Meet IndieFin’s Peter Castleden – Sanlam-backed actuary whose team is disrupting life assurance

Yes, I took one trip to Berlin, of all places, with one of our lead reinsurers, which was quite interesting. We initially did quite a lot of work with the digital teams inside Sanlam itself. Trying to find our feet, what might work. We did some design. We did conceptual work, a little bit of research. We actually worked quite closely with Sanlam to develop their Go Cover products, which was an on-demand, 24-hour accidental life and injury benefit. We learnt quite a lot through that and eventually we reached a point where the biggest catalyst was actually when we started adding people that didn’t come traditionally from financial services, had design backgrounds, technology backgrounds, startup type backgrounds and those people that joined us, combined with a couple of us who had probably deeper financial services corporate experience. We started to come together with a recipe that started working really well, and we pushed each other but we came out with some interesting stuff at the end.

You say, actuarial background – does that tell us you studied to be an actuary?

Yes, I am technically an actuary so that’s even worse. I had an actuarial bursary from Sanlam. I grew up in Durban and I was fortunate enough to get a full bursary to go and study actuarial science from Sanlam. So I moved to the Cape, I did 4 years at UCT and about a year later I qualified, after university. Then I did some work in some pricing teams. I did some product development work and probably the bulk of my time at Sanlam was heading up their actuarial product management function, which was all the risk management pricing, technical product design of Sanlam’s entire retail product range, which was investment business, risk business, some group business. So I spent a great deal of time in the actuarial product design side of the world. I think I learnt a hell of a lot and saw a lot of opportunities to design products a bit better, at the same time.

That’s interesting because if you look at traditional innovation they’ll tell you that the candlestick makers were never the people who would invent the lightbulb, and so on. Yet, you’ve had a fairly traditional background within the organisation. There must be something going on in the culture that would push you to an extremely innovative approach that Indiefin is taking.

I think you’re right, and I don’t really think I’m an actuary. I think I’m an accidental actuary that really enjoys the business entrepreneurial side of things. Even in my time at Sanlam I was always looking to push the envelope, to take measured risks, to try new things, and just to go into things with the intent to learn, and what can you learn from what you’re doing, what can you do better? Keep your eyes open. Look for opportunities and within the beast that is Sanlam, you can do a lot with that approach, a huge amount. They’ve got incredibly powerful and effective distribution channels and when you do things well in those channels they do really well. What landed up, in my case, is that there was a combination of frustrations inside this really big operation. The one was the speed at which things could get done, and it’s no one’s particular fault. It’s basically, just the burden of legacy systems and just how rigorous things need to be done if you do them inside something at the scale of Sanlam.

Whereas in a smaller business, like Indiefin, we can stomach some bugs, let’s put it that way. So it was the speed at which we could do things inside Sanlam, which became frustrating and there were always mountains of trade-offs that had to be made when you decided what you were going to do in the next release cycle, for example. So what I think are some of the better ideas, on our product side we have in Indiefin, were ideas that we presented to Sanlam itself and Sanlam would generally want to do them but you’re talking about in 3 years’ time. It’s that kind of… I don’t know, maybe I’m just too impatient for a role inside Sanlam. I enjoyed my time there but it was – when you just want to – okay, you’ve got the idea, let’s make it, I want to make it now. That was quite difficult and then I suppose the other side of the coin, which I started to realise as we go further down the road with Indiefin is that we, as an industry, and I mean, we kind of can include ourselves in this story as well, as Indiefin, initially. Typically, a big Sanlam, or a Mutual, or a Liberty – if you want to be a client of theirs you have to kind of use their distribution channel, and that channel is predominantly face-to-face. Now I personally don’t think there’s anything wrong with a face-to-face channel. I think good advice is good advice. Those channels can really make a difference to their clients’ lives but it’s very presumptuous to tell your clients how they must deal with you.

When we first launched Indiefin we were direct only. You could only buy from us on the internet. In the same sense, we were being perhaps more progressive than a face-to-face traditional channel, but we were being equally presumptuous that that’s how clients must deal with us. So having the opportunity with Indiefin to actually say, we would rather build access point and build those across different mediums, where we’ll be digital at our core but we can expose our products at multiple access points and essentially be client led. How the client wants to deal with us, we want to be there to deal with them, the way they’ve chosen. So that was also easier said than done. There’s a lot of moving parts. Then probably the final one was, I never felt very strongly to buy Sanlam’s products so I was heavily involved in making them and they are very good products, they are high quality products but they are not dissimilar to the core competitors, and I felt that my heart wasn’t really in the work I was doing there.

Whereas, at Indiefin, if the products we are building, if I don’t want to buy them then they’re not good enough. That also can maybe sound a bit arrogant but that’s the kind of team culture we’ve developed here, were we build products that are good enough for us, our best friends, our parents – that’s the kind of the philosophy we go as.

