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

top 5 weekly fintech stories

Customers dig the new Bank of Hawaii branch design

You’d think a bank branch of tomorrow would be focused on all sorts of futuristic fintech. Bank of Hawaii’s new branches keep customers firmly in the center. With little visible tech, tellers also make their way out of hiding.

U.S. Bank’s approach to social intelligence

U.S. Bank has created a continuous marketing feedback loop. Whether it’s stadium sponsorships like the bank did with the Minnesota Vikings or an awareness campaign on Twitter, the firm turns big data into actionable insights to be used across the organization.

Inside MassMutual’s fintech startup, Haven Life

U.S. insurers, many of whom are over 100 years old, are trying to figure this whole innovation thing out. MassMutual has developed a couple of new online brands, including an in-house startup. Tradestreaming talks with Haven Life’s CEO about the future of insurtech.

Are there real world blockchain applications yet?

Blockchain technology is still too immature to go to market for many use cases. In this week’s podcast, ACI’s head of digital banking solutions names a few areas he sees more ready for primetime.

Mobile payments year in review

It’s been an up and down year for mobile payments. Consortia were formed and disbanded, former enemies came together, and mobile wallets at the POS are still stuck in neutral. Here are the best and worst moments for mobile payments during 2016.

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View of insurtech’s future from MassMutual’s in-house startup, Haven Life

When fintech upstarts began to gain traction, the media, at least, began to portray the relationship between these upstarts and the incumbents as an all out war. Incumbents were meant to be threatened by these new players, who were out to disrupt just about every single link in the financial services chain.

More recently, the use of battle metaphors to describe the incumbent-fintech relationship has toned down, in part because incumbents have realized that partnering with fintechs can do them a world of good. And instead of crawling up in a ball and crying at the prospect of a hostile fintech takeover, incumbents are also acquiring fintechs or just coming up with fintechs of their own.

One incumbent that’s been on a role with the latter option is MassMutual, the 165-year-old insurance magnate. In May 2016, for example, MassMutual launched its own fintech product: ValoraLife, a direct to consumer online life insurer targeting Latinos across the US. A year before, MassMutual launched its ‘in-house startup’, online life insurance provider Haven Life.

Insurtech products like Haven Life and Valora Life are a hot commodity in the insurance world. Witness the excitement around P2P(ish) insurtech company Lemonade.

For incumbents like MassMutual, in-house startups aren’t just a tool to acquire and retain millennials; they’re a way to gain insight on the trends informing the insurtech market. We spoke with Yaron Ben-Zvi, CEO of Haven Life, to get an inside view on the trends he sees impacting insurance over the next five years.

VC love

VCs are investing millions of dollars into startups in the life insurance space. We will continue to see increased competition in direct-to-consumer policy sales, which we find very exciting. When we were creating Haven Life, there really wasn’t an example to look to for entirely online policy sales. With more companies entering the space, it’s setting a consumer expectation to be able to buy a policy online and provides us with an opportunity to learn more.

All speed ahead

In tandem with the first point, I think we’re going to see a significant change of pace within the industry. With life insurance receiving more funding and more attention, carriers and reinsurers will need to iterate and innovate more quickly.

Big data and machine learning for underwriting

In a recent post, I wrote about the data available to insurers that could be more thoughtfully utilized. We’re always looking to access more data, but I think there’s a huge opportunity to analyze existing information in a more efficient manner that simultaneously benefits the customer.

Streamlining the back end of insurance

Currently, most back-end policyholder support is pretty time-consuming and involves multiple human touch points. I believe a focus for many life insurance companies and agencies will be streamlining processes like policy servicing, changing beneficiaries and submitting claims.

Perhaps fittingly for a startup born of an incumbent, Ben-Zvi doesn’t see direct-to-consumer products replacing other, more traditional insurance products, like those offered by MassMutual. As Edward Casas, vp and general manager of ValoraLife told Tradestreaming, “At this point there’s a lot of complexity in financial planning, and consumers are looking for someone to lead them through a process, to help them understand.”

Still, with in-house, separately branded fintechs like ValoraLife and Haven Life testing the waters, MassMutual has its hands in oh-so-many fintech trends. Not bad for a 165-year-old.

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‘It is a game changer’: Inside ValoraLife, MassMutual’s new life insurance product for Latinos

MassMutual had a problem. The insurance industry is experiencing one of the lowest ownership levels of life insurance in many years. Faced with a changing insurance landscape, the 165-year-old insurance company sat down to examine its operating practices and to identify current opportunities in the marketplace.

