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Saturday, Feb 4, 2023

MediaAlpha Brings Innovation to Staid Insurance Industry

MediaAlpha Inc. is far from a typical tech startup.

Co-founder and Chief Executive Steve Yi said the downtown-based company, which generates customer acquisition leads for insurance carriers through a digital platform, became profitable within a year of launching.

Rather than appealing to venture capitalists for funding to grow the business, Yi said MediaAlpha chose to scale its operations slowly, building revenue over time without going deep into the red.

By the time the company made its initial public offering in October, it was generating more than $150 million in quarterly revenue, with more than $20 million in gross profit.

“We always wanted it to be a self-funded business,” Yi said. “We didn’t want to raise $50 million and turbocharge the business and grow super rapidly.”

Yi said MediaAlpha’s cautious approach to expansion turned out to be well-suited to the slow-moving insurance industry.

“These are large, traditional companies,” Yi said. “You don’t necessarily want your insurance company to be on the cutting edge of things. You want your insurance company to be conservative because of the nature of the business.”

In spite of the restraint touted by Yi, MediaAlpha has already achieved the kind of success many ambitious tech entrepreneurs strive for.

The company’s share price shot up more than 60% on the day of its IPO and has risen further since then. Today, MediaAlpha has 120 employees and a market capitalization of more than $3 billion.

The company was founded in 2010 by Yi, Eugene Nonko and Ambrose Wang, who previously worked together at online travel comparison company Oversee.net Inc.

“We were essentially a co-founding team looking for a new venture in a new industry,” Yi said.

‘Boring’ opportunity

After doing some preliminary research, the founders concluded that the insurance industry offered the most potential. That was partly because they saw their skills in online customer acquisition as compatible with the needs of insurers; and partly it was because the industry at that time had little appeal for tech-savvy entrepreneurs.

“We knew insurance was a huge industry,” Yi said. “It’s also perceived as a boring industry, so we figured there wouldn’t be a lot of technology-based startups looking to start companies in that industry.”

Tim Zawacki, lead insurance analyst for S&P Global Inc., said the industry has a “reputation for being old-fashioned” for a reason.

“There are a lot of impediments on the regulatory side,” he said. “It takes time to bring things to market. You don’t put something on a whiteboard and start selling it the next day.”

Yi said this is one reason why MediaAlpha started with “modest ambitions,” launching a “simple lead generation website” that served as the starting point for all of the company’s future growth.

The site allowed users to shop around for auto insurance policies before eventually being referred to specific carriers to purchase coverage. On the back end, Yi said, the company was collecting information entered by users and using it to generate leads for carriers.

Eventually, MediaAlpha partnered with other rate comparison sites and companies like Esurance Insurance Services Inc. to collect user input from multiple sources. 

Changing industry

What started as a single website became a digital platform generating leads for insurers in multiple categories using data gathered from hundreds of sites — including those of insurance companies themselves.

Using the company’s data science tools, “insurance carriers can intelligently refer shoppers on their sites to other insurance companies,” Yi said. He added that carriers aren’t “risking a policy loss because they’re only referring people who don’t buy a policy from them.”

The insurance industry has changed quite a bit in recent decades, Zawacki said, but customer leads — or information about policy shoppers that might lead to a sale — remain as valuable as ever.

“The idea of getting high-quality leads is what vendors like MediaAlpha are shooting for,” he said. “The conversion rates when agents follow up on these leads are crucial to keeping costs down. The impact on productivity when you’re getting a high-quality lead versus a low-quality lead makes all the difference.”

Yi said working with so much data allows MediaAlpha to price leads dynamically and to connect carriers and agents with customers who are actively shopping for a new policy.

“These consumers are really close to the point of purchase,” Yi said. “They’re not just going to Google and searching for cheap auto insurance. They’re filling out a four- to five-page form in order to get a quote.”

Since making its debut as a publicly traded company, Yi said that MediaAlpha has added about 35 employees as the company focuses on bringing its lead generation tools directly to insurance agents.

More than half of insurance policies are still sold through agents, Yi said, and many customers looking for a policy may be hesitant to commit to a purchase before speaking with someone who can walk them through the details.

Value for agents

The type of lead generation services that MediaAlpha provides could be invaluable to agents themselves, Zawacki said, given that an uptick in digital transactions has made competition for customers all the more competitive.

“The old ways that agents generated leads just don’t work the same as they used to, and the last 12 months have only accelerated that,” he said.

Agents peddling insurance policies through in-person interactions and in physical storefronts may need to embrace a more technological approach to the business, Zawacki said.

“Agents are under pressure to generate new business,” he said. “Tech plays a critical role in filtering out low-quality leads.”

 As MediaAlpha focuses on continuing to grow its business, Yi said there’s plenty of room for the company to build new partnerships and expand its role in the larger insurance industry.

“Going forward, we’re focused on replicating our success with the auto insurance industry and applying that in the health and life insurance markets,” he said. “As slow as the overall insurance industry has been to adopt an online, direct-to-consumer product, the health and life insurance categories are way behind.”

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