31
Speaker
That gave quite some hit to all kinds of intermediaries, also insurance companies in the worldwide market. ah Whereas we think that this is just a technology that we use for 15 years. Today, JDC is not only comparing car, but all kinds of insurance products ah to of all insurers in Germany. And with our in-house comparison platform, Morgen Morgen, we are market leader in Germany. comparison tools. So the normal way in Germany now is that all customers, all brokers, all intermediaries, they compare first and then ah offer their clients a product. And there's a lot of, um yeah, it's a scare trade, as the U.S. says. um So there's um
00:04:11
Speaker
yeah some anxieties of how AI is really influencing the market. And there are some studies that say that up to 45% of all sales could be done by and yeah generic um AI agents. so um But there is some truth behind it. um Even this if this is the case, we as JDC would be like a very big beneficiary because there's three things needed to really use AI.
AI Requirements for JDC's Success
00:04:38
Speaker
Number one is data, number two is infrastructure, and number three is customer access. So if you use an AI tool, also the best large language models on a worldwide data set, you will see that results are pretty poor, right? Just search for a credit card or the best insurance contract. And if you don't tell the large language model,
00:04:57
Speaker
what market you're in, what specific risk you want to cover, ah what's the data you're relying on, then the the the answers on the prompts are just ah very poor and not really ah easy to use for a client and also not for an intermediary. So you need the data ah to really use an AI tool.
00:05:17
Speaker
and the And the second is, and even if the AI tool is then ah talking to customers or communicating with the customers and then or even buys the ah the piece of insurance,
00:05:27
Speaker
and then you need an infrastructure, so a platform to transact. And and finally, right and you cannot use AI before you have customer access. And all these three, data plus infrastructure plus customer access, is on the JDC platform.
00:05:43
Speaker
Yeah, you already touched upon that a little bit. and So you've seen in in in the share stock market already that shares of platform companies have taken a hit from from the development of AI.
00:05:56
Speaker
um and And AI is going to take over their role. That's the fear. ah you You see it otherwise, right? Well, the same happened to the software companies. Most took a hit of about 30% of their market cap. the Same ah with the intermediaries, both insurance or stock.
Efficiency Gains Through AI
00:06:14
Speaker
But I think on a short term, the contrary is the case because the the the ones ah who can benefit from ah the developments are the ones using these AI tools. And that's not the general public first, but it's ah the software companies being more efficient to ah yeah develop software faster and and more to the point. And same goes for intermediaries. that once it's It's not the competition AI against intermediaries. It's intermediaries using AI versus intermediaries not using AI. And we see that our internal processes already um are becoming way more efficient
00:06:52
Speaker
And when you look at our platform, then you can see that our growth is is roughly 15% per year and our HR costs are just going up 2% to 3% a year. And the answer is yes, AI is um enhancing our skills and also our efficiency to gather the data. And we can already ah use um a lot of HR and a lot of personnel in other fields because AI is replacing um ah normal um service employees. so um yeah So my prediction is that AI will first benefit all these um yeah bigger ah platform software companies and only maybe in the far future there will be AI tools that can then maybe replace some of the smaller intermediaries but not the big platforms.
AI's Advantages for Large Platforms
00:07:42
Speaker
Because again, right um you need these infrastructure platforms to transact if you are a human being or an AI agent. And this is what we're looking forward to because um we will um yeah be very happy to to do all the transaction business for these new, um yeah in the end, it's customer interfaces um in using these ah these new AI methods.
00:08:10
Speaker
to To summarize, you can and use the AI for for for ah to to streamline your own processes. So that that's something that you're working on. And the other side is in in in the market platform businesses, the the large one like like like your own, that that's that's probably going to benefit from the development.
Back Office Efficiency with AI Tools
00:08:34
Speaker
Yes, correct. that's The easiest use of AI is basically um If you have back office work, like yeah there's there's some stupid standard ah work streams, such as taking in data or comparing data or ah checking the quality of data. AI tools are very well fit to do that already. And we use our our first AI tools for the last yeah almost two and a half years. So also here front runners. And now when the AI development and comes to the customer front end, there is way more benefits. Right right now, if at least in German language, the AI agents are pretty poor still. right If you call whatever one big insurance company or big airlines, whatever you get back as an AI um interface, that's ah yeah still pretty poor.
