A speedometer with the word Disrupt at the top and other related shake upThe year 2015 marked a substantial shift in insurance: in one year alone, investment in insurance tech reached $2.65 billion. This number encapsulates the immense growth happening in the start-up arena for insurance technology.

Companies such as Next, CoverWallet, Lemonade and Zenefits are just a few that have sprung up to disrupt the insurance industry in new and unproven ways. But during this entrance into unfamiliar waters, they will likely encounter stumbling blocks, and some already have. It’s no secret that insurance is one of the last industries facing digital transformation – for a long time it simply didn’t need to. The industry has largely been insulated by a hefty regulatory environment that dictates state-by-state standards, from the top level of how business is conducted all the way down to a specific font size in some cases.

Here are a few points new entrants need to know as they try to pave their way into the insurance industry of the future.

You can’t disrupt compliance

While it’s obvious to traditional carriers that complying with regulations is a top priority, certain startups have yet to give it the attention it requires. Take Silicon Valley unicorn Zenefits, which had been cutting corners in this process. It is an online insurance agency with a valuation of $4.5 billion that had sold insurance without a proper license to do so. Its founder and former CEO Parker Conrad stepped down due to the fact that agents were operating without proper certification.

In order for an organization to enter the insurance market, it needs to file for proper certification of authority with the National Association of Insurance Commissioners (NAIC). The NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.

Start-ups with a disruptive mindset and a culture of sharing information may end up facing difficulties in an industry that is highly regulated, monitored, and controlled. The conflicting nature of these business paradigms can only complicate their entrance. Consider the Zenefits example: It is a free provider of HR software, making money selling insurance as agents. Regulations were built on the foundation of the traditional insurance model, and not on outside technologies coming in to disrupt existing ways to conduct insurance. However, as time moves forward, these innovators will adapt by recognizing and learning from early mistakes. In fact, Zenefits’ newly appointed CEO David Sacks put out a formal statement after their problems came to light, pointing out that they ” sell insurance in a highly regulated industry…. In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die.”

The usual pace of startup innovation is muddled with state regulations

The very nature of startup culture is built on fast and explosive growth, which is often due to very aggressive demands from investors. This mindset is not typically conducive of what it takes to successfully operate within the insurance industry. This is predominately because of the strenuous process to become and remain compliant in many different states, all with varying rules on just about every specific item in a carrier or producer’s workflow. Using life insurance as an example, even knowing who is in charge of regulations can vary. In Washington D.C., insurance is regulated by the local civil government, whereas in Wisconsin, it’s the Wisconsin Statutes and Annotations that regulate. Free look periods and timely payment of claims can vary considerably as well. These are just several examples of the top-level distinctions between states.

Some states go as far as mandating form fonts, size and spacing. For one document, this may not be a major undertaking, but for startups growing their consumer base at an accelerated pace, this can be a tremendous burden. Other states require language mandates. Companies by state law might have to make a mandatory distinction between “Flood Coverage is excluded” and “Flood Coverage is not included” across every state they operate in. Doing this efficiently and correctly is a steep learning curve, and putting a customer communications platform in place that can operate under these conditions can be incredibly challenging.

These Regulations are constantly changing and evolving – often at different times

Compliance can be challenging, but keeping up with the constant changes – which can happen weekly – will continue to prove problematic. To put it into perspective, for a given line of business such as commercial auto, there are countrywide rules, 50 different states with their deviations to the countrywide rules, as well as their own specific rules in addition to that. Additionally, carriers can also file deviations to those rules at any level, and every state may have entirely different dates that regulation changes go into effect. Even if you aren’t a carrier and are instead facilitating the interaction with the customer, such as an aggregator service, these are still issues that need attention. Penalties for not complying range from fines and regulatory sanctions to adverse claims decisions in the courtrooms.

As it stands, start-ups are the expert in consumer experience, but the road won’t be easy for them to understand insurance regulations. As long as insurance start-ups have knowledgeable people or partners to supplement the technology in order to help ensure compliance, they will likely overcome the initial issues faced. This “grace period” for new entrants won’t last forever, and carriers must ensure they are up to speed on meeting the heightened expectations of consumers while navigating current regulatory expectations before that happens.