D. Marie As LendingClub Corp (NYSE:LC) prepared to report its 3Q16 results, it has emerged that one of its early backers is scouting for opportunities in insurance technology using the same strategy as LendingClub.
Canaan Partners, a venture-capital firm, recently led a fundraising round for Ladder Financial, a life-insurance startup. The round raised $14 million for Ladder. Canaan was one of the early outside investors who saw opportunity in LendingClub’s disruptive online lending business.
Ladder is now being seen as LendingClub of life-insurance. While LendingClub worked to bypass loan officers, Ladder is trying to sidestep insurance agents. The startup has developed an innovative way to simplify the selling of life-insurance policies. For instance, while traditional life-insurance are still asking policy buyers to send urine and blood test results, Ladder takes advantage of third-party databases to assess the suitability of policy applicants.
That is a script from LC’s playbook. LC simplified access to credit by asking loan prospects brief questions and using algorithms and third-party databases to quickly evaluate the riskiness of a credit applicant.
Strategic partnership
The other approach that Ladder has borrowed from LendingClub is partnering with leading industry players to avoid going it alone in a fashion that would typically attract prohibitive regulatory requirements. While LendingClub did all the works of idenitifying loan prospects and determining their creditworthiness, it left the work of originating the loans to WebBank. Those loans could then be sold into the credit market for investors. Partnering with WebBank meant that LendingClub was able to skirt the stringent banking regulations that would have made its operations expensive.
In almost a similar fashion, Ladder has partnered with Fidelity Security Life Insurance, which it serves as a managing general agent. That allows Ladder to recruit customers and underwrite policies without being subjected to typical industry regulations. Ladder has launched in California and its CEO Jamie Hale said they have plans to eventually go nationwide.
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Insurance startups stealing venture capital attention from credit startups
In the first nine months of 2016, startups in insurance business received about $856 million in venture capital funding, indicating a growth of 84% from the same period last year. On the other hand, venture capital funding for credit startups shrank 73% to $651 million in the first nine months of 2016.
LendingClub, which is one of the struggling lenders, is set to release its 3Q16 earnings on October 27. The company posted EPS loss of $0.12 in the last quarter, wider than EPS loss of $0.05 that analysts expected for the quarter.
