Naked betting on fairer, less costly insurance with chatbots and social cause initiative

Johannesburg-based startup Naked has been able to cut the cost of acquiring new clients to about half that of traditional direct insurance companies, using the power of new technology, claims the startup’s co-founder Alex Thomson.

Now the startup — which was founded by Thomson and two other actuaries, Sumarié Greybe and Ernest North, in October 2016 — is looking to reduce inflated claims through an innovative social cause initiative.

Speaking to Ventureburn on Monday ahead of the official launch of Naked’s new home insurance offering on Tuesday, Thomson said while the startup’s client base might be small, digital insurance companies are giving traditional players a run for their money.

He claims that in addition, the insurtech’s retention rate is significantly higher than that of traditional insurance companies. The percentage of new clients that leave after a year is about half of what it is at traditional players, he estimates.

Many of us left our jobs in the insurance business because we felt that the purpose had been lost, says Naked co-founder

Thomson argues that key to lowering client acquisition costs and improving client retention has been the startup’s reliance on technology. For example, the entire process of signing up of new clients is done through Naked’s app, with the help of a chatbot.

Video and chatbots

One can get a quote from Naked’s chatbot, Rose, in 90 seconds and sign up for home and contents insurance in under three minutes — completely online and with no need for a phone call.

Older clients might be wary of using chatbots, but Thomson reckons “the sweet spot” when it comes to clients open to using chatbots is those in their 30s.

And when choosing to insure home items, clients can just snap a photo and load it onto the app.

In the same way, part of the claims process is automated. Clients submit a claim through the app, along with a video of themselves explaining what the claim involves. Assessors then use this to decide whether to accept a claim as is, or to investigate further.

Thomson confirmed that the video helps assessors to determine whether a client is fibbing about their claim or not — although he didn’t want to explain exactly what assessors look for in client’s body language (such as perhaps where their eyes are looking) when trying to discover whether a claim is fraudulent or not.

Nudging good behaviour with social causes

The startup is also tackling another issue which commonly affects the industry — where clients over inflate claims (for example a client claims on a larger fancier television screen than the one they had previously).

For Thomson it comes down to an important nudge.

Unlike traditional insurers, Naked takes a fixed portion of premiums to run the business, with the balance going into a pool to cover claims.

Money left over in the claims pool goes to charities nominated by customers rather than towards company profits. This means Naked has every incentive to keep customers happy by paying reasonable claims since it does not profit from lower claims pay-outs.

In addition, Thomson reckons that if clients knows that any money leftover after a client’s claims are settled isn’t going to line the pockets of shareholders or directors, but rather is going to support a worthy social cause, they might think twice about inflating claims.

On signing up with the insurtech, clients get to chose which social cause (most of them are charities, says Thomson) they want to direct their leftover monies to.

On top of it, he says the social cause commitment also acts as a nudge to the insurtech’s directors, because they know that turning down claims won’t necessarily make them any richer, as the excess takings are directed at social causes, not at their own bank accounts.

Furthermore, the social cause initiatives also helps bring in new clients — either via the networks that these causes have, for example attracting the attention of the public or those that support such causes or via the general public through the marketing opportunity giving money to social good provides the startup with.

While he says it’s “too early to say conclusively” that the nudge has helped lower fraudulent claims and perhaps drive client retention, he reckons it has already helped change the way insurance is handled — away from “an underhanded thing where I’m trying to make money by skimming off amounts.”

‘Making insurance fairer’

Thomson says this quest to make insurance more transparent is where the name “Naked” comes from. Explains Thomson. “Many of us left our jobs in the insurance business because we felt that the purpose had been lost”.

While the startup was founded in November 2016, its car insurance product was only launched in April 2018. Thomson said this is because he and his co-founders had opted to build their own tech stack from scratch. This can prove quiet time consuming — as something even venture capitalist Michael Jordaan can attest to (and why Bank Zero has delayed its launch to this year) (see this story).

In 2018 the startup raised R30-million in investment from its investors — private investment group Yellowwoods and insurance company Hollard (see this story) — after netting R20-million the year before (see this story). Since late 2018 the startup has grown from 14 to 22 employees. Thomson says Naked is looking to complete a new raise this year.

Last year the startup took home the award for the best financial solution and the overall best app in the MTN Business App of the Year Awards for 2019 (see this story).

The question now is, will this “fairer” approach to insurance translate to a money spinner? And will others in the industry move in the same direction? Only time will tell.

Read more: Here are the winners of the 2019 MTN App of the Year Awards
Read more: Investors put R30m more in SA insurtech Naked after ‘strong first 6 months’
Read more: Seven SA insurtech startups to watch [Digital All Stars]
Read more: Hollard, Yellowwoods invests R20m in SA insurtech Naked

Featured image: The Naked team, with co-founders Alex Thomson (back row, third from left), Sumarié Greybe (front, seated, left) and Ernest North (second from far right)