All right, wonderful. We'll go ahead and get started here. Thank you everybody for joining us. Really thrilled to have with us today Ethos Technologies, a recent IPO, and Peter Colis, Co-founder and CEO. Peter, thank you for being here. Appreciate you joining us. Maybe just set the stage. You know, there's probably varying levels of familiarity with Ethos in the room, so tell us a little bit about what Ethos does, how you describe the core mission, and how that mission has evolved as the company's grown.
Thanks for having me. Ethos is a multi-sided life insurance platform. We serve consumers, agents, and carriers and transform the buying, selling, and risk management of life insurance. For consumers, we compress a six to eight week burdensome transactional process of PDF applications, medical exams, blood tests, all into a 10-minute online, totally digital purchase process. It's like buying a plane ticket online or buying, you know, auto insurance from GEICO.
For agents, not only do we compress that selling process, which eliminates so much case management and burdensome administrative work the agent needs to do, which frees up a massive amount of time for them to prospect for more clients, and to find more clients to sell to, but we also accelerate that agent's working capital cycle, paying them the next day after they sell a policy, which allows them to reinvest their commissions into prospecting activities like buying more leads. It really changes the number of policies an agent can sell in their week. Lastly, for carrier partners, we deliver scaled incremental growth at their target underwriting profitability margins. For them, they're really giving us the full end-to-end operations, right? We are handling everything through the application, the underwriting, the policy issuance, the administration over the long lifetime of that client.
For the carrier partner, we're absorbing a lot of that responsibility for the scaled incremental growth that we are providing them at their target underwriting profitability margins and managing risk conservatively on their behalf. It's a transformative model within this stale, and arcane but very large industry. If you look at the top 20 life insurance carriers are each over 100 years old. Their processes are fairly consistent with what they were 30 years ago. It's a critically important product for consumers. It's often a cornerstone of their family's financial plan. You know, we send kids to college, we pay people's mortgages, we put food in people's fridges.
As far as our vision, what we're attempting to achieve is really to become the largest issuer of life insurance, not only in the U.S., but then one day in the world. When you look at how differentiated our model is, and the fact that we are a no balance sheet, non-risk-bearing company, where we don't have any economics at stake, we don't have capital constraints in our growth model, you know, we believe that that is feasible, so.
Great. That was a great intro. You know, one of the things that strikes me, I mean, you went through kind of from all the angles kinda how you differentiate, but particularly for your potential customers, consumers, I think medical exam is one of the things people hate about getting life insurance. When you say, like, I learned on the IPO process, like, and you talk to people about, like, you know, no medical exam, they're like, "Well, the results must be terrible." You know? Like, it's just they don't. Like, help us understand.
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... kind of what's behind that.
Yeah.
Right? Like, how do you produce similar or better underwriting results without having a medical exam? Like what was.
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... the tech lift and kind of the process that got you...
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... here?
It's a great question. It's important to know that today Ethos is one of the largest underwriters on a per policy basis in the industry, so we now have a scale and tenure of data to support our underwriting strategy. We started out manually underwriting all applicants, just like all other carriers do today. Over time, we automated percentage point by percentage point to today now, 95% of our applications are instantly decisioned, and over 90% of applicants receive some kind of risk-adjusted offer and price. The way that we were able to achieve this was, one, by building our own automated underwriting engine. It's a really complicated and sophisticated piece of technology.
When a client applies on Ethos, we absorb around 250,000 data points per applicant, pharmaceutical records, medical claims, billing data, prior blood labs histories, all sorts of financial-related, and behavioral-related information. What this information gives us is a near perfect supplement of the health information that would be achieved through a manual medical underwriting process. If I were to analogize to a FICO score for credit underwriting, what we're not doing is throwing out FICO, and underwriting a client based on some novel approach like cash flow underwriting or looking at their social media profile or anything like that. Instead, what it's more analogous to is if it took everyone else, you know, six to eight weeks to compile FICO, but Ethos can compile it instantly.
That speed and ease is a great advantage, but we have a near perfect supplement for the data that's obtained through a manual medical underwriting process. Our engine has one sophisticated translation layer that translates all this morass of structured and unstructured data into a proprietary knowledge graph, and then a bank of over 1 million rules of logic that compute that knowledge graph into a pricing decision. Per applicant, around 40,000 app rules fire in the engine, and no two clients are the same. It's a incredibly complicated, and precise data science effort. We have human underwriting teams that are auditing these underwriting engines' results, manually re-underwriting the client in the same traditional means that a that a carrier's human underwriting team would.
