Kyle Nakatsuji: When we started, we had really no money to invest but we had the ability to invest through the typical vendor payment process. We were making very small investments as an entrepreneur would. We were testing out some of our assumptions on how the model would work and why it would work.
Then once we did that, about six months later, we went to American Family’s Board of Directors and said, “We’d like to make this a regular activity. We’ve done enough experimentation quietly to understand that we’re not really terrible at it. So, why don’t you help us do that?”
American Family set us up with our first fund or allocation of investment capital of $50 million. From that $50 million, we went out and started making investments in technology companies. In the beginning, it was SaaS companies selling into the insurance vertical.
Now, people talk about InsureTech. At this time in 2013 to 2014, there was really no such thing as InsureTech. So, we were literally asking people in the procurement department at American Family if they were working with any interesting companies who were small enough that might want our cash. Then we spent a bunch of time getting into connected devices.
We spent quite a bit of time in the connected home. It was adjacent to American Family’s business. At the end of 2014 and early 2015, InsureTech as a concept started to find its legs. In my opinion, what happened is all of the people who were looking at FinTech as a broader category started to turn their attention to this other trillion-dollar group of problems in insurance that seemed to have a similar profile.
The entrepreneurial ecosystem started to focus on insurance. We were in a fortuitous position. We were right in the middle of it. We were in the right place and the right time. We had been working on that for a little while.
Suddenly, we found ourselves thrust into a bunch of really interesting conversations with entrepreneurs who were trying to change the space and with investors who are now looking into this space. I had the benefit of going up and down Sand Hill Road and going back and forth to New York and Chicago meeting with a lot of people who were thinking about the changes happening in this space. I used that time to create ideas to that thesis and to bounce them off of people who had been in the industry a long time.
In the middle of this crossfire of interesting ideas and a lot of passion about what was possible, I got to think through some of my own ideas as to how the industry would play out.
Sramana Mitra: What did that analysis yield?
Kyle Nakatsuji: Now we’re at the end of 2016. We were generating a bunch of theses as to how the InsureTech market would play out, and making some bets along the way. At the end of 2016, I started doing a lot of work on a concept we called incidental insurance.
The basic premise was that because of the way technology was advancing in the industry, we thought that a lot of insurance products would find their way towards being more naturally integrated with other products, services, or experiences that people naturally have more affinity for or engage with more frequently.
One of the contrarian ideas we had is that a lot of the insurance industry was trying to find ways to engage the customer more frequently or in new ways.