Distributed Ventures looks for insurtechs solving insurers' real problems

January 9, 2023 6:47 AM

Digital Insurance spoke with Adam Blumencranz, partner at Distributed Ventures, about the investor's criteria for prospective insurtech investments and the developments he sees in insurtech. In 2021, Distributed Ventures was created by NFP, a property and casualty insurance broker and benefits consultant. NFP had launched an innovation lab along with a $60 million venture fund. Distributed Ventures expanded on those efforts, gaining outside venture capital investment backing. Blumencranz migrated from NFP Ventures to Distributed after originally joining NFP in 2018 when it acquired insurance brokerage BWD Group, where he was vice president.

What led you from your background in insurance to working with investments in insurtech?

Adam Blumencranz - Distributed Ventures.jpg — Adam Blumencranz, partner, Distributed Ventures

I saw the writing on the wall that technology, innovation and digitization are going to impact this industry in a massive way, but it was not going to happen overnight. It was going to take time and for good reason. I wanted to be a part of it if I was going to build a career in the industry.

I started talking to NFP executives about our strategy because at that point, we were probably all over the map in terms of the companies we were speaking to and the strategies we were trying to roll out. NFP said if we're going to put in the time and do the work and get in early when there's a lot of risks, why not participate in the financial upside? Half of the money came from the balance sheet. The other half came from numerous NFP executives who invested as individual limited partners. It gave them skin in the game.

At the beginning of 2021, we decided to take in outside capital for the first time from others in and around the industry to keep this really insurance focused.

What do you look for in insurtech investments and from companies that are coming to you?

Someone can sit there for 15 minutes and run through a slide deck. My partners and I could wholeheartedly agree that if that technology was instituted in a business, you'd see all these benefits. That does not mean it's a good investment, because within the industry, change management, legacy technology and politics are all very, very real. You can't just look at the technology in a vacuum.

The technology is table stakes. You really have to come to the table as an early stage founder pitching us with a firm grasp of initial distribution. If you're selling into the industry to incumbents of all shapes and sizes, how are you going to inevitably navigate the change management concerns, the legacy technologies concerns and the political concerns?

You have to be solving something that a broker or a carrier wants to solve today. You can't come to the table with the flashiest technology that looks super cool. It's awesome that someone could say they're using this flashy tool but at the end of the day, it does very little to improve their day.

Sometimes we'll see a tool that overlaps with what a broker or carrier does. An early stage entrepreneur will say it's an improvement over what you currently have. That improvement better be a significant improvement. Otherwise, based on everything else, you're just not going to get buy-in because someone from the business is going to say, 'Look, I know it's not perfect. I know it's somewhat kind of broken, but it works.'

What's developing in insurtech? What issues are new insurtechs addressing?

MGAs are still very popular. Over the last few years, there's been a lot of learnings, both good and bad, related to what the future of some of these businesses can be. What we should be looking for remains the same – the technology, the distribution, and frankly, the valuation. I've been seeing a lot of tools brokers could use for the last little while. Although the specific tools and the strategies that some of those companies are coming to market with have changed, broker tech is not new and it's still very popular today.

ESG-related stuff is starting to poke its head. But short of a couple of companies, it's been difficult to figure out a way to tie ESG into the insurance industry so far. There will be something for brokers to advise their clients about related to ESG and I'd imagine there's going to be a tool or two that could help brokers provide that insight. It's something we're looking at and thinking about, but we haven't seen any serious opportunities there.

It's been information overload for consumers in terms of their insurance picture. You have your traditional broker, you can access stuff online, you can get policies from your employer, you can buy pet insurance or life insurance somewhere else. As an individual consumer, it's great that you have all these different insurance innovative products that are protecting you, but we feel that it's become very overwhelming for an individual to keep track of all their various insurance policies that they have. We're thinking more about a wallet type approach for an individual consumer.

Will more develop in cybersecurity coverage or insurtech for security issues?

You have very successful cyber MGAs/cyber carriers out there. They're doing great things. I'm still seeing more of those programs get off the ground with new cyber risk management capabilities bundled in. We're also starting to look for more carrier agnostic, cyber risk management tools that a broker could either use internally as a value-add or offer to clients. An insurance policy is only one piece of the cyber risk management puzzle.

IoT devices will find their way into more of the underwriting, the insurance product itself or risk management, but it just takes so much time. We don't really know the value of these IoT devices for various lines of business. We've done a ton with construction and proprietary technology companies to figure out what losses they're actually impacting, and how that relates to underwriting and pricing. It takes time to get data that's actuarially sound.

We need to start collecting this data. If we try 15 different technologies and two or three actually show value, that's fine. But 20 years from now, all these devices are going to play a massive role.