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‘Old ideas have come around again with new names’: Ask a VC with Centana Growth Partners

This is Ask a VC, where we quiz venture capitalists on the latest trends in the finance space.

One of the biggest problems in financial technology is that considering the vast amount of theoretical solutions, most startups can’t quite figure out how to scale their products.

That’s the trouble with tech startups acting like banks: They need burdensome service-level agreements and have requirements on how much time the system is available for end-use applications; and they need strong balance sheets to give the companies that would potentially buy their products some confidence.

But that’s where Centana Growth Partners wants to step in, by helping ready-to-scale startups by providing funding for working capital, to fund acquisitions or de-risk a balance sheet — instead of focusing on early stage startups. Centana is currently invested in requirements management software Blueprint, identity startup Jumio, insurtech company One, Inc., an algorithmic agency brokerage that focuses on fixed-income products and futures called Quantitative Brokers and performance management and business intelligence platform Vena Solutions.

Tearsheet caught up with partners Eric Byunn and Ben Cukier about their investment strategy and themes. The following has been edited for length and clarity.

What do you care about in a company?
Cukier: We’re looking for growing companies with established revenue in financial services where the application of capital can help accelerate the growth. A pivot in the venture sense is almost a nonoccurence in our portfolio. There are various sub-sectors we’re excited about — identity, tech that supports reg — most of what we look at is in the b-to-b space.

Byunn: The difference for us versus early stage firms is we are really focused on businesses that have already proven that they have a solution to add value to the financial services industry and a business model that supports it.

Is there too much investment in early stage fintech?
Byunn: It’s great that different firms, different people have different focuses; we would never say there’s too much of something out there. The challenges and issues for a company trying to scale and expand from its initial set of customers is very different from the those of a company trying to build an initial product and find its customers. We do define a unique area for us in being able to help companies focused on scaling and combining that with our expertise experience and network to advance the financial services industry.

Is there anything new under the sun?
Cukier: For a long time, old ideas have come around again with different names. Some things that didn’t work in 1999 come back called something slightly different and are just as unlikely to be successful now as they were the last time they tried. We can see some of the things that probably won’t work this time around that may still be getting funding again.

For example?
Cukier: Marketplace lending. There’s been a lot of excitement about the space. It looks very similar to specialty finance, which has actually been a very successful area in the past.  So it’s not that marketplace lenders won’t succeed, but the economics of business don’t change dramatically just because you throw on a new interface. You need to understand what the economics of specialty finance is to understand how to look at the lenders.

Where do you stand on blockchain technology?
Byunn: It’s generally earlier stage than we invest. We do find the distributed ledger technology to be a very interesting, burgeoning technology. We as a firm invest in growth stage, established businesses that have figured out how they’re adding value financial services sector. So we are watching blockchain quite closely.

Cukier: As of today we are not investors in any blockchain technology. At some point the companies get to revenue stage which we look at but we find theres a lot of hype — some of it for good reason — but there aren’t a lot of commercial applications that are inspiring us to go pound on doors of some of these companies today.

What would change that for you?
Cukier: Getting a bunch of industry actors to adopt the technology at the same time. The way the industry is getting around this is through consortiums, but you’ve got a number of them out there, not everyone is a member of every one and there are different efforts by different players. Until the industry actually aligns more specific applications with how they’re going to use them it becomes really hard for an outsider — tough for the insiders too — to make a very educated bet on what is going to win. First what we need to see is the industry getting behind a particular standard of app and actually moving to implement it.

What’s something you’ve learned from a failure?
Cukier: When something is scaling. Don’t throw good money after bad but really invest where the business is on plan.

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MassMutual Ventures’ Doug Russell: We want to become more innovative as a firm

We’re continuing on our series of interviewing top corporate venture capitalists in the finance industry to get their perspectives on where things are headed by looking at where they’re investing.

Today’s guest on the Tearsheet Podcast is Doug Russell, managing director of MassMutual Ventures, which began in July 2014 as a VC arm for the insurance giant. We talk about his experience as an operator before moving into a corporate investor role and how that influences his investment practice.

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Below are highlights, edited for clarity, from the episode.

Why should an insurance company create a venture arm?
“The decision to start the fund arose from management’s focus on ways we could become more innovative as a firm, recognizing all the changes that are happening outside our business with respect to technology and customer expectation.

