Tag Archives: south africa

Home Insurance for Those Needing It Most

Roughly a third of the population of South Africa live in informal dwellings in settlements and rural villages. Many of these are shacks, costing less than 5,000 rand to build. That’s the equivalent of around 300 euros. These homes may not figure on a land registry or have a certificate of building quality, but they are family homes nonetheless, providing an essential roof over heads and a safe place to store everything the family owns.

This situation occurs across many parts of the developing world. According to the United Nations, over 1 billion people live in informal settlements around the globe. For the people living, working and raising their families in these conditions, insurance protection is out of the question. Until now.

Enter Ntando Kubheka, an entrepreneur with a passion to make a difference in the world. Ntando is the CEO and founder of Sugar, a start-up insurer in South Africa, who is on a mission to make home insurance accessible to those who need it the most.

To find out more about this young and ambitious start-up called Sugar, I Zoomed with Ntando.

What is the problem Sugar is addressing?

Ntando told me, “The problem we are solving, quite simply, is the provision of insurance protection for the mass market. This is the bottom of the pyramid when it comes to demographics. Our focus is on home insurance because the traditional insurers don’t want to insure homes that are in informal settlements, in rural villages or are homes in township areas.”

The point here is that this sizeable chunk of the world’s population needs a financial safety net more than most. If their home goes up in flames, then everything they possess goes with it. With no stash of cash to fall back on, they become totally dependent on the good will of nongovernment organizations (NGOs), the community and the church.

And it’s not just a question of money alone, although, by definition, this is a low-income group. There is also an issue of supply. The insurance products to fit these types of homes are simply not there.

So, how is it that Ntando can do what the traditional insurers won’t?

Redefining a home

Ntando explained,“There are three issues we have had to deal with for our home insurance products on Sugar. The first is that there are no formal addresses to identify a home. The second is that, even if it is a bricks and mortar building, it won’t be built by a registered builder who has a license with a national agency. And, finally, there will be no formal documentation, such as a certificate of occupancy from the local authority, or building regulations or a land registry record. These are informal dwellings that people have built where they want to build them.”

When you think of it like that, it is blindingly obvious why a traditional insurance product would fall at the first hurdle. There’s no record of where the house is, how it’s been made, what it’s been made of and to what standard it has been built. The issue for insurers is, how do they assess risk when there is no address, or standard description of how the home is built or any certification to demonstrate the quality of the construction?

This is why the purpose of Sugar is to build an insurance product for people who live in homes like these.

Technology to the rescue!

It was about now in the conversation with Ntando that I had one of those aha moments. It came when I asked him how you find anyone when the person is living without a street address. I was thinking of the trouble I have with couriers and the “I can’t find your house” call I seem to get with every delivery. Which is particularly challenging for me as I live in southern Spain but speak un poco de español!

It had never occurred to me how you find someone when there isn’t a system of road names and numbers to rely on.

The answer is simple: The person sends you a WhatsApp locator! The perfect fusion of the analog and digital worlds.

But it gets better: Sugar has built a platform using proprietary technology similar to What3Words to provide a location point for every dwelling. For those unfamiliar with What3Words, it is a global addressing system that does not use street names or GPS locations.

Instead, What3Words has divided the entire planet into a grid of 57 trillion squares that measure three meters by three meters. Each square is given a unique combination of three words to identify it. This system provides greater accuracy for identifying locations and is remarkably easy to use. Words are easier to remember than a GPS location; it always works offline; and it is more precise than saying, “Meet me outside Oxford Street tube station!”

How is Sugar doing it?

Sugar scans and remaps the country every six months with its in-house spatial platform to keep the core platform up to date. Sugar can put a pin in the map and locate every one of its customers.

Customer onboarding is entirely automated and driven by a conversational, AI-enabled chatbot. It typically takes 10 minutes for a new customer to go through the entire process of inquiry, quotation and buying a policy. The experience is specifically designed to be conversational in a choice of 11 languages (not everyone speaks some English).

As part of the onboarding process, customers take photos of the four elevations of their dwelling. Sugar takes the four images and strips out the metadata of each one, such as the location data, timestamps, etc. Sugar then compares the images with its own datasets to validate the photos against what it already knows about the dwelling.

