Insurance: The Next Frontier

insurance chalckboard


While the golden age of Fintech is upon us, insurance has been relatively untouched – one of the largest industries yet to embrace the digital age.

Yet insurance presents an enormous opportunity for entrepreneurs. In fact, the fact that Prudential recently formed Gibraltar Ventures – following the model of Citi with its Citi Ventures unit – shows the that incumbents are recognizing the potential for startups in the insurance sector.

Last year, the U.S. insurance industry’s net premiums written totaled to $1.1 trillion, a 25% increase from 2009 (net premiums written are defined as premiums that will be collected over the life of a contract less cost of reinsurance).

Insurance carriers and their related activities in the United States accounts for nearly 2.5% of the US GDP and employs 2.5 million people.


Despite being such a large industry, insurance remains one of the highest cost areas of financial services.

According to CoreVC, a VC firm focused on FinTech, $.60-$.65 of each dollar is paid in claims, with the rest covering costs of admin, marketing and reinsurance.

This presents a significant opportunity for disruption. With improvements in technology, we should see reduction in each of these cost items.

Examples include automating policy administration, improving distribution via marketplaces, reducing underwriting risk using big data and machine learning.

Recently, more and more entrepreneurs have launched startups to disrupt this massive and antiquated industry. Here are a few startups going after interesting consumer problems.



Ovid is a life insurance exchange. Ovid offers consumers the option to sell their life insurance for an upfront cash payout if they no longer need or can no longer afford their policy.

A policyholder with a $1,000,000 policy could sell the policy for up to $300,000 and would no longer be responsible for paying annual premiums.

Ovid was founded because over 80% of U.S. life insurance policies never mature into a claim1 – the insured generally lapses or surrenders their policy. This results in high profit for insurance companies at the expense of consumers – turning years of paid premiums into a sunken and irretrievable cost.

Ovid attacks $100 billion of annual household financial waste by building a liquid secondary market where institutional investors can bid on consumers’ policies.



guevaraNormal car insurance works like this: you pay an annual premium which your insurance carrier pools with all their other auto insurance premiums in order to diversify their risk of a single accident. However, this means that safe drivers are essentially subsidizing risky drivers.

Guevara is piloting a new approach: instead of lumping your premium with all drivers, your premiums are pooled with roughly 30 drivers who have similar driving habits and records to you. Your pool is then used to pay for the group’s claims.

If there is money left in the pool at the end of the year, the leftover money is returned to the insured. This way safe drivers will have significantly lower insurance costs and are not subsidizing reckless individuals.

Guevara says after an average year with five claims, everyone in your group still saves 30% each over your competitive insurance premium. Furthermore, even if you’re in a group where everyone gets into accidents, there’s a cap on premiums – so all else equal, you never pay more than you did in the first year.



Oscaroscar was founded after Josh Kushner received an explanation of his health benefits that he was unable to understand. Oscar is a new health insurance company that sells simple-to-understand health insurance plans to consumers both directly and through health exchanges.

Unlike traditional health insurance where consumers typically have no idea how much they will be paying, Oscar attempts to bring transparency to its customers using technology.

A user can visit the Oscar website or mobile app, enter in his or her conditions and symptoms, and receive a list of primary care physicians or specialists along with estimated costs. Furthermore, customers can even call in for unlimited free consultations with physicians who can prescribe medications.

While Oscar is still not profitable, it will be interesting to see if its business model can disrupt the traditional players and reform one of the largest and most complicated industries in the U.S.


thezebraFounded out of Austin, TheZebra is an auto insurance comparison engine, which compares estimated quotes from different car insurers for users – kind of like for car insurance.

Users are served estimated quotes with as little as two pieces of information and can try different combinations of inputs to see what factors most affect their rates. All results are anonymous and instant – making it easy for consumers to get real quotes.

The company now compares over 200 insurance carrier’s rates and is a licensed insurance agent in almost all U.S. states. With big names like Mark Cuban and Floodgate as investors, there are high hopes TheZebra will change how people buy car insurance.

This guest post was written by Lingke Wang, currently an MBA student at Stanford’s Graduate School of Business, and co-founder of Ovid. 

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P2P & Marketplace Lending

LC race

As the online lending industry prepares for its big event, the LendIt USA conference in NYC on April 13-15, I thought it a good time to discuss peer-to-peer (P2P) lending.

