JOHANNESBURG — Recent changes to South Africa’s credit life insurance legislation has meant greater protection for consumers. A new black-owned startup, Yalu, seeks to take advantage of these updates by providing more cost-effective credit life insurance to a wide spectrum of South Africans. The company, though, first has to educate the market about the choices they have when it comes to credit life insurance and that they needn’t pay premiums for this service. Take a listen. – Gareth van Zyl
It’s a pleasure to welcome Nkazi Sokhulu, who is the Co-Founder and Chief Executive Officer of a new black-owned digital insurer called Yalu. Nkazi, your new business, Yalu is looking to rattle the cage of a multi-billion rand industry. Can you tell us more?
Thank you for the introduction Gareth. For us, Yalu as a company has been a trying journey to get to us to where we are now. When we ask ourselves why we wanted to launch this, I remember that at a philosophical level, my partner and I wanted to create a business that we could build on the fact that when customers know better, they will consistently make better financial decisions for themselves. However, philosophy doesn’t pay the bills and that alone won’t get your boots off the ground.
So, we needed a real customer problem to solve. We’ve been in the long-term insurance industry for a number of years, and in that industry we identified that the current life insurance industry has been incredibly difficult to shake up in the past, but we think a number of stars have aligned to allow us to be an industry that is ripe for disruption. We firmly believe that when it comes to credit life insurance, customers can make a decision and reach financial freedom far quicker than what their current situations are allowing them to do. This is thanks to the new credit insurance legislation which hit the market in August 2017 and which has created an environment that warranted for us to come into the market.
Can you tell us how the credit life insurance market currently works? A lot of it seems to be under the radar as such. If you take out a loan, your provider will sell you insurance on top of that. But you say that’s often at a premium of a price? So, can you explain what’s happening there exactly?
Simply speaking, the credit life insurance market is twofold. One-half of it consists of certain types of sets that you will get from your credit provider and, with that, they say you must have credit life insurance. Therefore, it is a prerequisite for you to even get your hands on set credit facilities. Then you get another set where you will apply for that credit, you will get that credit and then they will sell you credit insurance because it’s not compulsory. The market has morphed interestingly over the years. So, we want to start with compulsory credit life insurance because, if you really think about it, you’ve been told that you have to take this insurance and then you’re getting the illusion of an option to take out credit life insurance with anybody, but in practice there is no option and there is no competition in this market.
I’ll give you a simple example. If you look at who you take out your credit from and who is the credit life insurance provider there’s almost a clear cut correlation between the credit provider and the credit life insurance provider being the same person, which means that this illusion of ‘optionality’ simply doesn’t exist. What Yalu would be able to do is actually create real options on the table to create real value for money for customers that actually shows that they can get something better – especially given the fact that they’ve already been forced to take this product. We can then provide a better value for money product than anything out there in the market.
I imagine that a big challenge for you would be to go out and educate the market on the fact that they actually have these various options?
Absolutely, there’s always an interesting conversation to be had here in corporate South Africa. They always say, “Customer first and product second”. But in reality what we’re trying to do is have a conversation about product. We have to actually have a conversation about what the customer situation is today and educate them on it. So you’re absolutely right. Education is a massive part of what we need to be able to achieve at Yalu and it’s not going to be an easy road because every individual we to interact with in just the building of the business, at almost every stage they’re shocked they have credit insurance and then a day or two later after engaging with us, they come back and say, “Oh, my goodness, I’ve had this thing”. These are smart, intelligent people in society and they themselves are not aware of what they’ve actually been signing of on all along, so it’s definitely going to be a huge aspect of what we do as an organisation. When customers know their stuff, when we educate them and they know better, we think they will make better financial decisions. Ultimately, they realise that Yalu is an option for making a better financial decision.
Once you’re tied into these credit life insurance agreements, is it easy to get out of them and to change providers?
The new legislations is really a noble attempt by the National Credit Regulator to level the playing field. They introduced an ability to standardise the definition of the kinds of benefits that a credit life policy must have. They’ve also standardised the pricing a little bit better and what they’ve also allowed is for customers to substitute a credit insurance product of their own choosing. So that’s actually better than the regulation. So, it’s absolutely allowable and it has no effect on your existing credit provider relationship. Let’s use a simple example. If I took out a loan with say, Absa Bank, I could have a credit life policy with Absa, I can take on a different credit life insurance policy on that Absa loan, and it’s absolutely been achieved through the regulations because the National Credit Regulator set them down.