As a data feedback loop comparing how does the human's prices compare to the engine's prices.
Very helpful. As we think about, like, kind of the results that that has produced for your carrier partners, how does that compare to, say, their experience elsewhere in their businesses?
Yeah.
kind of the extension of that is as, you know, some of those relationships you've had for many years now, what sort of tangible actions have you seen those carriers take, as they gain more confidence in Ethos' underwriting?
That's a great question, Matt. We feel very comfortable, and confident with our risk management practices, as do our carrier partners who are constantly auditing our results. Our carrier's human underwriting teams are auditing our human underwriting team's audits of these underwriting results. Ultimately, the carriers are observing with us the claims rates coming in, and the applicant profiles who are coming through the process. We have become the largest source of premiums for, you know, most of our carrier partners. Our risk is heavily studied, and monitored. The carrier holds Ethos to the same ROE, the same underwriting profitability targets that they would their non-Ethos core business. There's no sacrifice of margin on the carrier's part for working with Ethos versus their existing business today.
Great. Can you talk a little bit about, you mentioned kind of the 95% you can offer quote to of people that come in kind of instantly. How important is that? Maybe start with talking a little bit about the marketing approach, right? You guys, if anybody's watched, I watch the NBC a lot. I see a lot of Ethos commercials, a lot of sports commercials. Like, clearly there's a very thoughtful marketing campaign. Kind of alongside that, how important is that high conversion rate to kind of making that all work?
Yeah
'Cause I think there are some peers of yours that claim kinda they can do the instant underwriting, but when you kinda dig into it's, well, in some cases they can.
Yeah.
Not in most cases.
You know, direct businesses are governed by unit economics. Being able to automate a very high percentage of the population is a necessary condition to succeed in direct. It's one of the reasons why no one else has been able to make the direct unit economics work at scale before Ethos. What we've done is very difficult, and it's why we don't really have any scaled competitors in the direct business. Furthermore, a existing carrier's legacy data set is not a sufficient condition to achieve this. During our tenure in market, these carriers have launched and then shut off their direct strategies.
Northwestern Mutual, Prudential, MassMutual, you know, more and more carriers have tried to go into direct and have then shuttered it and not succeeded because it's very difficult, number one, to automate the underwriting. Number two, is, if you look at Ethos, we benefit from being born on a completely native and digital technology platform. We have our own application engine, underwriting engine, admin system, payments and commissions infrastructure, data infrastructure, agent operating system, et cetera, versus a carrier today resides on a fractured set of third-party vendor-provided solutions that are often legacy solutions as well.
It makes it so that there's a lot of friction in their virtuous data cycle versus for Ethos, we have a very clean and smooth virtuous data cycle where we're able to observe things, adjust the model, learn very quickly, which translates to better unit economics, which allows us to increase marketing spend, which allows us to get more data to improve the model and so on and so forth. What we've observed is our model has gotten more and more efficient as it's gotten larger, evidenced by the fact that in Q4, if you look at our direct business, it grew over 90% year-over-year at stable unit economics year-over-year.
You know, if we play this forward, we think that our direct business is transformative in the same way that GEICO or Progressive were for auto insurance, where you had a agent-dominated high-friction transaction experience, and all of a sudden someone is able to make it instant and online, and many consumers, I think, will vote with their feet, and just choose to buy life insurance direct from Ethos.
Maybe I think we've covered kind of the company side of it, the prospective customer insured side of it, and you touched a little bit on the agent side of it, but maybe we go a little deeper there.
Yeah.
Maybe I'll start with why not just go direct?
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... 'cause it was a more recent addition to distribution, and kind of the agency channel. Maybe start there, and then we can, we can dig deeper.
From a business model standpoint, what's nice is whether or not a policy is sold through our direct business or our agent business, it flows through really the same technology, and a similar product suite. There's a lot of benefit to amortizing our comprehensive technology platform with more distribution strategies, and then amortizing those distribution strategies with more products. That's really what we've been doing over time. We launched the agent business 'cause we thought that we could add transformative value. You know, a direct client, they're gonna go through this life insurance buying process one or two or three times in their life. We offer a tremendous amount of value in compressing that transactional process, but an agent has to sell life insurance all day, every day.
