[TRANSCRIPT] Modernizing Life Insurance with Melbourne O’Banion, CEO and Co-Founder of Bestow

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Miguel Armaza 01:30

Melbourne, thank you for joining us on the Wharton FinTech podcast. Can we start by hearing a little bit about yourself and your personal background?

Melbourne O’Banion 01:39

Certainly. Happy to be here. I’m a repeat entrepreneur. I knew I wanted to work for myself at a young age. I love the challenge of building and owning the output of my ideas and efforts. So I’ve been on the founding team of a few companies before Bestow. First company was a title insurance company and then I moved on to help build a health risk management and wellness company. Helping large employers mitigate healthcare costs. I’ve also co-founded a skincare company, and then co-founded Bestow in 2017.

Miguel Armaza 02:09

And where are you from?

Melbourne O’Banion 02:11

I’m originally from Texas, San Antonio, Texas, uh, bounced around to a number of places, but then found myself back in Texas in 2007. And live here in Dallas.

Miguel Armaza 02:22

Got it. And so take us through the early days of bestow, and how did the idea come about? And how did you approach the very beginning of the company?

Melbourne O’Banion 02:33

Yeah, so my co founder and I, Jonathan, came about it from each a different way. I came at it from more of a market opportunity, and he came about it more as a consumer. And we had both exited our companies, he had moved here to Dallas from San Francisco. And so we met through some mutual friends. And as an entrepreneur, you’re looking for big problems to solve, right? And the two that really stood out for us in life insurances, is that there’s a really unique market dynamic to the opportunity of life insurance and second being the social component. So regard to the market, the life insurance is this massive industry it’s close to 150 billion dollars in premium per year. There’s 7 trillion assets in the US alone, its origins go back 300 years. 12 of the top 15 life insurance carriers today were founded in the early 1800s. So it shows a stain powers in the industry. And similar to a lot of other opportunities in FinTech, the life insurance industry really hasn’t kept pace in any meaningful way with technology. It’s by far the worst tech laggard of any industry I’ve come across. What this is translated into is an inability for many of the providers today to meet the needs of today’s digital consumer. So we found in our research that millions of people know they need life insurance, but have yet to purchase it for a variety of reasons. There’s too much friction in the purchasing process. There’s a lot of distress There’s product misalignment, and so on. So there’s this massive dislocation between the demand and the adoption for the product, which we really set out to solve, coupled all that with the social impact of millions of families being unprepared for a tragic event, should something occur to an income earner. And oftentimes the need for them to lean on their family or community to make it through compelled us to decide to launch and do something in that space.

Miguel Armaza 04:26

It’s very interesting. So you mentioned that insurance is one of the biggest tech laggards out there. Why do you think that is? Is there a particular reason that you see?

Melbourne O’Banion 04:36

Yeah, I think even more so than a lot of other types of insurance and forms of insurance when you look at PNC or health insurance or so on that has much more high touch with the customer and engagement than life insurance. You know, life insurance is a very sustainable business. There’s a lot of longevity and duration to the customer relationship. And what that’s allowed I think incumbents to do, for better or for worse, is to build up massive float, enlarge their balance sheets, and not necessarily need to drive innovation both on the product side and the technological side, because they haven’t had to engage with consumers frequently as an auto insurer, or a homeowner insurer, or health insurer. And so I think that’s kind of one of the unique aspects of life insurance that we’re looking to solve. We want high touch, we want high engagement with our customers. And we want to utilize software and technology to be able to meet them where they are, and be able to deliver differentiated product and de-commoditize, the product on behalf of the consumer.

Miguel Armaza 05:43

That makes sense. And so you have this wonderful idea. You start thinking about. How do you assemble the team? How do you build the technology at the beginning?

