How a startup is making waves in a very unlikely VC focused industry - Health insurance!
The brand new start-up that’s making waves in the venture capital industry is Oscar. It is a New York-based startup which is operating in the very risky health insurance sector. Oscar is very uniquely positioning itself as a technology based health insurance and was able to demonstrate revenue in millions within months of its product launch. With its unique business model and the perfect timing of the affordable care act, Oscar was able to pick up many customers. The signing up of thousands of customers and the company’s offering of phone consulting by a certified physician helped Oscar raise $30 million in new funding.
In total, Oscar has raised $75 million, $29 million of which is reserved toward a capital reserve that is mandated by the state of New York for health insurance providers. Currently, Oscar is operating only in the state of New York and has plans to expand to other states in the long run. Along with market timing, Oscar also boasts of a strong technical team in place with Thrive Capital’s Josh Kushner, Vostu co-founder Mario Schlosser, Kevin Nazemi and Fredrik Nylander, who ran engineering and operations and Tumblr. Along with a great technical team, Oscar added health insurance executive Charlie Baker who ran insurer Harvard Pilgrim out of Massachusetts. Massachusetts is the only state with the insurer exchange act before the affordable care act was passed.
Another key attractive feature of the health insurance programs offered by Oscar is free generic drugs and free primary care visits. Oscar aims to bring the consumer experience of the mobile world to the health insurance sector with their programs. For now, we can conclude that Oscar meets the basic criteria of the VCs with their good business model, strong management team, revenues in millions and an opportunity to grow in the market. However, it still needs to be considered that health insurance is a very risky sector to operate in.
Analysis:
I personally went to their website and browsed through their programs. As discussed above, I am impressed with their offerings. However, the quotes cannot be considered the most affordable when compared to the other health insurance products in the market. It remains to be seen if Oscar will be able to generate more traffic through their customer signings in the future.
Any thoughts on Oscar’s success in the future?
P.S: Oscar’s website - https://www.hioscar.com/
There are a few bits of information that I don't understand about this startup.. For one, I was a prospective customer of and I checked out their quotes. Like you I found that they were above market. I imagine that when running a health insurance you want to attract either the young folks who will pay premiums and never see a doctor and that are mispriced by other health insurance companies. What I don't understand is that Oscar's price is high enough that I can't imagine what would convince me to enroll... and I assume that I am the ideal customer (young, healthy, never goes to a doctor). I assume the ideal customer (young folks) are like me and only care about price and very little else. I don't really care if filling out paperwork is a pain or if I get to phone a doctor for free, since I'm rarely ever sick, but need the insurance if something really bad happens. Their plans are not suitable for this emergency-only purpose since they have such high deductibles. So it seems like a bad deal for me personally, who I assume is up there is terms of the most profitable customer.. and the kind of person their ad appeals to...
Secondly, if they have indeed signed up a whole bunch of customers as they claim, I'm surprised I can't find more stuff online about people posting on forums about why they chose Oscar.. Instead I've found a whole bunch of forum posts (including this one) about how they are expensive compared to everyone else. Does anyone who has actually signed up for them provide some context on why they made the decision?
Thirdly, health insurance isn't like selling potatoes. Its not like you sell a potato, book the revenue and then move along. Selling insurance is like selling someone an financial option. If you've mispriced your option you will blow through your reserves very quickly (there is a good reason the state mandates they need 29MM in reserves). What makes these guys think they've analyzed the data better than the other health insurance companies that have years of data on customer behavior? Sure, they might be able to raise money by convincing VCs that they are 'numbers guys' and are really good at analyzing data, but I'd be surprised if the existing health insurance companies don't have significantly richer data to base their pricing off of.. Considering that folks at Oscar are a bunch of ex-hedge fund guys you'd think they'd know that proprietary data is way more valuable than fancy modeling skills..
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