I had been in the seat as head of strategy and M&A and was fortunate to be asked to lead this effort. A year into investing, we realized that there was a tremendous amount of activity and really interesting deal flow, so I transitioned to move into the fund full time.”

Is there a value in having a lot of operational experience as an investor in insurance?
“In making a decision to bring on two partners to our fund, we identified two people with significant venture investing experience. With that came good reputations and history working with companies and other investors. Together with my background on the operational side, we felt we were building a very formidable team that would be viewed favorably in the entrepreneurial and investing worlds.”

How does venture investing fit into MassMutual’s objectives?
“Our $100 million fund has one limited partner, MassMutual’s general investment account. Our primary mandate is to generate returns in the top quartile of 2014 vintage funds. Our secondary approach is to generate strategic insights into the MassMutual ecosystem. We meet a number of companies as part of our work and even companies that don’t fit our investment criteria can get introduced into the MassMutual ecosystem.

We’re a large U.S.-based insurance company with an insurance, retirement, and asset management businesses. We have operating, distribution, technology, and cybersecurity teams. Our parallel mandate is to provide strategic insights through introductions and a quarterly discussion around the trends we’re seeing in the market.

Lastly, where it makes sense, we also enter into commercial relationships with our portfolio companies. About a third of our investments have entered into partnerships with us, but the primary mandate is still to drive investment returns.”

Give an example of a portfolio company.
“Check out Tuition.io. Think of it as a business that provides a 401(k)-like benefit for student debt repayment. It’s a match on student debt repayment by an employer. One of the great challenges in today’s market is attracting and retaining talent. The outstanding student debt has gone from a few hundred million dollars 10 few years ago to over a trillion dollars today. The average student has around $35,000 in debt. So, when you join a company that uses Tuition.io, it would have a benefit to student debt paydown match at a certain level over a few years.

We also invested in CyberGRX. It’s like an S&P rating of a company’s cyber risk. SMBs may not have the ability to assess the cyber risk of potential partners and this technology plays into the growing investment trend in defensive cyber capabilities.

We invested in PolicyGenius a couple of years ago. It’s a digital distribution business that can engage with customers in different ways and provide streamlined solutions across the insurance spectrum, beginning with term life insurance products. This is an example of an investment in a company that theoretically could compete with MassMutual but we see the potential of putting our products on their platform in the future.”

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American Family Ventures’ Dan Reed: ‘Investing in financial technology answers questions that haven’t been asked yet’

On the Tearsheet podcast, we’ve tried to interview some of the smartest corporate investors at some of the largest firms in the financial industry, trying to understand their process, their investment strategies, and how their firms use investing as part of their innovation programs.

This week’s guest on the podcast is Dan Reed, managing director of American Family Ventures. As a corporate investor at insurer American Family, he’s looking for early stage technology firms that can help the firm modernize its distribution while remaining true to the legacy of the agents who helped build his business. We also discuss how his career path, through strategy and business development roles, informs his investing practice at a 90 year old insurance company.

Subscribe: iTunes I SoundCloud

Below are highlights, edited for clarity, from the episode.

Gravitating to the insurance industry
“After about five years at the Boston Consulting Group, I moved back to Wisconsin. I signed up with American Family Insurance. The same things kept coming up: the notion of how do we modernize our distribution while remaining true to the legacy of our agents who built this business, how do we derive new insights from large data sets, and how do we work with our policyholders to engineer the risks we cover in a more proactive way.”

Working with tech firms
“I like the optimism of these companies. They’re just cool and excited and enthusiastic to work with a large company like ours to help create the future. When I think of the strategic imperatives we have as an enterprise, as a 90 year old insurance company, marrying up the energy and technological progress that some of these companies we were making with our scale was something I hadn’t encountered during consulting. It feels like a answer to question that may not really have been asked yet.

Our mandate is to get us involved in some of the emerging concepts and business models that can be meaningful to the insurance industry over the next decade and get us involved earlier than we otherwise would from an operational perspective. Our job is to get out over the hill, see what’s out there, and bring it back earlier. In putting this corporate venture function together, we would get the question whether we had a strategic or financial mandate. We have both.”

