Think You Understand Insurance?
Insurance - It’s one of the few industries in the world where even the smartest business people consistently learn that most of their assumptions are wrong:
- The product is invisible until something bad happens
- Distribution is owned by aggregators, not brand love
- Success is about loss ratios, not revenue growth
- Tech alone can accelerate churn or risky customers
- Capital + compliance drain you before launch
- Core systems run on mainframes older than the internet
There are industries that look inefficient from the outside—ripe for disruption, bloated with legacy systems, seemingly allergic to innovation. Then there’s insurance: an industry so counterintuitive that even the most brilliant, well-funded founders routinely walk in with confidence and walk out humbled.
It’s one of the few sectors where intelligence and ambition alone aren’t enough. Even founders with billion-dollar track records learn—painfully—that almost every assumption they brought from “normal” business doesn’t apply here.
Let’s explore why this is the case—and what it teaches us about other industries that only look simple from the outside.
1. The Product Is Invisible Until Something Bad Happens
In most businesses, your product delights people when things go right. With insurance, your product only truly matters when things go wrong.
Think about that for a moment. You spend years building, marketing, and servicing something that your customer hopes they will never use. There’s no daily engagement, no immediate gratification, no unboxing moment. In fact, most customers only think about their insurer twice a year—when they pay their premium and when they file a claim (and the latter is almost always under stress or frustration).
This creates a paradox: you’re selling peace of mind, not a tangible experience.
That means your marketing isn’t about features—it’s about trust. And trust is a brutal currency to earn, especially in a category where every competitor makes the same promise and every bad claim story goes viral.
For startups used to rapid iteration and feedback loops, this lack of visibility is disorienting. You can’t A/B test your way to trust. You can’t “pivot” when customers don’t use your product daily. And by the time you learn whether your risk models actually work, you’re already writing checks for losses.
2. Distribution Is Owned by Aggregators, Not Brand Love
In most consumer markets, building a beloved brand can win you distribution. In insurance, distribution owns you.
Aggregators, brokers, and comparison sites dominate the customer journey. When people search for “cheap car insurance,” they don’t start by Googling a brand—they click on an aggregator that presents dozens of indistinguishable offers sorted by price.
Your painstakingly crafted brand identity, customer experience, and clever slogan vanish behind a wall of price filters and cookie-cutter policy summaries.
That’s why many early insurtech startups underestimated the power of the middleman. They assumed they could build a direct-to-consumer brand and win with better UX or lower prices. But the reality is that acquisition costs are crushing, and the customer’s loyalty lies with whoever saves them $50 on renewal—not with you.
This is why so many “digital disruptors” end up becoming… another broker. Because that’s where the distribution power—and the data—really lives.
3. Success Is About Loss Ratios, Not Revenue Growth
In most startups, growth is everything. You can burn cash to gain users because more customers means more data, more revenue, and eventually more profit.
In insurance, that logic can kill you.
Every policy you sell is a liability, not an asset. The more you grow, the more risk you underwrite. And if your loss ratios (the percentage of premiums paid out in claims) get even slightly out of balance, your entire business model collapses.
This is why insurance executives obsess over “underwriting discipline.” It’s not about growing fast—it’s about growing safely. A company that grows too quickly without understanding its risk exposure is like a car accelerating downhill with no brakes.
Investors who come from tech often struggle with this mindset. They want hockey-stick growth, but insurance rewards patience, precision, and actuarial prudence. It’s a numbers game, but not the kind that VCs are used to playing.
4. Tech Alone Can Accelerate Churn or Risky Customers
At first glance, technology seems like the perfect lever to modernize insurance. Automate the underwriting! Digitize the claims! Personalize the premiums!
But the irony is that tech alone can make things worse.
If you use algorithms to acquire customers faster, you might also attract the wrong ones—high-risk profiles that sophisticated insurers already learned to avoid. If you automate claims without careful fraud detection, you can end up with systemic losses at scale. If you make switching providers frictionless, you reduce your ability to retain your best customers while subsidizing the riskiest ones.
Tech amplifies whatever’s already in the system—good or bad. And in a risk-based business, that amplification can destroy you before you even notice it happening.
The best insurtechs realized this the hard way. Technology isn’t the disruption—it’s the infrastructure. The real innovation is in how you manage risk, structure capital, and build trust.