For our ability to compress this transaction down to 10 minutes, pay them the next day, and then give them the technology suite that transforms their workflow, it's, it is just completely freeing as far as their day-to-day, you know, workflow goes. We've seen very fast adoption of the platform. We launched the agent business in late 2021, early 2022. You know, we reported last year we had 15,000 agents who sold on our platform last year, up from 10,000 agents the year before. If you look at our third-party growth rate has been a healthy balance of both increasing counts of agents selling and then increasing productivity, you know, policies sold per agent over time.
You know, we have very clear product market fit, and our mission in the agent business is to, one, keep nurturing the growth engine of recruiting new agencies to the platform, which is typically an organic kind of agent-to-agent referral. "Hey, I launched with Ethos, and a year ago, and now I'm selling X% of my business with them. They're great for these products." One, keep recruiting more agencies to the platform. Second is improve that productivity per agent by launching more features and technology, and, you know, in hardening our operations. Third is broadening the product portfolio to address more of their share of wallet that they're selling, right? We recently in Q4 launched accumulation Indexed Universal Life Insurance that we're really excited about. We also launched a cancer insurance product in Q4 that we're excited about.
Keep addressing parts of the market that we're not already in today.
Maybe, if you could help people understand a little bit, you know, the, if you are that agent, right, in the traditional life insurance world, kinda what that process is like.
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... versus Ethos. 'Cause I think that a lot of people don't get that-
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... in terms of, like, just how like, there's the old adage, "Time is money.
Yeah.
I think that really does apply here.
Yeah.
Just, not even paying them the commissions faster, but just kinda like when they have an insured that applies for, you know, traditional life insurance, kinda the length of that process, how it goes, how they have to manage it.
Yeah
... versus, like, that life cycle in Ethos.
Yeah. Selling life insurance is hard. It's a hard life as an agent because people don't wanna think about their life insurance. Prospecting and selling people on the concept is hard enough. On top of that, the agents in a world without Ethos exist in a fragmented suite of technology solutions from disparate carriers. These solutions are often, you know, web 1.0, web 2.0, and then they've got these lengthy transactional processes to actually go and sell, where they have to handhold clients through these lengthy applications, coordinate with the underwriters to get the client underwritten manually, coordinate with the administrators to get the policy approved and issued in a timely manner, oftentimes pick up the check from the client to pay their first premium. The carriers, and the process make a difficult job even more difficult.
What Ethos does that's so freeing is we eliminate all of that case management, and handholding work that allows that agent to really focus on the hard and value-creative part of their job, which is the prospecting for clients and selling them on the concept of protecting their family. We take care of everything else. We simplify it, we transform it, and make it instant online. We've taken it a step further, where we make them more productive. They log into Ethos, they can buy leads from Ethos, the Ethos CRM will market to their clients on their behalf. The clients can self-checkout with no incremental work from the agent, and the agent will get credited with the commission. There are all sorts of agency management tools for the agency owners and managers to manage their downline's production and business quality.
We've got agent fraud models and agent, you know, quality ML models that allow us to, you know, observe bad behavior early on and take corrective action in an agent's life. We've got training to make the agents better and more productive, and learn from the best agents in their agency. It's really, you know, I would equate it to, like, Uber for Uber drivers, where it's an all-encompassing one-stop-shop solution with a broad product portfolio and a very strong value proposition for those agents, and that's why we're observing this, you know, very fast adoption. Importantly for our growth prospects, the 15,000 agents who were selling on our platform last year, that's a low single-digit % of the U.S. life insurance agent market. We think that there's a lot of room to continue compounding into this market.
Great. Maybe something a little more recent, the AI concern kinda spotlight got shined on insurance in the past few weeks.
Yeah.
you know, kind of whether it's the kinda like insurance via GPT or, you know, whatever it might be. Can you talk a little bit about kinda your views on that?
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... in terms of, like, the availability of AI and whether you view that as a threat to kind of the competitive moat you've built, or if you view it as a real opportunity?
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... kind of furthering your advantage over-
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... you know, any peers there might be.
We've already been a major benefactor of ML and AI. By virtue of being a completely native digital technology platform, we've been well-positioned to enable ML and AI across our internal operations, across, you know, marketing models that predict where's the next best place to spend an incremental dollar, client fraud prediction models, agent fraud prediction models, aspects of making underwriting more intelligent, within the bounds of what is compliant, automating operations, product and engineering, analytics, data science, et cetera. We've been a major benefactor, and that's partly how we've achieved our 98% gross margins, right? Elite level gross margins. Ethos is a very automated machine that just keeps getting more intelligent the more data it absorbs. I think that we have a huge opportunity.
