Township pilot project grows into a fire and funeral insurance company
Lumkani targets segments of the market that traditional insurers prefer to shy away from
In December 2014, five people died and 200 homes were destroyed when a runaway fire gutted the Masiphumelele informal settlement in Cape Town.
At the time, Cape Town entrepreneur David Gluckman had a friend, Francois Petousis, who had just completed a thesis on how to reduce blazes in informal settlements. The tragedy galvanised Gluckman and two partners into applying the thesis in real life. They formed a company called Lumkani and piloted new fire detection devices as the destitute families rebuilt their homes.
Lumkani has now distributed more than 40,000 of these devices to owners of informal and formal structures in townships countrywide. What started as a pilot project has now turned into an insurance company offering fire and funeral cover.
Lumkani is no ordinary insurer. It has squarely targeted segments of the market that traditional insurers shy away from. Fires are common in informal settlements and insuring against that hazard does not seem like a sustainable idea. But Gluckman begs to differ.
He says Lumkani’s fire detection devices — which are designed to detect heat as opposed to smoke as the latter is part of daily life in homes that use fossil fuels for heating and cooking — are core to the company’s risk management and it thus has fewer claims.
“In one of Masiphumelele’s informal settlements called Wetlands, where we first launched our technology, fires ravaged between 400 to 600 homes a year. We haven’t seen a grand fire in Masiphumelele [since] and that is 100% due to detection. But it’s not just about reducing the possibility of claiming because if there’s fire there could be loss of life,” Gluckman said.
After two years of reducing the risk of runaway fires and having established trust among the communities they were working in, Gluckman and the co-founders partnered with Hollard Insurance to offer flat-fee fire insurance that covers structural damage and home contents.
Although Lumkani only has 1,500 insurance clients who have kept their cover in place, Gluckman says the company is now gearing up for a growth phase but it will not be chasing numbers as its goal is enabling financial inclusion.
“We will only offer products that people in our target market really need. We are not going to start offering any insurance product that we can make money out of,” Gluckman said.
The days when he conducted all calls and new customer acquisitions from his bedroom are over. The young company is now ensconced in busy Braamfontein in an office that boasts a small boardroom and a four-person call centre, as well as some desks and chairs.
“Every insurer requires numbers to be viable. We are still scaling up and we are doing more now to reach that point by offering new products to our market.”
One of the new products Gluckman was referring to is funeral insurance, which Lumkani recently launched in partnership with Stangen. “We know funeral is a very competitive space but our clients like our brand. We have built a level of trust where we operate,” he said.
Because it uses WhatsApp as the primary medium to acquire and communicate with clients, and has a completely digitised device-monitoring system while also offering the option for on-delivery payment processing, Lumkani’s cost base is a fraction of what a traditional insurer would need to roll out this short-term insurance to the market. It is the reason the company is able to offer a flat insurance rate whether the insured property is an RDP house, a backyard dwelling or a shack.
“We don’t have the overheads of traditional insurers because our operations are digital-based. But it’s not just about being cheap. As we are in this market, we are understanding better each day how excluded our customers are from the formal financial sector. We need to start including people in the formal sector to create financial resilience in spaces which traditionally had no financial safety net,” Gluckman said.
Some of the townships in which Lumkani has created a client base are Diepsloot, Alexandra, Khayelitsha and Imizamo Yethu in Hout Bay. Gluckman calls it “the last centimetre of distribution”.
“People talk about the last mile of distribution. The last mile is Capitec and retailers who have done tremendous work to bring services close to people. We want to bring it to the last centimetre.”