Melbourne O’Banion 05:52

Yeah, we knew that we needed to take like a first principles approach in order to create something meaningfully different in a commoditized space. And initially, we thought we would build our own insurance product, and then license a lot of third party software for our stack. And in reviewing many of the service providers in the market, we ultimately concluded we weren’t confident using many of the outdated software solutions that were available. And so we decided to develop everything de novo and in house, I still remember wrestling with the decision to do so to build or license and ultimately concluded, you know, we needed to build, which was a really pivotal decision for us. It required us to go deeper in our build, but looking back will be one of the most important decisions we made because we did that foundational work early on, which has allowed us to really iterate and modify and improve our products at a capacity to do otherwise wouldn’t be able to do. Then there’s a lot of different components to operating an insurance company, from product development to marketing, to underwriting, to policy issuance, administration, and then servicing all the way through claims and adjudication. So we’ve effectively built them all out anew. And we’ve hired an incredibly talented team, both from inside and outside the industry to be able to do so.

Miguel Armaza 07:10

Interesting. And so it sounds like you avoided some challenges by deciding to build in house, what are some of the challenges that you could not avoid?

Melbourne O’Banion 07:19

And I think that it’s a difficult decision for an entrepreneur because there’s speed to market. And there’s a faster way to go about getting to market which sometimes is the best choice. And then there’s the deeper build, that sometimes founders come back to at a later date to actually build a stack to build the platform to be able to scale like ultimately they want to, we decided to do that early on, just by nature of the business and the product. We didn’t think that we can actually build something exponential without that doing that deep work early on, which required us to make that investment and be a little slower to get to market but ultimately the velocity with which we can iterate and operate, has proven itself to be very valuable. So as far as other challenges, there’s there’s too many to counter recollect. You know, in a regulated industry such as insurance, they come in a variety of forms, I’d say, early on, it’s setting out in a strategy that excites investors enough to get behind your vision as founders and one who invests. I’ve learned that if you have a contestable idea, you’re going to get a lot of no’s by investors. But ultimately, you’ll find those who believe in your vision, the opportunity, if the idea is good enough. And it’s the ideas that are mostly misunderstood, that have the opportunity for the greatest outcome. So other challenges such as building the team, the regulatory environment, product market fit and performance and trying to truly pioneer rather than just iterating on what’s already in the market, they’re all things that that we’ve contended with. And that, you know, we think on the other side of going through all these obstacles and challenges, we’re a much stronger company because of it and we relish those challenges because it allows you to really learn and grow and differentiate yourself in the market.

Miguel Armaza 09:05

And how did you decide? Think about it more from the client point of view? How did you decide your entry market strategy? How did you decide to approach the client with this product?

Melbourne O’Banion 09:18

Yeah, so there’s a lot of different types of products in life insurance. There’s Term Life, there’s Whole Life, there’s annuities, critical illness, and a ton of other types of products. Our view was, we want to scale life insurance and protection to millions of consumers who otherwise would not be protected. And the best product in order to begin that journey for us is Term Life. It’s what is referred to as pure form of life insurance protection. There’s not a savings component or alternative aspects of the product, other than the face value of the payout, should there be a mortality event. And we believe that it’s really the best product for the majority of consumers. And so that’s where we started. We began with building out a term life product de novo with some of our partners and starting there to allow for us to service as many customers as possible. And what’s really intriguing about the industry is that, you know, you look online, and it seems like there’s a lot of providers that are offering a no medical exam Term Life product. And as a consumer, as you go through that process, what you’ll find is that there’s most of the time you are triaged to a four to six week long purchasing process, which is broken and full of friction and the abandonment rate is horrific. So our view is how do we actually build a product using our own algorithms and data sets and something proprietary that we developed to allow for a much higher eligibility and for people who really want to be able to buy something completely online and instantaneous to do so without having to get triaged to a traditional process.

Miguel Armaza 11:02

When did you think you found product market fit?

