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Has Insurtech Become Too Insulated?

November 11th, 2020

Despite the huge market in Insurtech, several factors make it difficult for startups to get their ideas across. Factors such as complex regulation bear down such a huge weight that gaining traction seems to be harder to do in Insurtech than in any other space. It begs the question – is there still room for innovation in Insurtech?

We were given a chance to dive into this topic during our latest DiffuseTap session with key investment decision-makers in two major insurance companies: J. Brian Anderson, principal and senior director at Nationwide Insurance’s Corporate Venture Capital arm, and Andrew Pitz, investment director at Transamerica Ventures.

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high caliber startup players) and part purposeful (you’ll DiffuseTap new ideas). If you want to make new friends and connect with experienced professionals from our VC ecosystem, email us at contact@diffuse.vc.

What Makes Insurtech Hard to ‘Breach’

To create an industry-disruptive, “Netflix-like” product in Insurtech is a long shot, Andrew says. According to him, startups have to go through a lot more processes and put more effort into creating a successful product in the insurance industry compared to most other spaces. Four main factors make innovation difficult in Insurtech:

“First, there’s complex regulation that needs to be navigated if you want to create a better model in insurance. And then there are high capital reserves, which are required for large books of business, especially in life insurance. 

“But also, incumbents have sticky customer relationships and big in-force books, worth billions of dollars. These four things have all insulated insurance from the forces of disruptive innovation, if you will, where it’s more difficult for a startup to break in than perhaps other industries.”  

Leather-Bound Tomes in Insurance

Brian reinforces that the reason for this difficulty is because insurance companies have regulations that have been in place long before the technology we have today. Some of these regulations do not translate to modern technology.

“Many insurance companies were established hundreds of years ago, long before the invention let alone the advent of computers. I’ve been to Nationwide’s archives where you see how they recorded policies in the 1920s, and when I say it’s a leather-bound tome of policyholder’s credits, debits, and claims, I’m not joking. It’s all handwritten. We’ve come a long way.”  

What Insurance Companies Look for When Investing

When asked about what they were looking for when investing, Brian said there are three basic categories of companies to invest in: enterprise horizontal companies, insurance and financial services enabling companies, and companies that are a hedge to current lines of business.

Firstly, strategic investments mean investing in companies that generally help the core operations of the enterprise. These investments are not insurance or financial services-related per se but are investments where there is industry focus nonetheless.

The second category is more specific to a line of business. These types of companies are geared towards helping distribution or specific to an industry oriented vertical. And then lastly, Brian says they also look at investments that hedge to their current business model. According to Brian:

“These are strategic investments where we want to invest  in a company that is capitalizing on a potential megatrend that could disrupt an entire industry vertical we’re in.”

On the other hand, Andrew says that when making investments towards their core lines of business, he tends to gravitate towards those that create ‘real value’ for their policyholders, although he also focuses on those companies who can improve core business operations. Customer value, he explains, is measured by how it improves and/or lengthens their clients’ lives.

When defining customer value, there are two strong reasons to invest: companies that improve the lives of your policyholders not only allow you to create a holistic offering that enhances the customer relationship by giving them something impactful and meaningful,  but also helping to improve customer outcomes ensures you remain profitable on blocks of business like term life. Andrew explains:

“But at the end of the day, the customer-focused part of our investment thesis really boils down to improving and adding value to our policyholder’s lives.”


Meet the Speakers

J. Brian Anderson is principal and founding member of Nationwide Ventures’ CVC team since 2016. He was also a management associate to Nationwide’s Financial Leadership Rotation Program. Before joining Nationwide, he invested in a variety of successful early stage startups ranging from pre-seed to Series A.

Andrew Pitz is investment director of Transamerica Ventures, the global venture arm of Dutch-based insurer Aegon and US subsidiary Transamerica. Transamerica Ventures makes investments in InsurTech, FinTech, enterprise software, and digital health startups in the U.S. and around the world. He leads the company’s North America arm, spearheading investments in PolicyGenius, Digital Currency Group, Everplans, SmartAsset, Hixme, Genus.ai, Limelight Health, and CompStak.

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