With insurtechs launching in droves from U.S. tech hubs like Silicon Valley and Des Moines, Iowa, the onus is on carriers to invest in startups to reduce friction policyholders associate with traditional workflows.
That was among the conclusions of a panel discussion at Ernst & Young’s 2017 Insurance Executive Forum in New York. The session included Nationwide’s Chief Innovation Officer Scott Sanchez, American Family Ventures’ Managing Director Dan Reed and Jeff Goldberg, SVP of research and consulting at Novarica, as moderator.
Sanchez believes the insurance industry is under attack by Silicon Valley venture capitalists. The reality is insurers cannot out invest them and copy their “fail fast” approach—where 90% of invested startups fail and 10% make it big.
The goal at Nationwide’s is to “get a return on one-third of our investments, break even on the next third and lose money on the remaining,” he added.
The Columbus, Ohio-based insurer began its venture fund in January 2016, writing its first check later in September. Nationwide has since made seven more investments in startups, including Insurify, Next Insurance and Bloom.
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AmFam has invested in the insurtech space a bit longer; since 2010, Reed says. Its first contribution was in an initiative that helped AmFam agents better communicate with customers thorugh social media. The Midwestern carrier’s efforts then lay dormant until 2013, when Reed successfully pitched and received a $50 million allocation budget from AmFam’s C-suite. His team now monitors 1,500 startups, generally investing in five to 10 per year.
“The hype around insurtech really began in 2015 with the investments from VCs in Zenefits and Oscar [Insurance],” Reed says.
In the first year, companies believed they could take over the low-tech industry. Insurtechs have now shifted gears to partnering with carriers or exiting the market altogether by selling their platforms to incumbents directly he added.
Finally, panelists agreed that disruption in insurance is imminent, best done internally and not necessarily with C-suite approval.
“Investment strategy is more about support [in funding] than approval from the C-suite,” said Sanchez. “We’ve been pushed to say no to some companies. It’s just important they hear it from us first before they see it in a press release.”
