Inside Covid-19: Small business says: Treat us like adults; 25% insurance premium rebated; Moderna. Ep 36

In episode 36 of Inside Covid-19, the Small Business Institute expects a major opening of the economy soon; Discovery Insure is rebating 25% of its members’ April premiums; We ask whether coronavirus killed open plan offices?; Donald Trump’s hydroxychloroquine endorsement gets another fan – Elon Musk; top global political risk consultancy Eurasia says multinationals are fretting about South Africa’s dimmed economic prospects; and we take a close look at Moderna, the company whose promising Covid-19 vaccine tests sent the price of US stocks – and oil – soaring. – Alec Hogg

In the Covid-19 headlines today:

  • The SA government’s modelling team yesterday projected that confirmed coronavirus infections in the country will reach more than a million when they are expected to peak in August, while they have stated that mortalities could reach 45,000. Health Minister Zweli Mkhize said at the same briefing that the number of new infections would have to slow before the country would be able to lift the nationwide lockdown. The statement has been badly received in the business community, including at the Small Business Institute whose members employ more than 3.9m people. CEO John Dludlu says he prefers to listen to what Cyril Ramaphosa has to say, that he believes the president has heard the pleas from small businesses and that he expects major re-opening of the economy to be announced before the end of the month because “we need to be treated like adults.”
  • South African companies are adapting to the new normal with a number now hosting shareholder meetings online. Following in the wake of Old Mutual’s decision to hold its 175th AGM online comes news that RCL Foods will do the same on May 26, also Capitec on May 29th. In the public sector, the City of Johannesburg has started re-opening its Customer Service Centres, with the first of its eight outlets in Sandton starting up again this week after a deep cleaning and disinfecting. This follows a directive from central government that cities resume revenue generating services. Personal Protective Equipment including handwash soaps, sanitisers, gloves and thermometers are being supplied to the 30% of staff who have returned to work.
  • South African-born entrepreneur Elon Musk has won his face-off with California’s Alameda County, after re-opening his Tesla factory despite regulations saying that was illegal. After US President Donald Trump tweeted his support of Musk’s position, the County granted official permission to re-start production this week. Tesla’s factory in Shanghai is also back to full production after a relatively short shutdown that began in February. Another high profile US group Apple will be applying social distancing, temperature tests and mandatory wearing of masks as it re-opens its retail stores around the world. Apple says it will supply face masks if customers arrive without them and will conduct the temperature checks at the door. Close to 100 Apple stores have already reopened, with another 25 in the US due to get back to business this week.
  • In the UK, the loss of taste and smell has been officially flagged as an early warning signal of Covid-19 infection. New guidance from the British government recommends self-isolation should either of these symptoms occur – adding to the previous warning on fever and a continuous dry cough. The country is also ramping up its testing, with the health Minister announcing anyone over five years old and showing coronavirus symptoms is now eligible for a test. Also from the UK, hopes are fading that an Oxford University-developed vaccine, currently undergoing human trials, would be one of the world’s first to protect against the virus. A trial in rhesus macaque monkeys did not stop the animals from catching or spreading Covid-19.

Anton Ossip is the chief executive of Discovery Insure. Anton, we haven’t been driving our cars. So presumably there would have been a lot fewer accidents. The beauty of your business is that you can quantify all of this. Let’s start maybe with fuel consumption, Have you seen that members have been filling up their cars less?

Yes absolutely. We’ve seen the mileage coming through in terms of the telematics data that we collect. We’ve seen, in terms of low fuel consumption, low fuel spends on our cash back benefits. What we did is we have treated clients based on the average fuel spend as opposed to their current fuel spend.

Can you quantify it?

I don’t have the numbers offhand, it was a vast drop in the amount of money spent on fuel, it depends on what kind of data you look at etc, but a significant drop. At its peak when the lockdown first started people were very observant to the lockdown and it dropped down immediately. There was about a 70% reduction in mileage or somewhere around there. Then gradually it started lifting up again as different industries were allowed to trade and more and more people were essential services workers. You started seeing daily, an increase in mileage coming through but initially from March the 27th there was a sharp drop in the number of miles completed.

How many vehicles do you track?

We have 243,000 vehicles that we insure, about 90% of them also belong to Vitality Drive. A high number of them effectively have telematic devices, some for whatever reason choose not to have a telematic device or would be in the process of putting in a device. Certainly, we see telematic devices being critical going forward as you move into an environment where there’s going to be such a dichotomy between people that don’t drive and people that do drive.

