SA’s first digital-only insurers — the fruity trio of Pineapple, Granadilla and Naked — have begun to expand their reach after just two years in business.
Naked, to date a motor specialist, will launch its personal assets and household contents insurance before the end of 2019, while Pineapple, which insures single assets, will roll out motor policies in the first quarter of 2020.
There is a generation that can’t even remember the days when anyone but the very rich went to a broker to buy short-term insurance, and for which even the call centre-based insurers such as Outsurance and MiWay are old hat. Sumarie Greybe, co-founder of Naked Insurance, runs a lean shop with about 20 staff. She says its clients get all they need from the app — quotes on vehicles take 90 seconds and they are firm, not merely indicative.
But it does not try to match a competitor’s quote and will not look at cars valued at more than R1.5m. The Naked management team take it in turns to answer the phone for the rare occasions when clients want to ask questions that way. Using the HelloPeter complaints site, Naked has done well, coming third in the full insurance universe for the best complaint record.
However, pure digital insurers all over the world have found it difficult to reach profitability. Given that they have relied heavily on cut-throat pricing, pioneers in the US such as Lemonade, Root and Metromile have paid for this with high loss ratios. Regulations make it impossible for an insurer to operate across borders Amazon-style, which may shield the local players from an aggressive onslaught.
Naked and Pineapple both cultivate a "caring" image, a return to the mutual risk sharing which was once the heart of insurance. Pineapple limits its total take, including expenses, to 15% of premium and Naked to 20%, giving any further surplus to charity. Granadilla gives any surplus back to clients.
Pineapple co-founder Matthew Elan Smith says the team took part in an innovation programme, run by Hannover Re in 2016. It found insurers were considered inefficient. Their expense ratios were high and they were hardly client-centric. "Too many clients consider insurance to be a black hole and cannot see that their premiums help other people," he says.
The company introduced "the Pineapple wallet" so that clients can track how much of their premium goes to fees, and which fees go back to members.
Elan Smith says Pineapple wanted to build trust by insuring low-premium items such as cellphones and computers before launching motor insurance, which accounts for more than 60% of premiums written in the personal lines market.
Granadilla is not considering a move into motor insurance, given the logistical complexity of building up service providers from tow trucks to panel beaters. But founder Jonathan Walker says it is looking at offering life products in conjunction with its underwriter and major outside shareholder Bryte, part of the global Toronto-based Fairfax insurance group.
Walker says that unlike its two competitors, Granadilla does not employ any actuaries, preferring to use machine learning to price risks.
Walker’s career to date was in banking — until his phone and laptop were stolen a few years ago and his claim took eight weeks to be paid out.
Initially, Granadilla focused on insuring cellphones, but it now offers insurance on 15 electronic gadgets. "We are looking at the emerging middle class which might not have motor or homeowners’ insurance yet," says Walker.
Old Mutual tried and failed to penetrate this market through iWyze, which offered "valuables insurance", but it didn’t work in a giant corporate environment.
It seems to be working better at Granadilla, however, which employs just 11 people and has a purely digital approach.
Walker says the app has had 70,000 hits since it was launched in July 2018.
Still, it would not have been possible for the digital insurers to launch without their credible parents, all established players in the insurance market. Compass Insurance, part of the Hannover Re group, is a shareholder in Pineapple. Hollard and its parent, Yellowwoods, are shareholders in Naked, which sits in their campus in Parktown, Joburg.
Greybe says it has been useful to access the Hollard procurement network for needs such as heavy panel-beating.
Granadilla’s partner, Bryte, is the old SA Eagle, which became Zurich. The group produced mediocre returns as a listed company, but through Fairfax, Granadilla has the potential to expand internationally.
Greybe says the Naked IT system was developed from the ground up, so it does rely on a licence agreement with a third party. She says Naked is a tech company that happens to sell insurance, and most of the staff are software developers; it is the same story at Pineapple and Granadilla. None of the international players has come into SA yet — probably a reflection of the fumbling economy.
US-based Trov came close, while market leader Lemonade has its hands full with an ambitious expansion into Germany, still the world’s fourth-largest economy.
As for life insurance and big tech, Anthony Miller, CEO of Simply Life, says it has been much harder to build a viable digital-only business in life insurance, as it remains a grudge purchase. "Short-term claims are a high-frequency event and a lot of people will insure, say, a new watch without prompting.
"But most people see their own mortality as a distant prospect."
Miller says that in the life and savings sector, technology should enable rather than displace humans. Simply does not rely purely on incoming sales through the website and app. It has focused on group sales to small companies and has also opened up to brokers who can sign their clients far more quickly to the product than if they went through traditional insurers.
Miller says digital insurers can deliver a policy at a cost 60%-80% below the legacy insurers (including direct call-centre businesses such as Outsurance) and he is happy to cut his margin to pay upfront broker commission.
MiWay CEO René Otto says the Santam-owned direct insurer offers the facility to do the entire purchase and sales transaction online, but all but a handful of clients prefer to talk to a human being before they close the deal.
In contrast, Elan Smith says his clients are happy to deal via chatbots, and in fact get extremely irritated when they wait on the phone for service. And Pineapple does not inspect the client’s premises to value the merchandise — it only uses assessors at the claims stage if there are suspicions of fraud.
As you’d expect, all three insurers advertise primarily through social media — Facebook, Google and Instagram — though there is still a powerful human connection.
Elan Smith says more than 40% of Pineapple sales are originated through referrals from existing clients.
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