While much of what Aaron wrote is spot on, one thing missing is the importance of distribution. This a challenge for any startup, but is more pronounced in a regulated industry like insurance with largely homogenized products and with serious restrictions on how you can legally distribute your product (see Zenefits).
If you consider how most people and small businesses buy insurance, they typically make purchasing decisions one a year at most. As such, you need to get in front of them at the exact moment they want to purchase. GEICO and Progressive have done this really well, but have effectively bid up the cost of online advertising to make it prohibitively expensive. This is also why agents are such a powerful force in the industry (and because they effectively provide carriers with an initial underwriting screen which they don't need to file publicly).
It's important to get the product right, and there are many flaws with most P&C insurance today (chief among them that the forms haven't really changed in the past few decades), but I'd encourage any entrepreneurs to make sure they have an answer on distribution before spending time on product.
Disclosure: I've spent a lot of time looking at this as founder of a P&C insurance startup a few years ago.
I work in marketing for a specialty P&C MGA and can attest to distribution challenges, at least compared to other industries, but Zenefits could have (and currently does) operate legally, they just chose not to.
Zenefits was allowing unlicensed agents sell insurance and for those in the company that were licensed, they found a browser hack that allowed them to not sit through the training required by the state (I'm assuming California) to be licensed. In the first case, you should know better but there can be gray areas. In the second case, it's 100% clear they knew they shouldn't be doing it, which makes the first case more likely to have been done knowingly and purposefully.
Yes, having to license people is a pain and presents onboarding and scaling issues, but they could have survived if they didn't "need" to grow at such an insane pace.
If you consider how most people and small businesses buy insurance, they typically make purchasing decisions one a year at most. As such, you need to get in front of them at the exact moment they want to purchase. GEICO and Progressive have done this really well, but have effectively bid up the cost of online advertising to make it prohibitively expensive. This is also why agents are such a powerful force in the industry (and because they effectively provide carriers with an initial underwriting screen which they don't need to file publicly).
It's important to get the product right, and there are many flaws with most P&C insurance today (chief among them that the forms haven't really changed in the past few decades), but I'd encourage any entrepreneurs to make sure they have an answer on distribution before spending time on product.
Disclosure: I've spent a lot of time looking at this as founder of a P&C insurance startup a few years ago.