Presumably, there had been much lower accidents and fewer burglaries of vehicles?

Certainly, if I talk about the month of April, Stage 5 lockdown there was a significant reduction in accidents. Theft, funny enough for the first week or two, there were just about no thefts, then you could see it picking up again. It moves from different types of theft, crime changes when people aren’t on the road. Unfortunately, there were still thefts for the month of April just more towards the back end of the month.

Just explain that it changes when you aren’t on the road?

People look at different opportunities. People leaving the shopping centres were being followed home because that’s where people were going. There were fewer thefts of people driving around. There were a lot more in the suburbs, less in the CBD areas where people weren’t as active. We saw quite a lot of theft, this is non-motor theft I’m talking about, between the hours of 6 and 9 in the morning, there was a spike of theft because that’s when people were on the road. Some of it was petty theft, but theft nevertheless. There were different types of activities happening because of the lockdown.

Is there anything you can advise people to protect themselves against this new behaviour of criminals?

I think people mustn’t drop their guard. People mustn’t think that there’s no theft happening right now so they can relax and not put the alarm on and lock your doors. Unfortunately, crime is still there. Be careful when you’re walking on the roads, exercising or have anything electronic visible such as phones and things like that, if it’s very visible it’s going to be a target. We’ve seen a number of those sorts of incidents happening right across Africa and people need to be very careful.

Have the patterns been much different in the cities like Johannesburg to perhaps more rural areas?

No, we haven’t really seen that. It’s pretty much consistent across the board in particular during lockdown level 5. There was an element of driving happening everywhere as there were people that were essential services workers. People were pretty well behaved and dropped down quite quickly. In fact, we compared it to other countries around the world. We work with a company based in Boston that has customers in about 20 different countries around the world. They immediately picked up that South Africa was one of the most observant when it came to lockdown, they could see an immediate drop with our driving data.

So, you have taken steps to share?

It fits directly into the shared value model. We did it for the month of April where we were able to give effectively a discount to every single customer. As we announced earlier today, we will be extending it right throughout the lockdown phases where we’ll be basing the discount that people will get on their motor insurance premium based on the mileage that they do. The critical thing is, are you driving less than you were driving before or not. There are some people that will be driving the same or very similar distances because they’re going back to work. They live in Pretoria, work in Johannesburg or vice versa and their mileage won’t dramatically change and therefore their risk won’t dramatically change. Then there’ll be other people that will be working from home and have realised that you can work from home. During Covid-19 it’s safer to be at home so they’ll stay at home for many months, even into next year potentially. We decided to use the telematics data that we uniquely have through Vitality Drive and effectively give people a 25% discount if they drive less than 250km in a month, which is really low mileage. 15% if they drive between 250-500kms in a month. It caters for a large number of people that will be doing exactly that, working from home. It gets paid as a cash back to clients, they effectively pay the normal premium and then they get the money back in their bank account as soon as the month is over. We can use the data that we have to then process a cash back. Importantly it is in addition to the cash back that we already give customers for driving well. It means that customers will get value if you drive a lot of kilometres and you drive well, you’ll get your cash back in the normal way. Many clients are getting 30% or 40% of their premium back through that and if they’re only driving a small number of kilometres, they’ll get this discount which we are calling the Dynamic Distance Cashback, as well as the normal fuel cash back, which will be a smaller amount because obviously not using much fuel.

If you have a look into the future and we believe, or we’ve been told that Covid-19 is going to be with us until at least the middle of next year, how long will the discounts apply for?

We’ll continue to apply these discounts every single month effectively until lockdown ends. If lockdown Level 1 is normal driving patterns it’ll probably fall away at that point. If we see a dramatic reduction in driving thereafter we’ll evaluate it and see if it continues. Certainly if this lockdown period continues until December 2021, our customers will continue to get a 15% and 20% discount if they are the ones that are driving lower distances. It will apply as well up to December 2020, just to give people some certainty that this isn’t a benefit that’s going to fall away in a month or two, it’s at least going to be around for 8 months.

Where did you get those percentages from the 25% and the 15%, how were they calculated?