It is very much digitally driven, as you’ve explained. One of the thrusts that I can go online if I’d like to acquire some life insurance because I think it’s the time of my life that I need to have it – I can do it in 10 minutes? That’s quite a claim.

Yes, hopefully that’s the longest. Hopefully you can do it in 6 minutes, but essentially, we’ve worked really hard on the user experience and there’s a lot that goes on with what we do here. But the one thing I’ve learnt predominantly from my designers and the guys who’ve worked in these kinds of environments before is that you’re never done. So, what you’ve launched now, I can tell you right now, there’s 25 things I would want to improve with what we’ve got, and we will improve them. The reason we know we want to improve them is because we’re learning in real time. We can also improve our underwriting a hell of a lot, and we can improve the way people interact with our quotes a lot by watching what they are doing and the kinds of questions we get asked. So it’s a pursuit to perfection that you’ll never get to, and I think what’s also quite energising is that you can make a lot of micro wins that slowly add up, but yes, you can get fully underwritten cover in 10 minutes, or less, and once you click ‘buy’ you’re covered immediately. The contract gets issued and we’ll collect your premium in the next month or so, but it’s high quality cover, Sanlam’s license is behind it so you don’t have to worry whether we’re going to be around or not. We will be but it’s actually a contract between you and Sanlam Life, and we’re just operating the entire thing so it’s really good quality stuff, in a fraction of a time as what it traditionally should take.

Why haven’t life insurance companies done this before, and particularly immediate cover? You can do that with the short-term insurance, when you take cover out on your car – before you’ve paid you’re covered?

I think in most life insurers they will actually cover you from when your policy has been accepted. It varies, it’s either when you’ve first paid your premium or when you’ve been accepted. But it’s the points of when you’ve started the process to when you’ve been accepted is the one that takes the longest sometimes. So I can see scenarios where I will have an appointment with my financial advisor. We’ll go through my needs. A week later he or she will come back with the proposed plan and a quote, and I’ll say, ‘it’s too expensive’ or ‘I want to spend less’ or whatever the case may be. A week later they’ll come back and say, they’ve amended it now and it fits my plan like this and then I’ll get my forms. We’ll have to do my underwriting or I’ll at least do it over the phone, and then I’ve got to do medical tests, and then if there’s issues it can go on for another week or two. You’re looking at a process that can take up to 6 weeks to do the same as what we can do in 10 minutes. Regardless of whether the cover is immediate or not, from that point onwards is largely irrelevant.

How does it compare on a like-for-like basis? Are you paying less or more through Indiefin?

Both. So the one thing that I’ve always been fascinated by, and this is now the actuary coming out, is that I really enjoy getting into data. So when you have an opportunity of a mountain of data and you just have a curious mindset, it’s surprising how much you can learn in the data itself. So because we are part of Sanlam, we had access to their raw pricing and underwriting data. I mean the actual stuff that we have in the risks that Sanlam is covering. And it’s all anonymous. It’s not an individual level of data but it’ just 100’s of thousands of records where we can see, this was the information or this is closed. These are the types of plans we saw. Let’s see what we can learn from this data that hasn’t been learnt before, and there were a couple of things that we could do, which arguably Sanlam can do themselves. Their constraint will be technical as opposed to willingness. I think they would be willing but because we were starting from scratch, we could do what we wanted to because we had zero legacy, essentially.

So there are a handful of really interesting things in there that allowed us to price far more accurately than we believe our incumbents priced. The first thing we do is we price with an algorithm, so we don’t have rate groups. A lot of the big insurers have these rating groups. They’ll ask you 3 or 4 questions and based on your answers, you go into this big group and everyone in the group pays the same price, and that’s fine from a macro level. But then within the group itself you obviously have massive cross subsidies – that’s just logical, especially if 25% of all the people you cover sit in the same group, it starts becoming quite homogenous.

We first said, let’s rather price it on an algorithm. Let’s price this on a curve so we give everyone their accurate individualised pricing through our rating algorithm. And what that would mean is all else being equal, if we’re comparing against the group, half of the people in that group will get a better deal from us and half of them won’t. But we will be more accurate on that curve, if that makes sense. Then the second thing we did is we actually found a handful of really interesting rating factors that we introduced in our pricing because they really are good predictors of the cost of the cover. The one being marital status, which is fascinating. If you are married relative to single – when it comes to life cover it’s a significantly mortality across genders and age bands. The second one is whether you ride a motorcycle or not? This is hardly surprising but I believe that riding a motorbike or having a bike license is as bad for your mortality as smoking. We have those as rating questions, then the caveat of that is that if you do ride a motorbike you’re definitely not going to get it cheaper from us. But I believe our prices are then at least correct and I’m happy to lose business if it’s at the wrong price.

So, if you smoke, ride a motorbike, and are single go and find another underwriter?

Yes, go to Old Mutual, that’s fine.