To me, this aspect of FinTech is the perhaps the most interesting, innovative and straightforward versus other areas, such as payments (with all its participants – as noted in my last post), digital banking, cryptocurrency, and robo advisors.

P2P lending is disruptive and proven; it adds value in a clear way by providing better rates for borrowers, and higher rates for savers seeking to invest. Companies are tech-led, often with a distinctive ‘non-bank’ culture, people and work environment.

But at the same time, there are a few misconceptions I’d like to address  – without detracting from the alternative lending industry’s innovation and success.

lendacademy Most readers are familiar with P2P lending, given the press coverage lately. But for those who don’t know a lot about P2P, I’d suggest starting off by reading Peter Renton’s superb blog:  LendAcademy.

Inspired by Peter Thiel’s question (from his book, Zero to One), “What important truth do very few people agree with you on?” here’s of few of my thoughts on P2P:

First, although this misunderstanding is more pervasive in the public than readers of this blog, ‘P2P lending’ is really not true P2P – and hasn’t been for some time. The fuel behind the industry’s growth has come largely from big institutional investors.


(The name marketplace captures the shift. For instance, at providers like Prosper, around 2/3rd of investors in its loans are institutions and 1/3rd are retail investors).

Beyond this, some in the press say that banks are “threatened” by marketplace lenders. A classic example of this was in the 2014 post “Why Wells Fargo Is Terrified of Peer to Peer Lendingpublished on Lending Memo, an affiliate link site (i.e. paid for clicks to alternative lenders). The truth is far more nuanced.

Just as institutions play an important role in the P2P model, big banks (especially the larger ones) benefit in myriad ways, e.g. wholesale banking groups are getting revenue from the related growth in ACH payments. Banks also profit by lending to the institutional investors that participate in the new platforms.

LC logoAnd CEO Renaud Laplanche has stated, Lending Club is expanding the market, not trying to take out the banks. Someone once said, having met Laplanche at a meeting at a bank: “He would fit in here easily.” (He’s famously low-key).

Having worked at Morgan Stanley, I know its people and franchise played a part (along with other banks, like Wells Fargo) in building Lending Club, from placing Mary Meeker and John Mack on the company’s Board, to helping plan as well as manage its IPO, to capturing the post-IPO wealth management opportunities. This is true at other big banks across other platforms.


And not just the big banks. Forward thinking banks, like Celtic Bank, behind Kabbage, also benefit from the growth in new lending marketplaces.

Another line often heard that I would disagree with is the marketing meme: “You know how bad banks are? Use X – we cut out the middleman.”

But many of the institutions are hedge funds or private equity firms. In fact, some funds just put up 15%, borrowing the rest from Citi, to leverage up their returns on marketplace sites from 8% to 12%. (This is fine by me, but let’s spare the David vs. Goliath myth about banks vs. startups since the story is more symbiotic).

And is the experience much better? Perhaps on pricing and speed. But some of customer experience (from Notes and using tools like Nickel Steamroller to having to master XIRR to see how you’re doing) isn’t a lot better, if you ask me.

What important truth do very few people agree with you on? – Peter Thiel

“Banks can’t innovate and are too slow” is another piece of conventional wisdom that I partially disagree with, though I agree to a point. To me, Schwab’s roll-out of the Intelligent Portfolio’s is a proof that incumbents can be fast followers.

But I agree that the nimble size of startups, focus on customer needs, role of VC’s and lack of legacy technology can lead to more innovation. And the startups can lead to others having to up their game, e.g. Prosper’s superior credit model will lead others to improve their model, for example.

canaan partnersI could still envision banks, either as a consortrium or supporting a startup backed by the VC’s active today in FinTech, e.g. Canaan Partners, CoreVC, Foundation Capital, A16Z, General Catalyst Partners and Google Ventures – starting a broker-dealer to create a cross-company secondary market in notes from Prosper, LendingClub and others.

I’m sure there will be plenty of other interesting conversations about SoFi’s valuation, and whether Lending Club’s post IPO performance suggests anything other than too high expectations (plus effect of the looming June lock up) at LendIt.

It’s a pivotal time for marketplace lending, as recent articles in the FT and on some industry blogs have noted. It’s clearly in the early innings, but I expect lots more great things to come from marketplace lending.