As Yalu, who will you be targeting?
It’s a very good question. Yalu is a technology-based company. We’re not building branches; we’re not building advisory sales forces. But we’ve built a platform whereby you can take out credit insurance online in under five minutes, a straightforward process, no documentation. It’s simple: we do all the heavy work for you in the background. So, we are obviously targeting people who have a relative comfort level in terms of interacting with a digital platform. Our customers can also actually talk to human beings because we find that there’s still a need, particularly in the South African space, for people to talk to somebody on the other side when they want to gain a better understanding.
Therefore, our digital platform is supported by a contact centre capability. So, we’re looking for customers who are comfortable in interacting online or comfortable interacting with financial service providers over the phone. So it ends up being surprisingly a large portion of market. Interestingly, I would actually even include my parents in that one. Even though they’re in their sixties, they actually purchase products online on their phone. It’s actually a much wider market than initially people think it is.
Obviously, you would’ve needed to have raised quite a bit of capital to get this going. What has the market response from the capital supply side been like towards your plan offering?
Gareth, it’s been painful and humbling I think is how I’d describe it. We had to take the plunge; we had no funders. We had to leave our corporate jobs and basically we had to go knee-deep into debt just to keep it going in order to find those funders and I think that we found those funders eventually. They saw the level of dedication where there is no guarantee, and we’ve found that people really do sit up and listen. What was harder of course is actually getting them to commit. Therefore, we know they like the idea, but actually going through the process of a due diligence and getting comfortable with this idea, getting comfortable with how the market works was incredibly difficult, but we were fortunate in the sense that we had funders who ultimately believe in our vision and gave us some capital to make it happen.
We also found amazing people who were willing to do the work without any guarantee of pay. I’m talking about staff and certain third party suppliers. We had suppliers who we didn’t pay for a good five, six months. They knew that we had this idea, they knew we were passionate about it and they just said, “You know what, we’re willing to work on this thing. We’ll wait for you guys to find funding” and they just helped us build it. We found people who left their jobs and who firmly believed in this, saying, “We’re going to back you guys”. And you know none of them were being paid a salary for a number of months, so it’s really been humbling in that sense, but it has been trying to say the least.
You have quite an interesting background. You were previously at FNB, Old Mutual, and McKinsey & Company. Can you tell us more?
I think careers are funny. In hindsight, things start to make sense. I never really had a defined career. I moved from one interesting project to another, and that is how it’s always happened. But the combination of Old Mutual and FNB was a really great training ground for me, not only to understand the long-term insurance market, but also to understand the less discussed things about business. How businesses respond to competitors, how businesses respond to customer needs and seeing those nuances I think that helped me quite a bit. My consulting background was critical for me to understand how to look at a big problem and distill it into a few easy pieces to solve better time, in order to solve a bigger problem. I think all of those experiences have been a tremendous help in helping me think through this journey with the team and get us to a point where we’re now a few weeks away from launching.
How big is your team at Yalu and when exactly are you launching?
It’s a very small team of eight. I believe the team does the work of at least 20 people. I’ve never met people so dedicated and who can multitask the way they have because, you know, you don’t have much capital. In terms of the launch, we expect to launch in the first week of June. We’re currently in the final stages of doing extensive technology testing. Because it is a technology-based platform, we have to be comfortable that all the little pieces tie in the way we designed it before we bring it to market.
You’re also a black duo who is heading up Yalu. What is the significance of this? Are you the first black company to enter this space?
I personally try not to think too much about that in huge detail, but we haven’t found another black company that has done this. But the reality is that the financial services, as most industries, remain oligopolistic in nature. There are a couple of really big players who are in those industries and it is incredibly difficult to break into, regardless of your skin colour.
You talk to people and it’s almost as if you have to fight that much harder. So, I think it has made us a lot more resilient and I think that resilience is going to stand us in good standing when we enter the market. The reality is that you can plan forever, but the market reaction to what you do is always going to force you to rethink and adapt and I think that resilience is going to stand us in good standing when that actually happens.
Nkazi, it’s been an absolute pleasure talking to you today. Thank you very much for chatting to us and telling us about your latest venture.
Thank you for your time, Gareth, I really appreciate it.