There was a time when venture capital firms would turn you away at the door if you approached with an insurance-related startup. That time is not now. Things have changed for the better, and InsurTech is actually hot. According to CB Insights, insurance and insurance-related technology startups raised $2.65B in 2015, by far the highest total ever. And the phenomenon continues, with InsurTech notching its strongest quarter ever in the first quarter of 2016, with more than 45 deals totaling $650M.
In January of this year, PolicyGenius raised a $15 million Series B. Participating investors include MassMutual Ventures, AXA Strategic Ventures, Karlin Ventures, Transamerica Ventures, Susa Ventures and Revolution Ventures.
Founded in 2013 by Jennifer Fitzgerald and Francois de Lame, PolicyGenius offers educational material and an online shopping experience for term life, pet, renters, and long-term disability insurance. Licensed as an insurance broker in 50 states plus the District of Columbia, the company is paid a commission by the appropriate insurance company for each sale.
Insurance marketplaces aren’t new, of course. Answer Financial and InsureMarket were active in the U.S. 20 years ago.
But while aggregators are responsible for more than half of all auto policies sold in the UK, in the U.S. the going has been tougher. Massive spending by direct-to-consumer carriers like GEICO and Progressive have overwhelmed spending by U.S.-based aggregators, at least when it comes to auto, limiting their market share. Cost-effective client acquisition has always been a challenge.
PolicyGenius is based in New York and has approximately 30 employees. Jennifer, who is the CEO, kindly agreed to an interview.
Q. Jennifer, why these products – life, pet, renters, disability – rather than auto and homeowners, which are larger markets and often required either by law or by mortgage lenders?
A. A couple of reasons. One is that when you are a small startup – when we began we had four people – going after the most competitive and expensive financial services vertical (which is auto, from a customer acquisition standpoint) didn’t make a lot of sense.
The second reason is that auto insurance consumers are already offered a pretty good digital experience by the direct writers, like GEICO and Progressive. So there was no compelling reason for us, or any startup for that matter, to get involved in auto.
Q. Who is your target market?
A. Our target market is the self-directed consumer, so the same person who will manage his or her investment portfolio at Schwab or do his or her banking online. That’s our consumer. Interestingly, this appears to be age-agnostic. We are not a millennial play. Plenty of people in their 40s and 50s prefer the online channel for financial services.
Particularly on the life side of our business, we are targeting consumers in the mass market. They likely don’t have a dedicated financial advisor or an insurance agent who is managing their protection portfolio. These are the folks we serve.
Q. How are you reaching them? That’s a very broad market demographically and it can be hard to buy psychographically.
A. We reach them through a number of channels. One approach we’ve used successfully is content marketing. That allows us to engage with consumers up the funnel, when life events happen, and it also boosts our search result rankings, so people can find us more easily through organic search results. Content is also a good way for us to stay engaged with our customers after the sale.
We also do well with referrals and with earned media. Being mentioned in consumer finance publications obviously helps people find us. We’ve also built relationship with consumer finance bloggers, some of whom have very big, very loyal audiences.
We are also engaged in paid advertising, largely online, but we will probably add offline channels within the next year.
Q. Are you retargeting your prospects online?
A. If you visit us, our ads will follow you across the internet to try to get you to complete a transaction with us.
Q. Some insurance industry veterans – usually those who are familiar only with the agent channel – will tell you that insurance is sold, not bought. What are your thoughts on this canard?
A. Absolutely, insurance is being bought. Complicated insurance policies have to be sold. Products such as variable annuities and whole life still require an assisted sale. But consumers generally know what term life is and why they might need it. They may not know what it costs, or what the application process looks like, but that’s what we are here for.
People are online, shopping for insurance today. There’s a reason why the word insurance is such an expensive word to buy on Google AdWords. There’s a lot of demand for it because people who are entering the word insurance as a search term are in the market to buy.
If you make a complicated product, it’s going to be difficult to buy, and you’re going to believe that it has to be sold; if you actually make it easy to buy, you’ll find that there are a lot of people out there who will self direct far down the funnel to purchase it.
Q. Insurance marketplaces aren’t new. What’s different this time?
A. You’re right. We’ve had online aggregators and we’ve had online and call-center based models like SelectQuote and they’ve been around for a very long time.
