In conversation with Herman Schoeman the CEO of Guardrisk and Xolani Nxanga, Insurtech Lead
Tony: Herman, please give us some background on Guardrisk and starting the LAUNCHPAD initiative.
Herman: This is a new chapter in the evolution, and hopefully the revolution, of the Guardrisk business.
The business started way back in 1993 and Guardrisk has positioned itself as a business with a very strong entrepreneurial culture. We are always looking at the next innovation where we can innovate to the benefit of our clients who own cells in Guardrisk and obviously to their end customers.
It’s part of our DNA and it’s part of our culture. When you look at the external trends that have appeared over the last two years, with some linked to COVID, we see that no one can talk about a business of the future without deeply referencing digital or digitization, especially because of the focus on the needs of the customer. When you are a B2B business like Guardrisk, you immediately think that it is not for us and only happens in the retail space where there are end users and end customers. But we sat back and looked at the future of the business and the future of the market, taking note of all the local and international market trends, which led us to the decision to also be part of this digital and digitization environment going forward.
The question was how to apply that in a business that traditionally has other businesses as clients. We certainly recognize the need to bring the cell captive and new ideas to the market at a much faster pace, especially in the corporate area where we play.
We recently partnered with an Insurtech business called Root, allowing them to participate with Guardrisk and introducing them to our client base in the retail space, to assist our clients to monetize their customer base through insurance. Together with Root, we have assisted our clients to build insurance ventures in a truly short space of time, to launch new products and take them to market.
It is this initiative that we are now taking forward in a much bigger step. Through an independently managed venture capital fund, which Guardrisk and our parent company Momentum Metropolitan hold an economic interest in, we participated in Root’s most recent fundraise.
We have just under three hundred cells in the business and if you think about it, each cell in the Guardrisk business is almost a start-up. If it is not a start-up, it has been a business that we have assisted to scale using insurance capabilities that has allowed them to scale on their customer base. It is now about putting the digital element and component to that. This is really the reason we have embarked on this initiative. New business models are requiring us to do this, to think about future proofing the Guardrisk business model, not just for ourselves and our own shareholders, but certainly for our cell owners and our cell owner shareholders.
Venture building these days, in this space, is a hit and a miss. The failure rate in the open venture capital world is high. With Guardrisk, and Xolani will tell you further about LAUNCHPAD specifically, we are really providing access to our ecosystem in the Guardrisk environment, so that we can narrow the risks associated with it. We want to connect the dots and really increase the odds of these entrepreneurs being successful in an ecosystem that is very close to us in the cell captive environment.
Tony: All this now hinges on finding those entrepreneurs and there being enough entrepreneurs. Xolani, just from your experience, do you get many entrepreneurs approaching innovative insurance ideas?
Xolani: Absolutely, I think just by the very nature of our business model, we are not competing with the entrepreneur or the cell owner, so we get approached because the entrepreneur knows that their IP (Intellectual Property) is going to be protected. Further, the entrepreneur takes all the economic benefits out of that business. So certainly, we do see a lot of ideas especially around health innovation, where you can check your vitals using your smartphone. We are seeing various ideas every day, but we know that these entrepreneurs face a lot of challenges.
Tony: What are those needs and challenges that they face that you are hoping to address?
Xolani: There is no lack of ideas, but we see that a big challenge is an access to funding because some of these ideas require massive investments right up front, being technology driven. Although you get the benefits later, you must get the right skills, get the right technical people to support you as an entrepreneur in areas that you may not be good at. You want to bring in other partners in your business and you must pay someone a salary and yet there is no revenue coming in. So funding is required to start the business.
Then, the other challenge that we have seen in the insurance environment is that insurance is quite a technical environment. I do not think it gets the recognition that it deserves being such a technical industry. Some of the entrepreneurs may have a very solid understanding of technology, but not necessarily insurance. This is where Guardrisk comes in, given our vast knowledge of the industry.
The third one, which is very crucial and has played out several times in our business, is access to clients and access to distribution. You can imagine starting out with this new venture, needing clients to buy policies. We know that is extremely hard, and we want to make it easy for entrepreneurs.
THERE ARE ELEMENTS OF RISK IN EVERYTHING
Protecting your business against risk takes strategic insight. It takes innovation and tailored solutions. It takes the pioneering approach
of cell captive insurance. Guardrisk offers cover for corporates, small enterprises and municipalities, as well as cover for a variety of
industries including marine, construction, motor and many more.
The option of a third-party insurance offering lets clients sell insurance cover to their customers, boosting their business’ earning potential and building their brand.
Guardrisk is an authorised financial services provider.
Tony: In that context, the cell captive obviously must play a key role in this environment. How do you see that?
Xolani: The cell captive model is the most cost-effective way to get into insurance. You are getting all the benefits of a full insurance licence at a fraction of the price through the cell captive model. That is why it has been very attractive, not just to big corporates, but people just starting out. You and I can start a cell captive tomorrow, without needing huge sums of money to start an insurance business. The set-up costs and the ability to outsource some of the functions make it extremely attractive, as it enables you to get your business going within a short space of time.
Insurtech certainly needs cell captives because it is the most cost-effective way to get your business off the ground.
Herman: The first point Xolani raised was about capital and access to funding for these entrepreneurs. When you start a new business, as a start-up, the funding you required just to get your idea into a business is huge. That is why there are large venture capital funders. Now, when you add insurance over and above the working capital to just get your idea into a business, you need solvency capital and you need regulatory capital.
If you just put those numbers together, it is a significant undertaking for an entrepreneur to start an insurance business, which is where we come in with the efficiency of the cell captive model.
Editor’s note:
Look out for the next article where we are going to talk about how Guardrisk’s LAUNCHPAD initiative enables those entrepreneurs on the ground.