Tech top of mind for insurance-focused VCs navigating climate losses: American Family Ventures’ Reed

By Isha Marathe

April 16 - (The Insurer) - American Family Ventures, a venture capital firm investing on behalf of insurance companies, is increasingly scrutinizing its portfolio’s tech stacks in response to “devastating” climate-related losses, said Dan Reed, its managing director and president.

For Reed, an insurtech’s data infrastructure and ability to harness emerging technologies like generative artificial intelligence has “upended” how business works from the perspective of a VC that caters to the insurance market, he said.

“The macro trend right now is tremendous uncertainty in the general economy, which is affecting how we think about what the path to exit for the portfolio companies (is),” Reed said.

Currently, American Family Ventures represents 24 limited partners that provide capital for its investing activity.

“We try to get out in front of the rest of the industry in terms of the technologies, solutions, or competitors that present themselves through the startup market,” he said.

“And a big part of our climate interest has been the homeowners' insurance money that we represent.”

As losses resulting from climate perils have grown markedly over the last decade, Reed said homeowners’ insurers are keener to invest in data-oriented mitigation strategies than before.

Currently, the VC is looking into companies that are using data analytics to offer carriers insights on issues including where they want to write risk, what the right pricing approach to is and how they want to modify their book of business in response to the increased volatility that's happening from a natural disaster perspective, he said.

INSURTECH VC PORTFOLIOS IN THE FUTURE

In the coming months, the VC is taking a three-pronged approach to insurance focused investments, Reed said.

First, invest in risk mitigation initiatives that are partnerships between the policyholder and the carrier, often by sharing data and using it to tease out actionable insights.

Second, to keep mitigation front and center, even though for most insurers the M&A strategy is to focus on growth as a goal, rather than risk mitigation.

For example, “10 years ago, we were very active in (investing in) home automation or instrumentation around the home (but) that thesis has a little bit run its course,” he said. “Now we're more investing in opportunities for fuel management for wildfires… resilience in your home.”

Third, American Family Ventures is looking to invest in more general carbon-based initiatives that are not insurance-specific, but touch on stakeholders or commodities that other parts of the supply chain might engage with.

“The farther you get from the insurance industry, the harder it is for us to be differentiated,” Reed said. “But we do try to engage in that concept as well, particularly where it relates to home building materials.”