‘Insure-TECH’ or ‘INSURE-Tech’?

Examining the startup journey to a ‘full-stack’ insurance company Paul Fedchak and Mike Cremisi

Photo: iStock.com/Umnat Seebuaphan

The life insurance industry certainly has seen an increase in technologically savvy InsurTech companies joining its ranks. But are these InsurTech companies too focused on the “tech” part of their names? After all, the point of sale is just the beginning—once a policy is placed, a whole world of administration, regulatory compliance and financial reporting consume significant resources at insurance companies.

Can these new entities move toward becoming fully operational, “full-stack” InsurTech companies with an emphasis on “insurance?” This article summarizes life insurance company functional areas that have been most affected by InsurTech before turning to the other core competencies startups generally address when going from “insure-TECH” to “INSURE-tech.”

Branding, Marketing and Sales

Life insurers historically have relied on conventional in-person distribution models to sell products and a lengthy product-placement process once the consumer is interested. A 2022 Life Insurance and Market Research Association (LIMRA) survey of brokerage general agencies (BGAs) and independent marketing organizations (IMOs) revealed that the “aging and shrinking agent/adviser population remains the biggest problem”1 that distributors project for the next three years. Additionally, traditional distributors indicated the difficulty of replacing aging staff with new employees who possess the same skill sets as another key problem. This distributor demographic challenge opens a door for InsurTechs to walk right through. Among other innovations, InsurTech-developed technology enables insurers to address this challenge and potentially increase returns by either removing the agent in the middle of the sales process to reach the consumer more directly or, at the very least, drastically changing the way the company engages with the buyer.

Additionally, InsurTechs are further developing the front-end consumer experience in the life insurance industry, which is often perceived as lagging behind other tech-forward industries.2 They are creating digital, direct-to-consumer infrastructures to bypass expensive acquisition costs, such as paying heaped commissions and requiring a surfeit of medical tests for underwriting. These acquisition costs historically have created high financial strain for insurers and, therefore, a barrier to accessibility and affordability for consumers. The systematic approach InsurTechs have implemented to lower capital strain and widen the future sales funnel could lead to more opportunity, albeit at the risk of leaving behind the tried-and-true sales model.

However, the front-end consumer experience is just the tip of the iceberg. There has been recent buzz surrounding sales-focused InsurTechs wanting to expand and morph into full-stack insurance companies. Doing so could allow these companies to have more control over their product offerings and provide opportunities for higher long-term earnings potential by participating fully in the insurance risk and reward cycle. According to industry updates published in Life Annuity Specialist, there are recent market examples of InsurTechs acquiring previous insurance companies in runoff that allow them to write business directly in numerous states.3 Some market analysts theorize that InsurTechs that acquire existing insurance companies “can reap more in premiums and investment income writing their own policies than they can earning commissions on sales of products from carriers.”4 But are these technology companies rushing too fast into the insurance space and focusing only on the front-end, consumer-focused challenges?

The work has just begun, assuming a technology company can completely solve the application, underwriting, agent commission and sales and marketing riddles. But a pure technology company focused solely on the consumer experience may overlook the following mandatory aspects of any insurance company that cannot be automated as easily:

  • Legal and compliance
  • Underwriting
  • Actuarial
  • Investments
  • Operations
  • Accounting

These functions may present considerable barriers in operations and expertise for an insure-TECH trying to become an INSURE-tech. Many emerging InsurTechs begin as managing general agents (MGAs) and work collaboratively with insurance companies rather than offering their own insurance products. For incumbent carriers in the industry, the ability to optimize these functions may present considerable opportunity and competitive advantage. Conversely, failing in any of these areas has the potential to ruin an otherwise innovative and transformative new business model. Let’s look at each mandatory aspect more closely.

Legal and Compliance

Many startups have recognized that legal and compliance issues may create hurdles to becoming a full-stack insurer. Still, they also may see the appeal of being able to issue, design and differentiate with their own products written on their own life insurance company paper.

