ENTREPRENEUR: Mutoda Mahamba is shaking up short-term insurance
A start-up insurance company wants to give its clients more of their money back, setting itself up to be a major disrupter in the industry
On the subject of disruption, we are starting to see what technology can do for retail banking. But its impact on the insurance sector is only just coming to light.
Still, it takes a great amount of courage to step into the field of insurtech, where newcomers such as Naked and Pineapple are already gaining traction. Actuarial analyst Mutoda Mahamba has chosen the far more sober name of Solvency for his business, which was launched in January.
Solvency offers a full spectrum of short-term insurance products. But its main differentiator — and this is where it is a true disrupter — is modelled on the medical savings account of medical aid firms. Its insurance savings account (ISA) provides interest-earning savings which can be used to pay an excess on claims. Unlike benefits such as the outbonus offered by Outsurance, the ISA savings are not completely eliminated in the event of a claim.
Mahamba says Solvency gives clients the option to decide what percentage of their insurance premiums goes to their savings account, based on what excess they are prepared and able to pay, should they need to claim. Savings earn money-market rates of about 7% a year.
This, he says, gives users a savings solution that can be used to partially or wholly fund their excess on a claim.
This is a novel concept that has not been seen in SA before. And Mahamba is thinking bigger: he would like these ISAs to, one day, offer far more than just money-market accounts, and even allow clients to top up with discretionary money. But this would involve extending beyond a short-term insurance licence.
"I would love to offer our clients free banking one day," says Mahamba.
Those clients won’t just be in personal lines. He says the ISA model works for small and medium enterprises as well as for truck fleets.
"Short-term insurance clients claim an average of R18,000 every four years and most would have paid at least R50,000 in premiums over that time. Up to 50% of each premium can be put into the account and up to 50% of their savings can be withdrawn at the end of the 12-month period."
Mahamba has teamed up with Genric Insurance, which will underwrite the business. Genric is best known for insuring cash-in-transit vans. Solvency is based in the Genric offices in Midrand, and with a staff of just five, it outsources many of its functions to Genric.
Mahamba, who has a wealth of experience, studied actuarial science at Wits.
His first job was at Alexander Forbes, in pensions.
He soon found his niche in short-term insurance, working in pricing and product development at Hannover Re, Absa Insurance’s homeowners unit, Momentum short-term insurance and then MMI Africa.
Over the years he acquired knowledge of the extent of frauds in these markets and of claims patterns, suburb by suburb.
His plan for Solvency is to produce insurance products which treat customers fairly.
"We plan to empower consumers and equip them to manage the risk of negative life events such as burglaries and car write-offs."
Mahamba says Solvency is geared up for the direct market through a website that asks just a handful of questions.
But he does not believe in excluding brokers. "They are an important channel into the market, so why work against them?"
He says there is a lot of fat in short-term insurance and therefore plenty of room to bring premiums down. "We see insurers that offer cash back for good driving. And they can afford it as some have returns on equity of 40%.
They could afford both to reduce premiums and to give their clients back a lot more of the money they have already paid in."
Mahamba has been married for 10 years and has two children. He lets off steam running marathons and cycling, and also enjoys hiking and reading.
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