Bitcoin-denominated Life Insurance: Exclusive Interview with Zachary Townsend

Bitcoin under an umbrella symbolising protection
BTC-denominated life protection, created using Bing Image Creator

When I first heard of Bitcoin, I dismissed it like most people. I mean, what is this “magic internet money” that needs to be “mined” using electricity? It was not an intuitive concept to wrap my head around. Reading the Bitcoin white paper was an eye-opener. It turns out there’s no magic or witchcraft; Bitcoin is the first application of blockchain – a distributed, decentralised ledger. I’ve since gone deep down the rabbit hole and have written and spoken about the use cases of blockchain.

Bitcoin has come a long way since its genesis block on 3 January 2009. Bitcoin’s longevity and resilience has reinforced the belief that it will probably persist for years to come. One of Bitcoin’s most prominent proponents, Balaji Srinivasan, believes that Bitcoin is a viable escape hatch from a collapsing fiat system.

Time will tell whether Balaji is right.

In the meantime, interest in Bitcoin has spawned a wide array of related financial products. The latest is a Bitcoin-denominated life insurance product. Meanwhile, based in Bermuda, is a licensed and regulated life insurance company offering whole of life policies denominated in Bitcoin – all premiums, claims, reserves, investments, and financials are in Bitcoin – the first of its kind. The company came out of stealth mode in early June 2023, having raised sizeable capital from prominent investors, including Sam Altman (of OpenAI fame).

In an email interview, Zachary Townsend, the founder and CEO of Meanwhile, answers my burning questions:

About Zac

Could you please tell us about your background and previous experiences that led to your starting the first Bitcoin-denominated life insurer? 

I’ve split my career between working in financial technology and government service.

On the fintech side, I co-founded a company called Standard Treasury. It was an early banking-as-a-service company that went through Y Combinator and raised money from some great investors like Index Ventures, a16z, DCVC, RRE and others. We ultimately built that business up and sold it to Silicon Valley Bank. I also worked at McKinsey for three years in their fintech practice, where I focused on business-building – I basically took on interim roles with clients to lead and build new business units across financial services.

On the government side, I was the CTO of the City of Newark, NJ under Cory Booker. I was also the first Chief Data Officer for the State of California.

So when my co-founder, Max Gasner, and I sat down to think about building a company together, we were focused on the areas of digital money, comfort with regulated industries, and a clear focus on leveraging data and artificial intelligence. We brainstormed a lot of ideas but this is the one that we kept coming back to with excitement and curiosity. The initial concept of Meanwhile is one where we want to use our experience, shared interest, and vision to build something – integrating cutting-edge tech – for use today as opposed to utility limited to an anticipated future.

You believe that there’s going to be an active economy built on Bitcoin (BTC) and that millions will be onboarded onto the BTC economy – what has informed this conviction? 

We are strong believers that a digital, decentralized, store of value that is globally accessible and programmable has unique benefits that will see widespread adoption. Having said that, we aren’t the type of folks that think there won’t be any Dollars, Euros, or Yens in the future — just that there will be this global overlay of a BTC and broader digital asset economy that will serve as a store of value and settlement layer outside the scope or control of any state.

What motivates you as a founder and CEO, and what keeps you up at night?

I’m motivated by creating and building something meaningful and durable in the world. There are a lot of startup ideas one can pursue, and I’m excited to be working on something that, if successful, could clearly be a multi-century operation.

With that, building a life insurance company has the benefit of letting us think in the long-term, but what’s keeping me up at night is mostly whether we’re prioritizing the right things right now. We have so many product ideas, geographies to expand to, and adjacencies to tackle and it’s all about finding the right sequence to maximize success.

On Entrepreneurship

Congratulations on raising US$19 million in funding! What’s the behind-the-scenes story of meeting and successfully pitching to prominent investors like Sam Altman?

This is a clear advantage of Meanwhile being my second startup (and Max’s third). I went through Y Combinator when Sam Altman was a part-time partner in summer 2013. We have known many of our other early investors before we were running this company — although not necessarily well. From that core base, we got to meet a ton of investors in insurance that we were able to bring on to the team too, like HSCM Ventures and MS&AD Ventures, and investors with expertise in artificial intelligence, like Gradient Ventures.

What advice would you give to aspiring entrepreneurs who are interested in the digital assets and insurance space?

Shoot me an email, I’m happy to help!

The product

The minimum premium of 5 BTC to be paid over 10 years means that the product is not for the average BTC hodler. Have you observed a significant demand from BTC whales or high networth individuals (HNWIs) for a BTC-denominated life insurance product?