However, before a new insurance product can be issued, it must be filed and approved in every state where the policy will be sold. Different states have unique requirements that must be addressed before this can happen. State objections to initial filings, in which regulators request further information before giving product approval, are typical. Not fully understanding nuanced regulatory guidelines may lead to significant back and forth between the regulator and carrier, causing delays. This may drastically slow down or sometimes prevent a product launch, which can be particularly costly for companies still awaiting their first revenue stream.

In particular, technology-focused companies may find that regulators are interested in new machine-learning algorithms and models and their impact on the consumer. Some states have adopted or introduced legislation to ensure such models’ fairness. For instance, the New York Department of Financial Services explicitly stated, “An insurer should not use an external data source, algorithm or predictive model for underwriting or rating purposes unless the insurer can establish that the data source does not use and is not based in any way on … any protected class.”5 Protected classes include race, color, creed, national origin, status as a victim of domestic violence, past lawful travel or sexual orientation in any manner. The impact of these differing individual state perspectives can be mitigated with appropriate planning and expertise.

Here are a few regulatory hurdles to consider:

  • State filings—all life insurance products must be filed and approved in the states where they are sold.
  • Market conduct exams—regulators ensure that agents and marketing materials comply with applicable insurance law.
  • Department of insurance complaints—consumers can report unsatisfactory experiences to state insurance departments.
  • Being able to demonstrate fairness and equity in data-driven decision-making models—for example, is a credit score an acceptable data point to use in class placement, or could it be viewed as discriminatory?


Underwriting has been a popular target of InsurTechs for a variety of reasons. The traditional underwriting process can be cumbersome, involving detailed and time-consuming medical and lifestyle questionnaires or applications, lab visits that require the customer to provide blood and urine samples and potential follow-up appointments for further medical tests.

Historically, this process has resulted in significant time passing between initial contact with the customer and the issuance of a policy. In a LIMRA study of the life insurance purchase funnel, 25% of U.S. households entered the purchase process over 24 months, but only 7% went on to purchase a policy.6 That conversion rate of less than 30% is a massive opportunity for the industry to meet market needs by improving the overall process. Rightly so, InsurTechs and incumbent life insurers, in our experience, tend to focus on making the process smoother and more expedient. Bestow, for instance, advertises on its website that it uses “data to remove doctor visits and paperwork of traditional life insurance, offering you an affordable plan without the hassle.”7 Meanwhile, Ethos promises a “no medical exam” process with a 100%-online application.8

But the question for like-minded InsurTechs is, at what cost? In a sense, underwriting is the life insurance product. Without underwriting, a company is simply risk-pooling from an unknown population, and potential policyholder anti-selection risks may sink the product. The availability of big data allows some insurers to forfeit the historically coveted lab analysis and instead instantaneously assign an underwriting class, sometimes with little negative impact on the overall mortality level. The annual probability of death is small by nature—a low percentage of the general population dies in any given year. However, in our opinion, underwriting expertise must be considered heavily to determine just how small the probability of death can be safely assumed. While actual mortality may differ from what is expected by a very small absolute amount, that can easily translate to a large percentage difference of actual death claims paid out, causing future embedded value erosion for that book of business.


Actuaries serve several important functions for life insurance companies, both during the initial period when a company is trying to get a product to the market and all the way through the long duration of the life insurance contract. Functional areas that require actuarial expertise include the following:

  • Pricing and product development—defining the product specifications and determining profitability at a given price
  • Risk management—measuring potential long-term outcomes under a variety of scenarios and taking steps to protect the company from the impact where feasible
  • Experience studies and assumption setting—monitoring mortality and lapse, among other items, for consistency with pricing assumptions
  • Corporate modeling and financial projections—understanding expected company earnings potential
  • Capital and liability valuation calculations—using capital efficiently for optimal returns

Compared to property and casualty and health insurance, life insurance products are inherently long-term contracts with considerable balance sheet and capital obligations that require careful contemplation by actuaries before significant resources can be dedicated to development. Actuaries also play a critical role in experience studies and assumption setting to ensure their financial projections accurately reflect the best available data. This allows company management to understand actual financial performance relative to accurate expectations, allowing for more confidence in projections of future financials.

