The nascent insurance technology sector, known as insurtech, is exploding in SA, as venture capital (VC) flows into start-ups, and incumbents partner with technology and telecommunications firms.
Last week Naspers Foundry made a R120m investment in Naked Insurance, its biggest investment yet in a South African start-up, and on Wednesday Sanlam and MTN Group announced a strategic alliance to distribute insurance and investment products across Africa.
Naspers Foundry's first foray into insurtech - just last month - was a R34m investment in digital insurance advice platform Ctrl. At the same time, car insurance start-up Pineapple secured R80m in a series A funding round that included E4E, Vunani Capital and the Old Mutual Enterprise & Supplier Development Fund.
The most spectacular investment, however, has been $47m (about R695m) raised by LifeQ, which aggregates and provides biometrics and health information from wearable devices. Last year, in partnership with Samsung and Hannover Re, it launched a wearable-based product called VeoSens, which brings together smartwatches, smartphones, biometrics and insurance. Through a partnership with direct life insurer 1Life, it encourages better health choices.
R60bn
The annual gross premiums in the South African short-term insurance sector.
The new round brings together more than a dozen local and global funds, including Invenfin, 4Di Capital, Convergence Partners, Nedbank Corporate & Investment Bank and the Virgin Group.
Meanwhile, insurtech start-ups in Kenya, Nigeria and Uganda have raised millions this year. In March, Lagos-based Curacel, which uses artificial intelligence (AI) for claims processing, raised $450,000 in pre-seed funding; in April, Nairobi-based Lami Technologies, which aims to democratise insurance for low-income Kenyans, raised $1.8m in seed funding; and in May, Uganda-founded crop insurance start-up OKO, operating in Mali, raised $1.2m in seed investment.
While these are relatively small amounts, the start-ups tend to be only three or four years old and are not yet profitable. Major investors are focused on series A funding, in which they buy equity in a start-up that is already generating revenue or profit.
"Insurtech is fairly new in the South African space," says Pineapple CEO Marnus van Heerden. "Initially, around 2017, there was an inflated expectation of the impact of insurtech in that some thought that it would completely disrupt the traditional insurance market. When this complete disruption did not manifest, the expectations receded. Now, as we see insurtechs like Pineapple starting to capture significant market share, there is a strong resurgence."
Naspers Foundry CEO Fabian Whate says there are three main attractions. First, the short-term insurance sector, with R60bn a year in gross premiums, represents a large addressable market.
The flywheel has
— Fabian Whate
started to kick in …
success stories will
drag in more capital
Naspers Foundry CEO
"Second, there's high concentration among a handful of insurance companies who are predominantly distributed via brokers, with limited digitalisation. So there's an opportunity for insurtech champions to improve the way things are done.
"Third, South Africa has strong innovation in the sector, from pioneering the direct model to preventative health care. Both those models have been exported, so there's a very strong insurance skill set here," Whate says.
"It's a large sector, but it's got low penetration. Two-thirds of the cars on our roads are not insured. A lot of that comes down to complexity, and cost of the products. By using technology we can enhance access to insurance and thereby grow the pie."
The puzzle is why the likes of Hollard, Momentum, Sanlam and Old Mutual have all invested in insurtech start-ups and technology, but none appears willing to disrupt its own model.
"You can ask that question about any industry, when a little start-up with the fraction of the resources is able to do what the larger corporates can't," says Whate. "Often it comes down to inertia. If business has been going well, why do things a completely different way?
"For you to be able to do some of the things Naked does may seem simple, like real-time address updates or pausing cover. To do those things, you have to build an entirely new system from the ground up, because the legacy systems just aren't able to do these things on the back end.
"On the front end, the new channel is explicitly competing with your call centres and your own brokers."
Over the past few years, as young, dynamic insurance specialists have learnt the ropes and realised that technology allows for a better approach, the number of insurtech solutions has mushroomed, and they are finally attracting serious funders.
Whate has an apt term for the process: "The flywheel has started to kick in. The more funding we attract, the more start-ups will succeed. The more start-ups succeed, the more success stories there are. Those success stories will drag in more capital and more skills. Those skills and capital are essential to grow the ecosystem.
"Part of that flywheel kicking in is because we are a beneficiary of a broader, continent-wide and global explosion in VC. South Africa is expected to double this year versus last year, in terms of VC dollars."
The Naspers investments have a long horizon, says Ernest North, co-founder of Naked and formerly an actuary at such insurance companies as Hanover Re and Oakhurst. The Naspers investment in his three-year-old company, he says, will give it "the freedom to keep innovating and to keep testing and experimenting and challenging the way we do business".
"The main focus for us is to ramp up our team, especially our in-house software development team and our data science team. We want to keep pushing the boundaries in terms of how easy and convenient we might get for the customer, and how much we can save in costs."
AI allows the Naked app to make insurance completely self-service, but some processes are still evolving, such as automating the claims process, says North.
"All the fraud validation, checking that we're happy with the processing of the image recognition of the damage in the video, is done by AI without human intervention.
"At the moment the claims process has elements of self-service to it, and we are only approving a small percentage of our claims without a human getting involved. For example, on most small-glass damage [on a car, for example], a bot processes the claim. That makes up 10% or 15% of our claims. We want, in the next two years, to get to a point where 80% or 90% of our claims are processed without human intervention."
Pineapple's Van Heerden says there is a massive need for what insurtech is doing in SA, proven by the 200% growth that his company has seen over the past six months.
"Consumer buying behaviour is shifting to e-commerce and this greatly increases the likelihood that customers would want to buy their insurance online as well. This is allowing insurance to be faster, easier, more affordable and more understandable," he says.
"Pineapple aims to revolutionise the insurance model by operating off a fixed fee and returning all unused premiums to members. Our patented method for achieving this is a world first and achieves the same affinity and value sharing as in a stokvel, with the same comprehensive cover from a traditional insurer."
The business models are as varied as in traditional insurance. Click2Sure, which last year raised a multimillion-rand investment from US-based VC firm SixThirty, enables retailers, service providers, distributors and brokers to bolt on a selection of more than 20 custom-developed insurance products at the point of sale.
Co-founder Daniel Guasco says the platform allows banks and insurance companies to create new insurance products and distribution channels. More significantly, it allows "the creation of customised insurance products based on real data associated with potential policyholders".
The evolution, he says, has only just begun. "A perfect storm of insurtechs who solve real problems, and a shift in consumer behaviour has seen a rapid shift and substantial investment into the insurtech sector over the last 12 months. We anticipate this only continuing in the coming years."
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