Applied System and Ethos are the recent investments made by the venture capital funds headed by Alphabet (Google), which definitely put Big G’s interest in the insurance world in a new perspective.
Applied System is no longer a startup company, but a growth company, in which the CapitalG fund has invested. It is intended for so-called ‘Growth Equity Investment’ funding, i.e. those that support the expansion of investee companies. The operation was announced last October 16.
Applied System operates in B2B offering insurance companies cloud-based software that automates the entire insurance lifecycle and makes the entire management of the insurance business more efficient, also supporting agencies and brokers. It operates in the United States, Canada, the Republic of Ireland and the United Kingdom, where it has doubled in size and revenue over the past 5 years, expanding its customer base and product portfolio.
Gene Frantz of CapitalG said: “Applied Systems is a pioneer in the insurance industry, it has transformed the way insurers, agents and clients do business in the cloud. We are excited to partner with Applied Systems to support the company’s rapid growth and make its technology the best in the industry. We look forward to providing Applied System with some of the world’s leading experts from Google and Alphabet to drive innovation in the global insurance ecosystem. Indeed, the agreement provides that Applied can now access Google’s technology and experts in areas such as artificial intelligence, machine learning and digital marketing.
“We really like the market”, said Jesse Wedler, one of CapitalG’s main shareholders – “We will definitely be looking for additional investments in the insurance technology space”. It referred to interest from the CapitalG fund, but for Alphabet it is certainly a broader overall strategy, involving all its venture capital arms.
Actually, these additional investments immediately arose: Ethos, a startup in which he invested GV, Google Ventures, the fund for early stage investments: 35 million dollars of capital raised by the young company in a round of financing led by Accel and supported by Google Ventures. The company is now valued at over 100 million dollars.
What does Ethos do? It uses data analysis to predict a person’s life expectancy and can, it says, reduce the time it takes to apply for life insurance policies from 10 weeks to just 10 minutes; it can also handle claims in “a few weeks”. It also claims that more than 99 percent of its clients do not require a medical examination or blood test to obtain a policy.
In the last 4 months Ethos has multiplied by more than 400 percent its turnover, customers and performance in the last four months.
In a previous investment round Ethos had already raised $11.5 million in U.S. dollars from Hollywood family offices and investment firms and sports celebrities, among its investors are Will Smith, Robert Downey Jr, Jay Z; and Sequoia Capital, Silicon Valley’s leading investment firm.
These are just the latest steps of Alphabet-Google in the insurtech world, his funds have holdings in Lemonade, Collective Health, Oscar (he invested 375 million dollars), Taste, Cover Hound. A few years ago, Google also made an attempt in ‘consumer’ insurtech with Google Compare, a website that compared different financial services: mortgages, credit cards, car and home policies, operative for about a year and then closed because it was not profitable enough.
Having abandoned the consumer market, its interest in the insurance sector has not diminished in any way. On the other hand, we can easily hypothesize two class of interconnected reasons that can push through this direction: the first is the logic of venture capital; the second, its expertise in technology.
As a venture capital, the opportunities that insurtech offers at the moment are enormous: the insurance industry is still suffering from disruption, the companies that have been late in entering the digital age today, willingly or not, are involved, disrupted and dragged, and try to collaborate or acquire the young insurtech. For a venture capital is an optimal situation if you know who to bet on. According to Deloitte, 2018 will be characterized by growth in cutting investments, which are becoming more important, and in the strategies of venture capitalists, now focusing not only on early stage startups, but also on expanding ones.
Another analyst even thinks that this evolution will cut off corporate venture capital, i.e. the funds of insurance companies. “Investors are clearly willing to increase their bets on insurtech and funding cycles are getting bigger and bigger. – said Rafal Walkiewicz, CEO of Willis Tower Watson at TechCrunch – Most of the major investments were made by pure venture capital companies rather than by more experienced insurance companies in the industry. “Maybe the stakes are getting too high for the insurers,” says Walkiwicz. “Especially if investing in learning how to improve existing processes.”
The second element of Google’s strategy is the fact that it is an incomparable technology developer: artificial intelligence, machine learning, data analysis are fields where the company boasts a deep and advanced knowledge, which it makes available to the companies in which it invests, making them stronger and more competitive, almost unbeatable.
Is therefore Google a threat to insurance companies?
Any tech company today would be, even Amazon to name one. The boundaries between traditional industries are falling because, as the investor Marc Andreessen said already in 2011, ‘software is eating the world’. Insurance is one of the industries that can be most ‘devoured by software’, i.e. be fully digitized and automated throughout the process, thanks to big data and artificial intelligence, fields in which, we said, Google is the world leader. Syllogism is simple, therefore, Big G is a threat to insurance companies, even if it should never become directly a consumer player.