Traditional insurance players appear eager to back the industry’s new kid on the block.
During a podcast interview taped in July 2016, Frank Schutte said that his insuretech start-up aimed to transform South Africa’s micro-insurance industry. Previously the managing director of retail product and marketing at Liberty, one of South Africa’s largest life insurers, Schutte left his cushy corporate gig earlier last year to start a business called MobiLife – “Africa’s first 100% mo-bile insurance offering”.
Nearly a year and a half later, Schutte remains tight-lipped about his business numbers, stating that things are “going very well”. He is, however, as bullish as ever on the notion that technologi-cal innovation will catalyse the creation of new distribution models and connect financial services to lower-income consumers, who are either currently inadequately serviced by the established industry or not being catered for at all.
He also believes that the upward trend in mobile adoption is going to continue and that it will significantly influence the kind of technological solutions that emerge within the insurance industry – both in terms of leveraging direct engagement with consumers via mobile devices, and in terms of coupling face-to-face distribution with mobile solutions.
Relative to newer insuretech entrants such as the founders of Pineapple (formerly known as Amyti), Click2Sure, IndieFin and Naked Insurance, Schutte has the benefit of being – in relative terms – a veteran operator in this nascent fintech sub-genre.
Unpacking what he now knows for sure about what it takes to win at the insuretech game, Schutte says that as long as life insurance remains a low priority purchase for most people, it is naive to think that simply building great products and lining a storefront with them will make for a profita-ble business. He has learnt that distribution is key to scaling for success, and that engaging with legacy distribution channels and getting them to embrace new products, technologies and pro-cesses are not for the faint-hearted.
Meanwhile, Naked Insurance recently landed US$1.4 million courtesy of Hollard – South Africa’s largest privately-owned insurance group – and private investment firm, Yellowwood. In the couple of months leading up to this deal going down, a handful of other sizeable insuretech start-up fund-ing announcements have been made by big-name insurance corporations.
Given that backdrop, I asked entrepreneur-turned-angel investor and founder of Click2Sure, Daniel Guasco, to factor in on whether success for insuretech ventures is possible without engaging in partnerships with big scale players.
Guasco explained that in order to write an insurance policy, a license is required, and that can be hugely expensive. In his opinion, partnering with a traditional insurer or reinsurer is the only real-istic way to get an insurance product to market.
Speaking to the same point, Schutte echoed Guasco’s sentiments, stating that the biggest chal-lenge for any new insurance play is building distribution to achieve scale. Partnering with en-trenched financial services players not only gives insuretech start-ups access to venture capital needed to extend their runways, but allows them to leverage trusted brands and exploit the bene-fits of scaling across an established customer footprint.
Complicating the nimble efforts of start-ups like Click2Sure – a full-stack digital insurance platform offering clients an array of bolt-on insurance products at point of sale – is the fact that even as big brand insurers fund innovative ventures, they continue to cling fiercely to their dominance by tapping seemingly inexhaustible financial resources and enormous customer bases to compete for market share.
While Guasco considers the large incumbents as his biggest competitive threat, he is also wary of start-ups that, while currently in stealth mode, might well be capable of shaking up the whole in-dustry in some unimaginable way when they decide to make themselves known.
Peter Castleden is the CEO of IndieFin – essentially an ambitious internal insuretech experiment wholly-backed by Sanlam, a financial services group boasting an extensive African footprint in more than 30 African countries.
Prior to heading up IndieFin, Castleden served as Sanlam’s head of alternative millennial solutions. His role involved managing a respectable reinsurance portfolio in close collaboration with the world’s big five reinsurers.
His intimate interactions with the reinsurance industry are what inform his preference for running a venture funded by an established insurer as opposed to a reinsurer. Castleden has found that, while reinsurers make for excellent technical partners, they often prove less than ideal as holistic partners. He believes that reinsurers provide solid guidance around fundamentals like technical product design, claim definitions and pricing, but they are less adept at deciphering consumer needs and making actionable sense of the market in general.
However, Castleden hastened to point out that IndieFin did, in fact, rope in both Munich Re and Gen Re to design and price their product suite.
When pressed to comment on the conspicuous sluggishness of the traditional insurance industry as a whole, Castleden yielded that big corporates simply do not have the right technical infrastruc-ture for rapid deployment and iteration. Apparently this is why IndieFin has opted to design, build and buy their entire architecture from scratch while operating independently of Sanlam’s infra-structure. According to Castleden, this approach has increased his company’s agility— allowing them to rapidly and cost-effectively adopt and deploy technological solutions.