Yes, our early product is definitely targeted at HNWIs. Some of those folks are whales, some of those are entrepreneurs or tech executives that want a tax-advantaged way to hold BTC, and others are family offices with BTC holdings who are familiar with life insurance products. We aren’t trying to convince people to purchase crypto who aren’t already on board. We are only accepting interest from folks who already have serious interest in BTC if they don’t already hold it, and those who already have the net worth to want a product of that size.

BTC is loaned out to institutions to earn yield. In the last year, we’ve seen (what were then) credible institutions (e.g. Three Arrows Capital, Celsius etc.) filed for bankruptcy. In pursuing the yield required to meet product pricing expectations, what are some of the risk management strategies used to limit counterparty default risk?

Those organizations might have been large but I don’t think they were running particularly sophisticated credit operations. We do the same type of detailed due diligence that anyone who looks at private credit would do. We want to understand cash flows. We want to understand collateral. We want to understand what legal entities we’re up against and where we are in the capital and preference stack. We aren’t actually looking at automated loans or margin loans or anything like that. We’re looking to make longer duration loans to creditworthy institutional counterparties, where our definition of creditworthy is not merely about having a stack of alt coins but goes far beyond that.

As for risk management in the formal sense, we have all the policies and procedures of a licensed life insurance company. We have an investment committee, we have an investment policy, we have an independent Chief Risk Officer (CRO) who serves as a second line check, and a half independent board that has to approve all these policies and procedures. And, ultimately, we have the Bermuda Monetary Authority (BMA) who is pressure-testing our solvency calculations and capital exactly along these lines.

Regulatory considerations

What is the level of maturity of regulations on digital assets-denominated insurance? How has that informed your decision to be based in Bermuda?

We chose Bermuda because of the combination of their insurance expertise and their selective openness to digital assets. Bermuda is the premier insurance jurisdiction in the world in our view, and we wanted to meet and exceed their standards so our users would know that we’re safe, solvent, and well-regulated. The Bermuda Monetary Authority (BMA) is flexible on some of the details — like allowing us to denominate our entire balance sheet in BTC — but every one of our conversations comes back to protecting and doing right by policyholders. For example, they provide rigorous oversight of our enterprise risk management framework and ask detailed questions about our product design, reserving and investment policies. In short, they hold us to a very high standard with a willingness to be innovative. That’s what we wanted in a regulatory and licensing partner and we’re glad to have found it in the BMA.

Are there any specific regulatory requirements that a digital asset insurer must adhere to that a traditional insurer need not?

There are a few dimensions where we were expected to go above and beyond from the start. We were expected to have in place much more developed financial crime policies and procedures (across KYC/AML/ATF/KYT) before launching operations. We implemented much more detailed controls around our custody and information security policies from the get go than a normal insurer. Lastly, we had to work together with the BMA to adapt the solvency calculations for our business.

Company operations

With a small team of only 6 employees, what automation systems or tools are being used to streamline operations? Are there any notable examples of specific tasks or processes that have been automated? 

Honestly, there isn’t a magic bullet where this one specific task or process has been automated and thus changes everything. It’s about not hiring the next person even though that would be easier. So, we’re using AI/automation in financial crimes detection, in medical underwriting, in our customer service interactions, in our reserving, in our sales outreach, and in increasing our engineering and actuarial productivity.

The main liability (i.e. customers’ guaranteed claim payout) is denominated in BTC; in actuarial parlance, assets and liabilities are well-matched. But what about operating expenses in fiat currency? How does the company mitigate the fluctuations in Bitcoin price in meeting day-to-day operating expenses? 

We’re very conservative in our operating expense budgeting, and have built our financial models for any BTC price above single digit thousands. That doesn’t mean there is some magic number where the company doesn’t become viable, but if the price of BTC persisted at a few thousand dollars for years, that would be problematic for us covering our dollar expenses. Oddly, if the price of BTC were to dip drastically, that would likely be fine too because we’d just fully collateralize the company. To protect against that very unlikely possibility that BTC’s price is so low that we have trouble covering our expenses but so high that we couldn’t fully collateralize, we hold a separate dollar-denominated run-off reserve in a Bermuda-based affiliate.

Plans for the future

What are your long-term goals and vision for the company, and how do you see it evolving in the coming years?

We’d like to be the largest life insurer in the world by market capitalization with the goal of serving over a billion users, many with much smaller policies than we offer now. We’d like to expand our regulatory footprint globally, our product suite extensively, and our customer profile across the socio-economic ladder.

Can you share what’s on the product pipeline beyond BTC-denominated whole life policies?

We’re focused on our whole life policy for now, but our vision is to build a full suite of insurance and annuity products.