When Peter Colis was a student at Stanford Business School, his roommate Lingke Wang bought a life insurance policy thinking it would get him ahead in financial planning. Instead, he had practically been duped: the policy was something he didn’t need as a 22-year-old with no dependents and he had paid thousands of dollars only to get next-to-none out.
Lingke’s experience is a token of why life insurance has become so unpopular, even though having the right policy could be a saving grace for families during times of despair.
Determined to make life insurance easier to navigate, more transparent, and trustworthy, Peter and Lingke co-founded Ovid, a company that helped people unlock equity value out of predatory life insurance policies. What started as a dorm room startup led millions in revenue and an acquisition in 2016.
Shortly after Ovid was acquired, Peter and Lingke started their second act—envisioning a future where software could make insurance better and faster to obtain for families. That vision culminated in Ethos Life, which leverages machine learning to offer customers better life insurance policies—often within the same day of application. In the following six years, Ethos has become the largest term life insurance distributor by volume and raised over $400 million from the likes of Sequoia, Softbank, and Accel—valuing the company at over $2.7 billion.
I recently had the chance to chat with Peter, who leads Ethos as CEO. In our conversation, we start with his first exposure to life insurance and transition to the specifics of Ethos’s growth story: the software that helps the company create a differentiated user experience, its biggest challenges from pre-seed versus today, the biggest risks taken, and what the next few years look like for Ethos.
Steven Li: What got you looking deeper into the life insurance industry—and consequently starting Ethos and Ovid—was Lingke’s bad experience with life insurance in your college days, but I want to dive a little deeper into that. What did you find in your initial research that made you think “wow, this is something I have to work on” as opposed to building something else?
Peter Colis: We learned that five percent of kids lose a parent before they turn 15 years old, and despite the average life insurance carrier having an NPS of 4 (Ethos has an NPS of 86 for reference), ten million Americans buy individual, non-employer, life insurance every single year.
Of the many families who apply for life insurance each year, nearly 50% are denied coverage after enduring the 15-week purchase process, medical exams, and endless paper applications that come with traditional carriers. This was more than a longstanding problem, it was a fundamental issue impacting millions of people within an industry that wasn’t motivated to change because they were resting on laurels.
We knew if we could make life insurance affordable, trustworthy, instant, and accessible to all, we could change the trajectory for millions of families and benefit society immensely.
Read: Your first company, Ovid, also operated in the life insurance space—although on the buy side as opposed to issuing. What would you say are the most important learnings that you took away from co-founding and building Ovid with Lingke and how has that experience influenced how you run Ethos today?
Package: Many co-founders don’t work well together when the situation is dire, and most companies die from the inside rather than externalities. Having gone through all the twists and turns of a startup journey together at Ovid, Lingke and I still had the confidence and chemistry to want to start another company together,
One major learning for us was you cannot purely bring a product solution to a customer acquisition problem, or visa-versa. You need to excel at both. We also learned that when disrupting an industry that requires collaboration with incumbents, building an undifferentiated thin layer of product on top of the incumbent doesn’t give you the ability to innovate. You need to reach deep into the stack and build a vertically integrated end-to-end platform: enabling an order-of-magnitude higher opportunity for innovation and efficiency.
Read: What does building a life insurance company look like behind the scenes—going from zero to having a product that you can actually sell to a customer? For example, what relationships have you needed to build and what kind of datasets did you need to buy to train models critical to the underwriting process?
Package: We built a vertically-integrated distributor to sell policies, an underwriter to access and price risk, and an administrator for end-to-end management of insurance, compliance and customer process of life insurance.
Our underwriting engine utilizes 300,000 data points and 30,000 algorithmic rules in real-time to evaluate each applicant and get them the right policy at the right price. This is several orders-of-magnitude more data on each decision than a traditional underwriter can absorb.
Our engine makes hundreds of thousands of underwriting decisions each year, which an incumbent would require hundreds of manual underwriters for.
We partner with a number of insurance carriers and reinsurers to guarantee our policies. Initially, we relied on our partners for data model sets, but Ethos has since advanced the state of algorithmic underwriting far beyond anything previously contemplated in the industry, which translates to more value for our insurance carrier partners and ultimately our customers.
While most life insurers function on the same 1980s technology, Ethos built all core systems from scratch. Being 100% digital and automated allowed us to strip an immense amount of cost out of the life insurance transaction, and put that back into better prices for consumers and growth for Ethos.
Read: Six years later, Ethos is a different company with hundreds of employees. But what did those first days look like when you could fit everyone at the company into a small room?
Package: We had to make 1+ year product, regulatory, and partnership bets before even selling a policy and getting market feedback. Six of us cranked day and night in an apartment, eating microwavable dumplings and drinking too much coffee, to launch in-market as quickly as we could.
In the midst of initial product development, we needed capital and went to fundraise. Literally, 39 of the 40 seed investors we pitched turned us down. The 40th investor, Sequoia Capital, invested enough to help us launch and iterate from there.
Read: Aside from that initial fundraising challenge to get the company off the ground, what is the biggest barrier to Ethos’s success and how is the company navigating it?
Package: The industry proverb is “life insurance is sold, not bought,” which has traditionally led to zero direct-to-consumer strategies from incumbents. If we could make the purchase process delightful, I knew we could change this narrative to life insurance should be bought instead of aggressively sold.
To build the delightful customer experience we have at Ethos, it took years of reinventing the entire stack end-to-end and iterating on every part of the process to drive a wedge between Ethos and everyone else to provide a differentiated value to customers.
Read: What is the biggest risk that you have taken as CEO of Ethos, when did this happen, and how did it pan out?
Package: We started as purely a distributor but needed to decide if we were going to be a surface-level marketing and sales company or invest heavily in R&D to become the most advanced algorithmic underwriters in insurance and build an engineering and data science company with an end- to-end technology platform.
It would have been easy to stay in the former surface-level model because we were growing quickly and nailing all our metrics, but we decided to cross the chasm and become a deep engineering and data science company. Ultimately, it proved to be the right decision, but the path was laden with obstacles to overcome.
Read: Can you share three strategies that were pivotal to Ethos’s growth and what the results were?
Package: Obsessing over the customer experience, vertically integrating to control the end-to-end experience, and building a virtuous data cycle so the business improves the more data we absorb – has transformed our economics, scalability and product differentiation.
Read: How has your role as CEO changed as Ethos recruited more team members and what can other CEOs learn from your experience?
Package: As the company started hyperscaling in the early stages, my role was changing every quarter and I wore many hats – recruiter, product leader, deal-maker, and marketer. As the company continued to grow and we reached several hundred employees, the most important thing has been to surround myself with the best leaders, develop a strong culture and a clear vision of where we’re going, remove roadblocks to execute, and remind everyone to move faster than we’re comfortable with.
Read: What will Ethos be focused on in the next five years and what does the road to profitability look like?
Package: Today, Ethos does nine-figure gross profit – and while profitability is the long-term goal, we’re investing heavily for the future. What we’re doing is very complex and there’s execution risk involved.
We’re growing rapidly, expanding new product categories, like estate planning, and launching new business models like enabling industry agents with our products. But it remains that the problem we solve is truly a problem – protecting the next million families who are currently unprotected, and our solution is truly the right solution – enabling them to protect their families in a fast, affordable and transparent manner.