Actuaries also provide necessary corporate modeling and financial projection functions, which, when combined with expert assumption setting, help ensure appropriate pricing of a product and strong risk management to protect long-term earnings potential. In our opinion, these functions are essential to a company’s success in managing and optimizing capital, which are important aspects of meeting stakeholder return expectations in the long run.

In all, actuaries help to protect the financial strength of the insurance company from its inception through maturity. Building all the requisite actuarial expertise from scratch can be difficult.


Statutory regulations require extensive reserves and capital and receive rating feedback, which, in our experience, frequently leads life insurance companies to purchase a large number of fixed-income assets, such as investment-grade bonds, to support these requirements. These assets typically have investment-grade quality restrictions that balance yield potential with the need to protect company solvency and liquidity requirements. They are matched creatively with the expected duration of future liabilities to mitigate interest-rate risk, provide necessary liquidity and ensure company solvency. Additionally, in our experience, it is common for certain life insurance products to participate in market performance via either a separate account or an embedded derivative to offer accumulation upside to the policyholder. Such products generally involve complicated hedging programs to mitigate risk and produce a smoother earnings pattern for the company.

All these activities require substantial investment expertise to develop appropriate products and manage investment risks. The following are the necessary and time-consuming activities that require access to considerable investment and insurance expertise:

  • Asset trading and transaction execution
  • Strategic asset allocation
  • Asset-liability management
  • Hedging and financial risk management

Operations—Policyholder Services, Claims and Administrative Systems

In many ways, life insurance companies are different from businesses in other industries. For example, many companies outside the life insurance industry typically have limited or short-term interactions with their customers. On the other hand, life insurance policyholders potentially will interact with an insurer for years after their policy is issued.

Life insurance companies rely heavily on information technology (IT) to administer the wide variety of life insurance products sold over the course of many decades. In many cases, products have become complicated so that companies stand out in the marketplace, introducing the additional challenges of administering and communicating these complicated features to the customer. Technology also can drive the many interactions the company can expect with its policyholders over the years.

Insurers typically have large IT teams responsible for coding and tracking every specification for every policy. In the United States, products with nonguaranteed elements likely are subject to the National Association of Insurance Commissioners (NAIC) model illustration regulations, which govern the communication of the policy features to the consumer through illustrations. The new rate and new product specification handoff between the actuarial team and the IT team responsible for maintaining such illustrations can often be laborious. Tracking the specific benefit amount—whether it is cash value, death benefit or bonus credit amount owed—to each of potentially thousands of policyholders is no easy task.


Insurance companies must file highly detailed information regarding their financials with regulatory authorities each year. But unlike most publicly traded companies, accounting using generally accepted accounting principles (GAAP) is one of many required reporting bases. A state-prescribed statutory accounting framework also focuses on solvency that needs to be analyzed. In addition, the following complications must be considered:

  • Life insurance companies are extremely capital- and balance-sheet-intensive due to the long-term nature of insurance contracts.
  • Insurance liability calculations are highly complex and bespoke to the underlying contract.
  • Startups must address key functional areas, including general accounting, annual statement preparation and internal and external audits.


For technology companies that have capital from outside investors and want to enter the life insurance space, a critical decision for the future likely has been or will be whether expanding capabilities and becoming a full-stack insurer is realistic. In the last few years, InsurTechs have made leaps and bounds in both the customer acquisition and engagement spaces, but those are just small pieces of the total insurance value chain.

As discussed, an insurance company has multiple complex layers that need to be appreciated and fully understood. Finding strong partnerships is critical to bringing the appropriate expertise to each task. For incumbent insurance companies, providing this expertise could be a means to leverage new insure-TECH with their existing insurance company expertise. However, ambitious innovators may find that paving their own path to become an INSURE-tech has the biggest long-term upside. Regardless of the path, new entrants to the industry will want to understand all the operational areas of an insurance company to ensure that savvy sales processes ultimately do not lead to undue financial risk.

Paul Fedchak, FSA, MAAA, is a principal and consulting actuary for Milliman based in Indianapolis.
Mike Cremisi, FSA, MAAA, is an actuary for Milliman based in Indianapolis.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2022 by the Society of Actuaries, Chicago, Illinois.