Are you really in good hands with homeowners insurance? with Matan Slagter on the Unrealest

Kyle Stoner: One of the scariest things about buying a home is thinking about the maintenance. What if something goes wrong? How much are they going to cost? If you wanted to learn more about. easing those worries. Or maybe you're selling a home and you wanna understand how to ease the worries of a buyer. Today is your day for our podcast.

We're gonna be talking about home warranty. Our unreal stat of the day is that 25% of the homes sold in the United States actually come with a home warranty, which sort of blew my mind. I didn't realize that was a lot more than expected. However, only 4% of homes still have a home warranty. Today I'd like to introduce you to my friend Matan Slagter.

He's the founder and CEO of Armadillo. It's a leading online home warranty company. Matan, welcome to the show. 

Matan Slagter: Thanks for having me, Kyle. 

Kyle Stoner: My pleasure. My pleasure. What is Armadillo and how did you get into home warranty? 

Matan Slagter: Ooh, I know. Easy question. “When I was six years old, I knew I was going to be in the home warranty.”

Nah! No one ever said that. So Armadillo is a home warranty company. We're a new generation. We're a product that's designed for a new generation of homeowners. We provide financial protection for new home buyers. We cover the costs of breakdowns and replacements in HVAC, plumbing electric systems, and appliances.

We have a lot of add-ons. If you have a pool and spa, or a whole home generator you could really customize your plan. And we also make it really easy to request service so every homeowner gets it. With this nice magnet on their home, they can scan their QR code, that QR code and request service digitally 24/7, or call this number and talk to an Armadillo Home Pro.

Ask questions and request service. So that's what we do. How did I get into home warranty? I fell into it. I actually started my career as an actuary in the insurance industry. Home warranty is not technically an insurance product, but we're covering the costs fundamentally. Events of future events.

So from a mathematical perspective, it is insurance. So I was in the insurance industry, started as an actor, and spent almost 15 years in the industry with my last 10 years at AIG. And one of my roles there was head of market disruption for all of their consumer-facing insurance products. So all that stuff: auto insurance, homeowner's insurance, health, accident travel insurance, and warranty. And during that spin, I used to travel around, with AIG's warranty business and talk to some of their largest clients like Best Buy and Apple I got very close with them and I learned, even though they were doing extended warranties like AppleCare on your phone, I learned a lot about the industry.

So that's where I first learned that there's also this thing called home warranty, where you're not covering one product at a time, but you're covering a lot of stuff in the home. So that's when I learned about it. And then I got introduced to the guy who founded that warranty business that AIG acquired Lenton Robbins, who's my partner and the chairman of the business.

And we went into the business together to start our Armadillo. 

Kyle Stoner: That's really cool. I didn't know that about your background. Besides prop-tech and real estate tech, that's one thing I think we have in common. I almost worked for AIG Investments coming out of business school.

Matan Slagter: Really?

Kyle Stoner: Yeah. Good group. Great group. They had their ups and downs. They were one of these weird kinds of unregulated portions of the market back in the 2000 crisis and so they had made all these crazy bets but ended up being very difficult bets on mortgage back securities or something.

I'm no longer a banker, so I don't have to go into all that. But I was almost actually there. Okay, so let's talk about this stat. 25% of homes today are sold with a warranty, which was surprising to me.

But then only 4% of homes still have a home warranty. That's a big gap. Could you please just talk about that for a little bit? 

Matan Slagter: Yeah. Specifically in the real estate space, a few things have happened. One is the home warranty product itself. It’s why we've entered the industry. We’re disruptors. We've built a much broader coverage.

Because the product itself sometimes has convoluted coverage language and consumers don't get the sort of service they think they should get when they file a claim and then they don't renew it. The main reason is that the renewal rates are very low and that's led to only 4% of households having the product.

There's a low renewal rate because a lot of the time you inherit the product, sometimes the seller of the home will buy it. For the buyer of the home, it's negotiated into the contract. Sometimes it's gifted by the real estate agent, and sometimes it's bought by the buyer, which is probably the best case because then you've made the conscious decision to buy it.

So when it comes to renewal time one year later, you'll probably be more likely to value it and renew it again. But a lot of times the buyer inherited it, and if they don't use it, if there was not a claim in the first year, the job of the home warranty company is to convince you, “Hey, I know you didn't have claims in the first year, but you might next year, so you should probably renew.” It's the dynamic of that channel that is really interesting. 

Kyle Stoner: Great, that's a good explanation. So I find that in PropTech when you talk about buyers and sellers simultaneously, people almost always get confused. So I wanna take 'em one by one. Let's talk about buyers first. As a buyer, I'm buying my home. Maybe it's my first home. I'm worried about maintenance, right? What if my air conditioner goes out or something?

That's thousands of dollars, I assume? So I'm thinking ahead, I'm getting this home warranty. Can you talk about the typical benefits, costs,  and downsides? Sometimes coverage isn't quite what somebody expects it to be when they have a claim. Can you talk about it from the buyer's perspective? How home warranty works and what's the best-case scenario? 

