The Surprising Way Startups Are Disrupting the Life-Insurance Business
‘Insuretech’ companies found it made more sense to collaborate with old-line insurers, rather than replace them
Peter Rudegeair and Leslie Scism
July 18, 2019

To get a glimpse of where the life-insurance industry is heading, try answering this: What is a fruit that vegans avoid eating?

That query is part of an online quiz created by tech startup Health IQ Insurance Services Inc. to assess whether self-identified dieters, athletes, cyclists and weightlifters are worthy of discounts on life-insurance policies. Get a passing grade, and you could ultimately save thousands of dollars in premiums over the life of your policy, the company says.

Health IQ belongs to a select group of new companies that believe the future of the industry isn’t one of startups replacing insurers, or one of big carriers completely untouched by the benefits of innovative algorithms and data-driven analysis. What’s happening instead is that startups in these areas are joining forces with old-line carriers to complement the way they’re doing business. Health IQ, for example, is in partnership with two big insurers. It offers the quiz to prospective customers, then sells them coverage on behalf of the insurers.

It wasn’t supposed to play out this way.

If smartphones and digital apps could shake up the way people hail rides and rent hotel rooms, they would seemingly have a field day with stodgy life insurers. Most policies continue to be sold as they have been for decades, through agents, face to face, and are still based on mathematical tables of mortality risk. The application process, meanwhile, generally remains tedious, typically requiring blood, urine and other medical analysis. It can take weeks.

Sitting ducks?
All of this made life insurers seem like sitting ducks to Silicon Valley whiz kids and their algorithms.

But as insuretech ventures, as they are collectively known, have raked in growing sums of investment over the past couple of years, a nondisruptive business model has emerged as a path to success in life insurance. Newcomers have their sights on big dollars, including $3 billion in new annualized premiums for term-life policies, according to industry-funded research firm Limra. Term life is a popular option that pays a specified amount if death occurs in a specified number of years.

“We’re not here to disrupt anybody, which is very un-Silicon Valley,” says Health IQ Chief Executive Munjal Shah. “We found that collaboration was the easier answer in this, and that was a bit antithetical to what a lot of other people were trying to do.”

The typical Silicon Valley approach to a stodgy business model is to make it as easy as possible for consumers to buy the newcomer’s product. But that is problematic with life insurers, as less-healthy Individuals could swarm to an insurer with the least-restrictive screening process, tanking profits.

To speed up the application process, data scientists have experimented with replacements for taking blood and urine samples. But insurers generally have found that higher premiums must be charged in the absence of such tests. Also, while most startups get instant feedback from app-store ratings, it could take years for alternatives to prove themselves.

“The challenge with life insurance that we found is, to prove out a hypothesis, it could take a decade of data,” says Max Chee, a technology investor at Aquiline Capital Partners, which invested in Health IQ in May.

Remora fish
Kweilin Ellingrud, head of the life-insurance practice at McKinsey & Co., likens the partnerships that have arisen between insuretech companies and life carriers to the symbiotic relationship between sharks and remora fish that eat harmful parasites on the sharks’ skin. “They help each other,” she says.

The industry seemed poised for a radical overhaul “given decades without much change in products or distribution and the pain of legacy IT systems,” she says. But venture investors and entrepreneurs who have looked at the life-insurance industry find that the capital requirements mandated by state regulators translate into lower returns on equity compared with the “hit-it-out-of-the-ballpark” expectations for other tech investments. Life insurers typically post modest 8% to 10% returns on equity.

That is where companies like Health IQ come in.

Health IQ has all the trappings of a prototypical tech startup, including venture funding from the likes of Andreessen Horowitz and an office in Mountain View, Calif., near Google’s headquarters.

Mr. Shah co-founded Health IQ in 2013 as a way to quantify a person’s health-consciousness. The founders raised money from investors without having a clue how an online quiz would generate revenue.

