Since insurance is such a vast and complicated industry, it can be challenging to figure out if your business is well-positioned to enter the space. Getting started in insurance is also expensive and time-consuming, so you don’t want to get it wrong. Unfortunately, getting it wrong and wasting resources is a real risk if you don’t have a lot of industry experience.

We reached out to Nicola Jandrell about this topic, asking her how companies can go about determining where they fit into the insurance industry, how to get set up, and how they can prepare their teams for the complexity that they will encounter.

”You can’t win at all aspects of insurance at the same time. You have to pick what you choose to be great at!”

Nicola has a wealth of experience and understanding of South Africa’s insurance sector. At Tyesdale Actuaries and Consultants, she spends most of her time working with smaller insurance companies, affinity brands, and innovators who are looking to grow their businesses by bringing something new to the insurance industry.

Figuring out where your business fits into the insurance value chain

Not all businesses get involved in insurance for the same reasons, nor do they have the same constraints and considerations to take into account. To figure out which aspects of insurance make the most sense for your business to take on, you first need to understand the value that your specific business is able to bring to the wider ecosystem. There are many different ways to participate and compete in insurance: pricing, product management, sales and distribution, underwriting, claims administration, and customer support - to name a few.

We will be diving into the two most common types of businesses interested in moving into insurance:

  • Businesses with an established brand: This includes large retailers, banks, tel-co’s, and even sporting teams who are interested in selling affinity insurance to their existing customers. Think about companies like Mr Price, Capitec, Vodacom, and Kaizer Chiefs.
  • Niche innovators: This includes insurtech startups as well as smaller, but established, insurance providers and distributors.

Let's take a deeper look at how these businesses can determine what value they bring to the insurance space, and how they can go about getting started in insurance.

Confirming that your business is ready for affinity insurance

Bigger and more established corporate brands usually turn to insurance as an opportunity to diversify their offerings with simple insurance products that complement existing products that their customers are already buying. For example, if a mobile retailer wants to add additional value to their customers in the long-term, they can start selling device cover that protects against damage or theft.

The fact that they already have a strong business puts them in the position to be valuable insurance distributors because it means that they have:

  • A strong brand presence,
  • Established trust with an existing customer base,
  • A deep and clear understanding of who their existing customers are, and
  • Existing distribution channels such as brick and mortar locations and online shops.

If this is true for your business, then you’re likely well-equipped to start working towards adding an insurance offering. Here are the next steps that you should consider:

1. Find a simple insurance offering that complements your existing products

As exciting as it may sound to create a niche insurance product that your customers have never seen before, the complexity and costs involved usually aren’t worth it. “When you’re a big company trying to sell to the masses, you do not innovate in the product space,” said Nicola, “you sell your customers something true, tested, standard, and easy to understand. This is so that you can sell quickly because you don’t want this offering taking up a lot of time on your call centres or counters.”

This means that you would likely need to find an insurance partner with an existing product that you can distribute for commission. Alternatively, you could also look to partner with someone who can help you build a simple product that customers will easily understand and want to buy.

2. Understand the commercial impact of adding insurance to your existing business

Before you can enter the insurance space, you need to have an insurance licence, be a cell captive owner or establish a partnership where you make commission off of distribution. Exploring all of these options is an expensive, time-consuming endeavor and you need to make sure you’ve done your homework properly before you start.

“Unless you are a major brand, if you go to a reinsurer, an insurer or any investor and you say, ‘I’ve got this idea,’ they’re not going to buy in until they see the detail,” noted Nicola. To get an understanding of this detail, you have to do a proper analysis of the commercial impact on your business. This includes:

  • Possible market size and penetration,
  • What your customer looks like (demographics, preferences, etc.),
  • Expected premium volume,
  • Expected growth based on distribution channels.

“If you can reach a premium volume of R20 million per year, that's quite a lot and a cell captive solution makes sense. If you can reach R200 million a year then a licence makes more sense. If you decide to go without a licence or cell captive and instead sell someone else's product, with an average margin of say 10%, it could be a lot of effort compared to the possible returns,” Nicola said.

Having a detailed idea of the impact that an insurance offering could have on your business will help you clearly understand whether it is a good growth opportunity and how much to invest in it. This understanding will also enable you to start having detailed discussions with potential partners that can help you get started in insurance.