Incumbents can provide value to startups
“We were pretty active in the home automation market in 2014 and 2015. As a significant home insurance carrier, we have relationships with millions of policyholders across the country. If we could find standouts in the home automation startups out there that were displaying some meaningful customer traction, we could partner with them and offer a secondary or tertiary channel to get to market in a way that benefits everyone.

Ring makes a wifi-enabled video doorbell you can answer from your phone. It’s a fairly effective burglary deterrent device. We put a program together where Ring offered a $30 discount to our policyholders in exchange for some marketing weight we put behind it. We offered a 5 percent homeowners premium discount which can be meaningful over a few years. Ring offered to cover the deductible if there was a theft claim for policyholders that had a Ring device. We’ve have a variety of programs like this to understand what our customers really care about and what types of partnerships seem to work.”

 

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How drones are changing the way Allstate assesses damaged homes

Just as Amazon’s drone delivery service is transforming retail, drones are making inroads in the insurance industry.

Allstate is using drones to assess damage property damage in Texas, Oklahoma, New Mexico and Colorado, particularly on rooftops — radically cutting the amount of time the process takes.

“What’s amazing is, if you consider the pure drive time of an adjuster taking the picture [on the rooftop] and getting back in the truck and going to the next location, we’re doing two or three locations a day, and with a drone we’re doing eight or nine or possibly more,” said Allstate spokesman Justin Herndon. Allstate is the second-largest property and casualty insurer in the U.S.

Allstate used drones to inspect rooftops of homes damaged by Hurricane Matthew last fall in Georgia and South Carolina. The company said drones cut down the time it took to inspect rooftops, and the pictures they took were high quality 4K-resolution images.

“The images are better than what many people see on television, and you can zoom into a single shingle on the roof,” Herndon said.

Drones are used during a claims process after the first notice of loss, according to Allstate. After the customer gives the green light to have a drone used, the company calls a vendor that deploys the drone. The vendor then sends the image back to Allstate almost instantaneously, at which point Allstate makes a settlement offer. The company has been testing the technology for a couple of years, which as of this spring had moved beyond the testing phase. Allstate plans to expand the use of the technology to other parts of the country.

Around 20 percent of property and casualty insurance companies are currently using drones, a percentage that could double next year, according to Novarica. The uptick in the number of insurers using drones is partly the result of a Federal Aviation Administration ruling last June that set guidelines on drone use by businesses, including the requirement for the drone operators to have passed a drone-piloting exam, along with the need for a visual line of sight between the operator and the drone. Insurance companies may still need to send a person to assess areas the drone is unable to reach.

Allstate is partnering with a startup, Eagleview, to carry out the drone inspections of rooftops. Other startups operating in the field such as Fluttrbox are working with insurers to conduct on-demand inspections of commercial properties by drone.

“It gives consistency for the insurer — it gives them better quality imagery and consistency at a lower price point, ” said Fluttrbox founder and CEO Aristo Mohit-Coker.

A drone can be used to analyze a rooftop at any point of an insurance company’s evaluation process, either after a claim has been filed or to assess risk beforehand. Analysts note that drones can assess properties that would otherwise be difficult to reach.

“They could be not very easily-accessible buildings where they don’t have a lot of information about the construction, or they’re in remote areas, or they’re buildings that are older or are considered risky,” said Jeff Goldberg, svp of research and consulting at Novarica.

Despite the advantages of drone technology, Goldberg said insurance companies must find ways to safeguard the privacy of individuals, especially given that privacy laws vary by state. Ensuring that the public is informed about how drone-delivered property assessments will work should also be a priority.

“Do you want to be known as the insurance company that’s known to be spying on people? Public perception is just important as the law.”

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Where funding for financial technology is going, in five charts

The appetite for fintech investment in Europe and Asia is growing, according to the latest numbers.

CB Insights’ Global Fintech Report reported Wednesday that investment in financial startups soared 222 percent quarter over quarter in Europe and 89 percent in Asia, while North American investment took a small dip.

Those numbers look big, but the U.S. has the largest financial services market and other regions have generally played catch up to it for years, said Eric Byunn, a partner at Centana Growth Partners, a Palo Alto-based growth equity firm focused on investments in the financial services industry.

