How Naked plans to disrupt the insurance industry without spam and call centre tricks
- South Africa's insurance industry has, until recently, been dominated by a few big businesses
- But as customers grow despondent with these date insurance companies, a few startups are hoping to disrupt the industry
- They're doing so with tech and transparency, and Naked has already seen rapid growth by implementing both in an industry not used to either.
- For more stories visit Business Insider.
South Africa’s insurance industry is dominated by a handful of established companies, which even their paying clients love to hate.
In 2019 the Short Term Insurance Ombud received more than 85,000 phone calls, 10,000 complaints, and recovered just short of R100 million for members of the public. The five years before this didn’t look particularly different, either.
From the outside, it’s an industry that looks ripe for disruption - but to those established insurance players, who rake in hefty annual profits in the millions, there’s been little reason to change much of what they do.
Alex Thomson, who worked as a consultant to these large firms and within the industry for more than 20 years, also saw this opportunity - but with little luck shifting these behemoths from the inside, he banded together with two other insurance industry veterans, Sumarie Greybe and Ernest North, to shake things up a bit.
“We tried to work with the big insurance companies from the inside, but we formed the view that the winners in the future of insurance are not going to be the incumbents,” says Thomson. “The people that were going to meet the changing consumer needs were going to be new players. And that’s why we started Naked”.
The company’s catchy name, sharp branding, and app-based approach is immediately appealing to a generation that doesn’t care for commission-driven call centre agents, spam calls and SMSs, repetitive television ads during the rugby, or feeling like they’re being duped into paying higher premiums, and finding it harder to claim, than they should be.
“The incumbents’ systems are very old, and their internal processes - in the people they have, the way that they operate, and the incentive models they use - makes it really difficult to innovate, and really difficult to deliver something for customers that was different to what it was in the past,” says Thomson.
The three co-founders believed that there was an opportunity to create a more transparent insurance offering, hence “Naked”, and that it should be driven by tech.
“We saw two trends or phenomena, that were the foundation of the business that we started. One, the increased use of technology, and two, how the focus of driving shareholder profit in insurance is not in the customer’s interest,” Thomson says.
Conflict of interest
Central to both was the conflict of interest that’s seemingly inherent to large insurance companies. Their customers are the premium-paying public, but if they’re too lenient on claims then the kind of shareholder profits many are used to will be eroded.
Complaints to the Ombud and consumer review sites like Hello Peter often deal with claim refusal and generally poor customer service - and the co-founders believed that tech could solve both of these issues.
“If a big chunk of your profit comes from this kind of behaviour, you’re not going to be the first one to change them,” Thomson says. “Which is one of the reasons that new players like ourselves have an opportunity to build a very different kind of business, and one that’s set in a much more ethical foundation, one that’s truly customer centric.”
To this end Naked has crafted a clever charm offensive since they started - which includes a business model that isn’t focused purely on making shareholders rich. Instead, Thomson describes Naked as a platform-based tech business, that deals with insurance - a new trend that goes under the portmanteau “insurtech”.
The model allows them to use the platform fees paid by customers for day-to-day running of the business. Excess cash goes into the pot to pay out claims, and, unlike many other insurance businesses, at the end of the year they pay the outstanding balance of this to a variety of charities that customers get to choose.
“Claims go up and down, sometimes you have hailstorms, for example, when claims are a lot higher. And other years people drive less - this year has been extreme in that case - which means there are less accidents,” Thomson says. “So as soon as we see signs that claims are going to be low, then we’ve align premiums with that. We don’t want to pay half the premiums to charity - that’s not the intention.”
Solving with tech
This approach attracted significant interest from investors. The co-founders started raising seed funding in 2016, and by December 2018 they’d received a total of R50 million from insurance group Hollard and private investment firm Yellowwoods.
Some along the way suggested that Naked just plug into other insurance products currently on the market, but they rejected this to build their tech locally and from the ground up.
“We haven’t licensed any insurance systems at all - we built the entire stack ourselves,” says Thomson. “One of the things that this gives us - aside from things like control, flexibility, and speed to market - is the ability to run at very low cost. We can really tailor everything we do to be as efficient and automatic as possible”.
The technology also helps Naked to be particularly nimble, and add features that will resonate with their customer base - like allowing customers to pause their premiums directly on the app when they’re not driving during lockdown, for example.
But it has also helped with transparency - unlike call centre agents, who keep their seemingly premium calculations close to their chests, Naked customers can shop for insurance by adjusting excesses directly on the app, and then snapping a selfie to prove that they exist. One trade off of this, though, is that customers used to bargaining with their insurance companies will have to take Naked on its word that the prices they present are as low as they're going to go.
“We believe we can build a different kind of relationship with our customers where people can feel that the price they’re getting is the best price. We don’t negotiate on price, but we give you the best price we can every time,” says Thomson.
After taking the fee, Thomson says Naked’s role is to retain customers by delivering service and value, so they don’t cancel - because this is their only source of income, and they don't make extra cash simply by not paying out, they hope this will prove to customers that they're on their side.
Like many platform businesses, though, Naked has made the process of taking your money easier than ever - customers download the app, or use the website, and with guidance from a chatbot can receive quotes and buy insurance instantly using a credit card, like they would a Netflix subscription.
They’ve worked to make the experience of paying for possibly the world’s biggest grudge purchase strangely enjoyable - even better because it doesn’t involve long chats to an agent. New signups, changes, and additional features like pausing insurance can all be done via the app - and while old insurance companies have attempted to do the same, most app-based requests with the incumbents tend to end with a cheerful call from an agent.
“We haven’t sold a single policy over the phone, made a single outbound call, and haven’t sent a single sales SMS,” Thomson says.
And in a year when insurance companies were the worst offenders when it came to spam phone calls in South Africa, Naked has instead grown “more than three times” this year alone in a more organic fashion - via word of mouth, and with an Uber-like incentive scheme for getting your friends on board.
Thomson realises that insurance isn’t traditionally something South Africans are likely to recommend around a braai, but the rapid growth and relatively little marketing spend says to him that they’ve struck on a product that people are strangely excited about.
“You can do word of mouth when you’ve got something different, or when there’s value. And with Naked there is something to see here, and that’s really helped us and our growth, particularly over the last year,” he says.
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