The startup developed about 3,000 questions that it believed correlated to a person’s health literacy. Rather than ask self-proclaimed yoga practitioners how often they practice, Health IQ asks if a person doing Bikram yoga was supposed to drink water during the start of a class.

Timed responses
To guard against potential cheating, it times applicants’ responses and detects whether they switch tabs on their browsers to search for an answer.

The answer to the yoga question: no. And the fruit vegans avoid: figs.


Health IQ uses questions like these to score applicants. The more informed a consumer is about healthy lifestyles, the more likely they’ll qualify for discounted life insurance.

A: How many different poses are there in Bikram yoga?

B: Which of the shoulder muscles is hardest to train for size?

C: Endurance runners often need more of this nutrient because of foot pounding, sweat, and gastrointestinal losses.

D: A cup of what can provide the same amount of calcium as milk?

E: What ingredient common in nutrition bars is a form of hidden sugar?

F: Soaking and sprouting breaks down the phytic acid found in outer hull of seeds. Less phytic acid means ____.

ANSWERS: A: 26; B: Rear delt; C: Iron; D: Cooked collard greens; E: Barley malt; F: More iron absorption

Eventually, after cross-checking the death rate of high scorers on the quiz using publicly available data like the Social Security Administration’s Death Master File with the death rate of the overall population, Mr. Shah realized he had accidentally created a one-of-a-kind mortality table: Those with high Health IQ scores correlated with lower risk of dying prematurely, he says.

Mr. Shah presented the correlations to big reinsurer Swiss Re, which certified the results and agreed to take on the risk of backstopping life-insurance policies underwritten by Health IQ.

“In a way, he got lucky,” says Aquiline Capital’s Mr. Chee. “He was able to take that data and find a really good use case for that in the underwriting and pricing for life insurance.”

Applicants have to verify their healthy lifestyle by doing things like giving Health IQ one-time access to their fitness-tracker results. They also need to submit to a physical and let a doctor draw bodily fluids to unlock the most savings.

“Many of them don’t mind doing the blood test because they view that it’s going to affirm where they are from a healthy-living perspective,” says Jim Morgan, CEO of Savings Bank Mutual Life Insurance Co. of Massachusetts, one of the carriers that Health IQ works with.

Another insuretech startup taking the partnership route is Policygenius Inc., whose co-founder and CEO, Jennifer Fitzgerald, says her team concluded early on that dislodging carriers wasn’t the way to go. Instead, the team saw there was room for a website like for consumers to learn about products, brands and prices to comparison-shop, she says. “The way to shop for life insurance was outdated,” Ms. Fitzgerald says.

When consumers buy policies on, they move onto the books of traditional insurers such as American International Group Inc., Lincoln Financial Group, Pacific Life Insurance Co. and Principal Financial Group Inc.

Change is rippling across much of the industry. At 114-year-old Lincoln, for instance, new automated procedures speed up issuance of policies for as much as $1 million in face value for people up to 60 years old, says Heather Milligan, senior vice president of underwriting and new business.

In-house startups
Some old-line insurers, meanwhile, are looking to create startups using in-house resources. Haven Life, a digital insurance agency owned by 168-year-old Massachusetts Mutual Life Insurance Co., uses algorithms that draw on old MassMutual data to assess the health risks of potential policyholders as they apply online. It also uses answers provided by the applicants, data pulled from prescription-drug databases, motor-vehicle records and other sources.

Yaron Ben-Zvi, Haven Life’s founder and CEO, says a benefit of linking with a well-established carrier is that there are huge amounts of data to be mined to develop algorithms for online issuance of policies. MassMutual developed the underwriting model used by Haven Life based on nearly 20 years of historical data and more than one million old applications, Mr. Ben-Zvi says.

“Disruption in the life-insurance industry is probably not the right word,” Mr. Ben-Zvi says of the rise of new companies and adapting of new technologies. “Maybe increased pace of change.”

Originally appeared on June 10, 2019