Establishing yourself as an insurance innovator

Niche innovators come in various forms - from startups to consultancies and can even include individuals like actuaries. In contrast with affinity brands, they are usually looking to make a splash in the industry by doing something new and innovative.

Here are a few possible areas along the insurance value chain that Nicola believes are ripe for innovation:

  • Distribution: You can really innovate valuably on this process if you’ve got access to a large amount of data or algorithms that allow for better targeting, or if you can decrease the cost and inefficiencies of selling insurance.
  • Product: While this is generally difficult, you can innovate here by coming up with all sorts of weird and wonderful products that have useful and relevant benefits for the end customer - like education add-ons, reinventions of existing products, or insurance for a very niche market.
  • Claims automation: There’s not a lot of this kind of innovation in the market right now. However, if you can come up with a great way to spot fraudulent claims or automate claims processing, you can enable others to offer premiums at a much lower rate while using far fewer resources.
  • Infrastructure: While this is really expensive and difficult, most insurance companies are struggling with legacy systems that are hard to keep up-to-date and make it impossible to launch new products fast. Root’s platform is a good example of this type of innovation.

While there are various ways to add value through innovation, and since innovators aren’t as established as bigger brands, they need to work harder to convince others to believe and invest in their products. To solve this, Nicola recommends building a good business case so that they can’t refuse.

How to build a clear business case for your innovation

For Nicola, a business case is a well thought out document detailing the building blocks of how your insurance empire will work. “It's very important to have those building blocks in there because if you miss something fundamental, any investor out there who knows about insurance will know that there is a gap,” she noted.

“Investors aren’t going to invest in everyone, and they’re not going to waste their time with just anybody. So you want to flesh out the details of what you want to do before you even go to them because, otherwise, you’re just missing a great opportunity as they won’t speak to you again.”

Nicola advised that these types of building blocks should be included in your business case:

  • A section explaining your understanding of the customer, i.e. who they are, what they want from a product, and why your product appeals to them.
  • A clear explanation of the product, i.e. what it will look like, and how it will be implemented.
  • A breakdown of the total addressable market, i.e. how many customers you already have, your expected growth, and the commercial impact on your business.
  • An idea of how you will integrate with other areas of the value chain, i.e. how you will distribute products, how your system integrates with distributors, and who to partner with for your innovation to be a success.
  • An understanding of your competitors and why you have an advantage over them, i.e. how your partnerships/position is better than theirs.

Navigating the complexity of insurance

Given how difficult it is to understand the insurance ecosystem, how it works, and the roles of other players, it can be challenging to get a foothold initially. It's okay not to know the answers! But if you want to work in insurance, it's vital that you equip yourself with tools and relationships that can enable you and your team to learn.

Here are some of Nicola’s practical tips for getting a better understanding of the industry as well as making sure that you’re staying relevant and on top of the consistent changes:

1. Reach out to your networks

You may know people who have already learned about the industry and what it takes to get started. Reach out to them, buy them coffee and ask them to share their experiences as well as refer you to anyone else who has done this before and knows what they’re talking about.

2. Read up on what others have done

Look at the content your competitors are putting out - there may be valuable lessons in them that you can get for free. You can also visit your reinsurer’s website or read the research that the FSCA and Cenfri put out - these are all valuable knowledge bases that can help you learn about the industry for free.

3. Speak to experts

These could include insurance consultants, like Nicola, or experts that you’ve been referred to via your network. You could even speak to others who have tried to solve the same problem you’re looking to solve - see if they’re willing to chat with you about what they did and what they learned.

4. Have one person in your team 100% dedicated to the success of this initiative

Nicola highlighted that “your insurance initiative shouldn’t be 5% of somebody’s job, it must be 100% of their job.” This is so that someone on your team is dedicated to learning what it takes to make it work and are motivated to adapt based on those lessons.

5. Find good partners who solve for the parts of insurance that you don’t do

In order to stay focused on building an insurance business that succeeds, you need to find partners who can reduce the overall complexity that your team encounters. For example, the Root platform takes care of the infrastructure requirements of insurance so that our partners can focus on building better distribution channels and products for their customers.

Ready, set, get started!

With this information, you’re hopefully well equipped to establish whether your company is ready to take on insurance or not. If you feel like you are ready and that you need more information on how to do this, check out our article on What it Takes to Start Selling Insurance.

If you still need more information, feel free to reach out to Nicola Jandrell or to the Root team to chat about how we can be of more assistance to you!