“The overall message across all of this is financial services affect the global population and there are a lot of companies with incredibly varied business models and levels of sophistication,” Byunn said. “The opportunity for innovation in the sector is huge and the numbers here all in all only confirm that.”

Here are five charts from the report.

Funding is down, but it’s not a cause for concern

In the first quarter, fintech startups raised $2.7 billion across 226 deals. That’s a 33 percent rise in funding on a quarterly basis but down 47 percent from the same quarter last year. Deal activity increased 12 percent from the fourth quarter of 2016.

At this rate, U.S. deals could fall below 2016 figures
U.S. fintech could see a drop in funding of about 18 percent from 2016, going by the first quarter rate of activity. Startups raised $13.1 billion across 889 deals in 2016. U.S. startups’ first quarter funding activity is just below total funding for 2013. Global activity, however, could surpass 2016 records if the rest of the year keeps with its current pace.

The recent numbers viewed in a long term historical context are very strong, Byunn said, reflecting the recognition by the investment community that innovations have changed and the industry is ripe for opportunity. Quarter to quarter variation is typical.

Insurtech funding has dropped, but recent activity has been consistent
Funding to insurance technology companies — those creating new underwriting, claims, distribution and brokerage platforms, to help insurers deal with legacy IT issues — fell 25 percent from the previous quarter to $194 million, while deal activity fell 30 percent to 23 deals. This time last year, appetite for insurtech firms was much larger, at $770 million across 38 deals.

Payments and billing companies — payments processing companies, payment card developers and subscription billing software tools — took a slight dip from last year with $304 million in funding from $311 million, although total deals rose from 38 to 50 on a year over year basis. The biggest funding activity took place in the fourth quarter, with $495 million in funding for payments over 44 deals.

Bitcoin and blockchain startups rebounded in the first quarter to $113 million from $77 million in the fourth quarter — in large part because of BitFury’s $30 million Series C round and Veem’s $24 million Series B.

For the past four quarters payments and insurtech have had high investment, with blockchain investment hovering in the 100s, which may be partly to do with hype around the emerging technology that doesn’t match up.

That drop in insurtech probably not as alarming as it seems, Byunn said, noting there were some large investment deals that took place just before the first quarter of 2016, like Lemonade’s $13 million investment in December 2015.

Asia and Europe are catching up to North America
At the current rate, Europe fintech deal activity could top 2016’s total by 57 percent, according to CB.

UK fintech companies raised $328 million in the first quarter, including more that $200 million invested in Atom Bank and Funding Circle.

German deals rose 143 percent on a quarterly basis, while funding grew 341 percent, which was largely driven by investments to Raisin and solarisBank.

North America has had and will continue to have the largest amount of investment activity in this financial services startups, Byunn said. Quarter one showed there’s some recognition by global players that they have been slow to invest in financial startups.

“The U.S. has the largest financial services market pretty much any way you cut it,” he said. “You will continue to see increased levels of investment outside North America – not necessarily taking away from North America, but just showing good health outside of it.”

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How a selfie could be the key to unlocking a life insurance policy

The next selfie you take may determine how much you’re going to pay for that life insurance policy.

Lapetus Solutions, a two-year-old startup based in Wilmington, North Carolina, has developed technology to assess a whether a person is aging slower, faster or at par with their chronological age based on a selfie and a series of questions. Beyond the obvious clues to aging, facial lines can also offer clues to other health ailments that can influence how long an individual will live, including whether or not they smoke or body mass index. These insights can help insurers figure out premium costs and radically cut down the time it takes to evaluate life insurance applicants, said the company.

“Today, you answer a 10-page application and a medical exam and it takes several weeks before you get approved,” said Janet Anderson, CMO of Lapetus Solutions. “With our tool, we’re able to provide this insight without any sort of medical exam. We’re able to provide immediate feedback on photographs and based on questions we ask.”

The software became available to insurers this year, and according to the company at least one national insurer is testing the technology. Discussions are ongoing with other providers about possibilities to onboard it. Insurance technology observers, however, say that while providers are keenly watching the evolution of the technology, it will take years to put into practice.

