How Sanlam-backed Indie manages to offer free investment with its life insurance
There is a great deal of sceptism about the 'bounty' idea, but Peter Castleden is sure Indie's low overheads and accurate pricing make it viable
Life insurance has always been a hard sell. But Peter Castleden and his team at Sanlam-backed Indie are trying to change that.
The selling point? Indie matches 50% to 100% of your premium, depending on your age, in a money market investment at no extra cost. This is known as "bounty" and it unlocks when you turn 70. You can access 10% of it, along with the growth, every five years. If you skip a premium Indie simply won’t invest that month.
Sound too good to be true? Castleden admits this has been the insurtech’s biggest challenge. Hardened to the charm offensives of life insurance firms, consumers are understandably sceptical of a product that appears to offer real value for money.
"I had very specific ideas around how to build a better product," says Castleden, an actuary who started his career at Sanlam.
So how is Indie able to match your premium — which could be for life insurance, disability, critical illness, income protection or funeral — without charging a fortune or losing Sanlam a lot of money?
While the jury is still out on the latter question, considering that the product has been live for just eight months, as a start Indie’s cost base is considerably smaller than the average life insurer and its underwriting seemingly more scientific.
"We’re pretty confident we have the most accurate pricing in the market," says Castleden.
That’s a bold claim for a start-up, considering that its more traditional rivals base pricing on decades of claims data. Fortunately for Castleden, Indie has had access to this data through Sanlam and worked closely with Sanlam’s former chief medical officer to set up its online underwriting process.
It has also tried to remove some of the inefficiencies in current pricing models. For example, life insurers generally apply a two-year exclusion to suicide to prevent someone taking out life cover with the intention of committing suicide.
But the data somewhat morbidly suggests that people are taking out a lot of life insurance cover with the intention of committing suicide in the third year.
"That alone pushes up premiums for everyone else by 5% to 8%. So we’ve introduced a five-year exclusion on suicide," Castleden says.
Indie is also one of the only life insurers that asks you whether or not you ride a motorbike. If you do, that almost doubles your premium. "We are not happy to subsidise motorcyclists at the expense of non-motorcyclists," he explains.
By trying to give each individual a unique premium, Indie removes cross-subsidies that are avoidable, he says.
This means it will not necessarily be cheaper than other insurers. Business Day’s Indie quote showed that it would be paying more for less cover than it had with its current insurer (without taking into account the investment).
"I’m happy enough to not get a client where we are more expensive, because I think we are correct," says a self-assured Castleden. "Rather than giving people discounts, we will keep the price sharp and use that saving to create a different narrative around life insurance. What we want to achieve as a business is to help people unlock, preserve and accumulate wealth."
Hence plans to introduce other asset classes, such as equity and property, into which bounty can be invested, and enable policy holders to manage their own investments and make additional contributions.
How will Indie sell its product cheaply? Castleden’s theory, which has yet to be meaningfully tested, is that Indie’s value proposition means acquisition will pay for itself.
"Let’s say 1,000 people land on our site. If we have wealth creation with insurance we can sell to 50. If it is just plain insurance, we can sell to 25. Your acquisition cost is potentially double. With the investment feature, acquisition almost pays for itself."
With plans to roll out the product to brokers in July, add robo-advice and make its website data-free, it seems Indie is just getting started.