Why South Africa Investors Are Flocking To InsureTech

Insurance as we know it is undergoing a major reinvention – and southern African companies like Naked and Ctrl are leading the way. In early August, South African insuretech start-up Naked raised a whopping $11 million in a Naspers-led funding round. This was just two weeks after Naspers’ tech investment division, Naspers Foundry, invested more than $2.3 million (R34 million) in a similar insurance digitalisation start-up, Ctrl.

More recently, Old Mutual announced that they’ve got an eye on the insurtech front too. They’ve partnered with venture capital firm Anthemis Group, which will be tasked with deploying capital on OM’s behalf, specifically focused on companies in insurtech.

Why is there so much interest in insurtech, and how is it going to transform the insurance industry?

What is insuretech?

Like the term fintech, the word insuretech simply refers to technology that’s set to disrupt the insurance industry. Insurance itself has been around for longer than you might expect, with examples going as far as back as Babylonian times around 4,000BCE.

One of traditional insurance’s weaknesses has long been that the premiums people pay depend on an assumed/estimated level of risk. That means that inevitably, some customers end up paying more than they should.

What insuretech aims to do, among other things, is use data from devices and the IoT to get a more precise picture of an individual’s actual risk level. This in turn means that insurance companies can offer more competitively priced products that still give customers the cover they need.

For example, GPS trackers in cars and wearable fitness tech could help insurers offer customers cheaper vehicle and life insurance. At the same time, insurtech aims to make the process of finding, buying and managing insurance faster, easier, cheaper, and more convenient for individuals.

What’s in it for consumers?

Here’s why people (especially the Millennial market) love insuretech platforms like Naked:

• It’s online and contactless – 60 per cent of South African millennials would prefer communicating with their insurer via the internet. Pick up the phone or walk into a branch? Ain’t nobody got time for that!
• It’s cheaper – customised and tailored policies cost less than those which aim to cater to a wide group of customers, all with different risk levels. Integration with AI helps insurance companies better analyse data and calculate risk. In addition, the ability to automate so many processes reduces the insurer’s overheads, allowing them to offer more competitive rates.
• It’s more flexible – thanks to self-service features, it’s easy for customers to upgrade or pause their premiums (for example, when they’re not driving to work any more thanks to a global pandemic).
• It’s faster – According to a company statement from Naked, customers can “get a final insurance quote for their home, its contents, their standalone items or their car in less than 90 seconds”.

Naked’s slogan really says it all. “Instant, honest insurance at game-changing prices.”

Why South Africa?

In terms of annual gross written premiums, Africa’s insurance sector as a whole is worth nearly $70 billion. South Africa alone makes up roughly 70 per cent of that. How much of that insurance is sold without human intervention? Virtually none… yet. In the US, however, there are already more than 300 separate insuretech start-ups making waves in the industry. And with younger African vehicle and homeowners entering the market, demand for user-friendly, digital services is only going to increase, and insurance is no exception. It’s hardly surprising that major investors are flocking to help African start-ups change the world of insurance forever.

Our annual Africa InsureTech Virtual Forum takes place this coming September on the 23rd. Be sure to register.