Which all sounds great, but what about valuation and the setting of the premium? Ntando explained, “When it comes to valuing the property, we leave that to the customer. We ask them to assign the value that they think is sufficient to cover the rebuild cost of the property and the value of its contents. If they over- or underestimate, well, it is what it is. They make that choice for themselves.”

See also: 11 Insurtech Predictions for 2021

Insurance claims – the moment of truth

“When it comes to settling claims,” Ntando said, “we send out an assessor for bricks and mortar property claims to view the damage and assess the loss. But for the Shack product, we pay out the full amount on every claim. We deliberately made this a pre-paid product for a fixed amount, say 5,000 or 10,000 rand. This is unique in our marketplace to have an insurance product like this.”

One of the smart moves Ntando has made with Sugar to minimize the risk of fraudulent claims is to enter into a series of partnerships with retailers and do-it-yourself (DIY) stores. When a claim is paid, it is usually in the form of vouchers or a pre-paid card to spend at a store, and not in cash. This discourages anyone from seeing an easy route to cashing in their total loss policy when they know they’ll be paid out in timber and nails!

Bringing insurance to the masses

Sugar is about to complete its first round of seed funding. The tech platform is built and already serving customers. The underwriting capacity is in place with Genric Insurance, backed up with reinsurance from GenRe.

This newly raised capital will fund growth in distribution as Ntando goes on his mission of educating the people of South Africa on the value of insurance to people who have little or nothing to fall back on.

Social impact!

Afterward, when the Zoom was over and I was reflecting on the call with Ntando from the safety and comfort of my riverside dwelling, I had one overwhelming thought. The social impact of providing financial protection to those who need it the most makes Sugar more than just an insurance company.

And for that, I wish Ntando and Sugar the very best of luck and good fortune for the future!

Solvency 2: An Outcome Very Different Than Planned

The original intention of the EU's Solvency 2, the regulatory requirement for capital held by insurers, was to create a framework that inspired policyholder confidence and restore trust. The real outcome was to force insurers to undertake massive programs of data management at costs that, for some Tier 1 insurers, have exceeded $200 million. Some insurers said they would pass the cost on to their customers, which I’m sure wasn’t the intention.

In what was arguably worse, the cost became so great that other useful programs were put on hold because of this burning regulatory platform. The knock-on effect has been to create delay especially in customer-facing activities (which would have had a far better impact in improving confidence and trust).

Some international insurers suggested that the requirements might prevent them from trading in Europe – creating a “Fortress Europe” – but Solvency 2 seems to be emerging in multiple guises around the globe, in China, Latin America, South Africa and of course the U.S. in the form of RMORSA.

There’s lots written on this topic, such as http://www.solvencyiiwire.com/, and I won’t bore you, but as I looked out at the faces at a major conference in the U.S. where I spoke recently, I recognized the look I saw in many insurers in Europe in 2008 — that of not really knowing what was going to hit them.

Insurers were to discover that more than 80% of both cost and implementation time was absorbed in data management, 15% on analysis and the small balance on risk reporting. Yet the reporting element proved to be the only part visible – reminding me of an iceberg analogy, with the reporting being that part of the ‘berg visible above the waterline.

Comparing risk and regulation to an iceberg is interesting, and as I looked around the room at the conference, I wondered how many attendees were ready for what would be, for them, a long and difficult passage. But not, I hope, a Titanic one…

Waves of Change in Rapid-Growth Markets

Global expansion into new markets represents a powerful opportunity — especially as economic performance languishes in much of the developed world. As a result, insurance executives must regularly evaluate and refresh their strategies to identify which international markets are most likely to offer the best prospects.

As regional markets around the world become more connected and complex, however, understanding how best to optimize the balance between opportunities and risks in individual countries remains a significant challenge. Even in a world linked closer together by macroeconomic trends, mobile phones and the Internet, regulatory and cultural differences persist, and even nations that share a common border may diverge markedly when it comes to future risk.

To help executives better understand the rebalancing now taking place across the insurance landscape in rapid-growth markets, we will highlight growth opportunities in specific countries around the globe.

While once-flourishing BRIC economies Brazil and India are now expanding at a slower pace, the U.S. is rebounding, and the U.K. and the Eurozone are at last rising from their doldrums. At the same time, a cluster of emerging markets, such as Malaysia, Indonesia, Mexico and Turkey, are making regulatory changes that could produce significant opportunities.