Melbourne O’Banion 11:08

So in the very early days, and I’d say, we’re still kind of in the early days, right? But in that early days of testing the product, What’s really unique about life insurance is that the feedback loop on underwriting takes some time, right? Because it’s not like auto insurance or health insurance where every six to 12 months we are getting that feedback on the underwriting and understanding claims, and then being able to iterate and quickly modify underwriting and product. And so for life insurance, we’re underwriting 10, 20, 30 year risk, and we have to get that right upfront. Otherwise, we’re putting billions of dollars of risk on our balance sheet or our partners balance sheet that ultimately you know, won’t be successful. So we started iteratively with $500,000 face value cap testing out our algorithms, ensuring that they’re performing and working with our partners to do a ton of analysis, and then evolve from there to now writing up to a million dollars in face value. And we’ll be increasing that very soon. And all on the way getting more and more confident how our algorithms performing, and the ability for us to be more aggressive, and our distribution of the product and expand the opportunities of where and how we are distributing.

Miguel Armaza 12:24

Got it. You mentioned a little bit about the type of customer that you’re trying to help. Can you tell us more about your typical customer?

Melbourne O’Banion 12:34

Yeah, so right now we’re focused on really middle Americans. Households that make between 50 and $125,000. Primarily 30 to 45 year olds, who, kind of the sweet spot of who’s coming to us and buying product from us. We certainly sell to people who are younger and some two who are older, but they haven’t amassed significant savings as a safety net. Should there be an unexpected death by income earner, which is actually the vast majority of Americans, right? And there’s this protection gap that you’ll hear of in the industry, which is now estimated about $25 trillion. You know, every household had around $500,000 in coverage with dependence, that would be about $25 trillion of actual issued coverage within America. And so what we’re looking to do is, typically, there’s a needs based approach or an income based approach to determine how much life insurance one needs, but oftentimes that lands in a face value amount that’s too expensive for an average consumer to be able to afford. And so we’re affordability base, we’d rather meet you where you are, and have you buy some level of coverage rather than have no coverage at all. So that’s really the consumers that we’re going after is largely consumers who brokers and producers in the past haven’t necessarily been targeting, because they’re not necessarily affluent, yet. They’re not high net worth, yet. But they will be in the future or they have a good tendency to become so in the future, but they need coverage today. And you know, we have these really interesting tailwinds behind us, particularly with a lot of millennials who are now entering into their household formation years are getting married. They’re having children, they’re buying homes, they’re doing the things and having the life events that normally would require them to buy life insurance. And we see that continued over the next decade plus, which is you know, a perfect fit for our product.

Miguel Armaza 14:32

That makes a lot of sense. And talk a little bit about your partners. Right? You can’t do this alone. You certainly have a lot of partners in the industry, who are your main partners?

Melbourne O’Banion 14:45

So our two primary partners are Munich Re- they are one of the largest global reinsurance companies. And North American life insurance company. We partner with Munich Re early on. They’ve been both of them. Phenomenal partners for us to help us develop our product. And then we went and talked to a number of different carriers ultimately partnered with a partner with North American and are writing on their paper right now in 49 states. And, and have a great relationship with the two of them for product development and pricing and you know, assessing risk and improving our product on an ongoing basis. And then we have a lot of distribution partners as well. We launched initially D2C. And now we have a lot of FinTech partners, who we see as being really agents of the future in many ways. They have millions of consumers, they have a financial relationship with them. They have a trusted financial relationship with them, which is important. And they’re looking to monetize those users by, you know, offering products and services that are of valuable to them. And so we built out really unique software API’s that allow us to be able to integrate with those FinTech partners, platforms and distribute our product via their platforms. So the likes of, a lot of the Neobanks and Financial Savings apps, such as Acorns, and Chime and Moneylion and Stash, you know, quite a few others we’ve partnered with and are distributed through their platforms.

Miguel Armaza 16:09

I like how you’re actually benefiting from the entire FinTech ecosystem that has been developing over the last few years.

Melbourne O’Banion 16:18

Yeah, and you’re seeing a lot more of that, right? bundled services, FinTech companies partnering with one another because it’s hard for them to find in the traditional space. other partners that can digitally connect with their platforms, and so our new tech stacks talk to one another. And we can integrate with each other on behalf of the customer in a very unique way. And so we’re finding a lot of success with that.

