Life Insurance
Upstarts Dayforward and Bestow Seek to Shake Up the Traditional Life Insurance Sector

• Terrence Dopp
• February 2021
• 

Key Points

• The Plan: Two new companies seeking to break into the life market are betting on consumers’ appetites for simpler and more-flexible products.
• Dayforward: The company is now licensed to operate in Texas and hopes to become a national brand in 2021.
• Bestow: The Texas-based company is awaiting regulatory approval of its purchase of Centurion Life Insurance Co., which would expand Bestow’s geographic footprint and scale.

Aaron Shapiro doesn't remember exactly when he purchased his first life insurance policy, or the company that wrote it.

He's betting he's not the only one in that boat. In fact, the very idea of that lack of memory being a shared experience is at the heart of his plans for success. Shapiro is founder of Dayforward, a life insurance startup set to begin operations in Texas during the first quarter, with plans to ultimately go nationwide. Along the way, he's hoping the company becomes instantly recognizable as it offers its customers a seamless process for buying and managing coverage.

Dayforward, along with Texas-based Bestow, is looking to break into the ranks of national life insurers in the same vein as insurtechs—new companies that take a more technology-centered tack to transform the wider insurance industry. While their paths may diverge, both companies are relying on the idea that there is market space for a company that responds to changing economic patterns and offers a more relatable option to customers.

“Most of the incumbent companies are so dependent on existing broker or agent channels that they're very limited on innovation,” he said. “That's forced all the products to be commoditized, and it's forced all the brands to be relegated to the background because they're not really building brands or marketing. They're just spending money on commissions for brokers and agents.”

Shapiro's not new to the startup game.

In 2005, before jumping into the insurance world, he founded Huge, a consultancy that would swell to 1,500 people. Going back even further, he was founder and chief executive of Silverpop, a marketing software firm sold to IBM. In 2018 after leaving Huge, where he was first exposed to the insurance industry through its client roster, he identified shortcomings in the traditional life sector, he said.

Cloudy Year

When the pandemic shuttered businesses in the first half of 2020, exacerbating economic uncertainty, a technological arms race heated up as social distancing rendered tried-and-true business practices impossible.

And the big guns proved to be flexible.

Prudential Financial Inc., based in Newark, New Jersey, expanded its digital presence with fluidless underwriting, expanding products like its SimplyTerm life offering. MetLife Inc. also found growing its existing digital effort to be the quickest and safest option. It expanded a pilot program with accelerated underwriting and migrated the application process for one of its life products in China onto social media platforms in two weeks.

Across the industry were many examples of incumbents stepping up the pace of their digital expansions to grow business at a time when the old models were no longer feasible.

For the first nine months of 2020, an increase in direct-to-consumer sales drove a 2% growth in new annualized premium and a 7% increase in new policies, according to LIMRA's Third-Quarter 2020 U.S. Individual Life Insurance Sales Survey.

During that same time, Shapiro was quietly launching Dayforward, undergoing a successful nine-month process of securing regulatory approval in Texas and meeting with insurance commissioners in at least eight states, he said. (He won't say which ones are in the pipeline.) He's also quick to point out other company moves, such as cobbling together a workforce, negotiating a reinsurance deal with Munich Reinsurance Co. and developing a direct-to-consumer life insurance platform unique to Dayforward.

While Shapiro plays some product details close to the vest, he did say that Dayforward will offer consumers a path to policies that is much shorter and faster than any others to this point. The plan is for customers to complete an online questionnaire and consent to privately release third-party data such as medical records—then, underwriting algorithms would work their magic.

Within minutes, customers would use a credit card to secure a fully bound and issued policy. In the rare cases in which the company can't use third-party data, an applicant would get a proprietary at-home test kit in which they perform a cheek swab and finger prick to provide fluid samples—all done under the watchful eye of a nurse practitioner on the other end of a Zoom chat.

“This is an enormous industry. There's $150 billion a year in premiums; it's larger than homeowners insurance,” Shapiro said. “So we can take the relatively small segments of the space and still build a massively successful multibillion- dollar stand-alone IPO company.”

Life insurance marketing is often dominated by carriers such as Massachusetts Mutual Life Insurance Co., New York Life and the aforementioned Prudential and MetLife. But, Shapiro said, customers' desires for a wholly digital and seamless life insurance experience, coupled with the technological ability to realize it, makes the timing right for a new challenger.

