We could try to tap dance around this issue. But you know it. And we know it. Insurance sucks. And the first step in fixing a problem, is recognising there is one (cudos: Will McAvoy).
If we tried to compare the insurance industry to another one, it would have to be the oil industry. Firstly, nobody really loves the companies themselves, especially in light of the destruction they often unleash on our planet (I’m looking at you, BP). Secondly, nobody relishes the fact that their petrol tank is running empty, and the consequent joy of emptying their wallets in return for a car that can go from A to B. We buy petrol because we have to not because we want to. And finally, petrol is a commodity. It doesn’t matter if you buy your fuel from Caltex, BP, Shell or Engen - it’s all the same (although some claim to enhance theirs with adamantium, or something like that).
We have a similar relationship with the insurance industry. While I don’t think South African companies were guilty here, financial services institutions were certainly to blame for the financial crisis of a decade ago. It’s not environmental damage, but it's damage nonetheless. And like with fuel, nobody relishes buying insurance. We buy it because we have to, and then we want to get on with our lives. Finally, despite insurance companies putting their own version of adamantium into their products (in other words, fictional greatness), it also doesn’t really matter if you buy your life cover from any of the big well-known players. Life insurance is a commodity.
On top of this, insurance has its own very special sets of suckiness which it can be uniquely proud of.
There’s no joy in buying insurance
While buying fuel can be a bit of a hassle, with the main gripe being the empty hole in your pocket after the visit, it’s not particularly stressful. Here, the insurance industry shines!
Insurers have made buying their product as difficult as joining an exclusive country club. There is simply nothing easy about buying insurance, and the levels of unnecessary complexity and hoops needed to jump through to get good cover, make it seem that insurers don’t really want you to be covered.
There’s less joy in keeping insurance
You may be misled to believe that buying insurance is the worst part of the process. But, the best (or worst) is yet to come.
Most of us have been there, trying to deal with insurers for issues you have after the fact. Ever been in a pinch and simply couldn’t afford to pay this month’s premium? Don’t worry about it. If you skip this month, your generous insurer will simply take double next month! Want to simply add a little more cover, or remove some existing cover or benefits? Good luck with that. I mean it. It’s often impossible for them to handle, and even when it is possible, the process effectively makes it near impossible.
Insurance really isn’t something you want to buy
Generally, unless something really grim happens to you, you’re not getting anything back for the religious contributions you make month in and month out.
This is why insurance is generally considered a grudge purchase. Not only is it an unpleasant product to buy and keep, you also don’t actually want to get anything back from your insurance because it would mean something awful has happened.
So, we fixed it. For ourselves, first. And now for everyone.
We didn’t create Indie simply out of the goodness of our hearts. The reality is that there were enough of us who were consumers of insurance, and found that, yes, it sucked. So we decided to build insurance to be better through and through, so that it would be something we'd be proud to buy, and prouder to sell.
I won’t cover everything that we’ve done to fix the problems with insurance, but we can safely claim that it’s easier to buy Indie, with less product complexity and improved product quality. And over time, it will be much easier to manage. Need to skip a premium? No problem. Want to change what you have? Go for it.
And one of the biggest areas of improvement, was that we have created something which can not only give our clients something back without claiming, but that something can be incredibly generous. What did we do? We created the only insurance that generates wealth.
And yes, it seems too good to be true.
When we first came up with the concept of creating an investment baked into each insurance policy we sold, we knew we were onto something. It seemed to solve so many pain areas with insurance, from turning insurance into less of a grudge purchase, to having something attractive and empowering which could make a positive difference to our clients, even if they never claimed.
What we weren’t expecting, however, was just how generous the investment could be.
When I first crunched the numbers on the back of an envelope, I was pretty sure I'd made an error. And then when the Indie actuaries did it properly, and still got similar numbers, I assumed they had made an error. And finally, when the Sanlam actuaries unleashed their hardcore actuarial modelling programs on it, and got the same answers….I started to believe. Turns out the Indie actuaries were just as slick as Sanlam's sophisticated modelling programs.
Given that my background is in actuarial product design, my first instinct is to try and figure out why the investment concept can be so generous. And this involves looking at all the specific cash flows over time. I’ve written another more technical blog post here which unpacks it. Through this exercise we started to understand why our product could be so generous, and still be financially viable.
You will see that we mention in a few places that we have solved a problem with insurance distribution. It’s quick to jump to the conclusion that we’ve “cut out the middle man”, but what we’ve done is much more significant than that. As a customer who may have interacted with big insurers before, you’ll likely be familiar with a financial advisor or broker being in between you and the insurer. And it’s sensible to think that it’s that advisor that you’re talking to who is adding a certain cost to your premium, but that’s only a small part of the truth.
Firstly, I must say that we place a high value on financial advice. We can see from publicly available data, that most people (and I include myself in this group) do not make consistently good financial decisions over time. From taking on too much unhealthy debt, to not saving enough for your future - generally, we aren't good at managing our own finances. And to the extent that quality financial advice and coaching helps, it’s worth every cent. This is part of the reason we offer qualified financial advice to our clients over chat, at no extra cost, if they are looking for it.
We are not on a mission to cut out financial advice, even when it is delivered in a face-to-face environment. However, what most people don’t see, is that there is a giant engine behind face-to-face distribution which is incredibly expensive to operate, and adds significant expense to financial products you generally buy.
And when you’re selling a commodity through a group of financial advisors and brokers, you need to spend a large amount of money convincing them that your commodity is better than your competitor’s. An entire engine sits behind these efforts, and believe me, it’s incredibly expensive to run. And actually, incredibly effective too. I mean, the machine works, and the commodity is effectively sold in enormous volumes this way. But the true price of this engine is carried by the clients themselves.
So at Indie, what we’ve done differently is to avoid that giant machine which normally needs to sit behind distribution efforts. We believe what we offer is not a commodity, and have built such exceptionally good products, experience, capabilities and a reward - that the relative effort (or, expense) we need to put into taking our proposition to the market, is significantly lower.
To a lesser extent, but significant nonetheless, we make use of the latest technology to keep our operational costs lower. Basically, we can do more with less. And those savings are then passed on to our clients.
In a Nutshell
We knew that if we built a superior value proposition, and were relentless in keeping our costs to an absolute minimum, we could create more value for our clients.
And, the investment we create with every policy, is key to our superior proposition. This may sound counter intuitive, but having an incredibly powerful value proposition (in the form of the investment and the experience), actually means that we will spend less money and effort overall to take our product to market.
And this saving in costs, can be handed back to our clients in the form of this wealth-generating reward. It is a circular reference of sorts, so don’t dwell too hard on it.