By Yaron Ben Zvi, CEO Haven Life
I came into the life insurance industry as a customer first. My wife and I had our first child, and I knew it was time to buy a policy. Having founded a financial services startup previously, I assumed that I would be able to buy a basic term life insurance policy completely online. I was wrong. What I found was mass confusion and the inspiration for my next company.
And here I am.
Haven Life, the online life insurance agency I co-founded as a result of my own experience, turns one year old this month. We’ve knocked down many industry barriers and overall, had a fantastic year. If success is getting regulatory approval and being able to sell direct-to-consumer term life insurance policies completely online, we have been successful. If success is completely transforming the process and the way customers engage with life insurance, we still have a lot of work to do.
It’s been a year of challenges, accomplishments, and learning
The InsurTech space didn’t really exist when I started down the path of creating Haven Life. Today, the ecosystem of startups, venture capital, reinsurers, and other players thinking about how to disrupt insurance is exploding. Entrepreneurs resolved to tackle financial services, and life insurance specifically, need to be prepared for a different way of doing things and for the challenges that come with highly regulated industries.
Looking back on our first year, there are many lessons I learned (the hard way) that any new life insurance startup should make sure to understand.
If you are truly doing something new, regulation will be a challenge
Everything in life insurance is subject to regulation. The rigorous regulatory process is both intrusive and paternalistic.
I have to first start by explaining that we didn’t take the simple route. We weren’t content only slightly modifying the sales model. We wanted to focus on the complete customer experience. This meant we needed to create our own policy and launch our own platform and process for selling. It became increasingly obvious that what we set out to accomplish would be extremely difficult. But the gratification in ultimately improving the experience for the customer remains the driving force behind our commitment.
One of the most onerous parts of the regulatory process is that the customer application and on-boarding experience is all subject to intense review. Life insurance applications are part of the legal binding contract that makes up the policy, after all. So when we started down the road of creating our application, we wanted the language to be easy for a customer to understand and the online process to be simple to get through. Keeping approachability in mind, we were able to simplify the language somewhat, using wording like “Are you the person being insured?” instead of “who is the proposed insured?”. But when we wanted to use the word ‘option’ on our application instead of the industry term ‘rider’, one of the regulators objected, claiming the word ‘option’ was unclear. We realized we could either argue with them and slow down an already lengthy approval process, or we could let it go. We let it go.
When it came to our online process, e-signature was another of the things we knew we needed. E-signing contracts has been a common practice in the financial services industry for some time so I didn’t think too much of it. Yet, not all insurance regulators have well-defined rules for that process but they still needed to review and approve it. And it wasn’t just regulators that had an opinion about our signing process. Some of our data partners were similarly influential. In the end, we were able to accomplish e-sign, but it took longer and we made more compromises than I wanted.
Of course, all of this is made more complex by the fact that insurance is regulated on a state by state basis. I initially thought The Interstate Insurance Product Regulation Commission (IIPRC), which exists to create common standards for 44 States (45 with recently approved Connecticut), would smooth all of that pain. I quickly learned that a common filing standard doesn’t prevent individual states from having specific rules, disclosures, or forms that you will have to figure out and adhere to. Enjoy.
You won’t fully own the customer experience unless you are taking the risk
With life insurance, the smallest change at the front end of your experience can have massive implications. Want to make a change to your marketing strategy? Well, that may affect your customer mix and their associated risk profile. You’ll need to run those marketing plans by the life insurance carrier or re-insurer who actually owns the risk. Want to change a question on your application? Well, that’s not only going to affect your regulatory filings, but also the underwriting rules that are being used, which means the entity taking on the mortality risk needs to be okay with that as well.
Ultimately, unless you are taking on the coverage risk yourself, there are going to be lots of parties you will need to coordinate with and get approval from in ways that will dramatically define and impact the experience you are creating.
Get ready for a different way of doing things, culturally
Customer-facing life insurance startups can pick from a few different models for breaking into the industry:
- They can serve as an aggregator or distributor of some kind, selling other insurers’ policies
- They can partner or get backing from a large life insurer and work with them to issue a policy (what we chose)
- Or, they can raise the significant funds needed to start their own life insurer and create their own policies
Each path presents its own particular challenges. In most cases, life insurance startups will need a strategy for working with carriers, reinsurers, and other industry behemoths. These players all move slower and are less comfortable with change than you are. Without these relationships, however, your startup’s potential for true disruption is limited.
