Alex Thomson and Sumarie Greybe

Naked Insurance 
Alex Thompson and Sumarie Greybe

Today's guests are Alex Thompson and Sumarie Greybe, co-founders of Naked Insurance.

They, and Ernest North co-founded what's called an insuretech company in 2016. They are all actuaries, previously working at iWise Insurance advisory business.

“What we’ve seen in the industry, is that there are significant trust issues in the current relationships between customers and their insurers. I think, we've all had enough of that paternalism, that kind of sense of, we know better and, we've been around forever and all that. And, I think a part of the name is to say this is something fresh, this is something real.” – Alex Thompson

“We saw that the local insurance market seemed to be slow at getting themselves ready for the digital age.” – Sumarie Greybe

I'm Bruce Whitfield and you're listening to RMB Solutionist Thinking.

Had anyone of you actually ever sold an insurance product. Sumarie? Have you ever had an insurance customer or were you backroom theorists and experts on everything to do with insurance, but actually hadn't run the business of insurance?

Unlike most typical actuaries neither Alex or myself were backroom actuaries because we were consultants by career but that did mean that our clients were other insurance company… so, fellow professionals, executives, etc. So, no. I've never really sold a real policy to the man in the street ever before, no.

So, Alex. I mean, what's it like then jumping the fence from consultant and advisor and, theorist to practicing insurance salesperson.

Let's not go with salesman. No, so far, it’s been great. I mean, it's actually really gratifying when you spent your career few steps removed from the action, to really get into the action to really actually be able to sit down and do something which has a direct impact on the public, you know on the person on the street, you know, we can actually add value to their lives directly. Of course, it comes with all sorts of new challenges and things which frankly we didn't know very much about a few years ago.

What sort of things?

Things like digital marketing, right? Which in our kind of businesses is really critical. You've got to get the word out. You've got to find a way to spread know what you're doing, tell people about it. And that's not the sort of thing you do when you're an actuarial consultant and, so yeah, just getting into that has been really interesting. It turns out actually that people like actually is can be quite good at that sort of thing.

But, if you work out what it costs you can work out reach and then you can see whether or not it's worthwhile.

Exactly. It's very analytical. A lot of what we do is actually extremely analytical and, so our background, our professional training actually comes in handy.

At the other end the summary of this transaction is a customer. Somebody who is parting with hard-earned cash after tax money to mitigate their risk, whether it be on a car on a watch or on a house, whatever it might be. They are saying, here is some money, please cover me in case something dreadful happens and, you hope nothing ever does happen, but in the case of a claim. It's a very human business, in as much as it is analytical, in as much as it is about data, in as much as it is about AI and we'll talk about how using that now, ultimately at the end of the day there is a human customer who has an expectation when things go wrong.

I remember, we were about three months after launch and I was driving an early one morning and I was talking to Alex about I'm sure it was something to do with marketing and I told him for the first time it feels as though I'm having a real impact in real people's lives and I actually I really love it. So, I'm also very involved in dealing directly with a customers, when they have a claim, if you have a claim, very often you'll speak directly to me and I've actually really enjoyed that because for me it's critical that I understand the pain points. As we design and develop the technology all of us engage directly with the customers to find out what they want what they need. And what should be next on our roadmap.

How do you differentiate insurance? Every actuaries as far as I know goes to the same course at University, every actuary then goes into the same insurance industry where the risk factors for each and every insurance company are exactly the same.

The problem that we saw in consulting to a lot of the existing insurance companies in the market, is that many of them were struggling to really remain relevant. Particularly for the for younger people. They were using, or they are using a technology stack that is very out of date. It makes it very difficult to deliver a really great experience online. You know, you’re still looking at long phone calls endless phone calls really to try and even just get a quote on something that car insurance and, we could see how there's those players are really just struggling to change that, you know struggling to deliver something that was slick, that was really easy to use, that didn't have a lot of the sort of cumbersome manual processes that those old systems tend to rely upon.

I think, one of the things that differentiates us is that we started completely from scratch, with saying we want to build some technology that allows us to deliver for customers a way better experience, you know something where it's super quick. It's super easy. It's almost fun. I mean, I don't think you could really ever say that my insurance would be quite fun.

It's fun like going to gym, taking the dumbbell and dropping it on your foot, is fun. I mean, buying insurance is not quite fun.

You know, with us, you get to like, chat to this cute little chatbot. I don't know, like..

What is your chatbots name?

