(Clara Sieg, Partner, Revolution Ventures. Source: Revolution Ventures.)
There are good reasons that insurance has lagged behind other industries, including its low-transaction nature, the way the industries systems evolved to be siloed by product and business line, its contract-centric model, and other causes. However, these reasons are fading with the opportunities of technology and the impact of consumerization. The result is pressure on insurance carrier leadership to embrace change, and opportunity for investors to help them along. This is exemplified by carrier, venture capital and private equity investment in start-ups; by the emergence of insurance accelerators, and by investment in new distribution storefronts, such as PolicyGenius. We recently talked to Jennifer Fitzgerald, CEO of PolicyGenius, and we followed up with Clara Sieg, partner at Revolution Ventures, the firm that recently led PolicyGenius’ series B funding round. Sieg spoke to IIR about the investment opportunity in insurance, now and in the near future.
Insurance Innovation Reporter: Tell us about how Revolution Ventures works in the insurance industry.
Clara Sieg, Partner, Revolution Ventures: Our firm has made a number of bets on different things in, or touching on, insurance. We also have a lot of regulatory know-how and have spent a lot of time and effort honing that expertise. Part of the reason you haven’t seen as rapid change in insurance, and why it’s one of the last industries to be disrupted is that it is heavily regulated—and for good reason. Given that, you can’t just throw technology at many of the problems the industry faces—you have to have deep understanding of how the industry works.
Among the reasons we and other investors are excited about the insurance industry is that it’s underserved by technology, and it is one of the last industries to be transformed by being online and made more efficient. And yet the margins are incredible. When we think about partnering with carriers and how to disrupt the industry while playing within its rules, the piece we’re addressing through PolicyGenius is first and foremost distribution. That’s what carriers really care about today. Distribution is a process that has historically been done offline with agents, and we see an opportunity to bring that online. Part of the reason carriers haven’t brought technology to this problem is the classic incumbent mentality around innovation. But another part is that they will continue to depend on agents for distribution and have to walk the line of introducing disruptive technology while continuing to rely on the offline agent—because they will still be part of the distribution landscape.
IIR: Why is Revolution Ventures investing in PolicyGenius?
CS: At Revolution Ventures we focus on backing entrepreneurs who are disrupting legacy industries. So with regard to PoligyGenius we’re focused on a “sleepy leg” industry where technology hasn’t disrupted or brought business processes online. PolicyGenius is fundamentally transforming the direct-to-consumer industry with online tools for choice and convenience. They’re empowering consumers to make the right decisions. In those ways PolicyGenius is bringing transparency to the insurance industry and, in doing so, empowering consumers to make informed decisions for their coverage needs in a way that is faster, better and cheaper for them.
IIR: Could you elaborate on the magnitude of the insurance industry investment opportunity?
CS: In the insurance market broadly there is over $1 trillion in premium written annually—it’s the biggest market in the world, though one that has been least innovative from our point of view. There are over 350,000 agents registered in the U.S. alone and their average age is over 60. Many will be retiring soon. At the same time, there’s a younger set of consumers who don’t want to interact but rather search and discover. That has driven a lot of under-insurance whether for renters, pet, LTC or life policies. Many consumers go online to search and then are interrupted during the purchase process because there’s typically a large offline component to buying insurance, where you have to talk to agent. And it’s a very spammy experience. I don’t know if you’ve tried to buy auto, but by sharing information you will basically ruin your inbox. PolicyGenius addresses that with a checklist to address what an individual does need in the way of coverage—and perhaps more importantly what they don’t.
IIR: Many insurers observe disruption in the industry with consternation. However, PolicyGenius operates only on the distribution, not the product manufacturing side. Also, the venture capital wings of several insurers—for example, AXA, MassMutual and Transamerica—count themselves among PolicyGenius’ investors. Do these facts indicate that PolicyGenius is more of a collaborator than a competitor?
CS: I think the backing from strategic investors and PolicyGenius highlights the collaborative nature of their product. Yes, it definitely disrupts a portion of the insurance industry, but in order to provide a breadth of options for consumers and give them the best possible insurance policies for their needs we have to partner with the carriers.
You’ve seen a similar kind of collaboration in FinTech where a lot of banks and strategic investors came into a lot of FinTech companies. They know they can’t do it in house so they partner with those who are building solutions.
IIR: And what are the areas where the insurance carriers might be looking for that kind of help. Where are the opportunities?
CS: As we’ve discussed, distribution where PolicyGenius is focusing, is a huge opportunity. The next is likely to be in support better, faster, cheaper more, accurate underwriting—because we can apply technology to that.
IIR: Is Revolution involved in any such ventures now?
CS: Not now but we’re spending a ton of time on the insurance industry. One we believe will be disrupted and where there is a lot of margin and that will also be around a long time.
IIR: It’s clear that PolicyGenius is a distribution play; but where does the company fall with regard to customer ownership issues?
CS: PolicyGenius makes money on the distribution part but they also help consumers move faster from application to sale and once you have the policy, they provide a dashboard to monitor their policy. I don’t know about you, but figuring out my different policies, how to interact to monitor is a pain point for me. When you look to renew, and you now have a child and a wife you can easily enter the relevant details and PolicyGenius will place you with the appropriate coverage. So it’s establishing an ongoing relationship with insurers to address all their insurance needs.
IIR: To conclude our talk, how fast do you think change is coming to the insurance industry? How do you calculate that velocity? Can you draw parallels to rapid change in other industries?
CS: We don’t have a great answer, partly because as I mentioned insurance is so heavily regulated, and those are things you can’t tie to a specific timeline. I think it’s similar to disruption in banking and the different tech startups that we see in that area. There will be regulatory hurdles, but it’s clear this change is coming—consumers are demanding it.