Scientific underwriting helps OUTsurance grow

OUTsurance's campus in Centurion has none of the usual trappings of a head office, few people dress in shirts with buttons, let alone doormen in top hats, which are a feature of its sister company, Discovery.

But these are not idle students: there are 100 different jobs being done, often highly specialised ones such as handling building claims.

Chief executive Willem Roos fits right in with this relaxed, yet high-performance culture. He put on a shirt with buttons and his least-torn pair of jeans for the FM interview but otherwise is indistinguishable from anyone else.

It doesn't matter to him how staff are dressed, just how they perform. "A key part of the culture of the organisation is that everybody is on a pay-for-performance structure.

Actuaries measure staff

At least three OUTsurance actuaries spend their time developing tools to measure each employee's contribution accurately.

"In the call centre, we have a complex measure that decides who is allocated the call; it is not, as in most call centres, the longest idle operator. I can't go into detail but the system is designed to maximise productivity. And there are at least 10 measures to assess employee performance: the key one in the call centre is premium income generated."

OUTsurance proves the adage that the character of the organisation comes from the top. Roos is a publicity-shy actuary who likes to keep the business simple. There is complexity, but it is behind the scenes in the scientific underwriting which determines how premiums are calculated. Roos seems to want to measure almost everything. During his interview he constantly uses phrases such as "clean data" and "disciplined statistical analysis".

"With the right information, there is no need to red-line any vehicles or clients. There are no bad risks, just bad premiums," he says.

Scientific underwriting wasn't invented by OUTsurance: it is used by large direct insurers abroad such as Geico and Progressive in the US and Direct Line in the UK. Under Roos, OUTsurance has implemented a scientific approach with discipline.

OUTsurance has a single brand, which it uses in personal lines (individual), business (commercial) and life operations. Unlike competitors such as Telesure, OUTsurance does not hire out its licence to retailers or cellphone companies.

Making widgets

"We are making widgets here; I prefer to focus on doing just one thing," says Roos

The business contrasts noticeably with its largest competitor, Telesure, which uses brands such as Auto & General (A&G), Budget, Dial Direct and First for Women, and which manages insurance branded by Woolworths and the AA.

After 15 years in the business, OUTsurance has become the second-largest personal lines insurer in SA with premium income of R5bn, and a further R600m going into the commercial OUTsurance Business book. Only Santam is larger; OUTsurance has left insurers such as Mutual & Federal, Zurich and even Hollard in the dust.

OUTsurance Group has 1,35m policyholders and even after taking its share of the losses from last year's hailstorms, still made R1,1bn after tax. Roos says the beauty of direct insurance is that once it has critical mass, advertising costs are lower than the commissions paid out. The advertising cost is estimated at R400m/year, making it the largest advertiser in the financial services sector and the largest overall after a few warhorses such as Unilever.

"We need to be top of mind when a client wants to buy a car," says Roos.

Dabbling with brokers

OUTsurance even dabbled in distributing through brokers in its first six months - the OUTbonus attracted interest from intermediaries - but has since not sold any policies through brokers.

OUTsurance caught the public imagination with its catchy slogan, "You always get something out". Instead of a no-claims bonus in the form of a reduced premium, after every three years OUTsurance pays out 10% of your premiums over this period in the OUTbonus if you haven't claimed in that time. It has paid out R1,74bn in cash to date, dishing out R328m in the year to June alone.

Roos says it is lucrative for direct insurers to increase the length of policies as their main costs are incurred upfront (unlike a broker-based insurer who will pay 15% of the premium in commission every month).

"We chose three years for the OUTbonus period as we estimated that without this incentive our clients would stay with us for two years on average."

The OUTbonus is undoubtedly the best-known loyalty bonus in SA, and OUTsurance has extended the concept into the life business, in which all premiums are paid back after 15 years. Unfortunately, this isn't such a good deal: it is optional and 30% of the premium is then allocated to the OUTbonus. That premium could be invested in a money market fund and make a similar return.

Pay clients to find cheaper insurance?

OUTsurance also promises that it will give R400 to anyone finding a cheaper premium elsewhere. Though "cheap" is not part of the OUTsurance brand image, it does aim to offer value for money.

OUTsurance is respected as a brand. Its unremarkable though workmanlike advertising puts a message of competence across, but without the humour and warmth of some of the Dial Direct and MiWay campaigns.

OUTsurance has strong support from its internal customer satisfaction rating of 89,1%, but the independent hellopeter website indicates that market leader complacency has crept in. Its compliments to complaints ratio is 41%, with 1,500 compliments and 2100 complaints over the past 12 months. This is below the average of all insurers and way below the 81% achieved by MiWay and 70% by Dial Direct.

OUTsurance had a remarkably short journey to break even: competition remained limited and in 2000, with 20,000 clients, it was in the black. By contrast, its Australian business, Youi, broke even only after it had gained 300,000 clients.

OUTsurance has remained true to the direct model with one exception: it has employed a team of 100 direct sales executives in OUTsurance Business for commercial clients. In an advertisement on Gumtree, OUTsurance is clearly looking for hard sellers - it requires these executives to have at least two years of cold calling experience.

Commercial operations need specialists

Roos says the executives are employed by OUTsurance and are similar to tied agents in long-term insurance. "The reality is that a lot of commercial business such as restaurant chains and shops cannot be done over the phone: clients need an adviser on the spot."

But he says this is not the thin end of the wedge - OUTsurance advisers will be seen at the local golf club but they will not be offering risk management to Anglo American or Sasol

OUTsurance has done a good job of repairing the reputation of direct insurers, despite its low scores on hellopeter. Previously, direct insurers seemed to go out of their way not to pay claims. The short-term insurance ombud shows that many direct insurers still behave badly. Out of 1,000 claims, Dial Direct generated nine, King Price 11, RMB Structured 25 and AIG 30.

OUTsurance has two per 1,000, in line with Santam. Roos says OUTsurance has a firm policy of paying all valid claims - and the prospect of losing the OUTbonus deters many from making frivolous claims.

OUTsurance Life has been in a gradual build-up phase but it could gain traction from its controversial, but innovative plan to offer all premiums back after 15 years.

It remains a minnow with premium income of R163m, barely a quarter of the income at OUTsurance Business.

There is no doubt that OUTsurance has been a game-changer, proving the old adage that "insurance is sold and not bought" to be wrong. Whether it can remain as entrepreneurial as a market leader is the big challenge for the next five years.

Source: Financial Mail via I-Net Bridge