Anderson emphasized that facial analytics alone don’t determine Lapetus’ assessment of life expectancy for insurance underwriting purposes. Individuals are asked a series of questions similar to what an insurer would ask, along with additional information that could include insights into family history and age of menopause. The results of the questions, combined with the facial analytics technology, determines the result, she said. The analysis of the face is based on a selfie that’s uploaded to the company’s software platform.

“It’s certainly very early stage,” said Matthew Josefowicz, CEO of Novarica, a research and consulting firm that focuses on insurance. “It’s a good example of the ways that insurers are thinking about how emerging technology can change the life insurance buying process that is so clearly broken.”

Given the pace of technological advances, the process of applying for life insurance needs disruption, Josefowicz said, as applicants must currently submit to an onerous process of questioning and medical exams that can take weeks or sometimes months, and dissuades many from applying.

That is similar to findings of a McKinsey study released last month, which argued that legacy insurance companies that don’t quickly embrace technological change will find it “increasingly challenging” to generate attractive returns. Facial analytics is one tool insurers are looking at, in addition to data from wearables. But adoption of facial analytics as a viable underwriting tool will depend on tests by regulators and consumers.

“There’s a ways to go before social and regulatory acceptance of that,” Josefowicz said. “Anybody offering the technology needs to prove that it’s predictive and that it’s not discriminatory, and prove to regulators that this is viable — and create some social acceptance around it.”

Others argue that the use of facial analytics for underwriting could drive up premium costs.

“I don’t think it’s looking for things that make you look good,” said Tom Scales, head of Americas for life, annuity and health at Celent. “It could drive up the cost of insurance which could draw the ire of state regulators and customers.”

Given the industry’s risk aversion and other concerns, what may be more realistic is a hybrid model.

“The most likely scenario is that there will be a blend of traditional and new approaches to assessing risk,” said Mark Breading, partner at consulting firm Strategy Meets Action. “If this technology is proven to be reliable and has strong predictive capability, insurers are likely to push for its use, but information regarding medical history and lifestyle will always be important as well.”

 

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Hi 5! The top five fintech stories we’re following today

top 5 weekly fintech stories

Big data, big organizational challenges

Forget all the discussion about new user acquisition. How about focusing on servicing existing clients? Here’s how Vanguard uses data to deepen relationships with its customers. It’s not easy and requires a lot of organizational discipline, but there’s tangible payoff at the end.

Only 3 percent of banks claim they’ve created continuity across all customer touchpoints. It’s no wonder why digital efforts end up so fragmented. The old silos and departmental structures frequently impede change.

Top fintech podcasts

After we published our recommendations of the best fintech podcasts, readers joked that this wasn’t a best of list – it’s actually all of ‘em. Of course, implied in this bit of listicle-making is a request for you to check out our podcast.

(I)nsuring people stay healthy with Fitbit

Insurers are just beginning use consumer technology to encourage compliant behavior. For example, John Hancock’s Vitality program provides a feedback loop that encourages exercise. Using a Fitbit and a smartphone app, the insurer incentivizes policyholders to get off the couch and get moving.

I like big chatbots and I cannot lie

Ron Shevlin, Director of Research at Cornerstone Advisors, has been covering the financial services space for 25 years. At the Tradestreaming Money Conference last month, Tradestreaming editor Zack Miller had the opportunity to pepper him in a game of free association. Unscripted and unrehearsed, he riffed on things like chatbots, the future of the bank branch, credit unions.

Cashless societies

Physical money has been getting a lot of press recently, thanks to India’s recent move towards demonetization. There are lots of different views on whether the world will really phase out cash, but regardless of which side of the aisle you’re on, here are 3 stranger-than-fiction scenarios that wouldn’t pose a problem in a world without physical currency.

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‘There’s perfect alignment between our customers and us’: Fitbit, smartphones, and John Hancock’s Vitality program

In an industry not known for innovation or customer service, John Hancock’s Vitality program may be a poster child of how insurers can leverage technology.

The program allows customers to lower their premiums by engaging in healthy activities, monitored through a free Fitbit device and a smartphone app.

These types of programs offer a win-win to the insurer and customers.

“Improved technology and greater access to information provides tremendous potential,” said Brooks Tingle, senior vice president, marketing and strategy at John Hancock. “Giving customers better and real‐time insights into how they are managing their own risk helps them to take more control and change their behaviors with the goal of living longer and healthier lives. Having access to more accurate and relevant data also enables us to assess risks more accurately, which in turn could result in lower premiums for many policyholders in the long‐run.”