Matan Slagter: Absolutely, home warranty is really a great product for anybody buying a home. Whether it's a new home, or an existing home, you don't know how old the systems are. Sometimes you could guess and you get that information, how old the HVAC system is.

As a buyer going into this unknown asset, you get a little bit from the home inspection, but even that's not a sure thing. It's a great investment to make. A lot of buyers are stretched. They bought their dream home and it’s just a way to offload the risk of repairs, but more so the replacements.

HVAC goes out, now you have to replace the whole system, which could be $12,000. Or there’s a big septic system issue and you end up switching to a septic tank. Of course, you can inspect a lot of these things… but I'm in a home I moved into two years ago. We have dumped so much money into this house and actually have the HVAC system on the top floor.

We have two systems. The top floor isn’t working right now. You ask, “Why am I not filing a claim with Armadillo?” It was an issue for a long time and I started Armillo after that happened. It wouldn't be right for me to do that but for a buyer, it's a great investment. You don't know where you're walking into if you're stretched financially and you just can't afford to have to replace a big system that breaks down.

Home warranty is a great pro, different from homeowner's insurance, and we can talk about that too. Home warranty covers wear and tear. Home insurance covers catastrophic external perils. Or we can have fire burglary but it's not going to cover the HVAC system when that happens.

Kyle Stoner: Say I'm a buyer. I'm buying an average home in the United States now for about $400,000. What would I expect in the upfront costs? Break it down for me. Is there an upfront cost and a monthly cost, or is it just a one-time fee? 

Matan Slagter: There are different plans at Armadillo. I think the most affordable plan is $450 and then they go up all the way to $1,300. If you have very expensive appliances and you want to cover them at the maximum level of coverage. Most of our plans that are sold are between $550 and $750.

Those groups are two really good plans. It's upfront. Typically it comes out of closing, so it's a check that's cut out of closing for that amount. There's no monthly cost. When you renew next year, you could actually move to a monthly statement instead of paying year by year. And there is a deductible or service fee.

Most home warranties have a deductible per claim. So if there's a claim on your refrigerator, it's going to be deductible. It's typically one hundred bucks. With Armadillo, it can range from as low as $75 to as high as $200, depending on the plan that you have. You only pay that deductible once per claim.

So if it's the same claim and a service provider needs to come to your house multiple times, that deductible is only paid once. We only charge it on the day of service. A lot of warranty companies just charge you upfront and even if you haven’t had the service done yet. That's typically how it works, and there's a limit of liability.

When you get your service contract or the document that describes your coverage, it will list all the items that are covered and the maximum amount of coverage per item. 

Kyle Stoner: I understand that. You mentioned that there are sometimes people that are disappointed about the coverage in general. Where is that gap? What is typically the place where somebody ends up disappointed? Is it an item that wasn't covered and they thought that it was, or is it perhaps the deductible? Where are people getting frustrated? 

Matan Slagter: We've poured hours upon hours into that. Before we launched the company, we actually scraped consumer reviews from some of our peers and cataloged them into different buckets, and then we looked at that and we analyzed why they are upset.

The first thing was the coverage itself. When you look at the typical home warranty coverage, it's 10 to 15 pages long. There are exclusions throughout the whole thing. You might see, “We cover your HVAC, but we don't cover the duct work behind a brick wall” or “We only cover that for up to $200.” For each item, you see what's covered and what's not covered. So that was the first thing. People think something is covered and then they have some out of pocket that they didn't expect, and they're like “I paid for this thing and I thought it would cover the whole HVAC system but now you're telling me that some items are not covered.”

The second thing is, most home warranty companies require the homeowner to use their own network of service technicians, and it might take them weeks before they get someone to your house, especially if it's the middle of the summer and all the HVAC technicians are busy.

No one is available. You can't use your own. Those were the two. If you look at all those hundreds of rows that we have now in Excel, that we used a long time ago, those were the two biggest things. 

Our service contract document is two pages long instead of 15 pages. It's not because there is less coverage. It's because we removed what we believed were nonsensical exclusions. We have a single paragraph of exclusions. Any homeowner that buys our product can read this two-page, double-sided document and understand exactly what's covered.

To us, transparency was really important for our brand. We're the anti-home warranty in the home warranty space. The second thing we did is we let consumers/homeowners use their own service technic. They can totally do that. They'll get the same level of coverage, in-network and out-of-network.

The only difference is that if they use our network of technicians we've worked with, we can vouch for those and we've done background checks and all that. We'll pay the technicians directly so the homeowner won't be out of pocket for any period of time. If the homeowner chooses to use their own, the only difference is that they'll pay the technician and then we'll reimburse them after the fact.

But they have the option to do that. We're seeing that actually 50% of our claims today, people choose to do that. Either because their neighbor recommended a great plumber, or they have been using their guy or girl forever or they just wanna go on Google because they want someone who has a five-star rating on a website. And they can totally do that. We understand that. 

