11 minute read
Finding Mecca in the Midwest
Mecca Midwest
Ohio is committed to business development and innovation across the financial industry. Ron Rock, Senior Director of Insurance and Insurtech at JobsOhio, explains how state enterprise is targeting this increasingly important part of it
In the heartland of America, far from the coastal regions traditionally associated with innovation and entrepreneurship, business is booming for financial service companies with bright ideas and the ambition to succeed.
In Ohio, historically America’s cauldron of industry, only manufacturing contributes more than financial services to the economy in terms of percentage of GDP. The capital Columbus is #14 in the North America 2021 Findexable rankings for best-developed fintech ecosystems and 39th in the world, having made a steep climb of 70 places over 2020.
The growth of the state’s financial sector in the past decade is due in no small part to the efforts of a unique private economic development corporation, called JobsOhio, a state-authorised, not-for-profit that has lately been turning its attention to insurtech as a specific focus of opportunity.
JobOhio’s insurance/insurtech initiatives are headed by Ron Rock, who has a strong background in financial services, spanning 20 years. Rock has been heavily involved in business development, giving him the credentials to lead innovation and investment programmes in the insurance sector.
“Banking and insurance are key contributors to our economy,” says Rock, “and Ohio ranks as the fifth largest economy in North America. We’re home to progressive financial brands such as Klarna, and we have nine large insurance companies in the state. Insurers are constantly thinking about business development, how to become more efficient, and how to reach customers in their preferred channels with new offerings. This is the driving force behind the insurtech initiative within JobsOhio.”
Ohio provides many advantages for startups and established businesses alike, says Rock. It has thriving metropolitan and
commercial areas such as Cincinnati, Cleveland and Columbus, there is a favourable state regulatory environment, and the cost of living is far lower than in popular business locations
One of our campaigns is called ‘Ohio is for leaders’... it’s cheaper to head west and run a business from here
such as New York City and San Francisco. There are also excellent inter- and intra-state transport links, venture capital is plentiful, and more than 200 colleges and universities nurture a growing talent pool for tech-driven companies.
Rock explains that JobsOhio has far more depth than the name implies. Although the Jobs prefix suggests an employment development agency, that’s only part of the story; it works to attract capital investment, encourage startups and strengthen established brands, which creates work opportunities.
So, when companies choose Ohio, part of Rock’s role is make sure they access the strong local community of business partners, customers and talent that can help to grow a business and put it on the map. JobsOhio brings all the parts together and channels creative energy into successful collaborations.
“We have a diverse ecosystem that can cultivate and support the insurance sector,” says Rock, “and insurtechs are an important part of the mix. We work arm in arm with the state to encourage world-class corporations, entrepreneurs, and talented individuals to build their businesses and careers here.”
Waving the flag for Ohio:
It’s an obvious choice for insurtechs, says Ron Rock
There’s certainly no shortage of financial help for them. Incentive programmes include economic development grants, growth funds, and research and development grants. There are the heavily-funded ‘Innovation Districts’ in Cincinnati, Cleveland and Columbus, to help generate ideas and develop the infrastructure to attract more companies. And there is a JobsOhio Workforce Grant as well as its Talent Acquisition Services that offer customised sourcing, screening, and training solutions. As well as collaborating with regional economic development organisations, and federal authorities, creating structured programmes and investment initiatives to encourage and support insurtechs, JobsOhio has struck partnerships with universities and training organisations to ensure a highly skilled funnel of employees. The state turns out more than 35,000 college grads qualified to work in financial services every year.
“The region’s impressive technology talent ecosystem has proven to be vital for our expansion and was a core reason behind our decision to scale here,” says
Alex Frommeyer, co-founder and
CEO of Beam Benefits. “We love the people, the culture, the lifestyle.”
HIgh quality, low
cost: It’s cheaper to live and do business in Midwest cities
From an employee’s perspective, it’s good to know that Ohio’s composite cost of living index is significantly lower than the national and regional average; it ranked #1 for affordability in 2020 in the U.S.News Opportunity Rankings.
It’s no wonder that companies stay loyal to it. Ilya Bodner, who founded Bold Penguin to build software for the small business insurance sector, got started in Columbus in 2016 and was anxious to stay close to its roots when it went looking for a buyer to fund its expansion. When Bold Penguin was acquired by another mid-West firm with similar values – American Family Insurance Mutual Holding Co (AmFam), the country’s 13th largest P/C insurance group – in January 2021, he was delighted that it meant he could keep his local team together.
The deal, which attracted a huge amount of attention in the insurtech space, meant he could ‘put a pin on the map’, as he described it, confirming Columbus as what he believes is ‘the mecca of insurance’ in the States.
Despite the economic impact of COVID-19 and the current recession, Ohio, says Rock, remains an attractive place to do business and he is optimistic about future growth. But with every company and new venture, he underlines the importance of getting the fundamentals right and offering something that the market truly needs. He cites the example of Root, a home-grown insurtech initiative.
“Root was a company on the way up,” he says. “Although it has a great telematics product, it’s not ground-breaking technology in the insurtech space. Many insurers have been doing telematics for a while. I could see what Root needed to address to become more viable and successful. It was very upside-down in terms of premiums written and the amount of reserves it had to hold and the amount of claims it paid out. So there is often a learning curve, and sometimes an insurtech needs to come down to earth, take stock, and make adjustments.”
In contrast, another home-grown company called Branch Financial, launched in 2017 and headquartered in Columbus, took a different approach to its business model. Branch uses data and technology to make home and auto insurance easier to buy and more cost-effective.
“I’ve had many conversations with Branch’s CEO, and I was interested in how he approaches the market,” says Rock. “Branch only wants to grow as fast as its loss ratio allows, which is very wise.”
