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Heritage Insurance Holdings Inc., a Clearwater-based property and casualty firm that operates in 15 states, finds itself at a crossroads. Founded in 2012 by Bruce Lucas and Richard Widdicombe, the publicly traded company took a $5.2 million loss in the third quarter, primarily because of a record-breaking hurricane season. But it’s also riding high on a run of growth that has seen gross revenues rise from $406.62 million in 2017 to $480.17 million in 2018 and $511.31 million in 2019 — up 26% over three years.
Accordingly, Heritage’s payroll has swollen to 600 employees, and now the company has run out of space at its Clearwater headquarters, which it owns outright. With an eye toward having room to grow even more in the future, the firm recently announced that in the second quarter of 2021 it would move to Westshore City Center, at 1401 N. Westshore Blvd., in Tampa, and occupy the entire building — nearly 90,000 square feet. The 10-year lease agreement with Westshore City Center landlord Ally Financial represents one of the biggest office-space deals in the region in recent years.
And just a week after that announcement, Lucas, 48, made even bigger headlines when he said he would retire at the end of November, paving the way for COO Ernie Garateix, his handpicked successor, to take over the company.
Lucas, in deciding his fate at the company, is also at something of his own crossroads. His contract, he says, was set to expire Nov. 4, “so I had to make a decision. Do I want to stay here and manage Heritage, or do I want to maybe mix it up and take a shot at starting something new?”
His decision begets two unanswered questions: What does a new Lucas-led venture look like, and where does that leave Heritage, which he describes as his “baby”?
NOTHING RISKED, NOTHING GAINED
Lucas describes himself as a serial entrepreneur. Heritage isn’t the only company he’s founded — in 2008 he launched a hedge fund, Infinity Investment Funds, focused on distressed energy-sector assets — but it’s by far the most successful. Yet much like other entrepreneurs who thrive on generating and executing on ideas, financial success and the potential for future lucrative growth don’t motivate him.
“At the end of the day, I couldn’t care less if I'm CEO of a billion-dollar company,” Lucas says. “The title means nothing to me. I want to be happy, and I like being creative. I like to create things, and Heritage is already created, and now it's running on cruise control. So I just wanted a new challenge, something different.”
'At the end of the day, I couldn’t care less if I'm CEO of a billion-dollar company. The title means nothing to me. I wanted a new challenge, something different.' Bruce Lucas, Heritage Insurance Holdings Inc.
That something different, Lucas says, will likely be an insurtech company. Insurtech startups have brought disruptive changes to the way insurance policies are written, marketed and sold. Instead of using, say, old-fashioned actuarial tables, an insurtech firm focused on the life insurance market would mine data from GPS devices, smartphones, fitness trackers and the like.
In the Tampa Bay region, several insurtech firms, such as TypTap and Neptune Flood — the latter is led by another recently retired young executive, former C1 Bank CEO Trevor Burgess — have shaken up the flood insurance industry. In 2019, St. Petersburg-based Neptune Flood did $7 million in sales, a 366% increase over the $1.5 million it generated in 2018, the year it was founded. TypTap, a subsidiary of publicly traded HCI Group, based in Tampa, grew to $50 million in premiums in 2019, its fourth year in business.
“I really feel strongly that insurtech is the wave of the future,” Lucas says. “I’m not going to commit to launching an insurtech carrier, but I definitely have a great business plan for a startup, and right now all signs are pointing in that direction. I’ll make my decision here over the next few weeks and then decide which path I want to go down. But the insurtech sector is red hot. You’ve got companies like Root and Lemonade that are making IPO history in the insurance world. Valuations are sky high, and I think there’s a great opportunity there.”
Garateix, Lucas’ right-hand man since joining the firm as executive vice president in 2012, says disruption is baked into Heritage’s DNA thanks to Lucas and his penchant for “being a first responder to the market.”
For example, it’s quite an achievement for a Florida insurance company to suffer a net loss of only $5.2 million from the type of hurricane season in 2020, with some 30 storms. Heritage, more of a super-regional carrier, was able to minimize the damage to its bottom line by being diversified geographically: Lucas says only 31% of the firm’s business is based in Florida — 30% is in New York and the rest is spread out evenly among East Coast states and Alabama — and it avoids insuring coastal properties as much as possible.
“Our shareholders and reinsurers love that aspect of the company,” he says. “There's not a lot of concentrated risk here.”
Meanwhile, competitors racked up tens of millions of dollars in weather-related losses, to which Garateix points to as proof of the sound strategy that has evolved under Lucas.
“We've always been successful at looking at things differently, looking at the market as it evolves,” Garateix says. “And whenever there is a little bit of disruption in the market, that's an opportunity. One of the things I’ll keep true to is being a nimble company, loose, seizing those opportunities when they present themselves when others can't grab them. So as we move forward, that will still be our mantra.”
PLAN AHEAD
Lucas' departure from Heritage will be a long goodbye: He plans to remain with the company as an executive consultant through 2021 — though he doesn’t expect Garateix to need much hand-holding.
“He's been in the insurance industry for 25 years,” Lucas says. “He’s been with our company since day one, and he has grown to develop a really sound understanding of everything we do here, whether it’s reinsurance, claims, systems. … Ernie knows it inside and out. He's got the passion, the energy, the vision. He’s incredibly intelligent.”
Lucas, driving home a timeless business lesson, says it was always vitally important to him and the company to have a clearly mapped-out succession plan. That's perhaps even more so because Heritage, like all insurers, is in the business of risk mitigation. He’s been “toying” with the idea to move on from Heritage for several years now, but his decision to pull the ripcord was made possible only by Garateix’s willingness to take over.
“I've been grooming him to take over for me as CEO for years,” Lucas says. “He’s perfectly positioned for this. He's earned his opportunity. He's got the trust and respect of our employees and our partners. He was the natural choice.”
Lucas expects Heritage’s growth surge to continue apace under Garateix’s leadership. The company has partnerships with national insurance carriers, such as GEICO, Liberty Mutual and National General, and additional deals are expected to be announced in the coming months. Also, Lucas forecasts revenue growth, combined with additional office space in Westshore, will allow the company to expand to 900-1,000 employees within the next five years.
“Those national partnerships really are meaningful to us because we're getting a high level of production from really quality customers,” Lucas says. “And it helps us expand our footprint in new states.”
On the new venture, Lucas is cagier, saying he has a range of paths to consider. Thanks to business relationships he’s carefully cultivated over the years, and returns he’s brought to investors, he says he could quickly raise as much as $60 million for a startup — he just needs to narrow down his options.
“I've got five or six really interesting opportunities in front of me right now,” he says. “I'm looking at all of those and I've got a couple of business plans I've been working on in my head for the better part of a year. I'm going to pick one and go with it and just try to have as much fun as I can.”
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