Oscar tries to untangle the giant hairball called American Healthcare #InsurTech | Daily Fintech

Entrepreneurs like to attack huge markets where the customers hate the incumbents. The $2.8 trillion US H­­­ealthcare market fits the bill on size. Re hating the incumbents, ask consumers to name one entity that they hate the most and many will skip Banks and Telcos and zero in on their Health Insurance company; look at Net Promoter Scores for some quantitative data. Being denied coverage when you or a loved one face a life threatening illness is as stressful as it gets. The hairball complexity of the claims process leaves plenty of room for Health Insurance to deny coverage; enraged customers call it the “cost avoidance industry” that makes money by denying coverage for some ingenious reason.

Today’s Research Note looks at one startup that is trying to do something about this – Oscar. I spotted them in the wild during a recent visit to New York, when their ads were plastered all over the subways.

You need deep pockets to go after massive markets with entrenched incumbents. Tick in the box for Oscar, which has raised $327.5m.

You also need to be grown up & regulated.

Grown up & regulated

Two weeks ago our InsurTech research note focused on the execution problems of Zenefits. Since then, more news has surfaced via excellent journalism at Buzzfeed by William Walden who describes a sales culture run amok. I stick with our original analysis that Zenefits will emerge strong after correcting the execution missteps. Creating a sales management process that is hard-charging without getting caught in compliance and reputational risk is what grown-up companies do. If Zenefits cannot fix the execution issues, some other entrepreneur will copy the business model and execute properly. The opportunity remains huge.

Buried in the news is the fact that Zenefits primarily makes money on health insurance. That makes sense because health insurance is not just massive; its hairball complexity is ideal for entrepreneurs who can innovate on the Customer Experience (CX).

Last week we looked at another high ambition InsurTech venture – Lemonade. They have not yet announced which Insurance sectors they will target. It is possible that they too will tackle the hairball complexity of US Health Insurance. It does seem clear that Lemonade plans to be an Insurance company and not just a Robo Broker (which is how I would categorize Zenefits). So it looks like Oscar and Lemonade are more comparable. As Lemonade is still in stealth mode, we look at what Oscar is doing as they are already out in the market.

Does Size Matter?

Health Insurance is consolidating through massive deals (Anthem + Cigna, Aetna + Humana, Centene + Health Net). The question is whether size is an advantage or a disadvantage. Size is clearly an advantage against a traditional competitor – imagine the crushing sound when a Sumo wrestler lands on a normal sized person.

However, disrupters aim to change the rules of the game – for example, that small guy can beat the sumo wrestler if speed is the goal. To change the rules in a huge market like health insurance, new entrants need the magic combo of new technology plus a regulatory change. We look at Oscar in that light below.

innovate around disruptive technology to cut costs by a factor

Incumbents can copy a new mobile experience and hip ads in a heartbeat. Oscar cannot rely on those for competitive advantage. Nor can Oscar compete on price/terms unless they also change the cost fundamentals. Incumbents will simply drop t

via dailyfintech.stfi.re