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Google’s CapitalG Invests Nine Figures in Applied Systems

During the 2018 Applied Net conference, Applied Systems announced a nine-figure minority investment from CapitalG, the growth equity investment fund of Google parent company Alphabet, Inc., aimed at supporting digital innovation in the insurance industry.
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During this week's 2018 Applied Net conference in Nashville, Tennessee, Applied Systems announced a nine-figure minority investment from CapitalG, the growth equity investment fund of Google parent company Alphabet, Inc.

With this “strategic investment,” CapitalG, which has also invested in companies like Lyft, Airbnb, SurveyMonkey and Glassdoor, brings Applied access to Google’s capabilities in areas like artificial intelligence, machine learning and search—"digital marketing expertise and technology that would not be possible as a standalone firm,” said Reid French, Applied CEO, in his keynote address Tuesday morning.

“This is a classic CapitalG investment,” French said at a media event later that day. “They have a vertical market software company that can leverage the assets Google brings to bear for a particular vertical, and they pick a leader in that area. CapitalG’s other relationships have generated positive usage of Google technology, so we hope to do the same here.”

Besides Oscar Health Insurance and MultiPlan (companies focused on the health insurance space), this is CapitalG’s first insurance-focused investment—and it marks a vote of confidence in the independent agency channel, according to Jesse Wedler, principal at CapitalG.

“This is a testament to the independent agency channel being a strong channel that we think will perform well in the next few years,” Wedler said during a media event on Wednesday. “We have a long-term time horizon, so it’s very important to make sure we believe in it. We’re voting with our proverbial feet here by putting our dollars behind it. I’m not a spokesperson for Google’s insurance strategy overall, but it’s 100% the case that we are believers in the independent agency channel.”

Neither the exact figure nor the terms of the transaction, which closed in the third quarter of 2018, were disclosed; however, Wedler noted that there’s no set “fund life” as is customary with many venture capital transactions. Under the agreement, affiliates of Hellman & Friedman will retain majority ownership of Applied, with CapitalG joining JMI Equity and Stone Point Capital as a minority investor. Gene Frantz, partner at CapitalG, will join Applied’s board as an observer.

French said the investment will support Applied as it continues to focus on digital innovation within the global insurance industry—and promised it will “not allow for any sharing of data with Google.” Wedler, meanwhile, said CapitalG “will never require Applied to use Google technology.”

When asked about CapitalG’s approach to these types of investments, Wedler explained that the relationship will be consultative in nature: “It’s not down to a catalog method in any way. It’s collaborative—we brainstorm and think about priorities, and then we push back and say, ‘Maybe you should be thinking about this.’ Then, the company tells us what they’re working on and what they’re hearing from customers, and we brainstorm on that.”

But what concrete benefits can independent agencies expect to see from that type of collaboration? While it’s too early to say exactly, French said the first step will be sending Applied’s high-end systems developers to a “machine learning boot camp” for firsthand training in coding and open-source Google technology.

“That’s a way for Google to get their technology down into a vertical market, and it’s a way for us to leverage that experience that’s only usually available to their own internal team,” French explained. “I think our industry deserves the ability to use that kind of technology. That sets us up really well for the next digital age of insurance.”

From a cybersecurity standpoint, Applied and its users will also benefit from Google’s internal white-hat penetration testing. “We already do penetration testing—we hire third-party firms and we have our own team that looks at our cloud environment and applications and tries to hack in, tries to find vulnerabilities,” French said. “But having Google’s people do it is a whole different playing field. If they find gaps, we’ll plug the gaps.”

Beyond that, whether it’s integration with the G-Suite, enhancing micro-workflows within the back end of agencies, improving search capabilities within insurance technology platforms or exploring new tech-driven insurance trends like microinsurance, French believes “the ability for us to harness Google technology will impact all of Applied’s customers” in the long run.

“Time will tell. There’s a crazy large number of ways for them to potentially help us,” said Michael Howe, senior vice president of product management, Applied Systems. “The challenge is that some of the stuff they do is very academic and high-brain, and it’s all really interesting, but it’s so cutting-edge and experimental that we’re still figuring out those real-world applications that will be tangible for users.”

“The opportunity is expansive,” agreed Kris Hackney, executive vice president of customer experience, Applied Systems. “As an executive team as we’ve been looking at this opportunity, there’s been a lot of brainstorming around what areas we’re going to look into, but no solid plans yet. We’re already a $400-million, 1,600-person company, which is awesome, but having the ability to engage directly with Google is just really exciting.”

Will part of the money fund Applied’s 15% annual growth rate, one-third of which is attributable to acquisitions? “We are very thoughtful about mergers & acquisitions,” French said. “It’s a Goldilocks thing—if everything you release has to be built inside your own four walls, you tend to be too slow. If you do an acquisition a month, you tend to end up with a mess on your hands. It wouldn’t surprise me if we did another acquisition over the next year, but we try to be thoughtful.”

And if you’re concerned that the investment signals a grand Google plot to learn insurance distribution in order to recover from the failure of Google Compare and eventually disintermediate the agency channel altogether, French pointed out that “Applied can only succeed if agencies and brokerages succeed.”

“We are completely wed to the success of the insurance agency channel,” French said during his keynote. “CapitalG would not have made a nine-figure investment in Applied if it did not expect independent agencies to thrive in the future.”

What about the insurance world beyond Applied? Does CapitalG have plans to expand its presence in the space down the road?

“We really like the market,” Wedler said. “We will never invest in anything that’s competitive to Applied, but we will definitely be looking at additional investments related to technology in the insurance space. I don’t want to define the scope too narrowly—it’s a large market—but we will continue to be on the lookout for businesses like Applied that are leveraging technology to add more value to the insurance market.”

“We think this market has nice stability for the foreseeable future,” Wedler added. “That’s always subject to change because the technology world changes quickly, but we’re really excited about it for the foreseeable future. We’re making this investment as a statement of the strength of the independent agency channel. If we thought they were going to be disrupted anytime soon, we wouldn’t be doing this—we would probably be doing something else.”

Jacquelyn Connelly is IA senior editor.