Our chatbot’s name is Rose. She's a real person. If you want to get a quote from us, you go on tart apple or onto our website and, you answer really a handful of questions about eight questions from Rose and, then we will give you a final quote, that'll be it. You can buy that with a card instantly, you know.

So, really you can be covered in about three minutes flat and you know that that obviously compares enormously with how typically its done in the market otherwise.

When it comes to insurance and simple insurance products are easy enough to do. You’ve got a 2016 red Polo with 10,000 case on the clock driven by one previous careful owner who only used to drive it to the shops on Sundays after church. That's an easy thing to insure but suddenly somebody wants to insure three cars. One of the drivers of two of the cars is under 25. There is a Cartier watch in the family, which is worn by mother and daughter on alternate days to alternate events. Sometimes late at night. Suddenly, that becomes a much more complicated insurance proposition or not Sumarie?

Definitely, I think self-servicing, when you have that kind of scenario is a lot harder. We found it quite an interesting and challenging process to think through, how do we still maintain that simplicity that Alex was just speaking about. We are, at the moment, we only doing car and like you said, it's really easy if it's if it's one or two or three cars, that's pretty irrelevant. But, as soon as you start throwing in all the other things, it becomes a lot harder. Then it is critical, and we make use of a process where, we iterate a lot with our customers.

What is that mean?

So, we designed the process. We build a prototype. We get five or six customers in we get them to taste it. They give us feedback. We adjust based on what they told us. We redo and, that iterative process makes sure by the time that we actually launched product into market. We've ironed out most of the uncertainties or the things that might be difficult for customers to understand in terms of self-servicing.

Price in insurance is important. Nobody likes to pay for insurance or price is a critical factor. The other factor is the claims process and you have no idea when you buy an insurance product, what the claims process is going to be like and you may not know what it's like for five years by which time you realize you poured five years worth of premiums into a bottomless pit because the claims process is actually not great or you didn't fill form in properly or you didn't disclose that, I don't know, you blink at extra time every 60 seconds more than anyone else or whatever. It is insurance people judge you on what is the pain point, the critical point for insurance?

I think that's it, isn't it? I mean, getting your claims paid is really why you buy insurance. It's also, you know in our experience working with the industry previously, it was it was an area where we saw just so consistently that you know, or not consistently enough people were getting what they expected from their insurance. When they came to claim stage, this is too often surprises and some in this is an area that we've tackled head-on.

We looked at this very carefully to say, how is it that you can remain competitive, offer something which has an incredibly good price point but still delivers a much better claims experience, where people have a sense of confidence that they're not going to get surprises when they claim. And I mean this is where we have innovated in the way in which our business model works, where you know, instead of participating in the level of the claims, you know, so when most insurance companies pay out a claim comes out of their profits, it's money that otherwise the shareholder will get you know, so you shouldn't be surprised. If sometimes they're a little cautious

Well anyway, so we so we felt that that was a conflict of interest, you know, the benefit for the customer is conflicted with the interests of the shareholder and that's and that's a difficult problem to resolve. So, we've just changed that we don't participate in the claims in the same way. We take a flat fee. So, it's like a, it's like a service like a technology product. We just pay us a percentage of the premium and we manage the whole thing, but we don't benefit if we can pay less claims.

Traditionally, insurance companies make a lot of money in a couple of ways. So, they take in premiums, they put some into account for risk, just in case they get some claims this month, the other 80% then goes into investment markets into investment markets go up and underwriting profits grow and you see massively profitable businesses. They're great investments, insurance companies. You are now foregoing the investment return part of the traditional insurance industry.

The main thing actually is really around the under-writing profit as in the difference between the premiums and the claims. I mean, that's the bit that we're forgoing. That's the bit where I mean, if you look at our direct insurance companies, they're making lots of money there before even on you look at the investment side of things. I mean, some of them are making, you know up to 25 cents in the round every round you pay them. They make 25 cents of pure profit and that's before investment returns. So, it's that piece particularly, which is where we feel there's a conflict of interest and where we've changed the way things were.

So, you take a flat fee. You then put the money into a pool. What happens to the money in the pool?

Well use that to pay claims, right?

So, you're not going to get a billion claims. So, that then goes to profit, right?

No, they won't come to us what happens if there's money left over, we actually donate that to causes and charities or schools or churches that our clients choose when they sign up.

You do know that you're running a business?

I think, a few people ask her ask that in the back of my mind. Yeah.

But in order to make a substantial living for three people, actuaries, qualified professionals, with between you decades of experience, professional experience, so much easier, surely Sumarie, just to go into the office, visit the clients, tell them what they doing wrong, go home and have an easy life. Why go through the startup pain, if you're not really going to capitalize on the opportunity the way the insurance industry does traditionally?