So why do we think now is the right time? There are all kinds of structural issues in the insurance industry that point to this being the right time. There’s that oft-cited statistic that the average age of an insurance agent is 59. Many are going to be retiring within a few years. Eight out of 10 households don’t even have an agent.
The opportunity we see is not for another aggregator, but in thinking holistically about the insurance value chain and about what specifically an insurance agent provides. It goes far beyond providing a quote and putting you into a policy. It’s advice, it’s lifetime customer relationship management, it’s looking beyond a single product to your entire protection portfolio.
That is the gap we saw in the marketplace and that’s our vision for PolicyGenius. It’s to deliver the whole value chain – quotes, advice, policies, service. There should be an online-first way to do that in the same way you can now access your other financial services online.
Q. What is the right number of policy options to present? People want a shopping experience, but too much choice suppresses response.
A. There’s no right answer, but they have to see at least three or four brands that they know and trust. As long as you have that, half a dozen to a dozen choices is probably good.
At thirty, your going to have the paradox of choice problem.
Q. How important is price to the PolicyGenius buyer compared to brand name and carrier rating? What’s most important? Will they pay a little more for a policy from a carrier with a great rating?
A. It depends on the consumer. Some are very brand-loyal, and for them the peace of mind that comes with a known brand is important and worth paying for.
Then there are consumers who are brand-agnostic and just want the best rate possible.
We see both. Not everyone chooses the lowest-priced option. But we also see people who have a quote from a carrier they are very loyal to, such as USAA or Northwestern Mutual, come to the site because they still want to shop it. They still want to compare that price to other life insurance quotes.
What we have to do as a service provider is make sure there is an offering for every segment of consumers, the brand-loyal as well as the brand-agnostic.
Q. How have you approached the need to offer a shopping experience to people all along the risk spectrum? So both the best risks and the heavy smokers see multiple policies to choose from?
A. For that, we rely on having enough carriers on the platform to be able to show people who smoke or who might have a health condition a choice. Unfortunately, the more health conditions you have, the more limited your options will be.
This is important to us. On our site we actually provide table-rated quotes. I believe we ask more qualifying health-related questions than any other online life insurance player in order to be more accurate. We ask about diabetes and sleep apnea and asthma and depression. We’ll show quotes online from providers who can underwrite that risk when we can. When we can’t, we’ll refer them to a human underwriter in order to provide accurate quotes.
The more complicated your health profile, the fewer choices you’ll have, but in most cases we can still offer at least a few choices.
Q. Does your pricing information come directly from the carriers?
A. We work directly with the carriers.
Q. These are essentially commodity products and you are encouraging people to buy based on price. Some carriers have been reluctant to expose their pricing in this type of environment. (Particularly those with poorly-priced products.) How are carriers responding to your proposition?
A. While every manufacturer worries about commoditization, most life carriers already understand that term life is largely commoditized. Where they win is on underwriting. We tell our carrier partners to think about it as one product in their portfolio. There’s nothing stopping you – other than your own internal disorganization – from talking to new term life customers about annuities or investment products.
They need to think about the value of that customer relationship over a life time, rather than try to make term life something on which you can hang expensive features. The more features you add, the more complicated it is to sell.
That’s what happened to variable annuities in the ‘90s. It became an arms race with carriers adding more and more features. As the products got more complicated, they found themselves underwriting some pretty poor risks, and that came back to bite them in 2008.
Q. Do you have all the carriers you want or are you still adding carriers?
A. We are still adding new carriers. We are in talks with a couple that we’d like to have, including one which would make us its exclusive independent distributor. We have most of the carriers we want, but there are a few out there we would still like to have because of their brand strength.
Q. Are carriers you talk to still concerned with channel conflict?
A. It is more of an issue for those who are thinking of creating their own direct channels. Particularly if they have a strong captive agent force. I’ve told carriers that are considering it that that’s not how consumers shop, particularly for term life insurance. They’re going to shop around. You might as well focus on creating a good competitive product and letting distribution do its job.
We’re not a source of channel conflict because we are just like having another agent or broker. We’re not captive to any one carrier.
Q. Are carriers offering products through PolicyGenius that are specifically designed and priced for digital distribution or specifically designed and priced for you? Or are these same products offered through other channels?