These shifts are causing insurance executives to reassess their strategies to determine which rapid-growth markets (RGMs) represent the most attractive investment options. To help navigate this rapidly evolving landscape, EY has created a matrix that analyzes the risks and opportunities for insurance firms across 21 RGMs. Our study identifies the following RGMs as particularly attractive for insurance investment:

Turkey offers a greater level of opportunity than any other RGM in the study but also poses substantial risks. An economic downturn cannot be ruled out. While political turmoil has cooled in recent months, tensions could return. In addition, markets for some lines of coverage are relatively mature.

Indonesia also offers an extremely strong economic growth picture — second only to China and Vietnam in our forecasts. However, it is challenging to obtain licenses, so acquisition is the main entry route.

China, despite a recent slowdown in growth rate, continues to boast extraordinary income growth that spurs auto and home ownership. In addition, an aging population will drive the development of the life and health markets. However, market entry remains difficult for foreign firms.

Malaysia offers an attractive mix of demographics and strong economic growth and has become a base for the development of takaful, sharia-compliant insurance.

Hong Kong (a special administrative region of China) ranks low for opportunity but presents less risk than any other market in our study. Hong Kong can also serve as a trade route into the rest of Asia.

The United Arab Emirates (UAE) has become the fastest-growing insurance market among the Gulf States, with a compound annual growth rate (CAGR) of 17% over the past six years. Regulatory changes may create greater opportunity for expansion of takaful products.

Our analysis does not merely focus on markets with the highest opportunity and lowest risk but provides a more nuanced picture of the shifting landscape. Depending on a firm’s appetite for risk, a second tier of RGMs also shows considerable promise:

Brazil remains an important opportunity, though slowing growth rates have revealed festering economic risks. Following a program of liberalization, Brazil is the most accessible of the BRICs for foreign insurance companies. Brazil’s key advantage is scale: Of the markets in our study, it has the third-largest forecast growth in insurance premiums in US dollar terms, following China and India. Moreover, record new car sales are propelling robust growth for automobile lines.

South Africa follows Brazil with the fourth-largest absolute growth in insurance premiums. In addition to scale, South Africa may be a good trade route into sub-Saharan Africa, as South African companies have been among the most successful in penetrating other African markets.

Vietnam has become one of the most exciting RGM opportunities. Its income growth and premium growth rates (when considered in percentage terms) place it among the top two markets we assessed. But investors face significant corruption and sovereign risks when entering Vietnam.

Mexico has undergone a program of extensive liberalization, opening its market to foreign insurers. On some measures, Mexico is the most open insurance market in our study. Yet the pace and unpredictability of regulatory change can be risky for investors.

India’s opportunity is impossible to ignore, given that it is second only to China in terms of absolute forecast growth in insurance premiums. Yet, the regulatory environment has proved extremely challenging for investors. In addition, a large current-account deficit and reliance on portfolio capital inflows elevate liquidity risks.

Our analysis suggests that while investment in RGMs will continue to be vital for global insurance firms, outsized returns will not come easily. Companies that carefully tailor products and develop market-entry strategies suited to particular economies and their cultures will see the greatest rewards.

Key factors influencing market selection

When investing in RGMs, insurance executives will want to carefully consider four important waves of change:

1. The speed of regulatory change.

Some RGMs, such as South Africa and Mexico, are moving quickly to adopt new insurance regulations and may surpass advanced economies in the stringency of their risk-based regulation or consumer-protection requirements.

2. Customer adoption of insurance products.

The rise of social media and the growing popularity of overseas educational experiences are among the forces breaking down traditional barriers to insurance penetration. Many markets where traditional cultures tended to limit adoption of insurance products, such as Vietnam and Saudi Arabia, are now experiencing rapid premium growth.

3. Government fiscal policy.

Offering tax incentives for insurance products can significantly affect how customers choose savings and pension services. At the same time, a lack of confidence in public pension and welfare schemes can encourage adoption of private insurance alternatives.

4. Government attitude.

In most RGMs, the government considers the insurance sector strategic. This is in part because of the crucial role insurance plays in facilitating savings, investment and entrepreneurship. Understanding the government’s goals for the sector’s long-term development is therefore crucial. Some governments will focus on the potential growth benefits of insurance development and seek as much foreign expertise as possible in developing the insurance sector. Others will wish to have the insurance market dominated by domestic companies over the long term.

Download the full report here: Waves of change: the shifting insurance landscape in rapid-growth markets