As insurtech start-up Naked Insurance turns five, it is looking to eventually become independent of the underwriters that backed it since launch.
The company has also set its sights on grabbing the top three spot by continuing to challenge the traditional players in the market.
ITWeb this week sat down with Ernest North, co-founder of Naked, to discuss the milestones over the past five years, as well as the company’s growth plans going forward.
Naked launched in April 2018 with an artificial intelligence-based car insurance offering. Clients sign up for insurance exclusively using digital platforms without the need for paperwork or talking to a call centre agent.
The start-up was co-founded by actuaries Sumarie Greybe, Alex Thomson and North – formerly partners in Ernst & Young’s insurance advisory business.
It has since expanded from offering car insurance to home insurance, as well as home contents cover.
So far, Naked has raised over R500 million from investors, which, according to North, has largely been used for marketing purposes.
It initially received a R20 million investment from private investment firm Yellowwoods and insurance group Hollard. In December 2018, they invested a further R30 million to enable it to accelerate its growth and expand into new product lines.
External investors such as Naspers, through its now defunct investment vehicle Naspers Foundry, and the International Financial Corporation, a member of the World Bank, also came on board to pump money into the company.
The other funder is the German Development Bank.
Need to stand alone
“At the moment, we are not actively looking for more investors. There is a chance that at some stage, we will need to raise more capital because insurance is expensive to grow and also because we are still not yet our own insurance.
“Our products are still underwritten by Hollard and at some stage in future, we are going to migrate from that arrangement. At some stage in the future, we want to register as a full insurance company.”
In order to do that, he explains, the local regulator requires a significant capital buffer, which will need to be sourced through equity funding or re-insurance.
“Most likely, we will be raising some money again some time in the future, but that’s not urgent at this stage, given that we recently raised.”
Asked about how much capital will be needed, he says: “It’s a complex set of calculations that actuaries do and it depends on the particulars of your own business and how risky your business is. Something like personalised car insurance is less risky because the assets we are insuring are way less than someone who insures, for example, a factory.
“The ballpark that you are looking at is a minimum of R200 million to R300 million, so that’s a substantial amount that the regulator requires you to have as extra capital above and beyond the operational capital.”
Growing pains
The company does not have immediate plans to go beyond South African boarders, says North.
“Insurance regulations are extremely complex and, therefore, jumping from one geography to another adds another layer of complexity to the business. Obviously, we know the South African market pretty well; we’ve been able to navigate the regulatory system in South Africa.
“It’s unlikely that we will be in another country soon because just making that jump to comply with all the local rules and regulations will be a big task. So, we won’t rush that, but it’s not impossible that we will do it at some point.
“Our focus at the moment is really saying we’ve proven the model in South Africa with the fairly little advertising that we have done compared to the other big insurers. What we want to do now is to make this a household name in South Africa.”
According to North, Naked sees a lot of opportunities in the South African market.
“There is a very scary stat in South Africa that two in three cars are not insured because people do not have the financial ability to insure those cars.
“We think there is a big uninsured population in South Africa that we can reach easier than a traditional player with high costs. Our ambition is to keep building innovative technology in South Africa and reach out to people who really enjoy the convenience and cost savings of a digital experience, as opposed to a traditional experience.”
Numbers game
North did not disclose how many users the company has at the moment.
“I can’t say the numbers but we measure ourselves by how many new policies we sell every month. About two-and-a-half years ago, we thought we were still outside the top 10 in terms of how many new policies we sell.
“We think we are roughly at about number four or five at the moment in terms of new policies every month.
“Obviously, we are not nearly as big as the established players yet, because for those who have been around for 15 or 20 or 100 years, they have built up a portfolio over time, but we are slightly ahead of our target in terms of where we want to be by now.
“If things continue the way they are going at the moment, then within five to 10 years, we will be one of the top three biggest personal and short-term insurers in South Africa.”
Watch the video for the full interview.
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