What Eight Insurance Startups Learned the Hard Way

Bryan Falchuk wrote his first book, The Future of Insurance, about the incumbents facing disruption. For the sequel, published in June 2021, he turned to the other side of the table: the startups doing the disrupting. The book is now Volume 2, subtitled around disruption, evolution and startups, and the original has been renamed Volume 1 so the two sit together as a pair.

This time the research was entirely first-hand. Beginning in December 2020, Bryan interviewed the people who lived each story, usually the founders, rather than summing up press releases. Eight companies made the final book (a ninth did not, and he can’t share its story). Some are full carriers and some are MGAs, a nuance he stays honest about in the text. In this episode, recorded a couple of weeks before launch, he and Gilad pulled out the lessons that cut across them.

About Bryan Falchuk

Bryan Falchuk is the author of The Future of Insurance series and a longtime P&C insurance executive who spent roughly a decade working for a British insurer before turning to writing full time.

Clover: Why a Health Insurer Is the Right One to Change Outcomes

Clover Health had just become a meme stock when this was recorded, and Bryan was careful to set that aside and talk about the idea. He admitted a P&C bias: for most people, health insurance is where the industry earns its bad reputation, because it is the insurance they actually use. The experience is a bill, a different explanation each time for why something isn’t covered, and the sense that coverage mostly exists to get a negotiated rate. The US spends the most on healthcare in the world while ranking far down the list on outcomes.

Clover’s premise, as told through its CTO, Andrew Toy, was that the payer is the one party that sees everything. A doctor sees only what is in their own system, but the insurer is billed for all of it. Clover built the Clover Assistant, which uses AI to review a Medicare patient’s full picture and flag things the primary care physician might miss, such as testing a diabetic patient’s kidney function before they are headed for dialysis. That can mean spending more now to avoid a far larger cost later.

Bryan drew a sharp contrast with traditional carriers. During the pandemic, people skipped care, and many health insurers saw their medical loss ratios improve. Clover saw the same drop as a problem, because delayed care festers. It also meant the model was expensive and unprofitable for years, without the cost-control levers incumbents use, until the data was deep enough for the AI to work. That takes investors willing to sit through hundreds of millions of dollars of burn on shared conviction.

Three Takeaways Across All the Cases

Bryan, an ex-consultant, organized the book around three themes: diversify the skills and thinking on your team, make your capital strategic, and build a real advantage rather than just being new.

Compliance as a Strategic Advantage

At most carriers, compliance is the last stop on the train, the group that says no. Several of these startups embraced it from day one, and it became a speed advantage. Bryan pointed to Jim Albert of Neptune Flood (the guest on the previous episode), whose investor, a former regional bank founder, insisted compliance be built in from the start even though Jim had it on his roadmap for later. The payoff is that Neptune designed its filings, rating and systems to be compliant, so it can release new rating changes in single-digit days, something Bryan doesn’t know many carriers can match. Had it hired compliance later, it would have had to rework months of product, and a startup does not have that runway.

Thimble, which sells episodic and subscription small commercial insurance, took the same approach. It insisted on being an admitted carrier, working with Markel as its fronting carrier and capacity, because it wanted to be close to the customer in a market where admitted products are the norm. Doing that meant working through regulations that explicitly barred some of what it wanted to do, and it built strong enough relationships with regulators that they sometimes give the company a heads-up on developments.

Admitted, Non-Admitted and Fronting, in Plain English

Gilad asked Bryan to explain the vocabulary, and the explanation is useful on its own:

• MGA: a broker-like entity that creates its own products and does the pricing, and, depending on the carrier relationship, may do everything except hold the capital. It is a capital-light way to start an insurer.
• Fronting carrier: an insurer with the licenses, filed rates and forms that lends them to the MGA. Behind it sits a reinsurer that takes most or all of the risk, so an MGA effectively needs two carriers to back it.
• Admitted versus non-admitted (excess and surplus): whether the carrier is licensed in the state and subject to its rules and filed rates. Admitted is more constraining but brings a more direct customer relationship and more accessible capacity. Home and auto are admitted products, while hard-to-place risks such as high-value coastal homes often go to the non-admitted market.

