More Venture Capitalists Now Looking at New Companies that Want to Displace the Insurance Agent, Rather than the Loan Officer

Peter Rudegeair reported this week at The Wall Street Journal Online that, “An early investor in the online-lending boom has turned its sights to life insurance.

Ladder Financial Inc., a Silicon Valley startup that offers term-life-insurance policies for California residents, said Wednesday it raised $14 million in a new fundraising round led by Canaan Partners. The venture-capital firm was one of the first outside investors in LendingClub Corp., a pioneer in financial technology.

Insurance is becoming a fashionable bet. Competition in online lending has become more intense, and investors have become more skeptical of loan quality. More venture capitalists now are looking at new companies that want to displace the insurance agent, rather than the loan officer.”

The Journal article noted that, “U.S.-based startups in the insurance sector attracted $856 million in venture-capital investment over the first nine months of the year, 84% more than in the same period in 2015, according to preliminary data from Dow Jones VentureSource that includes auto, health and life-insurance players. Lending startups, meanwhile, took in $651 million in venture-capital investment, a 73% decline from 2015.”

Mr. Rudegeair added that, “Although the industry is massive—U.S. life-insurance premiums totaled $777.5 billion in 2015, according to the National Association of Insurance Commissioners—the amount of money regulators require that insurers keep in reserve has scared off many venture capitalists.

To get around this obstacle, Ladder entered into a partnership with Kansas City-based Fidelity Security Life Insurance Co., in which it would serve as a “managing general agent” for the insurer. Managing general agents are empowered by insurers to sign up customers and, in some cases, underwrite new policies, but they aren’t regulated as insurers themselves.”

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