From a demographic perspective, the number that really stood out was Latino consumers. At 52 million in the U.S., Latinos could constitute one fourth of the population by 2030. With this in mind, in May 2016, MassMutual launched ValoraLife, a direct to consumer online life insurer targeting Latinos across the US.

“If Latino consumers aren’t engaged in life insurance, the industry is missing a major opportunity,” said Eduardo Casas, vp and general manager of ValoraLife. “With ValoraLife, MassMutual is creating a new business that brings something of real value to Latino consumers.” The product was two years in the making, and is the collaborative result of ValoraLife’s own internal teams, as well as input from agencies like IDEO and MarketVision.

Latino consumers are certainly the right type of consumer to target for an online insurance offering. “What’s important about the whole web and digital is that Latinos index very high in terms of digital and in particular mobile technology,” Casas explained. “The fact that we can offer our website experience in a mobile responsive format really plays into what our consumers are looking for in terms of product and brand.”

Nevertheless, MassMutual wasn’t convinced that simply translating one of their existing online life insurance products, Haven Life, into Spanish would be enough to onboard Latinos. As a marketer at big brands like Coca-Cola, Nike, and Heineken, Casas is familiar with trying to sell products to the Latino community. He isn’t impressed.

“Although Hispanics make up a large section of the millennial age groups, from a cultural perspective, their lifestyle, habits, and life stages are different,” he said. If Haven Life targets millennials from the general market, who are getting married in their mid-to-late thirties and focused on jumpstarting their professional careers, it isn’t really suited to the Latino consumer, who, by 27, is married with children, buying a home, and focused on providing for their children.

MassMutual wanted to get a better understanding of the barriers to Latino life insurance ownership, which is why its qualitative and quantitative research leading up to the product captured consumers from all countries of origin, both U.S. and foreign-born. The main takeaways from this research was that Latinos thought that the process to secure life insurance was too complex and that life insurance was expensive.

ValoraLife addresses both those concerns. With English and Spanish interfaces, the site explains insurance concepts in the simplest language possible. It’s also very easy to sign up for one of the two life insurance policies ValoraLife offers. However, the major difference in ValoraLife, as far as MassMutual is concerned, is the types of life insurance policies the product offers.

The company offers an inexpensive basic-term product, like Haven Life, but it also offers a return-on-premium policy, which allows consumers to get all of their premiums back at the end of the term of their insurance policy. “Latinos thought that insurance was only about paying, paying, paying in case something happened,” Casas explained. For MassMutual, bringing a consumer-centric approach to market meant trying something new. “This is the first time that MassMutual is selling a return-on-premium product, because Latino consumers responded positively to that kind of product.”

The insurer’s gamble seems to be paying off. Casas relates that Latino response has been strong, as consumers are excited about the fact that they can actually afford life insurance. The ValoraLife team is working to attract more Latino consumers to the website with a wide array of marketing tools, including Facebook pages, Instagram, YouTube pages, display advertising across the web, as well as more traditional media like radio ads in English and Spanish and advertising in cinemas in key Hispanic zip codes.

MassMutual hasn’t neglected event marketing, either. ValoraLife participates in Hispanic cultural festivals in its home base of Houston and partners with Latino community organizations across the country such as HACE and the Hispanic Professional Organization. Together with these organizations, ValoraLife is set to launch a series of financial education seminars. 

ValoraLife, and for that matter, Haven Life, are very different digital life insurance products than the one that you’ll find on the MassMutual website itself. Both have calculators, a quick application process, and speedy coverage, but MassMutual’s online life insurance platform funnels prospective clients to meet with a financial advisor. The reason for this marked difference is that the consumer the MassMutual brand is talking to has more complicated financial needs.

“At this point there’s a lot of complexity in financial planning, and consumers are looking for someone to lead them through a process, to help them understand,” said Casas. And although he imagines that as younger consumers enter the marketplace, insurtech will heat up. For now, though, financial advisors are still very relevant. At the same time, MassMutual is investing heavily in bringing more technology into its business. “Tech plays a whole lot of roles. If we’re going to continue to be a leader in our industry, we know that there’s a significant role in bringing more technology into it,” Casas said.

Whether or not ValoraLife enables MassMutual to corner the Latino life insurance market, its investment in a seamless digital experience married to culture-specific life insurance policies shows the company is serious about adopting a consumer-centric approach to the market. Who says a 165-year-old company can’t learn new tricks?

Photo Credit: ValoraLife | Facebook