1. Technology + Innovation in the Insurance Industry

2. Insurtech entered mainstream discussion in 2015
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Agenda
Insurtech entered mainstream discussion in 2015
Fintech investment has grown significantly; Insurtech is growing as a class
Insurance Company Strategy
Establishing a CVC
Deal Focus
Company Life Cycle
VC Investment vs Strategic Investment
MMV Fund Overview
Increasing participation by carriers and reinsurers
Appendix

3. Insurtech entered mainstream discussion in 2015
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Insurtech entered mainstream discussion in 2015
Weekly articles mentioning Insurance & Fintech
FT Partners

4. U.S. Fintech financing activity¹ Emerging trends within Fintech
Fintech investment has grown significantly; Insurtech is growing as a class
U.S. Fintech financing activity¹
Emerging trends within Fintech
Non-lending Fintech investment has more than doubled since 2012: Non-lending U.S. Fintech startups raised $1.6B in 2012, growing to $4.2B in 2016
The majority of these investments were early-stage: Over the last five years, Fintech investments represented 1,642 deals with a median size of $3.5M.
Insurtech investments have increased: Insurtech investments grew from 18% of total Fintech funding in to 30% in 2016.
Corporate VCs are increasingly active: Corporate VCs – primarily venture-arms of large insurers – participated in 47% of 2016 Insurtech deals
¹Fintech annual investment amounts exclude capital invested into consumer lending.
Source: CB Insights, Pitchbook

5. Insurance Companies’ Strategy: Buy, Build or Fund (or Combination)?
Selected Insurance Company Objectives in Insurtech
Leapfrog ahead on product development time or speed to market.
Broaden policyholder base to millennials through direct sales and mobile technology.
Improving the agency experience.
Building awareness and familiarity; establishing Insurtech relationships.  To fast track innovation and tech usage, insurers are looking to buy, build and/or fund Insurtech.
Venture capital funds
Joint ventures
Incubators and accelerators 

6. Establishing a CVC - considerations
Rationale:
Clarity of purpose:
Strategic vs financial …. or a combination
The importance of your support network
Executive Support:
Structure:
Fund size, team size and composition, organizational alignment, approach on leading, etc.
How to source investment opportunities and build your network
Sourcing:
Investment Process:
Build your investment committee and define your standard of work
Responsibilities after investing and board composition
Managing the Portfolio:
Strategic Insights:
How to incorporate innovation non-invasively
What differentiates you from other funds
Your spin:

7. Deal Focus – Insurance Company; Investment Spectrum
In-house Start-up & Acquisition
Internal Accelerator and Incubator
Majority Investment
Joint Venture
Strategic Alliance
Monetary investment in an existing company (early or late stage) that results in 100% ownership of the company; or establish a start-up newco
Most resource commitment and control
Services Agreements
Captive programs that offer mentorship and early-stage investment to existing start-ups
Similar format to external accelerators, but with more resource commitment
Licensing
Monetary investment in an existing company (early or late stage) that results in a majority ownership interest in the company
More resource commitments and control than a minority investment–investor would have board seats and corresponding responsibilities
Co-Ownership of a new venture with an existing company to develop and commercialize specific new ideas / products
More commitment and control than licensing/outsourcing arrangement
Collaboration to develop new Insurtech
Contribution of industry knowledge and skill, and possibly existing tech
Possible minority investment
Limited resource commitments and control; possibly obtain board observation rights or seat
Outsourcing, Software as a Service (SaaS), data analytics, etc. offer opportunities to collaborate, develop and commercialize new ideas
Insurance companies can share development costs and access expertise outside their traditional businesses
Insurance company obtains right to use new technology
Minimal commitment
Investment primarily in internal resources to implement
Limited or no access to Insurtech talent or the opportunity for future collaboration
Involvement
high
Low

8. Mid/ Expansion Late/ Mezzanine Seed Early Exit
Company Focus
Mid/
Expansion
Late/ Mezzanine
Seed
Early
Exit
Revenues
Mezzanine Financing
Break Even Point
Debt Investments
Private Equity
Venture Capital
Angel Investors
Time

9. VC Investment vs Strategic Investment
VC investors provide cash and are looking for investment returns, while strategic investors or joint venture partners often provide industry expertise and intellectual property and are looking for longer-term strategic benefits
The reconciliation of the objectives of VC and strategic investors in one enterprise can be difficult. Areas of potential conflict include:
Governance: A strategic partner generally wants greater control rights over the enterprise in order to direct efforts toward the greatest strategic benefits to the partner, while the VC investor is looking for the biggest and fastest financial return.
Pricing: If the strategic partner secures rights to the enterprise’s products or technology, the value of the remaining business of the enterprise is diminished unless the strategic partner is paying a market price. If the strategic partner is paying a market price, it primarily only benefits from the joint venture as a equity investor.
Other value diluters:  Non-compete obligations on the enterprise, exclusive rights to certain products or technology, rights of first refusal with respect to products or technology, cross-licenses and any similar restraints on the business’ freedom of the enterprise. 