Auto insurers have been testing similar types of insurance, using car sensors to estimate car usage and driving style, with mixed results. Though nascent, these types of policies have the potential to transform the relationship insurers have with their policyholders: from a yearly interaction to continuous  engagement.

“For over 150 years, the life insurance industry has issued policies to customers and hoped that they lived a long healthy life,” said Tingle. “With this program, we are serving as an active partner with our clients to help achieve that outcome. There’s perfect alignment between our customers’ interests and our objectives which makes for the ultimate shared value proposition.”

Last week, the company launched a new program that aims to motivate healthy living by giving policyholders the opportunity to earn an Apple Watch when they meet physical activity targets.

In spite of the main benefits, adoption to date has been low. App analytics company SimilarWeb shows just a few thousand downloads of the Vitality app recorded for Google Play. It doesn’t have data for Apple’s App Store. Tingle also pegged the number of Vitality policyholders in ‘thousands’. Reviews and feedback from customers are generally positive.

In the auto insurance business, where usage based insurance has been around for over 10 years, adoption is stagnant.

“The slow adoption rates may have something to do with having to integrate the new technology with legacy insurance systems,” Tingle said. “We are seeing these new, data‐driven technologies, such as telematics used by car insurance companies to collect driving data, already having an impact on the P&C market to provide more accurate risk assessment as well as early warning systems that can help mitigate risks. With these developments, as well as the success we are seeing with our John Hancock Vitality program, we expect the pace of adoption will pick up in our industry.”

Insurers have the ability to affect change. When insurers included fire sprinklers as a factor in fire insurance policies, it practically changed building standards. Programs like Vitality, or UBI in auto insurance, have the potential to do the same with customer health and behavior, if it can only get that customer adoption thing.

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Hi 5! The five fintech stories we’re following this week

top fintech stories

Insurtech’s rising star

Insurtech continues to shine on with the hope and possibility of youth. Tradestreaming’s Gidon Belmaker examines how insurers are increasingly offering IoT-enabled policies for different lines of insurance that calculate the risk for each person, digitally. In a world where a house is smart enough to know what room temperature its owners prefer, IoT-enabled policies make a lot of sense. The challenge for insurers looking to get into the IoT game will be filtering, processing, and reacting to really big data in real time.

In the spirit of being hopeful, insurtech’s top women execs spoke with Tradestreaming to share their career advice for women looking to enter this fast-growing field.

Fintech’s murky waters

It’s been a hard couple of weeks at Wells Fargo. After the firm’s pamphlet for Teen Day 2016 angered the theater community by implying that the arts were merely a childhood pastime, scandal struck one of America’s biggest banks yet again, on a much larger scale. After discovering that over 2 million fake bank and credit card accounts had been opened at the bank, Wells Fargo fired 5,300 employees.

Twitter did not approve. Analysts lambasted the bank for trying to shift a top-tier management problem onto hapless employees facing unrealistic sales goals. And while Wells Fargo has since eliminated product sales goals, Carrie Tolstedt, the unit leader in charge of those 5,300 ex-WF employees, walked away with about $125 million in stock and options.

Speaking of crime and payment, Tradestreaming’s Josh Liggett’s in-depth reporting on the shady world of prison payments showed that justice – and fintech – are not always accessible to inmates.

While the financial industry is experiencing a surge in growing transparency and lower fees thanks to growing competition, the prison payment industry isn’t undergoing a similar renaissance. Instead, inmates are held prisoner to high fees and limited services within an old system masquerading as innovative fintech.

Fintech real-estate companies are getting creative

Ok, yes. A fraudulent mortgage market did cause the Great Recession of 2008. But the mortgage market is getting innovative with online offerings that seem to have the consumer – not just profit – in mind. Digital lender Point, which enables homeowners to sell a percentage of their home to investors, is putting borrowers and lenders on more even turf by better aligning incentives between them. Last week, the company raised $8.4 million, bringing total fundraising to $15.4 million.

Real-estate crowdfunding platform Roofstock is also out to change the digital real-estate market, by simplifying the process of buying or investing fractionally in occupied singly family housing. According to Roofstock’s chairman and co-founder, Gregor Watson, Roofstock recently signed a deal with an Asian group that wants to invest a whopping $250 million on the platform.