Well on the first one. Why am I not going into the office and earning my big pay check anymore? I think, my husband misses it. I can ask the question. I don't think that's a life. Well lived quite honestly, that's what I decided to do what we're doing now to actually use the experience that we've gained over all this time to stop just haggling from the side lines because that's effectively what you were doing and putting some stuff at risk to actually go and try how we think Insurance should work and it doesn't mean that we're not in it to make money. We are just a lining the interest of the various stakeholders.

How many customers do you need to break even?

A lot.

Do you need 10,000? Do you need a hundred thousand? I mean, what sort of scale are we talking about, toward the lower end or to the higher.

Towards the higher end.

That's a lot of people and, a lot of trust.

Yeah, no that's right. So, we've got big Ambitions with this business. This is we don't want to be some little bit of footnote in the insurance and all them and we actually want to become a serious player. Technology businesses, like ours the great thing about them is that the incremental costs, you know, the costs put extra customer or low. Yeah, but the fixed costs of having, you know, highly skilled development team and all that sort of thing are quite high. So, you need to reach scale to be able to cover all those costs and then you do make good money. So, we very much intent on making good money for shareholders and that comes from scale and that's why I'm there.

I don't know how many players in the fintech, insuretech space, are, your underwriters are Hollard, you’re using their insurance license. They seem quite happy to allow people with bright ideas to approach insurance differently to use their license. I don't know how many people exactly there are in the market doing there. But, there's lots, It's a ferociously competitive space from that respect. Again, standing out, differentiating, building trust, how?

Well it's a no, look it's indeed a challenge. I think what we what we have seen in the industry and was speaking to lots and lots of people who buy insurance is that there are significant trust issues in the current relationships between customers and their insurers and we really feel that by offering something we've dealt with conflict of interest to be using fantastic technology and AI to dramatically improve the process you'll see that trust developing. Well, I'll give you I'll give you one little step that you might find interesting, is that the we've done very little marketing. We did a survey at the end of last year about existing customer base. 40% of them are what are called super referrers. So, they tell more than one person about us over 80% of our customers are referrers of told other people about them. So, there's certainly something in what we're doing that's resonating with people that's making them feel, this is something different and I want to spread the word about it.

Which is helpful and positive. Are enough people doing it often enough to get close to your upper end goal of close to 100,000 customers to get to a point where you will make some money.

Absolutely. Yeah. I mean we were ahead of our projections. So, our investors are satisfied, or your projections weren't high enough to sort of.

What do your former clients, your consulting clients say to you when you go to insurance industry gatherings, in smoky rooms or whatever it is that you have insurance industry gatherings and you've been consulting to these guys for years.

Is in the same way as you've given them valuable insight you've tapped them for valuable inside and now, you're a competitor. That's I would assume some of the might be quite cross.

Well look, it's we certainly aren't the first people to you know, move from one company to another or to or to start a business.

No, no, this is going from a consulting role with your clients, to a competitor with those former clients. That's a different thing.

Yeah, absolutely. And I look I think very few of them are surprised by the kind of thing that we're doing most of them have been trying why didn't you tell us to do this? They might ask well did you that's actually I mean, that's really actually the clincher isn't it? I mean, we were trying to get them to do this for so long. The number of times they would ask us for a digital strategy and we would put something on the table that looked just like what we're doing and then two years later it's still in the works and the bureaucracy and the politics of being played and nothing is happening. You know, that just happened one too many times for us then we said okay fine. If you don't want to do it, we'll do it.

The brand, Naked Insurance. Where does it come from?

It was a long and torturous journey to decide on our name to be honest and it took us quite a couple of months to get to and I'm where we felt. Yeah that represents what we feel, and we went through consultants and none of it worked. And this is one day we were sitting around the table and we were talking about transparency and you know removing this layer between the customer and the system uncovered hence the name naked.

Do you get taken seriously with a brand like that? And, I just remembered, Prudential for example, had a very cool online bank in the day when online banking was new. They had a bank called egg, and it worked really well and was fabulous. But they had a bank called egg. You're a serious business, you’re serious people, you want to be serious players with a non-serious name. I’m not sure if the brand could be serious. How do you balance the need for seriousness and trust and all of those things Old Mutual, Sanlam, serious, old-school bricks and mortar certainty?

I think we've all had enough of that kind of paternalism, that kind of sense of we know better and we've been around forever and all that and I think in a part of the name is to say this is something fresh right. This is something real what we generally find as a very general rule is that people over the age of about, I don't know 40 or 45 have great difficulty with the name. We probably have many people who decided not to buy insurance from as purely because of the name.