10. MassMutual Ventures: Overview
Launched as a $100M fund in 2014; ~60% cc=committed to date
Mandate focuses on early to mid-stage ventures in US, EU & Israel
Engaged in dialogue with ~1200+ companies, with ~250 diligences
16 portfolio companies across insurance, benefits, digital, and security
Investments:
Seed funding
Early stage – insurance, benefits, fin serv.
Early stage – Digital enterprise
Mid-stage/growth equity

11. Corporate VCs in Insurtech
Organization
Fund Established
Fund Size
# of Transactions
Featured Investments
2005
$750M 98
2009
$330M 26
2014
$100M 16
$200M 8
$140M 12
$150M
2015
$250M 21 3
2016 7
2017
$50M 4

12. Corporate VCs in Insurtech - Reinsurers
Organization
Fund Established
Fund Size
# of Transactions
Featured Investments
2016
$150M 7
$100M
balance sheet 3

13. Appendix

14. VC Investor Considerations

15. Product Manufacturing
Insurtech Trends
Sector Description
Product Manufacturing
Startups are bringing new forms of insurance to market, often in partnership with reinsurers who provide actuarial, underwriting engines, and reinsurance support
These products are positioned to address perceived inflexibility of incumbents’ current product offerings
Consumer Engagement
Startups are marketing basic products to specific consumer segments (e.g., millennials, current policyholders), with the goal of selling new policies or converting the broker of record (BOR)
These are positioned to provide a digitally-modern insurance relationship, as a digital native would expect from Venmo or Uber
Digital Distribution
Startups providing white-labeled insurance sites with which to market to incumbents’ existing customer base
These address the challenge of high customer acquisition costs (CACs) for financial services customers by co-opting existing customer pools
Operations
Startups are providing point solutions that address operational challenges for insurance companies (and other large fin svcs organizations)

16. “BenefitTech” Investment Trends: Startups
Sector Description
New Benefits
Startups are developing new employer-sponsored benefits, which can be provided directly to large employers or bundled through benefit exchange platforms
These are positioned to address perceived gaps in current benefits product offerings
Reimagined 401K
Many startups are marketing modern-UI, low-cost 401k, SEP, or IRA administration platforms directly or via channel partners to SMBs
These address the large market of small to midsize business (SMB) employees who are not presently offered company-sponsored retirement plans due to perceived high administration costs
BenAdmin for SMBs
Following Zenefits’ lead, many startups have entered to compete for the SMB benefits administration platform market
Several of these competitors differentiate by being broker-friendly (sharing or taking no product commissions)
Benefits Management for Large Employers
Startups are providing cost management software and services directly to large self-insured employers
These companies are addressing the perception that pharmacy benefit managers and other intermediaries do not properly manage benefit costs

17. Cybersecurity Investment Trends
Sector Description
Threat Intelligence
Solutions that provide intelligence on threat actors and threat vectors in order to enable companies to anticipate attacks and remediate vulnerabilities
Threat intelligence platforms are becoming increasingly operationalized, i.e., integrated into SIEM, vulnerability management and other layers of the security operations stack
With increasing investment in cybersecurity solutions, security operations teams are overwhelmed by information and alerts; incident response teams face the challenge of identifying possible attacks or violations, prioritizing responses and remediating successful attacks
Security orchestration & automation tools use scripts and AI based approaches to automate aspects of security operations.
Security Orchestration
IoT Security
As more equipment and devices become wifi-enabled and therefore nodes on a network, vulnerabilities multiply. Attackers find weak points of access like misconfigured printers or HVAC units (e.g. Target)
IoT security solutions provide visibility and security for the network of physical devices that enters the cyber world by virtue of being connected to the internet

18. MMV Strategic Introductions: 2H 2016
MM US HR / Benefits IT / Security Customer / Marketing
Barings / Oppenheimer
37 strategic introductions to / from MassMutual business units
MassMutual colleagues provided with product demos

19. US Insurance Regulatory Initiatives in Technology and Innovation
NAIC forms Technology and Innovation Task Force at Spring 2017 NAIC meeting in Denver
Stated Mission: Forum for the discussion of innovation and technology developments in the insurance sector, including the collection and use of data by insurers and state insurance regulators—as well as new products, services and distribution platforms—in order to educate state insurance regulators on how these developments impact consumer protection, insurer and producer oversight, marketplace dynamics, and the state-based insurance regulatory framework.
Three Working Groups So Far:
Big Data (EX) Working Group
Cybersecurity (EX) Working Group
Speed to Market (EX) Working Group

20. US Insurance Regulatory Initiatives in Technology and Innovation
NYDFS adopted “Cybersecurity Requirement for Financial Services Companies” v NAIC draft (v3) Insurance Data Security Model Act
Regulatory Sandboxes –
Future Insurance Technology (FIT) Lab (Munich Re proposed)
Non-US
NAIC Retirement Security Initiative launched Spring 2016
3 Prongs: Consumer education, protection and innovation
Innovation: to identify and address areas in current laws and regulations unnecessarily stifling innovation or that do not take advantage of new technologies benefiting consumers.
E.g., Long-Term Care Innovations Subgroup