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What it Takes to Start Selling Insurance

What it Takes to Start Selling Insurance

Louw Hopley  •  19 June 2020

People often ask us what they need to do to enter the insurance space. To shed some light on a complex industry, we’ve put together a step-by-step guide to help you get started.

If you have ready access to loyal customers, you already have a huge advantage in entering the insurance industry. You know your customers and can offer them relevant insurance products and a great customer experience. At the same time, you can unlock new and diverse annuity revenue streams for your business.

So why not consider taking the leap?

A summary of what you need to sell insurance

To sell insurance, you need to meet certain regulatory and business requirements. In essence, this comes down to registering as a Financial Services Provider (FSP) and partnering with a trusted underwriting insurer.

You will also need to meet some operational requirements related to the day-to-day running of insurance products. Remember, insurance and other financial products have major implications for the customers that use them, so legitimate processes and procedures must be followed to protect them and their financial futures.

These operational requirements include the following:

  • detailed customer communication with read-receipt tracking
  • billing mechanisms and integrations with external providers to collect premiums
  • operational logic and process to fulfill claims and handle complaints
  • daily and monthly claims reporting
  • audit trail management

Many of these operational requirements can be easily solved and automated through technology. (The Root platform takes care of all of it.)

Don’t worry about the tech

Getting started in the insurance industry historically required massive upfront investment in technology, people, and systems to meet the various operational and regulatory requirements. With insurance specific SaaS solutions, this is no longer the case.

Leveraging the latest cloud technologies and practices, we’ve built an insurance platform that solves all system requirements for you. It’s packaged behind developer-friendly APIs, which means you can simply plug into it and get started.

We’re continuously extending the platform to give insurance providers peace of mind that their platform is always up to date with the latest technology and regulatory trends.

This means all technology and integrations with third parties (payment providers, for example) for running insurance operations are solved for you. If you want to start selling insurance, don't worry about the tech!

Solving the regulatory and business requirements

Besides offering a world-class customer experience, solving the regulatory and business requirements is really the only thing you need to worry about.

The work you’ll need to do consists of four steps:

  1. Create your insurance products.
  2. Partner with an underwriting insurer.
  3. Consider getting a reinsurance partner on board.
  4. Get an FSP license.

Below we provide an overview of what each of these steps entails. Take note: you can approach the steps in parallel to ensure that you get to market as fast as possible.

1. Create your insurance product(s)

The product you want to offer your customers is the most important place to start. To engage potential partners, you’ll need to have solid ideas for a product.

Data points that would help your conversation with the insurer or reinsurance partner include:

  • size and demographics of your customer base and target market
  • a good understanding of your customers’ needs and journey
  • a good understanding of how your customers like to consume products, and their preferred communication platforms
  • a business plan with ~5-year sales forecast (insurance is a long-game)

Once you have a good understanding of the products that your customers would be interested in, you’ll need an actuary to model and price the actual risk. Luckily, this can be solved by working closely with the reinsurance partner or a specialised consultancy. Their teams will help you out with this.

2. Partner with an underwriting insurer

Once you have a solid idea of your product, you’ll need an insurance provider to underwrite the policies you want to sell. Now, here it gets interesting.

You have three options for underwriting:

  1. Get your own insurance license. This is typically too costly and compliance heavy for most businesses, even at the scale of a national enterprise. It only makes sense if insurance is your core business, not if it’s a supplementary business.
  2. Resell an insurer’s existing products, meaning you act as a broker and resell products that exist in the market. This approach is not ideal for a few reasons: no customisation or white-labeling, limited or no APIs, revenues are limited to commissions, etc.
  3. Partner with an insurer that specialises in 3rd-party partnerships, like a cell-captive insurer. This is the approach we suggest.

When working with a cell-captive insurer like Guardrisk, Centriq, or OMART, you have the flexibility to sell your own insurance products under your own brand. The cell captive insurer provides the financial security and backing for the products underwritten by them - allowing peace of mind for your customers.

With this approach, you’ll be able to participate in the risk profits (and losses!) that are generated, as if you were an insurer yourself. Cell-captive insurers take care of a lot of the regulatory compliance, actuarial, accounting, and risk analysis work that’s needed to launch and maintain your insurance book. They do this for a fee amounting to a small percentage of premium.

When using this approach, you can decide how much of the risk you want to carry yourself and how much you’d like to cede to your insurance partner or reinsurer.

3. Consider getting a reinsurance partner on board

In most insurance configurations there will be a dependency on your business to put down large sums of capital to back the risk (R1 million+). If you’re capital constrained or a young startup, speak to a reinsurer to see if they’re able to find a way to reduce the burden to a level that you can manage. Don’t forget - insurance is about both profits and losses, and you need a strong partner or balance sheet to absorb the potential volatility.

Reinsurers have a much broader view of the market and can help you think through the correct product and benefits that you should be offering to your customers.

A big advantage of partnering with a reinsurer is that you can lean on their product and risk teams (read: actuaries) to help you build out your products.

Finally, if your business case looks like a good opportunity to them, the reinsurer might also be open to financing your setup and growth through the concept of financial reinsurance - essentially a loan that is paid back through future insurance risk profits.

All-in-all, we think it’s a good idea to partner with a reinsurer to help you get off the ground.

4. Get an FSP license

Irrespective of your product or the underwriter you work with, you’ll need to become a licensed Financial Services Provider. This license is what allows you to engage consumers in the market with insurance products and is issued by the Financial Sector Conduct Authority (FSCA).

The FSCA is responsible for market conduct regulation and supervision of financial markets. It aims to enhance and support financial markets and to protect financial customers.

Getting an FSP license is a bit admin intensive, but achievable by most businesses. We suggest working with someone like Masthead or Moonstone to help you put together your application and get set up. They’ll make sure that your application covers the license categories that you require to implement your business case.

FSP applications are evaluated under the following criteria relating to the applicant:

  • personal character qualities of honesty and integrity
  • competence including experience, qualifications, and knowledge
  • operational ability
  • financial soundness (of the business)
  • continuous professional development of the Key Individuals and Representatives

From our experience, the FSCA normally takes around 3+ months to process a new application.

Getting started

Getting all of these business and regulatory requirements set up can be quite daunting, but you don’t have to become an expert to get started.

We suggest working with a professional to help you get set up - it will definitely be worth your while. We can recommend Desiree Pillay from Pear Advisory and Nicola Jandrell from Tyesdale Actuaries & Consultants. We’ll be happy to do an intro for you if required :)

(If you help innovators in the insurance space, please reach out. We'd love to talk to you.)

Once the business and regulatory requirements are in place, Root is ready to plug into your existing systems and power your take-off. Products running on Root can be launched in as little as two weeks.

We’re here to help you launch insurance

If you have any questions, feel free to reach out and we’ll do our best to get you solid answers fast! We’re here to help you win in insurance.

Disclaimer:Financial products can be complex and risky. This article does not constitute advice. Professional advice and guidance are recommended before embarking on any financial services project.


Author

Louw Hopley

Co-Founder / CEO at Root

Root is an end-to-end digital insurance platform that enables you to launch new products and digital engagement channels fast. We package all the compliance, regulatory and reporting complexities behind easy-to-use APIs, allowing your team to focus on building great customer experiences.

Are you interested in taking your insurance business to the next level today? Call us at +27 21 100 4884 or email hello@root.co.za to hear more.

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