5. Capital + Compliance Drain You Before You Launch
Startups thrive on velocity: build fast, ship fast, learn fast. Insurance moves at the speed of regulation.
Before you can even sell your first policy, you need licenses, compliance officers, capital reserves, and actuarial validation. In some markets, you might need approval from multiple state or national regulators. Each change to your pricing or product may trigger a new filing or audit.
That means millions of dollars and months of legal work before you generate a cent of revenue.
This barrier isn’t a bug—it’s a feature. Insurance is deeply entwined with public policy and consumer protection. The rules exist because when insurers fail, real people lose everything. But it’s also why so many bright entrepreneurs give up before they even get to market. The cost of entry is measured not just in cash, but in stamina.
6. Core Systems Run on Mainframes Older Than the Internet
Many insurers still rely on systems written in COBOL and running on mainframes from the 1980s.
That’s not hyperbole—it’s literally true. In fact, some core insurance databases are so old that only a handful of programmers in the world can still maintain them.
Modernizing these systems isn’t as simple as migrating to the cloud. Every policy, claim, and pricing model is entangled in decades of regulatory history and custom integrations. One wrong change can have downstream effects on compliance, solvency reporting, or customer data.
That’s why new entrants often underestimate the complexity of “legacy tech.” It’s not just outdated software—it’s the institutional memory of how insurance actually works. To rebuild it, you need to understand every legal, actuarial, and operational dependency that has accumulated over half a century.
The Lesson: Stop Trying to Disrupt It. Start Trying to Understand It.
The smartest insurance innovators aren’t the ones shouting “we’re going to disrupt this dinosaur.” They’re the ones quietly embedding themselves inside the system, learning its rules, and finding leverage points that others overlook.
They partner instead of antagonize. They respect the actuaries and compliance officers who keep the system stable. They build technology that complements, rather than replaces, the complex human judgment that risk management requires.
In short, they stop trying to make insurance normal. Because it isn’t—and that’s exactly why it’s so important.
Other Industries That Humble Outsiders
Insurance isn’t the only industry that punishes naive disruption. Here are a few others that look simple until you’re inside them:
1. Healthcare
“Just fix healthcare” is the most dangerous sentence in Silicon Valley. The U.S. healthcare system is a maze of payers, providers, regulators, and incentives that often work against each other. Every startup learns the same lesson: the customer isn’t who you think it is, the user doesn’t control the payment, and the data you need is locked in a hundred incompatible systems.
The best healthtech companies don’t try to replace hospitals or insurers—they work within the system to make one process, one workflow, or one patient experience slightly better.
2. Education
Everyone thinks education just needs better software. But education is cultural, political, and deeply human. Teachers, unions, parents, and students all have different goals. You can’t “disrupt” learning outcomes with an app. Edtech startups that survive are the ones that support teachers, not replace them.
3. Real Estate
Real estate looks simple—buy, sell, rent, repeat. But behind every transaction lies an avalanche of regulation, local politics, zoning, financing, and emotional attachment. Platforms like Zillow, Compass, and Opendoor learned that housing isn’t a marketplace problem—it’s a human one. People don’t buy houses the way they buy shoes.
4. Logistics and Supply Chain
Founders often assume logistics is just about optimization—make it faster, cheaper, more automated. Then they discover the brutal reality of unions, fuel costs, customs, weather, and global dependencies. Moving physical goods reliably is an art form that blends technology, relationships, and resilience.
5. Agriculture
From afar, agriculture looks ready for data-driven transformation. But inside, it’s a dance between biology, weather, regulation, and culture. You can’t A/B test a growing season. You can’t iterate faster than nature allows. Agtech founders learn that the farmers they want to “help” often know more about risk management than any spreadsheet ever will.
Final Thought
The dream of disruption is intoxicating. Every generation of entrepreneurs believes they can remake old industries with better tech and better intentions. And sometimes they do.
But the real lesson from insurance—and from all these “impossible” sectors—is humility.
Before you can change a system, you have to understand why it exists. You have to appreciate the constraints that keep it stable, the incentives that shape behavior, and the quiet wisdom built up over decades of trial, error, and regulation.
The best founders don’t start with “How do we fix this?”
They start with, “What do we not yet understand?”
And in industries like insurance, that’s the question that never stops humbling you.