Flood sits in an unusual place. The admitted market has largely left it to the federal government’s National Flood Insurance Program, so the newer players are non-admitted. Bryan also shared a personal example of the coverage gap: he has had a flood in his own basement, and a sump pump backup endorsement is not the same as covering the house.

Clearcover: When the Fronting Carrier Walks Away

Clearcover’s story illustrates how strategic capital has to be. The founders began with embedded auto insurance in California, deliberately taking on the hardest market first so that everything built for it would work elsewhere. That made it hard to find a fronting carrier, because in California it is harder for a fronting carrier to separate itself from a bad book of business. One prospective fronting carrier heard their pitch at a breakfast in Chicago, said no, and the meal continued without any talk of business.

They did line up a fronting carrier and a reinsurer, and they had come out of AmFam Ventures, which backed the company even though it wouldn’t build it internally. A lead investor bought into the vision. Then, right before the funding round closed, the fronting carrier pulled out, leaving a reinsurer with nothing to reinsure and investors with nothing to invest in. The lead investor simply stood by them. Months later, the founders learned the carrier from that Chicago breakfast was coming to town, met him in a bar, and this time had a reinsurer and investors behind the story. He agreed. The survival depended on every party staying committed through a make-or-break moment.

Bryan also described a timing lesson. Clearcover filed its easier states first, which created a great early growth story and then a stall while the slower approvals came through, making future fundraising harder to explain. Gilad noted the company has since raised a large round, and the discussion turned to the capital problem every full-stack carrier faces. Statutory capital is a poor investor story, since venture capitalists don’t want to hand over tens of millions of dollars to sit idle. Ideally it is funded by operations, which startups can’t generate fast enough, which is why many start as MGAs: it lets them prove the model and raise the valuation before selling equity to fund carrier capital.

Kin: The Cautionary Case

Kin is the book’s negative example, and Bryan was careful to say it isn’t a criticism of the company. He recommended Kin to his own mother, who is very happy with it. The chapter shows what happens when two partners assume they understand each other’s strategy. The fronting carrier saw a customer that kept asking for things it considered impossible; Kin saw a partner that kept saying no, and when it challenged the claim, it found there was no law, only industry lore.

When Kin went full stack and received its license, its fronting carrier learned of it the same day, shut off capacity and began moving its customers onto its own products. That put Kin’s viability at risk, and it is the only case in the book where the company had to lay off employees, because it had hired ahead of a growth curve that suddenly flattened. Bryan stressed that the founders credit the fronting carrier for what it did enable, and that he doesn’t know all the dynamics, such as the carrier being owned by the reinsurer. The point is the need for strategic alignment and open communication in both directions.

Advice: Foundations for the Future

When Gilad asked for his usual recommendation, Bryan’s answer was the book itself, and he noted that each chapter ends with a set of takeaways he calls foundations for the future. A third volume is starting to brew, possibly as a pairing of old and new.

Key Takeaways

• Eight startups, some carriers and some MGAs, shared three lessons: diversify the team’s skills, make capital strategic, and build an advantage beyond being new.
• Compliance embraced early became a speed advantage: Neptune can release rating changes in single-digit days because its filings and systems were built compliant from the start.
• An MGA needs a fronting carrier with licenses and filings plus a reinsurer behind it, so it depends on two partners; losing one can stop the business even with investors and reinsurance lined up.
• Clearcover survived its fronting carrier pulling out right before closing because its lead investor and reinsurer stood by it, and it later found another carrier.
• Statutory capital is hard to fund, which is why many startups begin as MGAs and prove their model before selling equity to fund a carrier.
• Kin shows the cost of unspoken assumptions between a startup and its fronting carrier; strategic alignment has to be explicit.
• Clover’s bet is that the payer sees the whole patient and can steer care toward better outcomes, but it requires years of data and capital before the model works.