Tech Startups Want to Sell You Their Life Insurance

Technology startups are ready to challenge traditional life insurers head on.

Source: WSJ | Published on December 1, 2020

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Bestow Inc. and Dayforward Inc. are making the leap to become life-insurance carriers, a move away from a model where startups only sell traditional insurers’ policies.

The companies are banking on their versions of online technology for sizing up the risk of insurance applicants to provide cost efficiencies for expanding profit margins beyond those of traditional insurers.

Each company said it would maintain competitive premium rates and typically issue policies within minutes.

The budding life insurers face a difficult market environment. Among obstacles, regulators require life insurers to hold large amounts of capital to protect policyholders decades into the future, money they mostly invest in bonds. Bond yields are low and will likely remain low in the long term, cutting into investment profits.

The moves by Bestow and Dayforward signal that startups are confident they can overcome the hurdles of low profitability and regulation that have kept them out of the life-insurance-carrier business in the past.

Until now, life-insurance startups have largely collaborated with traditional carriers rather than competed with them. Many functioned as online agents to attract customers, or used algorithms that draw on third-party databases to help insurers more speedily assess the risk of applicants and set their premiums.

Becoming a carrier “gives us greater autonomy to innovate how we develop, price, underwrite and distribute our products,” Bestow Chief Executive Melbourne O’Banion said. “As an agent, you are entirely dependent on your carrier partners’ business priorities and appetite for risk.”

To verify information and determine risk, the companies are using such things as third-party data for prescription-drug histories, electronic health records, motor-vehicle records, property records and a life-insurance clearinghouse with data from consumers’ past applications. Applicants must provide permission for the information to be tapped.

Mr. O’Banion said that all applicants will be assessed online, with no additional medical details to be sought. For a small percentage with health complications, Dayforward CEO Aaron Shapiro said the company may dispatch at-home medical kits that could add a day or two to the process.

Dallas-based Bestow was launched three years ago and has sold more than $10 billion in term-life-insurance coverage through North American Co. for Life and Health Insurance. It has signed a definitive agreement to acquire Centurion Life Insurance Co., an Iowa-based insurer that isn’t currently selling new policies but is licensed in nearly all states. Bestow is funded by entities including venture-capital fund Valar Ventures and Sammons Financial Group, which owns North American Co. and other insurance businesses.

New York-based Dayforward has obtained an insurance license for a subsidiary it established in Texas and is filing for approvals in other states. It aims to write policies within weeks and expects to be national in two years, Mr. Shapiro said.

Dayforward aims to offer policies with unconventional benefit arrangements: For instance, paying beneficiaries the equivalent of a biweekly salary, rather than a lump sum.

“A lot of why we wanted to become a carrier was, we can design products like this,” he said.

Dayforward was founded this year by Mr. Shapiro, former CEO and co-founder of digital marketing agency Huge Inc. Maria T. Vullo, a former superintendent of New York’s Department of Financial Services, serves on Dayforward’s board. A unit of reinsurance company Munich Re will reinsure Dayforward’s policies, and its venture arm is among financial backers.

Bestow and Dayforward aren’t the first insurers to go with online underwriting, an approach that seeks to eliminate time-consuming blood and urine analysis. Among well-established insurers issuing policies in real time is Massachusetts Mutual Life Insurance Co., with its Haven Life unit. This year, the coronavirus pandemic has heightened interest in going online.

As insuretech was heating up a decade ago, the life-insurance industry seemed poised for an overhaul. Instead, life-insurance startups have lagged behind other types of insurance due to ultralow interest rates and other factors, according to consultants.

“It is even more of a stark picture now” than a few years ago, said Kweilin Ellingrud, head of the life-insurance practice at McKinsey & Co. “Interest rates were low then and now they are even lower.”

In contrast, car and home insurers pay out in claims much of what they collect annually in premiums, so low interest rates have been less damaging, she said.

Some 80% of insuretech funding went into property-casualty in recent years and is now running at about two-thirds, said Matt Adams, who heads the U.S. insurance practice for PwC. Some property-casualty startups already have become publicly traded companies.

Car and home insurance are “things you have to buy and are more easily understood” by consumers than many life-insurance offerings, and thus lend themselves more easily to innovative tech strategies, Mr. Adams said.