Fintech opens up a new market for banking: lending to life insurance

Many people buy whole life insurance as protection for their beneficiaries when they die. Josh Wyss also sees it as a life saving vehicle.

Unlike term insurance, which covers the specific period of the policyholder’s life, whole life insurance covers the entire life of the policyholder borrowing versus cash value about their policies when they need money. The money is not taxed as it accrues within the scheme, nor is it given as a loan.

“Especially people who don’t have whole lives tend to think that people follow whole life policies based on the death benefit,” Wyss said. “That’s not true.”

After taking out his life insurance for 12 years, Wyss has found plenty of room for improvement.

For both users and sponsors, “It’s very painful,” he said. “There is no technology and it takes a long time for one of these lines to be installed.” It was so painful, in fact, that the bank he borrowed from informed him in March 2020 that it would not be renewing his loan and it pulled out of the market.

“They said that the origin, operation and management of the collateral is difficult and manual, especially because you have to communicate with the life carriers and old systems, and the number of people who have to throw in the business after a while to start using it. ,” said Wyss. “That was an ‘aha’ moment for me.”

Wyss also founded a fintech called Inclined that helps banks participate in this lending process. Although the property is very low-risk for the borrower, because the policy’s cash value serves as collateral, Wyss’ research has found that only a handful of banks in the country write loans against whole-life policies. It is estimated that 90% of the loan market is done through the life insurance provider.

Inclined, which announced on Friday that it raised $15 million in its Series A funding, wants to solve the problem for banks. It already has a Mechanics Bank, in Walnut Creek, California, on the property, and two or four financial institutions are expected to be established in future locations. Some are attracted by the non-losing nature of the loan, while others hope that the loans will lead to new relationships with customers, according to the company. Wyss believes that banks are better equipped than whole life carriers to make loans because they have lower costs than related insurance carriers.

“We’re looking for banks that want to create a risky business,” said Amir Friedman, chief executive officer at Inclined. “These are the banks that are interested in stopping the new phase of consumer loans.”

The $18.6 billion Mechanics Bank is an investor and founding partner of Inclined.

“The more we investigated, the more we liked from the bank,” said Carl Webb, chairman of Mechanics. Beyond the low risk of loss, “It serves the underserved market in the consumer lending space. It’s a very unique space.”

Inclined’s programs will be among whole life carriers, currently Northwestern Mutual and MassMutual, and financial institutions. Whole life advisors will invite their clients to Inclined’s portal, where clients can apply for a loan tailored to their whole life policy. Incred runs a check and ensures that there is collateral to support the loan process while the financial institutions that share the other side initiate the loans from their banks. Financial institutions will approve the loan plan and monitor it.

“These are not loans that were originated and sold to the bank because they are not long-term loans,” Wyss said. “It’s a permanent loan that lasts for years as long as the customer wants it.” Inclined Software does not have the ability to charge any fees, including fees, late payments or collections. Fintech will make money by charging platform fees to participating financial institutions.

However, there are challenges for consumers or beneficiaries. If the policyholder dies before repaying the loan, the insurance company will reduce the death benefit by the amount they have.

As a founding partner, Mechanics helped Inclined develop a bank compliance and risk management system.

“They brought the technology, we brought the money and the plans for the banking products,” Webb said. “We’re in it because we like the financial team, the risk profile and the ability to scale.”