Ethos, a San Francisco-based startup which offers to process life insurance applications in just 10 minutes, has attracted $35 million in investmentOpens a new window in its latest funding round, confirming the trend of Fintech investors turning their attention to the life insurance market. A host of startups are using online platforms and predictive analytics to reinvent the way life policies are sold.
New partners Accel and GV (previously known as Google Ventures) have come on board, joining existing investors Sequoia Capital and celebrities including Jay-Z, Robert Downey, Jr., and Will Smith. The latest investments value the business at $100 million.
The insurance market has been slow to adapt to new technology and the changing habits of consumers, and is still heavily reliant on legacy systems, paper-based communication and teams of salespeople to promote products.
Insurance Undergoes Digital Disruption
Ethos offers to cut through insurance’s laborious structure and change the way people perceive life insurance. The company focuses solely on selling term insurance which runs for a fixed period and pays out if the holder dies in that time. This compares favorably to more complex and costly permanent or whole life policies that last as long as the premiums are paid, and after a certain period start to build up a lump sum which can be cashed in.
By restricting itself to the simpler term insurance, Ethos claims to have eliminated the need for salespeople and the policies can be marketed online. Application times will allegedly by reduced from 10 weeks to 10 minutes, assisted by analytics based on general population data and a few items of personal information. The company also claims that 99% of applicants do not need to undergo a medical examination.
Investors are buying the story that life insurance is ripe for digital disruption much in the same way that the banking and finance industries are undergoing reformation, but an insurance industry so heavily rooted in hard-selling and legacy systems could prove tough to transform.
Other life startups include Ladder Life, which has a similar offer to Ethos and provides online applications and salaried salespeople who earn no commission. There are also white-label platforms like Insquik, which provide ecommerce solutions for life insurance brokers, while Sureify has been called the “Salesforce of life insurance.â€
Insurance Dinosaur Resisting the Disruptor Trend
The bulk of life and general insurance is dominated by big, established players. While banks are being disrupted by startups like Monzo in the UK, valued at £1 billion ($1.3 billion) this week, insurance seems undisturbed by disruptive forces.
With the right investment, perhaps Ethos could achieve the “unicorn†status of startups that break the $1 billion valuation barrier. There are precious few in insurtech: A list of 23 fintech unicornsOpens a new window includes only three that sell insurance – Zhong An, Oscar Health and Zenefits.
Life insurance is a potentially strong market as it emerges from a period in the doldrums. According to LimraOpens a new window , the US life insurance market research body, millions more households are buying life insurance since a low-point in 2010.
The organization carries out an in-depth research project every six years. In 2010, it found that ownership of individual life insurance had fallen to a 50-year low with only 44% of US households keeping individual policies.
This level was repeated in 2016, though the research found that five million more households have purchased cover, while 70% of millennials owned some form of life insurance.
The number of households without any life insurance in 2016 was the same as 2010, at 30%, a sharp increase from 22% in 2004. The research also showed a decline in cover since 2010, with the average adequacy cover at three times annual salary in 2016, down from 3.5 times.
Such figures indicate there is plenty of potential to target new households with a simplified online offer and to increase the level of cover they take out.
But one of the challenges for life insurance is that many people, especially younger potential clients, only purchase when the case is well presented to them by a salesperson. If the demand-led Ethos model is to succeed, it must promote the need for life insurance without a salesforce – a test for low-cost life insurance models that must prove people are willing to buy without being prompted.