But to close, having sailed for LBS vs INSEAD in a race around the Isle of Wight, I’d like to just give a shout out for Lending Club’s record time across the English Channel last week (see photo at top).

Impressive achievement and useful reminder there’s a world of adventure out there – beyond the stock market and marketplace lending!


And the Winner Is …

socal blog pic

Inspired by last night’s Academy Awards, I wanted to link this week’s post to a couple of related themes, namely Los Angeles area startups (including those in FinTech), and explore the concept of winners vs. losers in the FinTech category.

But to kick off, as far as this year’s Oscars, I think John Battelle said it all:

So damn over

Yes, the awards show was a bit of a let down – but having just returned from a trip last week to Los Angeles, where I’d lived for about five years, I wanted to talk a little bit about the area (not traditionally known for its startup scene).

Last month, I was excited to hear the news that that my friend, Bill McKnight, had joined RealtyMogul as SVP of Product.

realtymogulI’ve known Bill since 2006 when he was at (acquired and later spun out of eBay). RealtyMogul is a FinTech success story, but will write more about real estate in a future post.


But since the focus is on Los Angeles, I have to call out another innovator in this space that’s more focused on lending (vs. buying an ownerships stake in a building) and with a slightly greater emphasis on residential vs. commercial property: Patch of Land.

patchThey get a lot of buzz in the FinTech circles, and should have a break out year in 2015.

Beyond RealtyMogul, other local FinTech firms to track are Zest Finance, FastPay, CapLinked, and StockR.

Later I’ll write a more detailed overview of these, but one SoCal company I’d like to call out for special attention is Acorns.


To me, Acorns is one of the better FinTech stories out there. It combines many things that I believe in. First, the move away from a “unified app” view of the world, i.e. the idea that’s championed by the big banks out there that you need to sign into your bank account  to do anything. I think in today’s world, it’s far better to have a focused app strategy.

Second, Acorns employs good “behavioral science” to actual problems. Specifically, most people say they want to save, but due to inertia or banks making it hard, people often don’t do the right thing. Prof. Schiller from Yale has written persuasively on this, leading to simple but effective changes, such as auto enrollment of people into 401k plans (vs. requiring filling out forms).

I’m also a fan that they take something somewhat arcane, i.e. the Markowitz portfolio theory of investments (which was maybe my favorite concept from B-school) and make it simple to understand and apply to real life.

By encouraging savings (“pay yourself first’), making it inexpensive and smart, I think Acorns has a lot of potential to do real social good, which is the other reason I like Acorns, with the last being its a mobile first business. Check them out!

FinTech startups or banks should check out LA-based startup, Prevoty.


Winners vs. Losers?

Sticking with the Oscar theme, a question I’ve been thinking a lot about of late is who are the winners and losers in FinTech. What’s striking to me is the recent focus on which regions will win.

I was intrigued by a recent claim by a UK newspaper that 50k people work in FinTech in London. The article didn’t say, but I think the figure makes sense only if you include tech workers at banks (e.g. Barclays) and related providers (e.g. IBM).

This table shows the SF / Silicon Valley FinTech players ranked by employees (adapted from recent SF Business Times article).

FinTech SF : SV

While I’ve seen lots of lists of “most innovative” players in FinTech, I would like to see this table showing actual employment for other cities (e.g. London, New York).

It’s a Wrap

As an Oscar night-inspired post, I’d like to give a shout out to those based in Los Angeles I admire:  Gary Braitman, a colleague from Scient, now EVP at Wells Fargo. Jason Farmer, at Dollar Shave Club. Bridget Baker at Baker Media (ex NBC Universal).  Robert Cerny, investor and lawyer at Hinshow & Culbertson. Drew Planting, real estate investor.  Bennett Pozil at East-West Bank.

In terms of FinTech VC’s, there is of course CoreVC, which is one of the best, led by Arjan Schutte, who founded Core after leaving CFSI. I’m also a fan of Kat Utecht at CoreVC. It’s good there are other tech-oriented VC’s like Upfront Ventures in Santa Monica.

It’s appropriate that I wrap up this Oscar inspired post with a short video: Just in case you missed it, here’s the short commercial narrated by Martin Scorcese from last night’s ceremony (reportedly made entirely on an iPad 2): Roll tape (link)

Good night!