Ethos, the insurance startup out of San Francisco, raised $60 million in venture funding, giving it a valuation of between $400 million and $500 million.
The fintech, which sells life insurance online, has raised more than $100 million in venture funding over the past couple of years. The Series C round, the largest for the startup, was led by GV, formerly Google Ventures. Goldman Sachs also took part in the funding round as well as existing investors Sequoia Capital and Accel.
Ethos is among a group of fintech startups that are trying to disrupt the insurance market. Known as insurtech they are overhauling a marketplace that has long been stuck in the past. Insurance doesn’t get as much attention as a digital bank or investment app does, but it’s a big growth area of the fintech market. It’s still reliant on humans and manual processes which means opportunity abounds for financial technology companies. That hasn’t been lost on the venture capital community. Money is pouring into the industry as VCs make bets on which startups will dominate.
That’s particularly true of life insurance, which hasn’t changed over the years. As it stands, Peter Colis, Ethos’ CEO and Co-Founder said it takes an average of 15 weeks to purchase life insurance, requiring the customer to undergo a medical exam and blood tests. Not to mention it can be complex and costly. “The companies within it are not innovative,” said Colis. “It is totally an agent sales based model.”
As it stands, the agent makes money off the life insurance sale and as a result is incentivized to sell the costliest policy available. That lines the agent’s pockets but does a disservice to consumers. Ethos is trying to change that, billing itself as an ethical insurance provider. “The industry has an older male life insurance agents selling to older male clients who can afford expensive permanent life insurance that’s not good for 97% of Americans. We’re finding all sorts of people use this product instead of traditional life insurance,” he said.
With Ethos, it takes ten minutes via a mobile phone to apply and get approved for term life insurance which tends to be a lot cheaper than permanent life insurance. There are no medical exams required for most customers. Instead, the company uses predictive analytics technology to underwrite the policy based on self-reported data which is verified with the person’s actual medical and pharmaceutical records. All of the data used to underwrite the policy has been validated by the insurance commissioner for underwriting purposes. That allows Ethos to issue life insurance on the spot. Ethos also got rid of the commission model, which enables it to put customers in products that match their needs regardless of how much it will make off of it. The fintech partners with large insurance carriers including Assurity Life Insurance Company and Banner Life Insurance Company to issue the policies.
Selling life insurance has long been an uphill battle. While most people realize it’s important, many are reticent to think about it let alone purchase a policy. According to a recent study, 70% of consumers said they need life insurance but only 59% actually own it. Colis said half of Americans would rather go to the Department of Motor Vehicle to apply for a driver’s license then think about a plan if they were to pass away. “Through the traditional means its endless hoop-jumping and bureaucracy. By making it so simple a lot of people who otherwise wouldn’t buy life insurance buy Ethos,” said the executive.
Proceeds from the latest round of funding will go to support its growth. Colis said demand is increasing “significantly” which means the cash will be allocated to increase its engineering team and develop new products. Ethos plans to remain focused on the life insurance market, instead of quickly branching out into new areas of insurance as some of its rivals do. “We are lucky from a business perspective. The majority of American families need life insurance. It’s very under-penetrated, there is a lot of room to grow,” said Colis, noting the company is adding thousands of new customers each month. “I grew up in a town of 1,200. We are protecting more families than that town each month.”