Kyle Stoner: Very cool. I think I understand the basics on the buy side. I know a lot of the things are mirrored but perhaps you could talk a little bit about a seller. I'm a seller. It's an existing home sale. Maybe the reason I want to add that warranty, it's to add comfort to the buyer. “Hey, don't worry. I know you, you might be holding back, but I've already got you covered.” Is it that simple or what other things should sellers be thinking about when they consider a home warranty? 

Matan Slagter: To a certain extent, it is that simple and that is a big element of it. A seller buys it to provide that comfort. Now, in the past two years with the pandemic, it was a seller's market. So sellers didn't have to do anything extra. So that 25% was probably low. The actual rate in the last two years may have been lower than 25%. It's going to climb back up.

Now with the interest rates, it's going to be less of a seller's market, and you'll see sellers doing more to attract buyers. But that was a part of it. Another might be the seller's not doing it, but then the buyer gets a home inspection and they find out that this system is 17 years old and is unsure about the septic tank.

So then the realtor representing the buyer, or the buyer themselves, might say “You know what? Seller, can you give me a $500 credit to get a home warranty? Because I can't afford it if something breaks down.”

And then they negotiate that into the contract. There is a specific clause number that's the home warranty clause and it gets put into the contract. And so that's another way it might happen. But really the big thing for a seller is putting that seal on your house and saying, “You get coverage when you buy the home. So if things do break down, you have that added level of financial security.”

Kyle Stoner: I like that. That's straightforward. The way you describe your company is very similar to how we would think of it. You're saying you're almost the anti-home warranty. And for us, we're not anti-realtor. We employ agents that help our clients transact. But all of the stuff that goes into being a traditional real estate agent, we analyze it. We reviewed a ton of Twitter, customer service, et cetera, and we kicked it out, right?

We just got rid of it. It's really funny that we took a very similar approach when we built Unreal Estate. We really wanted to get to the essence of what a really successful transaction was. 

Matan Slagter: I think home warranty also has that wrap on top of everything. That's why it's such a great opportunity for entrepreneurs. Many industries have the opportunity to look at what's going on and how we can make it better. And I'm a big believer in that. 

Kyle Stoner: Especially the old, sort of “not-so-sexy” industries, right? You joked that you didn't wake up one day as a kid, saying “I wanna do a home warranty.” There are these really big old industries that haven't really been touched by innovation at all. And I find those to be some of the best opportunities. 

Matan Slagter: One hundred percent. It’s one of the things that my partner and I, when we looked at this space, was very attractive to us.

There's no activity, there are no startups. When we looked at the space, there was only one startup in the home warranty space. If we went into homeowner's insurance or auto insurance, yeah, the shark tank was blowing up. We'd have to get in there and push our way through. That just made this specific vertical, a very attractive vertical. Now you're seeing more startups entering, but they're a little bit behind, which is nice and we’re large enough where I think we can all benefit. 

Kyle Stoner: Similar for us, it's funny you say that. When I first started this company, first of all, there was nothing called “prop-tech” yet. I was trying to do this thing in real estate with technology, and I kept getting this question from people that knew me from my previous company: “Why are you doing that? You did a FinTech company. Do another FinTech company.”

All of a sudden PropTech became a coin term, and got really hot. But still, most people shied away from doing innovation that really reduced commissions or took the agent out of the transaction at all because it's a very large lobby.

People are afraid of it. And even, companies like Compass stuttered off that way but then pivoted into being very hardcore pro-realtor. And we've seen a lot of that. People think of it as crowded, but if you think about the essence, it's not really that crowded, in my opinion.

Matan Slagter: I love PropTech, so depending on what investor we talk to, we're either a PropTech company or an insured tech company. 

Kyle Stoner: I hear you. I wanna recap. It's interesting, it sounds like people are signing up. They're buying home warranties, but after they get past that first year where nothing goes wrong, they say, “Ah, this may be an expense I'll cut.” And then, of course, the air conditioner breaks. It sounds like buyers get real benefits from getting that coverage. And the prices are fairly good, having a one-time cost of $400 to maybe $1300. One thing I wanna cover at the end of this is: What makes Armadillo great?

Matan Slagter: We touched on that with some of the features. The first thing is the coverage. We are the only-and I can say that with a lot of certainties right now.-the only home warranty product that provides a level of the breadth of coverage with that single paragraph of exclusions.

So if a homeowner is looking for something that really will deliver, that's one. There's no one else. And they'll slowly migrate there, I think, over time. But we're the only ones doing that too. We're a tech company first and foremost. You can scan a QR code to request service 24/7 or call us. We're a tech company, but we also have people who have a 360-degree view of every single consumer.

There are not a lot of different call centers. We're just a group that has all the information we need on our customers, and we deliver that level of service that you'd expect from a modern, 21st-century company. So that the service delivery, making it very easy, and the breadth of the coverage, which is what you would expect to get in this day and age put those together and I think.

Any agent or homeowner looking for great coverage. That's where we play in that home warranty industry.

Kyle Stoner: Awesome. Thank you for being on. We'll chat soon.