Simply disrupting the insurance industry
Published Date: 2018-03-28 | Source: Simply Financial Services | Author: Steven Gunnion
Insurance is seen by many as the ultimate grudge purchase. And while there's no arguing the fact that it provides peace of mind in case the unexpected happens, nobody wants to overpay. Simply entered the market early last year and describes itself as an "insuretech disruptor", using digital technology to bring down the cost of basic cover for individuals and also now companies. Stephen Gunnion spoke to CEO Anthony Miller about how Simply plans to shake up the insurance market.
Steven: What is Simply?
Anthony: Simply is essentially a digital life assurance business. We have what's called a cell captive structure where we use Old Mutual's insurance licence to build and structure policies. They are the underwriters, while we build and distribute the products so we appear to the market as a digital life assurer. The backing of Old Mutual Alternative Risk Transfer (OMART) provides some comfort to our customers that their claims will always be honoured which is why we decided to go that route. I think it's been important in the early stages of the business.
Steven: Why enter what is already a competitive space?
Anthony: It is a very competitive space but we don't think there are a lot of competitive products out there that offer value to customers. I co-funded and ran Lightstone, which was a data analytics business focused on risk management. I saw the value of using data and technology to improve businesses and business decision making. With that business established, I got to the point where I wanted to do something more entrepreneurial. I wanted to start something that would use what I had learned from technology and data that would be positive and have a meaningful social impact. I got together with two friends who were both actuaries and we looked for a way to use digital marketing and online technology in a way that would be disruptive. There are about 19 million adults in South Africa who are covered by a funeral policy and many have more than one but few who have life or disability cover. While they have expensive funeral plans and a lot have credit life cover that is forced on them by retailers, they don't necessarily have what they need so we identified an opportunity. Also, the number of consumers using banking apps and going online was accelerating in a way that I don't think corporates understood very well. We decided to use digital technology to remove costs and complexity from insurance, initially focusing on providing affordable cover to individuals via our online app.
Steven: What can Simply offer that other services providers can't?
Anthony: At the end of the day, life insurance is life insurance, disability cover is disability cover and funeral cover is funeral cover. First of all, we sell combinations of those and we don't provide advice. When someone requests a quote we provide a quote for all three as we believe it is better to have a combination of benefits rather than just one. It's something we are quite proud of; on average when people buy cover from us they take an average of two-and-a-half benefits. Our objective is to get customers to buy more than just funeral cover and we've had success with that, providing customers with multiple benefits in a single policy so they are getting cover for whatever their needs might be. We are the only company we know of selling combination cover consciously and through our choice architecture, we are seeing success. Secondly, we have a real-time online group life product, where a company or broker can get a quote in real time and see immediately the sort of cover they can acquire for each and every staff member. Our domestic product cover is also a bit different as other providers tend to bundle other services apart from insurance into their offerings. Our view is that we just want to offer the best-value protection that we can. Ours is a no fuss, no frills product.
Steven: Are your products uniquely South African?
Anthony: I think there are some uniquely South African aspects to our products. For one thing, funeral cover is such a cultural aspect of South Africa that we've had to include that as a primary offering in all of our products. The funeral cover in our family and domestic products includes a repatriation benefit, where the mortal remains are moved to the place of burial anywhere in South Africa. So if the person dies in Cape Town but comes from Eastern Cape then at no extra cost the body is taken to where they wanted to be buried. Otherwise, the technology and the digital marketing is pretty portable.
Steven: Would you describe yourself as a disruptor?
Anthony: I think we are. Certainly, we are disruptive from the point of view that we sell life, disability and funeral cover online. We are very transparent so you can compare our prices easily. Our group cover product is certainly disruptive; there is nothing else like it in South Africa. International businesses are very interested in what we are doing. We have had big reinsurers and insurers from other markets approaching us to find out what we're doing. I don't think we are disrupting yet on the scale that we'd like to though.
Steven: You describe yourself as "insurtech". How do you use technology as an enabler?
Anthony: Traditional insurance companies had big mainframe computers and very expensive enterprise software systems that are very difficult to break away from. With cloud-based technology, all of that becomes a low variable cost. It means we can run our technology at very low overhead costs. As a result of that, we don't have a lot of tech loading going into the pricing of our policies. With the type of technology that's now available and the ability to develop software in a shorter time frame, we can be very experimental with the products that we take to market. We can nimbly market and distribute products and test them against alternatives to find out what's the best for customers. We let the data help us decide where to invest our marketing spend. It helps us to be more efficient in delivering products at a good price and in an economically sustainable way.