Work and play

The fintech interview process can be daunting for interviewees. Potential candidates can take solace and solid tips from Tradestreaming’s interview advice from top fintech execs. Keyword takeaways: passion, motivation, openness. Oh, and don’t ask about salary.

Of course, young fintech wannabes might have other things on their minds. Like beer. On last week’s ESPN College Gameday show, a student put up a sign with his Venmo number and a request that his mother send beer money. Instead, over two thousand complete strangers donated to his beer fund. Here’s a selection of what fintech companies’ signs might look like come next College Gameday.

Prophets of Wall Street

No one knows exactly what the future has in store – but people are making some educated guesses. Aon estimates that self-driving cars will cut U.S. insurance premiums by 40%, though automation will carry its own unique risks. Chinese ecommerce giant Alibaba thinks the future of identify verification lies in the red veins of your eyeballs.

And because your week wouldn’t be complete without a blockchain update, Goldman Sachs filed a patent for blockchain-enabled forex, in the hope of speeding up and reducing cost of trading currencies.

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Insurers cautiously foray into IoT territory

Insurance is a simple business: the better you can calculate and price risk, the more money you make. To do that, insurers aggregate their policyholders into predefined categories that historically correlate with certain risk levels. Risk at the policy level is pretty passive.

But what if insurers could move away from the aggregate and into the personal? What if they could calculate the risk for each person individually? What if premiums could go up and down in real time as risk changes? Now that would be a bonanza!

Despite the huge potential, both insurers and consumers are still just testing the waters when it comes to IoT-enabled insurance policies.

The first insurance line to get the IoT treatment was auto insurance, as early as 10 years ago. Most auto insurers have some sort of IoT-powered policy. Consumer response, however, has been lackluster.

IoT-powered policies until now were somewhat of a pilot or proof of concept, said Norman Black, EMEA industry principal consultant, insurance practice for SAS, a business intelligence and data management software and services company. “The industry is now preparing to scale,” he added.

Insurers are increasingly offering IoT-enabled policies for home and health insurance, as well. John Hancock’s life insurance, for example, uses Fitbit data to reward policyholders for healthy living. Healthy habits, such as going to the gym, earn points for the policy holder. At year’s end, one’s “Vitality Status” is calculated according to the number of accumulated points.  The higher one’s status is, the more he can save on premiums and rewards.

French insurer, AXA is partnering with IoT companies to pilot use cases for a connected home insurance. BNP Paribas Cardif also has an Internet-of-Things insurance offering. Beam Dental’s dental insurance uses a smart-toothbrush. A brushing score, measured by how well one uses a toothbrush, can earn up to a 16.1 percent reduction in premiums.

“We are at a tipping point and people will start responding to the offers,” Black said, noting he expects IoT-powered policies to reach a 50-60 percent adoption rate in five years or so, up from two or three percent currently.

Market acceptance of IoT-based policies hinges on insurers’ ability to process and leverage the data collected from policyholder’s devices.

“IoT takes data management to a different level. This really is BIG data,” Black said. IoT forces insurers to filter, process and react to data in real time. To illustrate the colossal effort that is needed to power such a shift, one should consider that insurers currently collect just a handful of data points about each policyholder every year. Collecting and processing real time data across the entire policyholder base will require a complete change to IT infrastructure and perhaps, a reorganization of human capital to support it.

From the consumer side, adoption will probably remain low until insurers have the full capabilities to make those offerings robust and enticing. With low consumer  demand, the upfront investment might not be justified. It is somewhat of a chicken and egg dilemma.

IoT-enabled policies will not just impact risk assessment and underwriting, but will also change the relationship insurers have with their policyholders, moving from a passive relationship full of friction to a continuous and beneficial one.

The data collected from IoT devices can provide insurers with many more possible touch points with policyholders, including elements of gamification, alerts or cross-selling.

Though adoption levels are still low, many feel the move towards personalized risk assessment powered by IoT is inevitable. “If the insurance industry does not do it, someone else will,” Black said, adding that many of his client are working to expand the scope of such offerings.

“They don’t want to be uberized,” he concluded.