AmFam CVC Dan Reed on Risk, Automation and the Future of Insurance

Last week we sat down with Dan Reed, fellow Midwesterner and Managing Director of AmFam Family Ventures. AmFam Ventures is part of a multi-billion dollar insurance company focused on home and auto with thousands of employees and agents around the U.S. Our interview covers everything from some of the early thesis ideas that they looked at when they started, some of the ways that the structure of an insurance company impacts how they look at corporate venture, and why they developed a relationship with Microsoft Ventures.

Following our conversation with Dan, we spoke with Microsoft Ventures Partner Aya Zook. You can hear that interview here.

What is your charter or goal with American Family Ventures?

Like a lot of CVC groups we have a dual mission — financial and strategic.

The strategic mission to get our company involved in emerging technologies that make a real difference in how we serve our policy holders over the next decade or so and to get us involved much earlier than we otherwise would. Really it’s to create strategic options for our company.

Then, as we’re deploying capital we have the financial objective of achieving a return that’s commensurate with the return of the asset class of real estate venture capital.

So it’s not just about finding good investments, though you’re doing that. It’s also about greater market intelligence and other partnerships?

Yes, on the strategic side of things we think about it almost on 3 levels. Just engaging in this startup landscape gives you insight to some emerging trends in a meaningful but maybe not operational way. The next level is making some of these early partnerships gives us relationships that have the potential to engage our organization earlier than they otherwise would. The third way is if we do so in a systematic way, we’ve done this in the connected home landscape, we have the opportunity to engage a market that could make a difference to our long-term corporate strategy.

Tips or best practices about how you’ve been able to make that bridge between the CVC and the innovation team?

When we started we organized in 2013 but the first investment we did was as an ad-hoc group in 2010. The evolution of how we think about investments that we make and equity partnerships we make has evolved in the past 6 years. When you’re starting a CVC group, it’s very natural when you come from the corporate side (CV includes corporate and VC) to approach it with a more corporate mindset, and by that I mean it’s not uncommon to see exclusivity terms in some of the deals, or rights of first refusal, special pricing terms loaded into venture deals. We did a little bit of that at the start and I think that’s very natural. But over the years we’ve really pulled hard on what I would consider to be a more clean venture capital side of things where we just rely on the fact that we have a good working relationship, maybe we have a board seat, we have all the strategic access that we want — we don’t need to make contracts for it.

It removes a lot of the friction.

It does. It allows you to access deals better as well. If you develop a reputation as a good actor, as someone who could be helpful within the limited sphere of influence that you have, it helps to position you as a strong syndicate partner for competitive deals and it certainly helped us build our network of other investors. We try to position ourselves as the right partner if the startup has some aspiration to engage in the insurance space.

Can you share some unique ways that you’re getting out there and engaging with startups?

You quickly realize that the key to accessing good deals is how strong and how far reaching your network is — your referral network. The approach we took was, you’re here in Madison, it isn’t Silicon Valley, we need to find some way to build our network in a rapid way. Generator is a leading startup accelerator here in Madison and also Milwaukee, and they’ve developed their own network of investors and deal sources. We sponsored them, helped them get to the next level, and in turn they returned some very high quality interactions for us that got us started.

About a year and a half after that we were looking to go deeper into the connected home space because of the economic angle that we think exists because of the startup and a policy holder. We had an enterprise relationship with Microsoft (as basically every enterprise does). Microsoft Ventures had a pretty strong, non-equity based accelerator program in a lot of places other than the U.S. They were looking for a partner to do a focused accelerator program, we made the case that if they want to explore the connected home space we’d be an interesting partner. We put that together in 2014 and it was successful. We sourced companies from all around the world. It was a great relationship.

AmFam AngelList Profile

Are there any trends or spaces that you want to highlight or that you’re excited about?

We invest in 3 areas. 1) internet of things around home, auto and life insurance. 2) Analytics — we are in a way a big data company. We derive a meaningful part of our competitive advantage around accurate pricing and underwriting of risk. 3) Insurance innovation — what we’ve seen over the past couple of years has been a real transformation in the types of companies that we’re hearing from.

Up until a couple of years ago, most of what we saw in that third category was companies that were providing some technology service to large carriers (analytic tools for marketing more accurately, a better claims solution, etc.). What happened I think at the end of 2014 start of 2015 was a whole bunch of companies decided that they were going to be insurance companies. It was fascinating for us. It went from a couple of pitches per year from companies with a new approach to insurance distribution to now we see dozens of them. It’s a very customer oriented approach and will continue over the next few years.

I think the bulk of the companies think about the consumer experience of buying insurance could be modernized. It’s probably behind. They think about the gap between the typical consumer digital experience in the insurance industry and a lot of people think they can improve it. For us, serving customers both in the traditional way and serving the future, it gives us a series of partnerships with startups that bring a modern and fresh approach to emerging consumer expectations.

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