As the COVID-19 pandemic spread in early 2020, AM Best in March revised to Negative its outlook on the U.S. life and annuity sector, citing the potential for economic damages as greater than the risk of excess mortality associated with the disease. That determination was upheld in a December report that cited the sharp drop in interest rates as a prime source of pressure for the industry.

Typically, technology-focused startups enter the insurance world via lines such as health and property/casualty. Unlike life and annuities, where policies can remain in force for decades, those lines feature constant churn, and policies typically reset every year.

Yet the emerging presence of insurtechs in all markets can be seen in the rise of managing general agency and property/casualty carrier Hippo Enterprises, which recently acquired Spinnaker Insurance Co. to become, like Dayforward plans, both a standard MGA and a risk-assuming carrier.

Think of Root Inc. or Lemonade Inc., two insurtechs with successful public offerings in other parts of the insurance world. In Root's case, the auto-focused carrier in December said it has more than $1.2 billion in new capital after completing an IPO and concurrent private placement in October. Lemonade also has expanded its operations to France.

In fact, in the third quarter of 2020 insurtechs around the world raised $2.5 billion across 104 deals, a 63% increase in funding over the previous quarter and a 41% increase in the number of deals taking place, according to global brokerage Willis Towers Watson in a third-quarter review of the industry. The same low interest rates bedeviling the industry, along with the availability of capital, have contributed to a lively environment for startups.

But in life insurance, the companies looking to muscle in have primarily focused on entering the market as managing general agencies or have focused on addressing one step in the value chain. Shapiro points to Root and Lemonade as guideposts of what's possible for a startup with a strong product and determination.

“Those companies went through the effort of becoming their own carrier and as a result were able to innovate across the entire stack,” Shapiro said. “So that's the approach we're taking for life, and we're the first company to do this.”

Weeks to Moments

Dayforward isn't alone in thinking there's room at the life insurance inn.

Bestow, which is currently licensed to sell policies in its home state, bills itself as the first all-digital life insurance platform that will make life insurance accessible to millions of people who are currently uncovered. At the core of its model is a more streamlined approach that will shift the traditional weeks-long process into minutes spent online.

In December, Bestow announced plans to acquire Iowa-based Centurion Life Insurance Co. from Wells Fargo. Centurion is approved to operate in 47 states plus Washington, D.C., meaning the acquisition would give Bestow instant access to geographic scale as it moves from being an agency that sells policies issued by North American Company for Life and Health Insurance. As of press time Centurion is not rated by AM Best.

Melbourne O'Banion, Bestow's co-founder and chief executive officer, said in an email that his company is hoping to get approval from Iowa regulators to move ahead with the transaction in the first quarter.

“Since the start, we've known that becoming a carrier would be a necessary part of our strategy to scale life insurance to millions of underserved families,” he said. “We've already taken the necessary steps to develop the first full-stack platform for selling life insurance.”

O'Banion launched the company three years ago with the proposition that its entirely digital platform would be the first of its kind in life insurance. Applying for a policy through Bestow can take as little as five minutes, compared to as many as 12 weeks with traditional carriers, and it doesn't require a medical exam. Following the close of the deal, the company plans to continue selling North American policies to keep its sales base as broad as possible.

“While the adoption of technology has transformed many financial services, the life insurance industry lags far behind in its ability to appeal to a digital consumer,” he said. “We're seeing this play out as more people put their money in challenger banks or invest using a robo-adviser like Stash or Betterment. Busy families want the same capabilities when they are shopping for life insurance.”

He said the company is taking an “omnichannel approach” that will allow Bestow to easily integrate with any channel or partner, in addition to a direct-to-consumer focus. In 2020, he said, company sales grew by 450% year over year, fueled by scaling and new partnerships with fintech firms and partner agencies. For 2021, he said, the company has “exciting” pacts and new products it will be announcing.

Prior to the acquisition, Bestow served as an MGA that operated in 49 states with the exceptions of New York and the District of Columbia. In February 2020 it completed a $50 million financing round led by Valar Ventures, with participation from current investors including NEA, Morpheus Ventures, and Core Innovation Capital, and new investors such as Sammons Financial.

Dayforward's Shapiro said there's a “really big opportunity” to expand financial security for U.S. families by providing them a more modern experience. The goal, he said, is offering products people understand, streamlining underwriting and employing a digital-first strategy. In other words, following a pattern consumers have come to expect over years of buying everything else online.

“Our business model is a little unique in that we decided to become a full-stack carrier where we're the ones issuing the policy and taking on the risk,” Shapiro said. “By doing that, we really can provide a full end-to-end experience for customers.”