Q&A: Applied Systems and Capital G reveal full details on nine-figure investment deal

Applied Systems has recently announced a nine-figure investment from Capital G, Google-owner Alphabet’s growth equity investment fund.

It had already been stated this minority shareholding will bring Applied access to Google expertise across artificial intelligence, machine learning and digital marketing.

Savan Shah caught up with the bosses of Applied and Capital G to find out more.

What is it that Google will get from this investment? 

Wedler: It may help to give a little background to Capital G. We are an investment group that lives within Alphabet.

Alphabet’s very fortunate to have a profitable business, so Larry Page, CEO of Alphabet, wanted to invest in world-class companies that were in markets where technology could add a lot of value to the end customers.

Google and Alphabet were also looking for companies where we could provide an advantage to those companies via the technology and the expertise that we have living within Google.

When we look to make a new investment, we look for great teams that are delivering technology and value to their customers. We saw what Reid and his team are doing. They are very forward leaning, so it was an instant match for us.

In terms of what we get out of it, we are making a financial investment where we think we can bring a lot to the table to help Applied continue to grow and enable their customers to do well.

What is the investment strategy with Applied?

Wedler: It is a long-term investment. A lot of private equity funds have what they call fund life where they exit the investment in 3-5 years. We don’t have a fund life and in a perfect world, we would stay invested in companies for ten plus years.

Do you have any existing investments in insurance technology?

Wedler: Not in insurance technology. We have an investment in Oscar Health, a health insurance company, and in MultiPlan, another health-related company. 

Why did you choose to invest in Applied Systems rather than another software house competitor?

Wedler: It really goes back to how much value we can add to the end customers and the opportunity to make agencies more efficient; we noticed a huge opportunity there.

To that point, we think a company like Applied can continue to grow their market by pushing product development and that’s where we have a lot of expertise. Besides that, we always look at management teams and that’s what really differentiated Applied as well.

French: One of the unique things about Applied compared to the other software houses that focuses on insurance is that, most of the time, those companies only focus on a single geographical market. If you think about the indigenous UK providers, they are only in the UK. If you think about Canada, there are only two relevant indigenous providers that are only in Canada.

Applied is in the US, Canada, UK and the Republic of Ireland. When you are thinking of Applied making an investment, scale does matter and the ability to leverage that technology to cross over markets is useful.

Wedler: The thing that really impressed us was how early in the game Applied was looking at cloud and how they were leveraging that technology. We typically don’t see that in businesses that are a little older. That is really what separated Applied from other technology companies.

French: Sometimes we come out with fresher technology that only a few brokerages take up, but it is our job to put it in the market and then allow adoption. It sometimes takes time, but we continue to support that.

We have the most used client portal in the insurance world, but that has taken time to grow adoption. We have brokerages that use it across the UK, US, Canada & Republic of Ireland – all four markets now have it.

What aspects can be of advantage to technology partners and insurance providers?

French: We plan to use this relationship across any aspect of our business where we think we can add value. That may mean insurer connectivity, cloud centres, data capture for chatbots for the insured as examples.

I had a customer talk to me and say, “Look, forget about the insured. What about me? I’d love as an agency professional to be able to talk to Applied Epic to fill out fields rather than type.”

It is early on, but I think there are lots of possibilities. Google is a great ally to have because of all the technology that Capital G, Alphabet and Google touch.

Wedler: To Reid’s point, it is too early to say specifics, but there are a lot of ideas. We have already started brainstorming with Michael Howe (Applied System’s senior vice president of pruduct management) and the rest of the team on where we can start looking at what should be on the list.

What are the possibilities of this investment?

French: One of the things Google asked us was how a person uses an agency management system. What are their pain points? What would make their lives easier and free up time to do other tasks? Inside an agency, it is hard. They have a lot of transactions for many customers with a limited number of staff. The ability to streamline that really adds value.

If you go back to 1993, the first Best Practises survey that was done by Reagan Consulting. The top ten agencies had a 10% profit margin. If you look at it today, it is 25%. How did it get from 10% to 25%? They doubled their spend on technology.