BEAMBENEFITS
In 2012, Alex Frommeyer began searching for the ideal place to move his Louisville, Kentucky, insurtech business.
The new headquarters would have to have access to talent, capital investment, and more to facilitate the next stage of the startup’s growth. His choices were San Francisco, Seattle, New York, or a place like Columbus’.
The latter proved a wise choice for what is now Beam Benefits, one of the fastest growing companies in the US – as recognised by the prestigious Inc. 5000 list where it currently ranks at #808.
The digitally-enabled employee benefits provider for small to medium-sized companies, has more than doubled its annual revenue and member base, grown to nearly 400 employees, and raised $80million in Series E funding in the last three years alone. In June 2022, the company announced the addition of voluntary life, accident and hospital indemnity products to its portfolio, making Beam a one-stop-shop for ancillary benefits.
“What we’ve experienced at Beam, and what I think others have as well, is that in partnering with JobsOhio, you’re getting a partner who’s helping do creative problem solving because the problems might also be quite different, depending on the size, stage, and scale of the business,” says Frommeyer.
“Not only did the community welcome us with open arms, but it ended up being the perfect market for a startup company to carve out its own story.”
Beam Benefits, best-known for modernising dental insurance with a first-of-its-kind connected toothbrush, which allows companies to potentially earn lower insurance rates based on their members’ dental hygiene, is on-track for another record year and expects revenue growth near 70 per cent in 2022.
“The growth of not just Beam, but Columbus: the startup ecosystem, the tech community, the venture capital access that’s now available,” says Frommeyer. “That flywheel is now officially turning in central Ohio.”
Another success story is Beam Benefits, which, unlike Branch and Root, came from out of state. The digitally-native employee benefits company uses machine learning to give brokers and employers tailor-made quotes in seconds. It has raised more than $160million in funding and is now available in 44 US states. Both Beam and Root have benefited from support from Drive Capital – a Columbus-based VC fund that has amassed a $2billion war chest in assets under management, specifically to invest in technology companies outside of Silicon Valley.
Speaking in summer 2022, Drive’s co-founder Chris Olsen, formerly at Sequoia Capital, said he sought out promising founders in regions overlooked by other investors. He firmly believes that if venture capitalists widened their scope, the American economy would be more competitive internationally. JobsOhio certainly makes a virtue of the state’s entrepreneurial spirit – and how economical it is to do business there.
“One of our campaigns is called ‘Ohio is for leaders’,” says Rock. “And If you're travelling across North America, you might see us get a bit cheeky with our advertisements. For example, we compare the cost of doing business in New York versus Ohio; it’s cheaper to head west and run a business from here.”
BRANCHFINANCIAL
According to Crunchbase data, venture capitalists injected more than $3billion into Columbus alone over the past 20 years, particularly into healthcare and insurance startups.
While acknowledging that investment in the global insurtech market has taken a knock over the past 12 months, Rock believes you shouldn’t read too much into one year’s figures.
“We’re actually on course to do more venture capital investment in 2022 than we did in 2021,” he says.
But there’s a lot of noise in the marketplace and it’s important to separate the wood from the trees when looking for viable ideas and investment potential.
“I’m combing the landscape as a member of different investment committees”, he says. “When I look at what the VCs are investing in, they certainly have a lot of choices. If you're reviewing 100 different companies, you might come across 20 that do the same thing, another 20 that do something in another vertical, and they all look similar. So you have to dig beneath the surface to make sure you pick a winner, something with a great business differentiator.”
Many of the larger insurance companies Rock works with are setting up their own innovation departments and labs. “We do a lot of different programmes with these companies. Although they’re trying to build from within, they also need external partnerships and guidance,” he says.
A key area in which it can help is ensuring the right cultural fit between insurer and insurtech. While insurtechs may have the technology and the bright ideas, plus enthusiasm in abundance, they don’t always have an insurance mindset and can sometimes move too quickly for traditional insurers with a more cautious outlook.
“We’ve found that a poor cultural fit is one of the reasons why a company value falls,” says Rock. “If there is a disconnect between partners, it’s going to hit the numbers. You have to work hard to get the right focus and a shared vision.”
One way to facilitate that is by promoting old-fashioned networking.
“One of my ambitions is to create a large state-sponsored event under the JobsOhio banner,” says Rock. “Think of events like Insurtech Insights or InsurTech Connect. Because Ohio is a growing base for insurtech in America and is drawing interest from across the world, it’s a natural meeting place for the insurance community.”
In June 2022, Branch, the Columbus-born startup that had the bright idea of bundling two P&C staples – home and auto insurance into a single transaction – raised $147million in Series C funding and officially became a unicorn.
With technology that allows it to bind insurance through an API and an embedded sales distribution strategy – as well as offering products direct to consumers and through agencies – Branch has grown its annualised gross written premium by 1,300 per cent and more than quadrupled its headcount in 12 months.
One of its key reasons for locating in Ohio was the workforce. An America-wide sweep pre-launch had identified the state as having good access to talent from nationally ranked colleges and universities, while also offering a low cost of living and high quality of life.
Founded in 2017, Branch took advantage early on of JobsOhio’s Talent Acquisition Services.
“Our expansion and growth is testament to the success we’ve had in Ohio,” says Steve Lekas, CEO and founder. “With the cost structure, access to talent, strong infrastructure, the low cost of living, and support structures like JobsOhio, we’ve been able to thrive in Ohio.”
Earlier this year, Branch announced its expansion to six new states including Idaho, Iowa, New Hampshire, South Dakota, Tennessee, and Virginia, bringing its total reach to 25 states, meaning almost half of Americans can access its products and services.