But that's not your market, your market is youngsters who resent the insurance brokers who sucked their parents dry and looking for cover they can trust in a way that is personal and appealing.

Correct? Absolutely. Right? And so we found that the name actually resonate extremely well in the younger part of the market and I think…

Which is the part of the market that the rest of the insurance industry doesn't really want because it's higher risk. Traditionally, if you're under 25 and you get a car you're more likely to wrap it around a light pole at some point in the first year or two of you driving that car up statistically. You will know this to be true. Do you insure differently to the rest of the insurance industry? Do you say we trust you differently we treat you differently? We treat you like a grown-up.

I think so. Certainly, we are very mindful of not coming not being paternalistic not sort of feeling as though we know better this concept of Self Service of you being able to take control of your of your insurance needs be able to do your own research.

But how am I qualified to do that? Because I've been told all my life that I need an expert to help me because that's what how the insurance industry built itself.

Absolutely but I don't think that's the case if you're under 30, I think if you don't can be related, I think people feel no I'm quite capable of making up my mind about this. I you know, I don't see why I need some old folk who you know has thinks he knows everything about insurance or about my life about my needs to come and tell me what I need and we and look at I don't want to say that, you know, advice around things like investment and insurance is unnecessary. I think, there's a very important role for advice but the frictions that it can introduce, that costs and all that that go with it. I think should at least be optional something which people can choose when they want it and don't need to use it if they don't want it.

What's the endgame her, Sumarie? What is the goal, do you want to be the next Outsurance? And do you want to beat the big gorilla or you happy to be the upstart in perpetuity.

In order for the business model to make sense? We need to get much bigger because you make small margins. And therefore, you need lots of people on the platform when the three of us were talking about this business. There wasn't a lot of insure Tech development in South Africa per se whereas there’s lot of activity in the States, Australia, Europe, everywhere and with these digital businesses. It's very easy to take that business and actually start selling in a different country. And, we saw that the local insurance market seemed to be slow at getting themselves ready for the digital age.

So, what we saw is international guys that we're going to come in here and actually threaten the local players. So, in the same vein, I don't think we see that we want to be the next Outsurance and so we want be the next Santam or anything like that. I think I Ambitions are much broader than South Africa. 

I think, it's important that South Africa support businesses that want to take certain industries into the digital age because otherwise overseas businesses will just come and do it and we will lose that opportunity to create employment and actually to grow income into the country as these businesses can easily scale outside of the country

Alex, here is the South African environment. It is massively competitive in the insurance pays you coming in you're ready to box, you're fighting you want the younger generation of insurance client. You looking to get the volumes. How does this insurance industry look five years from now, ten years from now, are the big dogs playing in your patch all into the future to broke us have a job 10 years from now?

Generally, I think the principle that we tend to overestimate the impact in the short term and underestimated in the long term probably applies here certainly in the in the longer term. So, whether that's 10 years or longer than that, I think there's going to be a significant change in the way that insurance works.

Players lack us are undoubtedly the future the use of call centres and paperwork and Brokers and all those sort of things I think is going to change.

Can you get rid of forms?

I definitely think you can get rid of forms a hundred percent, forms must go. They should really be gone already and to be clear that there is still a role for advice. It just needs to be done differently. It needs to be done online. It needs to be driven by AI, it needs to be much more specific and bespoke and affordable not something that only the super wealthy can afford quality advice.

But yes, I am absolutely convinced that fairly soon. This market is going to be very different

Is this insurance that form a step toward other financial products or is it purely Insurance simple insurance for the long term. What is it?

You know when you're in a start-up focus is important. So, we our focus is really on delivering a fantastic short term insurance experience who knows in the future. I mean anything's possible but sadly not we putting our energies right now.

Alex Thompson and Sumarie Greybe are two of the cofounders of Naked Insurance, looking at the world differently, looking at the problem the resistance towards insurance and in South Africa, only a minority of vehicle owners are insured and often people will drive a brand new car off the garage forecourt and have it insured in a month or two later with a cash constraint, will cancel their insurance. It's illegal to do so, but people do it and then drive carefully, more carefully, they think and, hope but it's always the idiot from the other side that might cause the accident. South Africans are generally underinsured. It's one of the reasons why insurance rates in South Africa is as high as they are.

These guys are rocking and, changing and, challenging the insurance establishment.

Naked Insurance, RMB Solutionist Thinkers.