Tra­di­tional, fresh and in be­tween

New de­vel­op­ments in tech­nol­ogy and other fac­tors have made dig­i­tal cover pos­si­ble, but the old way is still pop­u­lar

Financial Mail - - MONEY&INVESTING - Stephen Cranston

It is now 20 years since Out­surance was formed. With its di­rect-to-con­sumer model it proved that most generic per­sonal-lines in­surance could be done with­out a bro­ker: call cen­tre staff could al­ways an­swer any ques­tions.

Now there are sev­eral chal­lengers to this model that of­fer no hu­man in­ter­ac­tion at all. The new­est in­surer, Naked, un­der­writ­ten by Hol­lard, says it can get a car cov­ered in 90 sec­onds. Naked co-founder Su­marie Greybe says the in­surer doesn’t even have a call cen­tre — and wouldn’t think of do­ing out­bound call­ing, though it does have a help desk for those who like old-fash­ioned, hu­man in­ter­ac­tion, par­tic­u­larly when they claim af­ter a trau­matic event.

There were no apps back in 1998, when Out­surance was es­tab­lished, but now on­line life busi­ness Sim­ply Fi­nan­cial Ser­vices, which is a year old, does 85% of its busi­ness through cell­phones or tablets and just 15% through per­sonal com­put­ers.

Sim­ply takes a bit more than 90 sec­onds to pro­vide life cover — it has to ask a few ques­tions about smok­ing and mar­i­tal sta­tus — but ap­proval should come in at about five min­utes.

Sim­ply CEO An­thony Miller started the Light­stone prop­erty val­u­a­tion busi­ness, and be­lieves that with good in­ter­nal and ex­ter­nal data the right prod­uct can be delivered at the right price.

“I don’t be­lieve stand­alone fu­neral cover is ap­pro­pri­ate for most peo­ple at en­try level. Our combo prod­uct makes more sense, as it pro­vides life and dis­abil­ity as well as fam­ily fu­neral cover,” says Miller.

Miller adds that Sim­ply’s op­er­at­ing model is en­tirely in­bound. The com­pany ex­per­i­mented with buy­ing third-party leads but found these caused too much ir­ri­ta­tion and brought in too lit­tle busi­ness. Its ad­ver­tis­ing is fo­cused on the tech savvy, with most go­ing to

Google and Face­book and a few niches, such as the ku­l­ khu­luma magazine.

But Miller does not be­lieve the di­rect way is al­ways the an­swer. Sim­ply is re­cruit­ing field agents for group in­surance prod­ucts, which target com­pa­nies that are too small for tra­di­tional em­ployee-ben­e­fits con­sul­tants.

The com­pany is also hav­ing a stab at the high­churn do­mes­tic worker in­surance mar­ket. Miller says that un­like some in­cum­bents the firm fo­cuses on in­surance cover only, not on bells and whis­tles such as dis­counted air­time.

A few fac­tors have made it eas­ier for the new gen­er­a­tion of dig­i­tal in­sur­ers to get off the ground. One is the in­creased will­ing­ness of large com­pa­nies to host them. Both Sim­ply and Dif­fer­ent Life, which is a cou­ple of years older, work off the Old Mu­tual Al­ter­na­tive Risk Trans­fer li­cence. Ul­ti­mately the Old Mu­tual balance sheet stands be­hind both of them.

An­other fac­tor is the sig­nif­i­cant de­cline in Hiv/aids-re­lated mor­tal­ity, which makes it vi­able for a com­pany such as Sim­ply to pro­vide cover with­out blood tests.

But the most sig­nif­i­cant de­vel­op­ment has been the growth of open-source codes and low-cost cloud ser­vices, which have dra­mat­i­cally re­duced the ex­pense of build­ing these firms.