If you look at our cost structure, sales and marketing expense is the number one line item. If behavior changes in AIs and LLMs are a increasing consideration for direct buyers of life insurance to evaluate prospects, Ethos is the best position to capture that change in behavior. We have active, you know, efforts in our geo-optimization, and integrations with these LLMs to be the best positioned to capture that shift in client behavior to direct model. We will be excited if it allows us to help us compress our sales and marketing costs. I think conversely, if you look at the landscape of carriers today who are residing on these, you know, non-native third-party...
fractured technology platforms, I think it, you know, with often unclean, and poorly governed data, I think it's very difficult to implement AI and ML in a productive way. It's kinda garbage in, garbage out. You know, I hope for their sake that they'll be able to use it to automate operations. They will not be able to use it from a regulatory standpoint to automate underwriting in the same that in the same way that we have because your underwriting has to adhere to Fair Credit Reporting Act compliance. It's gotta be disputable, reportable, correctable. You can't use a black box model for it.
Great. Thank you. Maybe you mentioned my first question, the part of your answer was about wanting to be the kind of the biggest distributor or seller of kind of ultimately life insurance, U.S. and globally. Life insurance is a massive market. Maybe can you help people understand kind of today, you know, with the products you have and the partners you have and the geographic spread, kinda you know, one, how big is the market?
Yeah
... ultimately that vision encompasses? and two, kind of what piece of it are you kind of having access to today? What might be some of the products or things you roll out in the future that...
Yeah
... eat away at bigger pieces of it?
It's a great question. You know, in the US, consumers spend $140 billion a year on their life insurance premiums, roughly. Ethos today, if you look at new policies sold, we are a low single-digit % of the market. So there is decades' worth of compounding and growing for us into the future. It's a highly fragmented market. The largest carrier has around 9% market share of new policies issued. What's interesting is it should behave like a commodity, right? It's a price per unit of coverage. I think what we've observed instead is that because it's a fairly emotional purchase, it's more differentiated on the distributor and the experience of buying rather than the actual price per unit of coverage in many cases.
I think that bodes well for us because we're the most differentiated distributor, and experience in life insurance. I think to continue growing our market share, it's really more of the same. It's nurturing the growth engine, recruiting more clients, recruiting more agents, and then making those agents more productive, and then broadening our product portfolio to address more and more of the TAM. Outside of life insurance, we're also very enthusiastic and excited about the larger markets of annuities, supplementary health products, you know, potentially as a provider of mutual fund products to our clients, think to address a more comprehensive, you know, portfolio of their financial needs. We're building these incredible trusted relationships with clients with, you know, an NPS over 70, right?
Which is higher than Spotify or Netflix or Apple. It's a life insurance firm, I think that we've put ourselves in the position to recommend more products than just the life insurance that we're selling them today.
Kind of quick, kind of follow-up on that. Then we'll see if there's any questions in the room. You know, as I, as I sit there and watch some of the marketing, it feels to me like, you know, basically you're also growing the market in the sense that, like, a lot of it seems to be along the lines of like, "Hey, just go buy the life insurance because we make it really easy.
Yeah.
Maybe there's a portion of people out there that everybody views it as a headache and just, "I know I need to do this, but yeah, I'll do it next year.
Yeah.
You know, kinda how much of kind of the customers you see come in, do you I mean, it might be tough to measure, but like do you feel that you're kinda getting off the sideline and say, "Hey, this is really easy. Come buy life insurance with us"?
Yeah.
As opposed to like that fixed pool of-
Yeah
... of business taking a piece of that.
Yeah, it's a great question. A good amount of our direct clients are incremental, we believe, to the market, but we don't need incremental to keep growing, and succeeding. Around 10 million Americans will buy life insurance, individual life insurance every year, whether or not Ethos exists. Ethos is the most efficient place for them to buy, and we are the most efficient way for agents to sell. We keep getting more efficient, and more intelligent every year as we get bigger, and bigger. We're very proud of bringing incremental people into the market.
Mm-hmm
... who otherwise may not have gotten protected because they thought, "Oh, it's too cumbersome," or, "It's too expensive," or, "I don't wanna deal with an agent," or, "I don't wanna think about it." We're really excited to incrementally grow the market by making agents more productive 'cause they have, all of a sudden, they have so much more time to go prospect for more clients. Just addressing the existing TAM is such a large opportunity that there is no need to grow the market to continue compounding and growing.
Great. Any questions?