00:09:27
Speaker
And you have to rely on a human being on the phone or in the service centers. But this will change dramatically. And for us, that has a lot of opportunity in there because we will be able to contact many, many people.
00:09:41
Speaker
right We will talk more about FMK, our newest acquisition. But for us, it was ah yeah quite expensive to contact our customers outbound. But using now the first really usable AI bots, this will not be a problem in the very near near future.
00:09:59
Speaker
Now, clear. You already touched upon it a little bit.
Expanding Customer Base via FMK Acquisition
00:10:03
Speaker
um now that the The other way to benefit from from AI is, of course, in in and attracting new clients. and The acquisition of 60% of FMK probably fits this profile.
00:10:15
Speaker
um could you Could you tell more about how FMK helps to source these new clients and get new contracts on the platform? Yeah, that's the... ah So we like actually we like this B2B2C model that we're running because obviously there is no big advertising costs, there's no acquisition costs to get access to customers, but we are always depending on the speed and ah the performance of our intermediary clients. And the acquisition of FMK changed this dramatically because this is the fastest growing customer acquisition platform in the German ah financial market. So they acquire 40,000 customers, and that's not leads, but customers signing contracts every month. So we expect them to provide new. So we now own 2.5 million customers on the platform and they will provide another 500,000 customers every year.
00:11:07
Speaker
Until now, for him for them, it was prohibitive for small companies to contact the the customers individually after they signed the contract. So they were running a click-out model where we they sent them to the product company, insurance company, credit card company, ah bank, And then they um just used anonymous data because they did not really have the yeah the tools to contact these customers again. But now, and very soon, these AI agents um and bots, they will...
00:11:41
Speaker
just allow us to call 40,000 customers in a minute, right? So we can contact all of them and try to cross-sell, up-sell them. And that's very new um development to our platform, right? And secondly, um the the big question was ah still in AI, all these chat GPT, other large language models, how would they change the use of Google, right? And the, yeah, There was lot of hysteria whether Google would have to go the market because nobody's Googling anymore, but everybody's using Chetty.
00:12:13
Speaker
And the the answer is that ah Google figures go up because these large language models make people use more internet. So in the past, maybe 50% of the clients were in the internet and then came to a human broker or agent. Now it's more than 75%. So the internet is becoming more ah important as a sales funnel. But then within the use of these large language models, um it will not go to licensed systems because most of these clients and consumers will use ah free models, right? So they will have ah more than ah three, four, five apps ah using AI on their smartphones. And then um whenever the free period, let's say three prompts or four or five prompts are is gone, they would go to the next systems. So they're not open ah to pay a monthly license fee. So then as in the development of Google, we are quite certain that it goes to advertising and we can see that every single of these systems and even ChatGPT was the last to allow um now advertising on the platform. This only started now in the US. And this we can see with other models like Copilot or Bing, they already use advertising and offering advertising space under the answer of the prompt.
00:13:32
Speaker
the good part of this is that the conversion rates ah are there much higher than on Google Ads, right? because if you buy the the advertising space right after the answer. Let's say a customer says, what's the best credit card in Germany and asks ChatGPT. And then under the prompt, that's not really helpful because now ChatGPT until now doesn't have the right data bank ah to really tap into. you have an ad that says the ah Institute for Consumer Confidence ah tells this is the best five credit cards, then people are way more likely to click on this ad that's 80 to 150%. This makes ah the advertising spend
00:14:15
Speaker
um and the return on this advertising spend five times higher. That's our news figure. So um that means um this is way more attractive than Google Ads until now. We're really looking forward ah to the introduction of ad space in all of these larger rank language models.
00:14:32
Speaker
impressiveive and Impressive, impressive. So this wraps up our interview. If our audience would like to see more, please visit our website at edisongroup.com or under the IR section of the JDC corporate website.
00:14:45
Speaker
Thank you very much, Sebastian. Thank you, Evan.