Miguel Armaza 16:44

That’s exciting. And how big is the company right now? how many people?

Melbourne O’Banion 16:49

We will be at 100 here probably in the next month. So we are growing really fast. We’ve already hired about 15 people already in this quarter. We’re growing quickly.

Miguel Armaza 17:00

Wow. And have you approached talent growth? That’s probably something that you know, you pay a lot of attention to?

Melbourne O’Banion 17:09

Absolutely. I guess I I’d say I can’t overemphasize the importance of hiring a great team, I actually say it’s, it’s important is in close proximity, the business opportunity itself. And I’d stack up our team against any other in the entire insurance industry, and feel privileged to work with them each day. We’ve assembled an amazing group of people that is in large part due to each of them. Countless candidates decide to join us because they want to do meaningful work with teammates that are going to help them achieve their very best work. And they find both at Bestow. In the early days and, you know, when we were like, right in the beginning, we had less than 10 people. A lot of people said, you know, let’s meet and get together and like talk about our company culture, which struck me as odd. Like the whole idea of engineering of culture. I think it’s not natural right? It can be contrived. So we spent a lot of time discussing and ultimately concluding that we would outline principles. And we lead and hire according to those principles. So we’re very principles based company. And we found a lot of success and evangelize and adhering to those principles, both individually and as a team.

Miguel Armaza 18:18

Can you talk a little bit about those principles? Sure. So a few of them that I’d highlight. One is that we’re mission minded. We’re on a mission to scale life insurance to millions of families. And if you don’t get excited about what we’re doing, it’s just simply not a fit. The vast majority of people here would never have thought that they would be working in life insurance. But when they see the problem and what we’re looking to solve, they really get behind it and they get on board with the mission and that’s just absolutely key to anybody who comes and joins us. We look for pioneers so people who are comfortable being misunderstood and forging a new path and some indication in their past of them being willing to pioneer and do something kind of different from the herd. We require a lot of intellectual rigor. So people who are confident will speak up, who have more of like an inner scorecard rather than being driven by their ego. We also seek to have a really informal and open culture. Flat, non hierarchical. This is easier said than done. I think a lot of companies would say, Hey, we have a, you know, very transparent and open culture. But it’s one thing to say and it’s another thing to actually live it and try to build it into the fabric of the company. And so we’re constantly kind of resisting that pull towards bureaucracy and efficiency, and our greatest competitive advantage in my mind is speed. And that’s ultimately directly tied to our ability to make decisions and execute. And so we really look for people who will speak up and disagree if they feel the need to but then ultimately commit to what’s in the best interest of the business. And then, lastly, I’ll just say it’s really important not to dilute talent, and we really keep a very high bar for our talent. It’s easy to kind of dilute as you scale, but our recruiting team and those involved in our hiring process of our leadership maintain a lot of rigor, and we’re very selective and my co-founder or I still vet and interview every new hire before we make an offer. And you know you you’re in Dallas, Texas, right? It’s a clearly I mean, Texas is a huge market, but it’s also not known for its FinTech scene globally. Can you talk a little bit about the entrepreneurial scene in Dallas and in Texas

Melbourne O’Banion 20:27

Yeah, so. So we’re actually 50/50 between Dallas and Austin. So we have half our team in Dallas, half our team in Austin. We opened up a satellite office in Austin, as soon as a year and a half ago. And we found such good talent and team down there that we ended up expanding it much faster than we initially anticipated. And so we’re split between the two offices, my co founder and I pre COVID were back and forth within Austin all the time. And now we have a lot more remote members as well, which is expanding in the wake of COVID. To me, there isn’t a better place in the US to build a business than Texas. Yes, you don’t have as much software engineering talent in Dallas and in Austin as you do in the coastal cities. But there’s been this massive influx of people from the coasts. And because it’s a secondary market compared to SF or New York, we can be quite selective in who we hire, and they, they’re committed and they do great work. I think we need to scale to hundreds of engineers that may pose a challenge at some point in time but we’re not concerned with that at this point. And and so, you know, we love being here. There’s a lot of reasons why companies and individuals are relocating to Texas and and we’re glad to be building a business here.