A. Right now, we are working with off-the-shelf products. At some point, we are interested in co-creating with a carrier or reinsurer a digital-channel specific product – one that strips out a lot of the legacy costs. Because there’s no reason why you can’t build a more price-competitive product if you are going direct-to-consumer and take out a lot of the paper-based processes.
That’s where carriers can differentiate themselves: by creating good competitive products that are channel specific. The cost structure of each channel is very different, so a one-size-fits-all approach doesn’t make sense. I understand the complexity of creating and filing new products, but that’s something I would urge carriers to be thinking about.
Q. Are these all fully underwritten term products?
A. Ninety-plus percent of the business we do is fully underwritten term. Some of the carriers do offer non-med options for low face amounts. We have one simplified issue carrier on the platform.
Q. My view is that fully underwritten term life is a superior product for consumers in most cases, but the underwriting process takes weeks to complete, during which time many applicants will lose interest. How do you keep them informed and engaged during that long underwriting process, which you don’t have a great deal of control over?
A. That’s the toughest part, right? Keeping people engaged for a several-week process. Managing the customer service hit when something is out of your control, like when an APS is ordered but the doctor is taking forever. Or you get adverse underwriting conditions back and based on this new information.
At that point, your customer service has to be great. We have regular updates that go out to a client and they have a dashboard where they can track their application status. It’s really about all-around transparency and expectation management. We try to make it clear up-front that this is unfortunately not the fastest process in the world. Sometimes it feels like a baby elephant gestates in less time than the average term life policy. But most people are fine with it.
Q. Another barrier to the purchase of fully underwritten term life is the need for blood. Where are we with alternatives to the paramedic visit? How close are we to accurately underwriting term life via algorithms that utilize public or private sources of data in place of bodily fluids?
A. Some carriers are starting to push the envelope a bit, but it’s typically limited to lower face amounts. But the price still isn’t where it needs to be compared to fully underwritten policies.
A lot of people think that fluids are the big customer hurdle, but people aren’t going to pay 50% more to avoid it. Until the pricing is competitive with fluids-based underwriting, don’t even bother.
Q. How far have you been able to push into the underwriting process? Are you able to schedule the paramedic visit or collect data from MIB? Is this on the product development roadmap?
A. We schedule the paramedic now. We are taking on more and more of the field underwriting because we can do that more efficiently. The more touch points you can eliminate from the process, the better. So that is currently where a big piece of our focus is, taking more of those operations in field underwriting in-house. Obviously the final underwriting decision will still be with the carrier, because they are taking on the risk. But we are working with them to take over a lot of the up-front pieces.
Q. What is your average face amount?
A. It’s between $700,000 and $800,000.
Q. Have you thought of asking customers to rate carriers based on the service and support they provide during the underwriting process?
A. We have thought about it. What gives me pause is that the process is long, you get asked a lot of intrusive questions, and you give blood and urine. But we (PolicyGenius) do get reviews and you can see them on TrustPilot.
We do provide information on the performance of our carriers during the application process but we do that ourselves. If you click on one of our top-ten carriers, you’ll see the information we’ve gathered on the application process.
At some point we might rethink our approach, but you need to have a very large pool for the data to be valid.
Q. Is your platform available for white-labeling?
A. It isn’t at the moment, but we’ve had a lot of interest in that from other financial services providers, so it’s something we are looking into.
Q. Some people are still more comfortable finding educational material online but buying face-to-face. Are you able to get credit for your role in those sales?
A. It’s tough to attribute credit when customers go online to get a quote or read our content but go offline to buy. I don’t think it’s a huge issue for us. Because of our mission, which is to help people get covered. If they get covered but not through us, we’re fine with that. There’s enough opportunity with people who want to finish the transaction with us that we’re not too worried about that. We know there will always be people who will research and review but not finish the transaction. That’s just the nature being a digital business.
Q. What are your plans for mobile?
A. We don’t have a mobile app. It wasn’t a priority for us because shopping for insurance is like doing your taxes – you’re more likely to sit down in front of your laptop than to try to do it on your phone. Our website is mobile responsive, but we will be launching an app within the next year.
Q. What else can we expect to see from you in 2016?
A. In addition to an app, there will be more products on the platform, and a broader marketing presence. We’ve limited ourselves to online channels for customer acquisition and engagement so far, but 2016 is the year for us for scaling and growth.
Q. Are you hiring?
A. We are. People who are interested should visit our careers page.
# # #