We chose to partner with, Massachusetts Mutual Life Insurance Company, to enable us to offer customers a better experience but also the blue chip financial security they should demand in life insurance. While this has kept us from completely identifying as a startup, it has ultimately delivered the best product for our customer. It’s something we are proud of and have done very well. And, historically, big life insurers and startups have had a difficult time joining forces and working together cohesively.
Still, there have been challenges and times when we move slower than we would like. When we first started working with industry players we reviewed existing customer forms and started asking lots of questions about why things were the way they were. At one point we asked why a certain signature had to be on a form and it took a few weeks to get this answer: no one knows, it’s just the way things have been done for the last 40 years or so.
The truth is, some of the lack of change in the industry is both understandable and justifiable. When the sale of one policy involves the promise to pay hundreds of thousands or even millions of dollars, small variations in processes or small mistakes can have huge impacts. The good news is that the mindset in the industry really is changing. A few years ago, trying to do things differently was viewed suspiciously – today it’s a virtue.
Data is awesome, but you won’t necessarily be able to use it
In many ways, life insurance is the original big data industry. We take many data points about customers and we then use those to try to make accurate predictions. In our case: your mortality. But there are some specific challenges in using data in the life insurance space.
Most crucial to recognize is the fact that mortality, which is the only true indication of if your sales or underwriting process is better or not, plays out over long periods of time and very large data sets. If I issue a handful of policies today, it will take me a decade or more to measure the mortality experience on that group. Yes, there are things you can still do to try and measure or change the process in the meantime, but ultimately convincing others to take financial risk becomes difficult without the mortality data to back you up.
‘Not a problem’, you say? You’ll just use historical data. Not so fast. First, you’ll be lucky to find a partner to share that data with you. And second that historical data often either doesn’t exist (because they weren’t collecting what you needed 5 years ago) or else it exists but it’s in a form that makes it nearly impossible to work with, like handwritten on a piece of paper in the basement of a damp building.
If none of those issues apply to the model you are choosing for your startup, keep in mind one last thing: building large data sets in this space can take time. Roughly 10 million individual life insurance policies are sold annually. And when customers buy life insurance, that’s often the last time they will engage with it. So building data sets with large numbers of customer interactions can be a challenge.
For us, our partnership with MassMutual has been a huge factor in our success. In using their mortality data and understanding their existing practices, we were able to build a new real-time underwriting platform and (with the data science team) algorithmic process. It’s one of our biggest accomplishments and our distinguishing advantage in the industry today.
The customer engagement problem is bigger than you think
Creating customer engagement with a one-off product remains a struggle. Everyone needs auto insurance. Everyone needs health insurance. Everyone needs home insurance. And everyone interacts with those insurance providers more than once. Life insurance is not mandatory, and thus, not everyone thinks they need it. And they certainly don’t think they need to interact with it after they manage to get through the less than fun buying process. That is compounded by the fact that, to buy life insurance, at some level you have to deal with two topics that are very uncomfortable for most people: their money and their mortality.
Out of the gate, I wanted to address the customer engagement issue directly and launch with a health rewards program or some kind of unique value proposition that would make Haven Life customers feel like they had purchased life insurance from the “cool” startup. Oscar Health has done a fantastic job of this.
When we tried to get traction on some of the ideas early on, we were met with resistance and realized that the regulatory, legal, and operational risks were too great for us to be able to get this out in version one. Ultimately, we decided to put those customer engagement initiatives aside and instead to focus on creating a great digital process. We learned that because of this we weren’t able to separate ourselves enough from the pack and keep customers engaged past their purchase. We are solving this now, but I wish we had fought harder for this from day one.
The industry player that can figure out a way to make their customers proud of the life insurance policy they purchased and thus make them spread the word, like Casper® has done with their almost cult-like mattress fans, will have accomplished something truly remarkable.
Crucial to our model has been the promise of a simplified and digital customer experience for buying quality term life insurance. While we made a lot of progress on these in our first year, and we helped set the tone for what digital experiences can be in the industry, I can’t help but feel we could and should have pushed harder to accomplish more on all fronts. Take one example: our data now shows that our application process is still too long and our questions can sometimes be confusing. That said, I’m heartened by the fact that we now are in a position to accurately measure and identify the points in the process that still need improvement. You can be sure we are working hard to change all that.
Ultimately, the challenges we faced and the mistakes we made aren’t things every life insurance startup will necessarily have to deal with. It will depend on their approach and strategy. But having a point of view on if and how issues of regulation, culture, data, and customer engagement could impact your shiny life insurance startup is a must.
I want life insurance startups to be successful in 2016. It’s not because I want increased competition, though. It’s because their innovation paves the way for us to do more. Just like I hope that our innovation has paved the way for others.