An entrepreneur sheds light on less-discussed issues faced by new startups in the space, including digital customer acquisition, regulatory requirements, and the adverse selection problem.

The following is a guest post authored by Krishna Kaliannan (@kkal24), founder of Thrive Responsible Insurance. Views are his own.

A number of investors have written great posts detailing various “opportunity patterns” in the insurance industry.

While these act as great starting points, they don’t dive too deep into some of the more practical and operational issues one faces when starting a new company in the space.

I’m writing this from the point of view of an entrepreneur working in the industry to shed some light on lesser known insurance topics, which I think are very important for both entrepreneurs and investors to consider.

Before I begin, here are a handful of great posts exploring general opportunities in the industry you should read first if you haven’t already.

1. Managing General Agent/Underwriter Appointments

Getting an MGA appointment is harder than you probably think it is. Many carriers are trying to actively cut the number of agents they have, not expand that set. And few are actively looking to spend time gambling on a startup.

As a starting point, you could look through which carriers currently have the largest number of MGA appointments:


But going down this list and simply cold emailing someone at each one of these carriers is not a good strategy. Instead, here are a few questions to think through which will help you get an appointment:

  • Generally speaking, which carriers are most likely a good fit for my opportunity? (hint: certain carriers have a reputation for being more risk averse and others for being risk seeking — you want to approach the ones more willing to take on new risks)
  • Does the carrier I’m approaching have any other distribution channels in my space? (hint: if they do, its not likely you’ll get an appointment unless you can guarantee there won’t be any competition)
  • Who should I approach at an insurance carrier? (hint: you need to work hard to find someone at a carrier who believes in you and your mission)

Takeaway: if you are trying to get an MGA appointment, think through the three questions above.

2. Hidden Issues With Digital Customer Acquisition

Your competitors are not necessarily following the law but, as a digital player, it will be much more transparent if you break it.

As you should know, it is illegal for real estate agents to earn commissions off the placement of title insurance and homeowners insurance. But a significant portion of real estate agents earn commissions on referrals anyways. Some real estate agencies have even set up reinsurance vehicles to earn commissions from title insurance sales by disguising the referral fees as reinsurance transactions.

Takeaway: Think you are going to partner with Zillow and start selling tons of homeowners insurance? Be careful. The real estate agent controls the relationship with the consumer, not your web app. And many aren’t following the law.

3. Agents Have Their Place

Are you going direct to consumer via PPC/SEO because that’s what Silicon Valley entrepreneurs do, or because you’ve really thought it through?

One downside of web apps is that they are typically 10–100x worse than agents at cross-selling other products.

If you are targeting the high end of the market, starting with an established agent network can make a lot of sense.

Takeaway: Web apps lose to agents at making cross-sells.

4. Adverse Selection & Fraud

This is worth thinking about if you are a pure-play customer acquisition player or you are underwriting business yourself.

Adverse selection is the tendency for poor risks to seek out insurance at a higher rate than good risks, leaving the insurer with a population of mostly poor risks not representative of the average person.

Adverse selection could also come in fraud form: the tendency for your combination of product and acquisition strategy to result in a disproportionate number of fraudsters relative to other carriers.

This is highly relevant in health insurance right now — players in the space are realizing that applicants coming from the health exchanges generally file more claims of higher payout than the average risk. As a result, many health insurers are withdrawing from the exchanges.

Takeaway: You may have a great customer acquisition strategy, but that is not enough. It is important to make sure you understand how that acquisition strategy will effect your portfolio of risks.

5. Ethics

Not everyone needs insurance and it is important to recognize that. As I explain further in this post, insurance is very beneficial when protecting against catastrophic risks, but is of dubious benefit when protecting against low-value risks.

Takeaway: Make sure you are selling an insurance product to people who need it, rather than using fear-mongering to create demand for a product insuring against a risk people can easily afford to self-insure.

6. Competitive Barriers to Entry

If you are trying to launch a new insurance product, you should think through competitive barriers to entry in detail. An insurance product is essentially a legal document with an underwriting methodology behind it. The policy is public and the underwriting methodology can be copied via examining filings.

So, unlike technology products, insurance products are exceedingly easy to copy. And they are copied all the time. Carriers have gotten quite good at this and if you see any meaningful traction, carriers will copy your product too if they can.

Takeaway: A plan for creating competitive barriers to entry is a must. Carriers will copy your product quickly if they are able to.

7. Regulatory Requirements

Respect regulators.

Example #1: Turo (formerly RelayRides) — banned from the state of New York for engaging in illegal insurance transactions.

Example #2: Zenefits CEO resigns amid controversy over unlicensed employees discussing insurance transactions with customers.

Example #3: Leaky forced to shut down car insurance comparison service after hit with multiple cease and desist orders over scraping insurance company websites.

Takeaway: Other players like Uber and Airbnb have largely succeeded (at least thus far) in operating without adherence to regulation. On the other hand, the insurance industry has a lot of money, a lot of power, and takes regulation very seriously. If you are doing anything new, unusual or possibly controversial, working with regulators up front is a smart move.

8. Founder Requirements

It is worth noting that all aspects of the insurance business can be outsourced. There are dozens of firms serving the insurance industry each specializing in one or more of the following verticals: claims, regulatory filings, customer acquisition (i.e. agents), investment management, accounting, ongoing compliance and actuarial analysis.

Takeaway: For simple lines of insurance, you don’t necessarily need someone on your founding team with insurance industry experience as you can rely heavily on outsourced help instead.

Image credit: Got Credit


krishna_headshotKrishna Kaliannan is the founder of Thrive Responsible Insurance, an insurance company using technology to improve the affordability of insurance products for low-income individuals. Previously, he started a software firm focused on helping companies use referral recruiting more effectively. Krishna started his career as a quantitative researcher at AQR Capital Management, where he focused on algorithmic trading strategy development in commodities and portfolio management research for AQR’s risk parity products.

Krishna received an MSE and BSE in Systems Engineering and Mathematics from the University of Pennsylvania, and a BS in Economics from the Wharton School of Business, Summa Cum Laude.

  • Kevin Curry

    After two years at it, I can affirm nearly every one of these points. I’m sure my colleagues can speak for the rest. Thanks for writing this.

  • Greg Morris

    Agree 1oo% and I would add a few things to this list. Very well said Krishna.