Miguel Armaza 21:39

Famous Texas hospitality. And what do you think is next for Bestow what’s what’s in the future?

Melbourne O’Banion 21:48

So we’re spreading. There’s so much opportunity in front of us that we’re excited about. I like to define entrepreneurship as too few resources chasing too many opportunities. And I think as leadership, and as founders, you have to be very selective in what you say yes to, and say no more frequently than you say yes. So you know, what we’re doing is expanding our product selection and portfolio, we have a lot of exciting initiatives around improvements to product and new partnerships, and a lot of things that we’ll be announcing and launching in 2020. So stay tuned, as busy as we can be with bringing new products to the market that are going to benefit consumers in a way that really hasn’t existed before in the life insurance space.

Miguel Armaza 22:34

We’ll be watching closely. And so we’re talking remotely now, in part because of the crisis that we’re living. The COVID crisis. I wonder how has the crisis affected your business? And also how has it affected the wider scene from your point of view?

Melbourne O’Banion 22:53

Yeah, I think is related to our business as horrible as the pandemic has been for millions of people. In the global economy, it it’s awakened people to a sense of their own mortality. NET NET is positive in regards to the life insurance industry because it’s forced people to ask hard questions such as am I prepared? And I think that by and large, as a nation as people, we don’t necessarily ask that question frequently enough. And so many people realize they aren’t really prepared and they need to financially protect their family. And that’s where we can come in and help. And it’s actually been something that I’m just tremendously proud of as a company as a team that we’ve been able to kind of service customers, because we’re digital first, and a very unique way during this time. While a lot of others have had to kind of try to reshuffle because they haven’t been able to get you know, an exam, they haven’t been able to process applications and so on. Because we’re completely digital in nature, we can do so. And then our average customer goes through the full application buying process in less than 10 minutes. All online without having to speak with anybody. And so we’ve had an absolute surge in demand to the pandemic. And we’re trying to do our best to service that demand and to help you know, our customers the best that we can. We’re certainly monitoring the pandemic’s impact to the overall economy. Seeing what long term effects will have on us and our customers. I think there’s so much uncertainty that still exists and we’re just trying to help as many people as we can.

Miguel Armaza 24:26

We talk to a lot of guests on the podcast, and InsureTech has been coming up as something that some of the leaders in the industry are looking out for. There’s presumably a much wider wave of entrepreneurship and funding for InsureTech. Would you agree with this? How would you see it?

Melbourne O’Banion 24:53

Yeah, I think that the insure tech market is, from a funding perspective, in some kind of a sort of an intermission We kind of arrived there pre COVID. Now the intermission is just gonna be longer, but Act One for the vast majority of insurance opportunities, say certainly they’re unique opportunities here and there. But for the vast majority of opportunities, I’d say, Act One has been played, a lot of companies have been funded. We are approaching, I think close to $20 billion investment in InsureTech, the nature of insurance requires a certain duration of time to prove out its efficacy or lack thereof. And so much remains to be seen. Companies have taken various approaches across different verticals of insurance, right? You see aggregators, distributors, carriers, service providers, software providers. What I’m certain of is that the future of insurance is not going to look like the past. And those who can successfully utilize software and technology for the benefit of the consumer will ultimately own I think the future of the space. FinTech is one of the most exciting areas to innovate in and has been for the past decade I think will be for the foreseeable future. And I put the opportunities in insurance at the top of the list, I just think if you’re new entrant kind of coming into the insurance space, you’re going to have to do something quite different than a lot of the companies that have already been funded. I think for the most part, a lot of VCs and investors are kind of sitting back and saying, Okay, let’s see how a lot of this plays out.