Steven: How do you balance the affordability of products with making a profit?
Anthony: Because of the way the market has typically operated in the past, there is quite a bit of margin to work with. You don't need to be an NGO to offer good value. If you go onto price-comparison websites like Hippo you'll see there's a lot of room for improving the pricing. We have been very aggressive on how efficiently we can market and distribute our product and our budget for that is probably a lot less than our competitors. We also take a fair margin that we think is lower than the norm. We try to price for risk as accurately as possible and use digital marketing rather than expensive television marketing. In other words, we try to market with a scalpel rather than a mallet. We know where our target audiences are and we are directing our message to them efficiently.
Steven: Does Old Mutual own a stake in Simply?
Anthony: No they don't. They are the underwriters of our policies and share in some of the risk. We also have a reinsurance arrangement with Reinsurance Group of America, which carries the bulk of the risk.
Steven: So, who are your shareholders?
Anthony: It's about a 50/50 split between management and third-party investors, the most significant of which is LomVest, the owner of Lombard Insurance and a shareholder in BrightRock.
Steven: Sanlam eventually bought a majority stake in BrightRock when it saw its potential. Do you envisage the same, that someone will see your potential and try to acquire you?
Anthony: There certainly has been interest in what we are doing in the whole digital space. It's something that nobody has cracked yet so anyone doing that is watched quite closely. There are some big players talking about how they can work with us. I certainly think an investment from a big players is possible in the future. We actually are in discussions with an insurer who is interested in leveraging our technology in some other African countries - not the same products but using our marketing and creative capabilities. There is also interest around our group life (employee benefits) products with a view to expanding the offering into medical and savings products, such as retirement annuities or tax-free savings products that we could offer on our platform. There certainly is demand for a one-stop easy-to-understand product.
Steven: Regulation of the market is getting tougher. How do you balance more stringent regulatory requirements with getting creative products to market?
Anthony: By rubbing up against them all the time. One of the benefits of having OMART as our cell captive provider is that they are very conservative and diligent around compliance and everything we do has to be signed off on by them. We do try an push the envelope all the time though. For us, it's been very good having them as a partner as they have kept us in check. We are quite used to working in an environment where regulations are adhered to very strictly so we are quite comfortable with new regulations being introduced. OMART is really the last line of defence on what we can do with our structures.
Steven: What sort of take-up have you had for Simply's products?
Anthony: We launched in January last year with family cover, a retail product for individuals who want to protect their families that offers up to R2 million of life and disability cover and up to R50k per insured person of family funeral cover. More recently, we have been marketing our policy for domestic workers. We have sold about 6 000 policies so far and are selling 500 to 600 policies a month. It's going quite well. From an online perspective it's growing in excess of our expectations. We haven't done as well in the traditional call centre space. When we do what everyone else does, we don't do well. When we do our own thing, we do better and write better quality business. Our group cover has also just come online so we should be able to build nicely on those numbers.
Steven: Where do you see yourselves in five years?
Anthony: Our aspiration is to be the leading digital life insurer in South Africa and for products, technology and capability to be at work in other markets as well. At the moment we are not an insurer; we are an intermediary that uses a cell captive to design, market and distribute products. But but we see ourselves an insurer in the long run. I think there's a great opportunity to take our value proposition to other markets, focusing on simple, transparent, easy to understand products. We would hope to have in the order of 50 000 retail policies and 100 000 principal members via our group life cover policies in five years time. We'd also like to be operating in three to six other markets - both in developing (e.g. Africa) and specific developed markets.
Steven: So, do you intend to apply for your own licence?
Anthony: That depends on who invests in the business in the future. If a big third-party insurance company took a stake we could write onto their licence but if it was a private-equity investor we could get our own licence. I don't see us being a cell captive operator forever but I don't know what the end game looks like. We are certainly comfortable with our cell captive structure for now. It would also vary from market to market. In other markets, just providing certain technology aspects and marketing capabilities and delivering product into our partners' environment might be the right answer.