Prevention is better than insure
How innovative ‘insurtech’ firms are disrupting the insurance industry — and preventing risk (rather than insuring against it)
If traditional insurers aren’t already worried, they should be. The insurance industry is facing more disruption than any other industry, posing a threat to old ways of doing business.
Last month Naked Insurance, which burst onto the scene in April 2018, added an automated way to get home insurance and coverage for personal items.
The FM put the system to the test. We were able to get a quote for home, car and personal items that was, in some cases, half the current premiums we pay a traditional company.
Innovation is the hallmark of new "insurtech" disrupters. SA has three: Naked, Pineapple and, most recently, Solvency.
Naked lets customers pause their car insurance on days when they are not driving. It offers an artificial intelligence model that has been built from scratch to allow customers to interact with its products in a manner that is completely digital.
For example, a single click on its app initiates "CoverPause".
Traditional insurers are also threatened by a shift towards preventing risk rather than insuring against it.
McKinsey, in a report entitled "Digital Disruption in Insurance", says digital technologies give rise to ever-increasing amounts of data, which might make for more accurate pricing, reduce maintenance and improve health.
This leads to a model where consumers pay not for premiums in order to be compensated for damages they might incur, but for gadgets or services that predict and help prevent that risk.
"Insurers of the future will play more of a risk avoidance role and less of a risk mitigation one," says Andrew Rose, CEO of US insurance comparison website Compare.com.
For example, insurance leader at PwC Africa Victor Muguto says: "Some insurers use in-car sensors to measure how safely policyholders drive and offer lower premiums to more careful road users. In SA, where this model is well advanced, insurers [have witnessed] higher policyholder retention and lower claims costs."
And these innovations are playing paying off.
Ernest North, co-founder at Naked, says the cost savings from the automation of front-office and back-office functions, and marketing spend are passed on to clients as lower premiums.
"We do not follow some of the age-old practices that have become commonplace in our industry. Most insurers will offer discounts to customers who threaten to leave or who phone in to negotiate, which is in effect an admission that they penalise loyal customers who don’t shop around," says North.
Clients of Naked can cancel their policy with a click of a button, without the company making a counter-offer, he continues. "Our technology not only makes it convenient to buy insurance, but it forces us to give you the best possible price. We don’t have a second bite at the cherry."
Customers can change their policy or submit a claim directly on the app. However, they may find it limiting that the company has only a small team available to help those who need it.
"The only other service that can be accessed over the phone is the 24/7 emergency line when you’re stuck on the side of the road or you need a security guard at your house following a break-in," adds North.
Another disrupter in the sector is peer-to-peer insurer Pineapple, a community-based offering similar to a stokvel. Customers join a default pool but can choose who to share risks with through an independent community, either close friends or family, thereby minimising fraudulent claims, as claims are paid out from this pool.
Pineapple also has a digital-first approach that can replace the 30-minute phone call customers usually need to place to get a quote from an insurance company.
With Pineapple, potential customers snap a picture of the item they want to insure and upload it to a mobile app to get a quote immediately.
Pineapple co-founder Matthew Elan Smith says the entire journey of quoting, insuring, claiming and administering a policy is self-service and done digitally, which helps with overheads.
"[This] allows us to streamline and automate many processes as well as put clever mechanisms in place to enhance the client journey while also reducing our administrative burden."
Smith says cutting overhead costs has allowed Pineapple to keep its costs down. "This means more rewards for our customers, to whom we distribute all the profits left over at the end of their policy year."
The company launched in July 2018 with a team of four, which has since grown to 14. Pineapple was awarded R22.5m in funding at a fintech competition in the US last October. It won VentureClash, a challenge for early-stage companies. "It showed us that what we are building can have an impact across the globe and this definitely fits into our longer-term planning," says Smith. The company will soon offer vehicle insurance, he adds.
It also plans to launch Pineapple Rewards, which allows members to earn vouchers from the likes of Takealot, Uber Eats, Netflix and other retailers.