When asked to give a sense of what level of autonomy his start-up is allowed by Sanlam, and what type of support the company enjoys from the insurance giant, Castleden said that to date, IndieFin has taken full advantage of Sanlam’s underwriting, medical, actuarial, legal, compliance and distribution functions to assist in development efforts. He said that Sanlam tries hard not to suffocate them with impossible governance requirements while maintaining a sufficient level of oversight to discourage “rogue” behaviour.
Castleden praised the insurance giant for giving him enough space and trust to test concepts in the real world, and for appreciating the fact that failure is an organic part of the journey to start-up success. He shared that as a result of this approach, IndieFin was able to build and launch a beta version of a fully underwritten life insurance proposition within three months.
To help make sense of the emerging insuretech scene, I asked the founders of MobiLife, Click2Sure and IndieFin to tell me which common buzzwords in their circles are overused. MobiLife’s Schutte reckons that while in theory, the business potential of blockchain-enabled innovations, big data crunching and social media-based underwriting is huge, in practice, South African insurers are a long way away from being able to exploit such advances meaningfully. This is due to the quality of data available being relatively poor, as well as internet penetration and digital adoption remaining far below optimum levels.
Click2Sure’s Guasco concurs with Schutte’s views on big data, insisting that it is tempting to make too much of the positive potential of harnessing big data to make unprecedented business gains, because most start-ups in the African context typically do not have access to the right kind and the right volume of data to make significant changes to their models. Guasco believes that the great-est business opportunities currently lie in slowly but surely creating efficiencies by digitising the customer journey, and that “all the high-tech stuff” will get worked in as and when.
Guasco’s assertion truly hits home when one considers the fact that at the most basic capitalist level, the golden opportunity that insuretech potentially unlocks for the industry is converting previously low-margin and uninsurable prospects into lucrative sources of commercial benefit.
Getting caught up in the hype invariably gets in the way of keeping one’s eye on the prize. After all, like the banking and mobile telco industries, the insurance business isn’t backing innovation for warm and fuzzy reasons. The industry needs to keep up with changing consumer patterns which are shaped by technological advancement. And beyond the heart-warming prospect of advancing widespread financial inclusion, there’s the irresistible allure of banking more and more cold hard cash as technology makes it easier and cheaper to insure Africa’s citizenry.
Perhaps that is partly why Castleden says he constantly reminds his team at IndieFin to focus on understanding how their customers are using their products, so they can find new opportunities to deliver a better client service experience and release new product features in time frames that traditional insurers simply cannot match. He says that at this stage of his start-up’s lifecycle, his priority is building in the discipline and capability to ship updates and new features early and of-ten, because such a culture is nearly impossible to inculcate once a company is operating at scale.
When asked to provide a list of Click2Sure’s business successes to date in terms of sum assured, number of people insured, revenue, profit and other key metrics, Guasco told me that owing to a non-disclosure agreement, all he was at liberty to confirm is that his company is currently running several live service provider integrations, including one across WeFix’s digital device repair shop franchise locations nationwide.
Likewise, when I asked Castleden a similar question regarding key indicators that might validate IndieFin’s business model, he declined to reveal specifics, saying that the company is still in “build mode” and that sales or volume metrics are not how they are currently choosing to define the company’s success.
The reticence of the founders of MobiLife, Click2Sure and IndieFin to reveal their numbers not-withstanding, all three harbour decidedly lofty business aspirations in terms of growing their busi-nesses beyond South Africa. When prompted to share his vision for growth, Schutte highlighted the potential applicability of MobiLife’s mobile insurance model in other sub-Saharan African countries and in other developing regions around the world with large populations of low-income consumers.
Guasco too, said that he relishes the prospect of global expansion – citing the fact that Click2Sure’s investors have substantial rest-of-Africa, Asia and South America exposure. Mean-while, Castleden disclosed that IndieFin is currently poised to run a production pilot in West Africa, which the company plans to follow up with a regional country-by-country roll-out of slightly tweaked solutions – which take into account variations in risk profile, culture, and legislation.
One thing is abundantly clear to me, insuretech is no hack. Castleden neatly summed it up by ob-serving that although technology continues to open up many opportunities within the industry, the fundamentals of the insurance business model do not change. Every successful insurance un-dertaking, however traditional or novel, must grapple with the cost of acquiring new customers and figure out how to keep clients on the books once they have been landed.
In short, insuretech start-ups which cleverly minimise customer acquisition costs, and master cli-ent retention will write their own cheques. Now, that might sound a little boring, but the glitz and glamour will just have to wait.