Flat fees give Naked the edge
A new approach addresses the negative reputation of the insurance industry.
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.