Just 10 years ago cor­po­rates had to throw hun­dreds of mil­lions into de­vel­op­ing their di­rect brands. Ex­am­ples are Lib­erty’s and Old Mu­tual’s iwyze. Now the cost is a frac­tion of that, al­low­ing niche ex­per­i­men­tal busi­nesses. MMI, through its Guardrisk sub­sidiary, sup­ports Hero Life, which fo­cuses on five-year term cover for par­ents aged be­tween 20 and 40. Term life is quite un­usual in SA, and clients need to be care­ful, as it can be in­creased sharply on re­newal af­ter five years. But it presents an­other choice in the mar­ket.

It is far eas­ier to in­no­vate in a busi­ness that does not have legacy sys­tems. Naked’s most im­pres­sive in­no­va­tion to date is Cover­pause, which al­lows clients to sus­pend their ac­ci­dent cover when they are not driv­ing their car for a day or more. It also al­lows clients to can­cel poli­cies im­me­di­ately, and then re­funds the balance of the month’s pre­mi­ums to their ac­count.

There is com­plex­ity be­hind the scenes, but the new in­surance apps are of­ten easy to use. Naked di­rec­tor Ernest North be­lieves that any­one in a What­sapp group is more than ca­pa­ble of nav­i­gat­ing the Naked app.

It is con­fus­ing to see San­lam open an­other di­rect busi­ness when it al­ready has Mi­way Life. It’s called In­die, and its CEO, Peter Cas­tle­den, says that while there is noth­ing wrong with the ex­ist­ing San­lam prod­uct set, it makes no sense to of­fer the same on­line — no-one can be ex­pected to choose (or even un­der­stand) 18 choices of the shape of pol­icy and six guar­an­tee pe­ri­ods. And In­die in­cludes an in­vest­ment re­ward, de­pend­ing on age and other fac­tors, which is paid on ma­tu­rity, much like a loy­alty bonus. But it doesn’t like mo­tor­bike rid­ers and loads their pre­mi­ums heav­ily.

The suc­cess of these busi­nesses does not yet mean that the point has been reached where in­cum­bents such as Out­surance, Mi­way and 1Life are in de­cline. They all have prof­itable op­er­at­ing mod­els — Out­surance in par­tic­u­lar. 1Life CEO Lau­rence Hill­man says 1Life was the first in­surer to sell life cover on­line, back in Fe­bru­ary 2009, and through cell­phones in June 2011. It also al­lows pre­mi­ums to be de­ducted off mo­bile air­time.

But Hill­man says 1Life, part of Douw Steyn’s Te­lesure group, stands for di­rect client en­gage­ment, mostly done by tele­phone con­sul­ta­tion.

The new in­sur­ers are aim­ing to at­tract the mil­len­ni­als in dif­fer­ent ways. Some­times it is not sub­tle. In­die dresses all the mod­els on its web­site as rap­pers. Cas­tle­den says In­die is de­signed to give a sense of what San­lam 2.0 will look like. In­die will be the lab­o­ra­tory where the group works out the po­ten­tial of new tech­nol­ogy such as chat­bots and blockchain.

Oth­ers be­lieve it is im­por­tant to be seen as a car­ing busi­ness. Dif­fer­ent Life, for ex­am­ple, gives the first pre­mium of the year to a nom­i­nated char­ity. Naked has a more com­plex ar­range­ment, in which it takes no more than 20% for costs and profit. In years when there is a sur­plus af­ter claims from the re­main­ing 80%, it is given to char­i­ties. In years when costs and profit might ex­ceed the 20% it screams for help from Hol­lard next door.

Dif­fer­ent Life CEO Philip Tom­lin­son says it is cheaper to ac­quire busi­ness through di­rect chan­nels than through bro­kers, but the churn of di­rect in­surance is much higher, es­pe­cially in the early years of the pol­icy.

Long-term in­surance unavoid­ably has high up­front costs and a long re­cruit­ment pe­riod. We won’t know for some years which busi­ness has been an overnight suc­cess.

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