The days when a man in an oversized, dreary grey suit, sitting at his desk in a smoke-filled office selling stock-standard insurance policies are long gone. Insurance, if you have not noticed, is now the sexiest industry on the block. Just ask those who head up the Naspers Foundry, who in early August announced another investment in the insurtech space: a R120 million investment in Naked, an AI-driven insurance firm. This follows news the previous month of a R34 million investment in Ctrl, a digital short-term insurance advice platform.
The excitement makes sense. Insurance is usually one of the fastest-growing sectors as people in developing countries begin to accumulate assets like houses and cars. The shift to digital, buttressed by lockdown measures, and new technologies like machine learning have accelerated both the demand for and supply of new kinds of insurance services.
But there are also major headwinds. The South African economy is struggling. The unwillingness of many insurers to pay for Covid-19-related damages has tainted the industry. I asked Pieter Venter, CEO and co-founder of Ctrl, to make the case for investing in the insurance industry in South Africa. Why here, why now?
‘Two of three vehicles on South African roads are uninsured. The growth potential is thus enormous. Not only that, we start off a high base; it is already a relatively large market at around R150bn per annum. Technology and innovation allow new winners to emerge, not just in terms of new products, but also in the way that insurance is distributed and sold.’
‘Why now? I think that people are more aware of risk. Since the perils of not being insured are so much more glaring in times of uncertainty, it may at minimum cushion the industry from a more serious downturn in the economy.’
Pineapple is also making waves in the South African insurtech space. Launched in mid-2018 with a focus on the car insurance, the company closed a Series A round at R80 million in July. According to CEO and co-founder Marnus van Heerden, Covid-19 has indeed had a profound effect on their business.
‘Covid-19 has affected us in three ways: consumer confidence, consumer behavior changes and the macroeconomic environment. Although a depressed economic environment and consumer confidence does cause a decline in sales activity, we are fortunate that, being a digital-centric business, the consumer behaviour changes resulting from Covid-19 have benefited us. Our services and products are only a few taps away and available 24/7 from the comfort of your couch. We initially expected the big shift to e-commerce in SA to happen around 2023, but we believe that this timeline has accelerated with people being forced to transact online and hence gaining comfort much faster.’
‘Another impact from Covid-19 we have seen is the reduction in driving, especially during lockdown periods. Pineapple’s car insurance product automatically includes our “Drive Less, Get Blessed” benefit, which provides instant cashback each month when you drive under 300km. During level 5 lockdown people’s time on the road decreased by 74% and driving between 00:00 and 05:00am – which historically is considered dangerous – dropped by a further 81%. We want our members to benefit without putting the onus or risk on them to report when they are driving and when not.’
Venter agrees that lockdown has caused many consumers to question their static insurance premiums. ‘Many insurers responded in a “clunky” manner by trying to accommodate changing driving behaviours into existing products with customers estimating and recording driving distances. The client experience was not great and some insurers got their pricing wrong.’
Unhappy customers can only mean one thing: greater opportunities for competition. Says Venter: ‘Lockdown also allowed many businesses that did not traditionally sell insurance to look for new ways to generate secondary revenue streams. We opened up new opportunities for these businesses as well. Ctrl’s platform contains all the processes and workflows needed to start a brokerage from scratch and setup time is minimal, thereby lowering the barriers to entry and opening the door for these businesses to enter the insurance intermediary market.’
This seems almost too easy. One of the reasons why the caricature of insurance man is so pervasive, is the red tape and regulation associated with the industry. I ask Venter what they have done to overcome the regulatory challenges that stifle so many insurtech startups.
‘The regulatory challenges are real, but the way that we look at it is that once you overcome these challenges they become a moat around your business, since it will be hard for others to replicate. All three founders of Ctrl had long careers in financial services and having experience and knowledge of the insurance industry helps tremendously.’
‘But we also see regulation as an opportunity, since regulation is in essence standardisation according to a set of rules, which is very well suited for technology to solve. A good example is that our system automatically generates the record of advice every time a policy is sold, which is emailed to the client and saved in our back-end as per FAIS rules. In a traditional brokerage, this is mostly still completed manually.’
Van Heerden adds: ‘At Pineapple, we have actively engaged with the regulator, participating in innovation roundtables, and the intergovernmental fintech working group, and we believe the regulator is creating a lot of channels to foster more innovation in the insurance space.’
Innovation is not something typically associated with insurance, but with an open-minded regulator a lot more seems possible. Is insurtech ready for blockchain?
‘We believe the decentralised space shares many common principles with Pineapple’, explains Van Heerden. ‘When it comes to a “blockchain insurer”, currently we don’t see the ability for a completely decentralised and blockchain-based solution to appropriately service local short-term insurance needs. The main barriers are regulatory boundaries, computational affordability and consumer appetite. However, we are excited at the intrinsic transparency and auditability/trust that blockchain-based systems provide, and these elements match our objectives with the Pineapple model very closely.’
With names like Pineapple, Ctrl and Naked, a younger generation, equipped with digital technologies, is crushing my outdated image of insurance man. That creative destruction can only be good for the consumer – and the South African economy at large.