Flat fees give Naked the edge

A new ap­proach ad­dresses the neg­a­tive rep­u­ta­tion of the in­sur­ance in­dus­try.

Finweek English Edition - - Contents - By Glen­neis Kriel ■ ed­i­to­rial@fin­week.co.za

grow­ing aware­ness of the way in which dig­i­tal tech­nol­ogy will shape the fu­ture led to three ac­tu­ar­ies, Alex Thom­son, Ernest North, and Su­marie Greybe, start­ing Naked In­sur­ance in Novem­ber 2016. “We ini­tially thought of chang­ing the in­dus­try from within. But over time we re­alised the whole sys­tem needed an over­haul – which is eas­ier with a new com­pany than one en­trenched in years of do­ing things in a spe­cific way,” Thom­son says.

Naked is on the fringe of the tech rev­o­lu­tion, with the com­pany us­ing au­toma­tion, ar­ti­fi­cial in­tel­li­gence and chat bots to cut costs and im­prove in­dus­try ef­fi­ciency. Anti-fraud ar­ti­fi­cial in­tel­li­gence al­lows prospec­tive clients to sign up, re­ceive quotes and get cover in a mat­ter of min­utes. Claims are sub­mit­ted via the com­pany’s app by merely en­gag­ing with the chat bot and up­load­ing a video in which the cause of dam­age is ex­plained, along with a photo of the dam­age. Claimants are typ­i­cally no­ti­fied within an hour or two whether a claim will be paid or not.

The CoverPause op­tion on the app al­lows clients to pause and ac­ti­vate ac­ci­dent cover if their cars are not in use for a day or more, which trans­lates into an im­me­di­ate par­tial pre­mium re­fund.

A new ap­proach

Thom­son ex­plains that the du­al­is­tic na­ture of tra­di­tional in­sur­ance com­pa­nies re­sults in a con­flict of in­ter­est. This, he says, is why the in­dus­try has a bad rep­u­ta­tion: “On the one hand, com­pa­nies have to carry the best in­ter­est of their clients but at the same time en­hance their prof­its, which in­creases when they do not have to make pay-outs.”

To over­come this, Naked charges a fixed 20% of pre­mium in­come to cover op­er­a­tional costs, ren­der­ing prof­itabil­ity to­tally in­de­pen­dent of whether claims are paid or not. The bal­ance goes into a pool to cover claims and at the end of each year, money left over goes to char­i­ties nom­i­nated by the clients.

Thom­son says they did not want to use the re­serves to start a re­ward pro­gramme, as such pro­grammes re­quire the pre­mium to be in­creased for that ben­e­fit. It also puts clients in a dif­fi­cult po­si­tion whether to claim or not – the very rea­son they bought the prod­uct in the first place.

Naked’s char­ity pay-out is in­de­pen­dent of whether an in­di­vid­ual has claimed or not.

A lot of ef­fort is put into ad­dress­ing the neg­a­tive rep­u­ta­tion of the in­dus­try that has de­vel­oped be­cause of client dis­ap­point­ments when claims do not pay out.

“We are care­fully study­ing rea­sons for pay-out fail­ures and are adapt­ing our sys­tems as far as pos­si­ble to en­sure cus­tomer sat­is­fac­tion. Our busi­ness model is one step in the right di­rec­tion, as it au­to­mat­i­cally puts us on the claimants’ side,” he says.

Most of the mar­ket­ing, for this rea­son, is done via users over so­cial me­dia and “word of mouth”.

“We do not want to go around telling peo­ple they can save lots of money when buy­ing in­sur­ance from Naked. We want our prod­uct to speak for it­self, which it will with happy clients. We also want to avoid ad­ver­tis­ing that would drive up pre­mium costs,” Thom­son says.

Their long-term vi­sion is to be­come the in­sur­ance com­pany of­fer­ing the best prices.

The use of dig­i­tal tech­nol­ogy also brings down costs be­cause they em­ploy sig­nif­i­cantly fewer peo­ple. Their ar­ti­fi­cial in­tel­li­gence pro­gramme al­lows them to build a much smaller con­tin­gency into pre­mi­ums for fraud, as op­posed to the tra­di­tional 30%.

Start­ing a com­pany

Thom­son says the hard­est part of start­ing their own com­pany was to leave their cushy and se­cure se­nior po­si­tions at a pro­fes­sional ser­vices firm. How­ever, with the dig­i­tal rev­o­lu­tion pre­dicted to cause ma­jor ca­reer shifts, he feels they are bet­ter off be­ing at the fore­front of de­vel­op­ment, help­ing to in­flu­ence the re­design of the in­dus­try, rather than wait­ing to see how their ca­reers will be af­fected.

The most chal­leng­ing part for most in­sur­ance start-ups, ac­cord­ing to him, is get­ting un­der­writ­ing ca­pac­ity, com­ply­ing with gov­ern­ment reg­u­la­tions and se­cur­ing fund­ing. This proved rel­a­tively easy for Naked thanks to the years of ex­pe­ri­ence, valu­able net­works and rep­utable images the founders have built over the years.

Hol­lard has un­der­writ­ten Naked, which means that claims will still be hon­oured even if Naked for some rea­son needs to close shop. Hol­lard and Yel­low­woods in­vested R20m in the start-up.

The com­pany started with seven em­ploy­ees, in­clud­ing the founders. They are cur­rently re­cruit­ing, which will bring the to­tal to 15.

Thom­son does not want to talk num­bers yet, since the in­sur­ance of­fer­ing has only been launched on­line in April this year. “Growth has sur­passed our ex­pec­ta­tions. Our in­vestors are so sat­is­fied with the growth that we have been given the go-ahead to di­ver­sify into the rest of the short-term in­sur­ance mar­ket, which we plan on do­ing within the next year-and-a-half. We are also plan­ning on di­ver­si­fy­ing into other coun­tries in due course,” Thom­son says.

2 Nake 0 d charge % s a fixed of pre­mium in­come to cover op­er­a­tional costs, ren­der­ing prof­itabil­ity to­tally in­de­pen­dent of whether claims are paid or not.

The Naked team from left: Ernest North (co-founder), Nicky Fred­er­icks, Chris Cherry, Alex Thom­son (co-founder),Ke­abetswe Phokela, Le­bo­gang Ma­bala, Su­marie Greybe (co-founder), Philip Rumpelt, Mag­daleen Steyn and Jade Venter.

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