Ethos - Disrupting Traditional Distributor

Ethos, the Silicon Valley start-up taking on America’s life insurance industry, just snagged $60 million in funding.

The San Francisco-based company announced on Wednesday that it raised the fresh funds in a Series C round led by GV, Alphabet's venture arm, and backed by Goldman Sachs. Existing investors Sequoia Capital and Accel also invested; Ethos also counts Jay Z, Will Smith and Robert Downey Jr as backers.

Ethos offers term insurance, which pays out benefits if the claimant dies within a length of time that typically ranges from 10 to 30 years. The company uses data analytics to predict a person’s life expectancy, and claims the vast majority of its customers don’t have to take a medical test to be eligible for coverage.

The firm is now valued at nearly $500 million, its co-founder and CEO Peter Colis told CNBC in an interview, up from a more-than $100 million valuation it reached after a funding round announced in October last year. The company has also quadrupled its revenues since then, and increased its staff headcount from 30 people to about 90. The new funding brings Ethos’ total raised to more than $100 million.

“There is a massive under-penetration of life insurance,” Colis said. “The families that are financially vulnerable are the ones who need it most. Ethos is able to democratize that system and open access to everyone. I think all these investors resonated by seeing there’s a real opportunity to make an impact.”

Ethos’ star-studded investor mix may come as a surprise to some, being an insurance company. But Roelof Botha, partner at Ethos investor Sequoia, said it helps the company’s image. 

“The insurance industry is viewed by most as a bit stodgy, stiff, inaccessible and it affects your ability to distribute life insurance because people are so fearful,” Botha told CNBC, adding that celebrity backing helps to “break down” the barriers and fears involved in buying insurance.

‘Opportunistic rather than necessary’

Ethos is a loss-making company, but its chief said it is becoming more profitable on each customer it signs up. Investors have proved to be concerned by the lack of profitability from companies like Uber and Lyft that listed on the public markets and saw their shares battered. WeWork, which is soon set to launch a stock market float, racked up a $900 million loss in the first half of 2019.

“We’re very different from Uber and WeWork,” Colis said. “We still have the majority of capital raised from last round fundraising. This round was opportunistic rather than necessary. It was just based on our fast growth and desire to move even quicker in disrupting the life insurance industry and protecting families.”

The upstart is targeting a staid market which has so far been dominated by insurance giants like Prudential and Northwestern Mutual. Colis said the problem with applying for life insurance currently is that it’s like getting “medically and financially strip searched.” People often have to go through brokers, submit copious paperwork and take medical exams, he said, adding that many of Ethos’ customers apply using their phone.

Ethos says it takes under 10 minutes to apply for a policy rather than the “weeks” it normally takes to get coverage. But as Ethos can’t handle all of the legwork involved in selling insurance, it’s partnered with life insurers including Assurity and Banner Life as well as reinsurers Munich Re and RGA to help bridge any gaps.

Ethos will use the fresh cash to invest in its technology and hire more people — engineers in particular. Colis explained the firm has been building out its platform to include a so-called “right sizer” tool that uses machine learning to determine a person’s coverage. About half of its customers who use that tool pay smaller monthly premiums as a result, Ethos claims.