Miguel Armaza 26:19

That makes sense. And well, I also wanted to touch on the fact that we have quite a few listeners who are either aspiring entrepreneurs, or current founders, entrepreneurs. I know you’ve talked a lot about this theme over the interview, but do you have any advice for these listeners?

Melbourne O’Banion 26:41

Certainly, we can do a whole podcast on that. I think many, many people want to be an entrepreneur. But they often wait too long to take unnecessary risks. And it then becomes too late because they have to leave a comfortable lifestyle. And so I would say like You need to start fairly early, when you have enough experience and you have the right opportunity, you need to make the jump sooner rather than later, is my view. Because I have a lot of colleagues and friends who want to get in entrepreneurship, but at some point in time, it becomes very difficult for them to do so. Habituation sets in and it’s hard to do something new. I think the older that you get is by nature. Others start out that doesn’t necessarily go the way initially thought they ultimately don’t succeed for a variety of reasons. It’s hard, right? A few pieces of advice I would give. If you’re going to do something go after a big opportunity. It’s as easy to do something big as to do something small. You need to have like really something in your gut that is compelling you to achieve your vision and you’ll need that. For tough times. You’ll need to be able to turn to it when it gets tough. And you know, people, investors or team and customers, they all want to believe in something transformative, not just iterative. And so you need to go after a big opportunity, in my view. You have to keep going don’t quit, yet develop this kind of like abnormal ability to carry on whatever comes don’t just don’t stop is my view. If you really have a vision and an opportunity that you really believe in. Another one is have a moral compass. And, and stay true to it. I can’t tell you how many candidates I interview that have had a really poor experience with the founder or founders in a startup prior to coming and interviewing with our company. And it’s really, you know, unfortunate. So don’t deviate from your sense of right and wrong and know what that is. And then lastly, I’d say surround yourself with people who push you to be your very best. Mentors to learn from, alive and deceased, a co-founder or co-founders who fill in your gaps. I’m incredibly fortunate with my co-founder here at Bestow with Jonathan and how we work together and who’s really aligned with with your vision and plans. And then investors who believe in you and will back you and a team that’s dedicated and talented. If you surround yourself with great people, you have just a much higher likelihood of succeeding.

Miguel Armaza 29:09

That’s wonderful. I think our listeners will appreciate hearing all that, particularly coming from you as a serial entrepreneur. Before we leave, I wanted to ask you one last question. Something we like to ask all our guests and it’s about your personal side. About your work outside of Bestow. Do you have any hobbies that you could highlight?

Melbourne O’Banion 29:33

Yeah, so right now under lockdown with COVID and with my family, I’m not sure what a hobby is anymore. But I try to be very active in a variety of things. And I try to establish rules for my life rather than goals. I find it’s easier to maintain, maintain habits and rules. So I’m still exercising. I do CrossFit four or five times a week. I have a coach who’s kind of given me exercises that I can do at home, which is just really important for me to stay active. I love getting outside, whether it’s playing golf or going on walks with my family. It’s spring time right now. So the weather’s quite nice. I’m an avid reader. Admittedly, I’ve been so busy with work and family, I’ve had quite a limited time to read. But I’m still you know, reading some interesting books. And right now I’m just really busy with growing the business and kind of taking care of my family through all this. So my hobbies have kind of taken a backseat during this time period

Miguel Armaza 30:30

Sounds like you’re busier than ever. Great. Well, thank you Melbourne, this has been truly fantastic. Thank you for joining us. And, you know, once this crisis improves, you’re always welcome on campus.

Melbourne O’Banion 30:44

Thank you. Well, it’s good to be with you Miguel. Really appreciate it.

Miguel Armaza 30:49

Thank you.

Co-President & Podcast Host of @WhartonFintech. MBA /MA Candidate at @Wharton / @LauderInstitute. Fintech investor and advisor. Previously @Citi & @MUFGAmericas

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