What about the drive into funeral policies? This is a huge market in SA, and one that is not being well serviced. How are you going to disrupt that part of the sector?

So there’s two elements to that. The one is that we are absolutely blown away by how often we get asked for funeral cover. So we’re introducing a funeral product in the next month or two. But we get asked that question every single day. The need is very well established, regardless of what the industry has or hasn’t done. They’ve done a really good job at landing the need for funeral cover. Then what is really interesting in itself is that the way funeral cover tends to work in the industry is that there is no underwriting. So the risk management is handled through a 6 or 12 month waiting period which basically means that once you’ve bought the policy, you have to survive 6 or 12 months before the cover will be valid for a cause that is a natural cause, which is fair enough because that means you can just issue mountains of policies. It’s a very simple process. No friction. Easy to understand and all those benefits you get from not having a million underwriting questions.

Just for reference, I think we have 6 underwriting questions and our typical, big incumbent competitor would probably have an excess of 20 questions. So we’ve stripped down that complexity a lot and because it’s fully digital, we can expose our underwriting onto mobile devices and things like that. So we realised that this is not going to be true for everyone, which should be obvious, but where if they simply spend 2 or 3 minutes extra being underwritten by us, can get sometimes up to 15 times more cover for the same price, and they are covered immediately and there’s no waiting period. So now this starts becoming a really compelling value proposition, and we’ve seen it in real life where people say, ‘I’m paying R65 for R30k of funeral cover’ and we do a quote on like-for-like – R65 is going to get you R300k of life cover. So it starts becoming a really compelling value proposition.

It does obviously come with its challenges where funeral covers are well known for very fast claims payouts. Whereas life cover – it’s an underwritten process so normally they will go and look for non-disclosure or obvious fraud. So I’m not saying they’re trying to get out of claims but they’re trying to be rigorous with the information that they were given was based on at least accurate. So that would be a failing, if we just went into funeral and say, ‘hey, we’ve got this life product.’ But then we get our first series of claims, and then they’re having to wait a couple of weeks or longer. So what we’ve actually done is we’ll accelerate 10% of the cover up to R50k and we’ll pay that as fast as funeral cover would have been paid, and that’s more or less the amounts that funeral cover is in the region of. So if you buy R1m of life cover from us, instead of funeral, you do have a claim. On the basis of the same documentation that would have to be provided to a funeral provider, which is a Death Certificate, ID, and things like that. We will pay in that case, R50k of the cover, as fast as a funeral plan would have been paid.

So we’re trying to get a win-win scenario with this benefit but it’s fascinating. I think there’s a big opportunity. If we can match this product proposition, with access points, so we have to deal with the sophistication barrier and data is a big issue. We hear it a lot but when you see it, you realise how much that actually means. Devices are an issue so we’re working really hard on opening up the access points so we have no reason why you can’t be a client of ours if you buy into our value proposition. I think that’s kind of what we want to achieve.

It seems like you have numerous target markets, Peter, where are you focussing?

There’s brand focus and there’s access focus. We’re a brand-new brand and we don’t have R10m a month to spend on becoming a big brand overnight so we need to be very careful and tactical on how we handle this. Our brand work we do is aimed at a more premium segment. So we’re producing some really compelling new TV ads now, which we’ll flight in September. A lot of our work is aimed a bit higher. Our digital banner ads are also aimed towards the higher income segments so we tried to position the brand a bit higher and then we create access point. Strictly speaking, we think people should be earning a regular income. Otherwise life cover is really not right if your income is incredibly volatile. So do you have an income, that’s kind of as low as we’ll go, which makes sense I think.

Then currently we require people to have an email address to be a client, which we realise is surprisingly a hurdle. You’ll be amazed at how few people actually have a personal email account, with instant messaging playing that role, which shouldn’t have been surprising but we got caught out. So we are working on increasing the access points around just using a phone number, just like you can use a phone number to get a Twitter account, for example.

Through technology and just trying to solve these real-world problems – I believe we can bring higher quality products to more people in this country. The same is also true for investment products. You’ll know that the best, wealth creation products are available to the top-end and, if anything, bad products are available towards the bottom, and it applies to credit also. If you’re at the bottom-end of the income spectrum you’re getting very expensive credits. It’s doing you a hell of a lot of damage from a wealth creation or just your wealth in general point of view. Putting you in holes that you shouldn’t be in. At the top-end, you can borrow money at subprime.

There’s an opportunity in financial services, which is the richer people get better opportunities and its self-fulfilling prophecies so what we want to do over a longer term – we want to introduce investment products eventually, and group life, and maybe some medical products, and maybe short-term insurance. These are now just pipedream stuff. It’s not something that’s on my immediate radar but overall, what we want to do is we want to actually try and level the playing fields and digital and technology actually allow you to eliminate a lot of the barriers that are currently in the system that inherently the richer people get better deals.