We take a total motor insurance premium, we break it down into the different components. So there’s a component that’s priced in for accident damage. There’s a component that’s pricing for theft damage for storm damage, those massive hailstorms that we occasionally get from time to time. Those are claims that we are still going to be susceptible to because many cars are parked outside and we are still going to get hail claims even if people aren’t driving a lot, they will still be going to the shops and back. Then there’s a component that’s made up of operational costs. We administer the portfolios of motor insurance, we pay financial advisors for looking after their customers and we are left with a portion that’s effectively for accidents. We are able to effectively try to estimate, it’s not a perfect science because we are now moving into quite an uncertain future. We know what level 5 lockdown looks like, we don’t know what level 4, 3, 2 and 1 looks like. We really don’t know. We do our best estimations in terms of working out what it’s going to look like. We also have to take into account a lot of unknowns. We have a Rand that’s sitting about R18 at the moment, but we’re likely to see that feeding itself into higher motor insurance claims. A higher portion of motor claims resulting in repair using a part that’s effectively imported or paint that’s imported. We have to take that into account as well to make sure that we can remain financially viable and ensure that we can meet all our client’s needs and claims going forward. All that is bought into account through quite a complex actuarial process and predictive process that then results in the 15% to 25% cash back percentages that we can offer.

What about new business, are you able to write it at the moment?

Yes. We are writing a fair bit of new business at the moment. Short term insurance is one of those lines of business that can be done over the phone. Many of our financial advisors have taken to Zoom, Skype and technology they wouldn’t have thought about using before. Now they’re conducting their business using that, they’re having face to face meetings with clients. In fact someone told me the other day that they’ve written business in some part of the country where they never would have otherwise gone to because it is too far away, too difficult. It was a relatively low premium policy but they were able to do it over a Zoom call. They are now expanding the scope of their work right across the country. Advisors are working, they are writing business. We’re doing less business than we did before the lockdown obviously but not too far off that. Every single day it seems to be picking up, I think it will go back to normal levels relatively soon. People are looking at what options are available to them, particularly if they’re not driving a long distance and they want to see if there’s money they can be saving on their insurance. This offer will be attractive to people, so we will continue to grow our business. As I mentioned earlier in our launch we’ve grown 15% over the last year, round about 15% to 20% every single year on average since we launched our business 9 years ago. We don’t see it slowing down at this point in time.

Where is your market share now?

We’re about 6% market share or somewhere around there in the personal line space. We are smaller in the commercial space because we only launched recently. We started to grow nicely as well with small commercial clients looking for the same things, cheaper insurance premiums for their vehicles or for their fleet of vehicles, data to be able to monitor how their fleets are performing. We started to pick up nice market share in the small and medium-sized commercial space. 

People hearing this, thinking they can get a 25% lower premium from Discovery Insure because of the lower distances that they are likely to be driving as they’re working from home. Surely you need something inside the vehicle to monitor the mileage. Can you still do that during lockdown, can you still install those?

Yes, we can. So the devices we use are stolen vehicle recovery devices that are allowed to be installed in this market. That is part of the service of insurance and they are a critical component as well and in order to keep people safer because of the need for tracking. We offer two solutions. We offer either a traditional tracking device which is installed in a vehicle and a technician is able to install that, they are fully equipped with all the PPE equipment that’s required to ensure that they are safe and the client is safe. In addition to that clients can also use our smartphone solution. They download a smartphone app and then effectively all they need to do is install a device on the windscreen which they can do themselves. We started to have a high demand for sending those by courier to clients. So it’s no different to any other online purchase, you’ll get it via courier, install it, link it to your phone and immediately we can start monitoring your distance and then start giving you the rewards. These awards I spoke about are immediate, they apply for the month of May. There are a few different solutions that clients can get so that they can immediately start taking advantage of the discounts available.

The windscreen solution sounds quite a lot better than the old fashioned box that you have to put somewhere in your engine?

Things have moved quite a lot in the world of telematics. When we started 9 years ago there was that deep install box and it still has value because it’s a hidden tracking device in your car. The windscreen device doesn’t work as a tracking device because it’s very visible and will be taken off the car immediately if stolen. We have a third solution as well which we called Crowd search which is another device which can be installed quite easily and effectively, it’s a much simpler process, takes five or 10 minutes and doesn’t involve any wiring or cutting into the vehicle’s wires and is hidden somewhere around the car and can be used through a network that we’ve put together to effectively locate a stolen car. So that’s kind of our next evolution of stolen vehicle recovery technology, cheaper, it’s easier to install and is less invasive for a customer. That’s available as well and through the lockdown.

How many vehicles do you recover?

The stats show about 60% to 70% of vehicles are recovered. So quite a lot, either recovered immediately or recovered at a later stage. This other technology I spoke about is quite interesting. We sometimes recover weeks later after it’s been stolen and sometimes recovered with the person who stole the car or bought the stolen car driving the car. Which is great as well, it allows us to help stop vehicle theft from taking place going forward.

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