Will Tech Be A Boon To Insurance Firms, Or Threaten Their Existence?

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store shelves faster. In August, it raised $28 million in a Series B round from three California-based funds—True Ventures, Upfront Ventures, and Shea Ventures—and a group of angel investors that included Richard Branson, the British business magnate and Virgin Group co-founder. The other marquee participant was AmFam Ventures.

“I think they realized that this fit their model,” Siminoff says of AmFam Ventures. “To them, crime essentially equals dollars. If you’re an insurance company, every time there’s a crime, you have to pay for the stuff that was stolen.”

In November, American Family—the larger company, not its investing arm—announced a collaboration with Ring aimed at incentivizing policyholders to install smart doorbells. Under the program, eligible AmFam customers can purchase Ring at a $30 discount, and may qualify for a 5 percent deduction on insurance premiums.

The Ring partnership, along with a similar one offering free Nest smoke detectors to qualifying Minnesota customers, suggest that AmFam views smarter homes as safer homes. And as Siminoff says, for an insurer, making homes safer is good for business.

A History Of Investing

Insurers investing in companies with only tangential connections to the industry isn’t a new development, says Robert Hartwig, president at the Insurance Information Institute, a trade association.

“This dates back to the mid and late 19th century, when insurers were one of the largest investors in the railroads, which were expanding across the United States,” Hartwig says. “They also benefited by insuring the cargo and all of the industrialization that occurred along the rail lines from coast to coast.”

Decades later, he says, insurance companies invested in real estate. In particular, they helped fund the construction of houses and apartment complexes for World War II veterans returning home to American soil. “Life insurers rode the growth curve very on, in terms of providing accommodation for people who would become their clients in the future.”

The Disruption Zone

Hartwig says that today, many in the traditional insurance industry are wary of consumers increasingly buying policies directly using online services like Oscar, rather than going through an agent. Indeed, this could be one patch of the insurance landscape where lines of computer code replace some humans, similar to how flight-booking websites have rendered many travel agencies obsolete.

“There’s concerns about the potential disintermediation of insurers,” he says. “There are other entities out there that collect information historically only collected by insurers. There’s some worry about entities like Google perhaps playing that role.”

But to frame this as a battle between old-line companies and newer, more innovative ones would be reductive. Insurers have long relied on sophisticated actuarial models to estimate risk and price policies. And they’re not performing these calculations using an abacus and pencil. “We are in the era of big data and insurers are the original big data industry,” Hartwig says.

If insurance endures major disruption, no one can be quite sure what the result will look like. One outcome Hartwig doubts we’ll see is Alphabet and other high-tech companies becoming insurers themselves.

“The margins in the insurance business are lower than the hurdle rate accepted by Google’s various ventures,” he says. “For a business to be accepted into the Alphabet soup that is now Google, it’s going to have to have a higher rate of return than is typically seen in property and casualty insurance. I don’t think Google has any more interest in becoming an insurer as it does becoming a washing machine maker.”

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Jeff Buchanan is the editor of Xconomy Wisconsin. Email: jbuchanan@xconomy.com Follow @_jeffbuchanan

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