It is a great opportunity to apply technology to brokerages daily workflows and allow their lives to be a little bit easier, to be a little more productive and more profitable.

In terms of analytics are there any ideas from your brainstorming sessions that stood out?

Wedler: It is probably too early to say any sort of product or analytics ideas. We are starting by taking some of Google’s best practises with areas like machine learning, and bringing that to the Applied team. From there, we will break out more specific product ideas.

One of the ways we will first work with Applied is a machine learning bootcamp. Some of the Applied technology team will come in and learn about best practises in machine learning from Google’s engineering team.

French: It is very exciting for our team members to participate in that. We are taking our best and brightest from across the company and sending them to New York. They will get to code and learn, and that is a great thing for our company and a great thing for our industry. It will be a rolling program however at first around 20 members from the Applied team will go to the machine learning bootcamp

In terms of the distribution channel, why did you choose a company that focuses on agent distribution rather than direct distribution?

Wedler: It is a testament to the independent agent channel in being a strong channel and a channel we think will perform well in the next several years. We like finding the teams that are doing the best job in the market and helping them accelerate their roadmap and do even better in the future.

Is this investment a vote of confidence for the broker distribution channel?

Wedler: Yes, definitely. Our investment is only going to do well if the independent agency channel does well. A very important piece for us is making sure we believe in it and are voting with our proverbial feet and putting our dollars behind it.

What is your investment strategy in insurance?

Wedler: We really like the market. We will never invest in anything that is competitive with Applied because of our policy. We will be looking at additional investments related to technology in the insurance space. I don’t want to define the scope too narrowly because it is a large market.

We will continue to be on the lookout for businesses like Applied that are leveraging technology to add more value to the insurance market and there is a wide variety of categories that would fall into that. Software companies that are addressing the insurance market are interesting to us.

Compared to technology in industries like banking, how does technology in insurance compare?

Wedler: There are a lot of similarities between insurance and banking when it comes to technology. Most players in that market haven’t adapted as fast as some other markets.

There is a growing concern amongst UK brokers regarding technology disruption in the insurance market, is this something of a concern for you?

Wedler: We are making this investment because of the strength of the independent agency channel. If we thought there would be disruption any time soon, we probably wouldn’t be doing this. We think this market has nice stability for the foreseeable future and that is always subject to change because the technology world changes quickly.

French: We don’t enter a market lightly because that is a major investment. It is a major investment of time, people, focus – everything. We saw in the UK market that the same players had been around for quite some time and all the technology is quite aged.

We wanted to bring more modern technology and choice to those brokers. It’s the brokers’ choice. They get to use what they want to use. There are very viable competitors in the market place, however we think that this just accelerates that to a whole new level and we think we have a positive future in the UK.

What other countries to you envisage entering in the future?

French: We believe that the broker management market is still maturing. In any software market, you tend to find a global player as it matures. I would argue that any statistic would say Applied is way far ahead than anybody else on that. We are the only company with the same application in the three markets. Applied Epic and Applied TAM are in the UK, Canada, Quebec Canada and the United States.

Applied are very well positioned to continue to add additional markets over time. However, the flip side of that is you must be very thoughtful and measured about it. People always ask me where. Well, we understand the commonwealth countries.

Wedler: Thinking about which markets to enter in and strategise on how to enter them is an area we have helped several of our other companies on already. Google has thought a lot about this. We’ve made a lot of mistakes, but also learnt a lot throughout the process. We have a team that focuses on new geo-market entrance strategies and it certainly will be on the list when it is a priority for Applied.

When can UK brokers expect the benefits from this investment?

French: Our products typically have different release schedules. Our mobile products are released monthly. We typically do three or four releases a year of our client portal. Our agency system releases usually once or twice a year. As we are planning 2019, we are thinking about some of the things that we can leverage that would be useful.

Unfortunately, it is too early to say a specific date on anything, but we will go from closing the transaction to the machine learning boot camp within 28 days, and that is because we are excited about it.