Willem Roos met Howard Aron and René Otto in 1996, when they were all working at Aegis, a company in the Rand Merchant Bank Holdings (RMBH) group. They researched and developed the concept behind OUTsurance and presented it to the RMBH board.
Laurie Dippenaar was impressed and he asked the three to conduct some more research, draw up a business plan and present a business case. They did, and Dippenaar liked what he saw. The board approved funding for the concept within eight weeks and the rest is history. Otto left the business in 2001, but the RMBH board recognised the combined strengths and common vision of Roos and Aron and appointed them as joint CEOs.
Roos, Aron and Otto had complementary skills. “René was a true visionary,” says Roos.
“He had a huge amount of experience in the short-term insurance industry. Howard is an IT expert and was able to build the platform for the actuarial rating and underwriting, the claim management and the costs that differentiate our business. I was only 25 at the time but I was hungry and, being an actuary, I had a good feel for the numbers.”
The OUTsurance business model is simple and is based on superior risk management through innovative product design. An actuarial rating and underwriting approach plus effective cost and claims management rest on the base of an efficient information technology platform.
How long did you take to complete the research?
We did it in a number of weeks. I don’t want to sound glib, but the idea was already very clear in our minds and we had a huge amount of detailed financial knowledge. The most important component was really to determine what we were going to do that would give us a competitive advantage. I cannot stress enough how important it is to do the numbers. If you cannot make your business work on paper, don’t do it.
What trials did you face in year one?
I was so young back then that I never had any doubt it would work. We were fortunate in many ways given that we launched a new company in an industry that was highly competitive and capital intensive, but we had the right skills and the right plan.
Many new opportunities came along, but we made sure we did not become derailed. A good strength of ours is to be focused and single minded. I do remember that whenever we deviated even slightly from our core intention, things would not go as planned and we would simply stop and refocus. In an already complex business, it’s vital that you do not overcomplicate your environment.
What were the highlights of year one?
We launched on 26 February 1998 and when the advertisements played on radio the phones started to ring and they have not stopped since.
What were the key components of your research?
I am not the biggest fan of research as it sometimes impedes action. However, the most important component of our research was a thorough understanding of our competitive advantage. We also devoted a lot of time to building financial models.
To this day I think Excel is the best thing since sliced bread. Financial dynamics are what make an organisation successful quickly – a good financial model enables you to break- even more rapidly, which in turn enables the business to grow rapidly.
What were the key aspects of the business plan?
Our success is largely attributable to the fact that we underwrite risks accurately. To do that you need very good systems in place, as well as great actuarial skills. Because we deal directly with clients, we cannot rely on brokers to give good service – we therefore place a strong emphasis on our marketing strategy and our customer service standards.
Uniqueness was another aspect of the plan. We figured that as we had the opportunity to start a new company, we may as well create something that was different and fun. Ultimately, we sold the business on systems, processes and underwriting. Most of our competitors are not as sophisticated in that arena.
Once the results of the research indicated potential, how did you go about building the business plan?
We did not go to a textbook, but we gave an overview of the proposed business, an analysis of the industry, and the perceived weaknesses of the industry. We also discussed our main assumptions, our costs estimates, and the kind of customer experience we wanted to deliver. It was extremely detailed, down to noting when we would appoint each new call centre person in line with our projected growth.
How did you obtain funding?
After we presented the concept to the RMBH board, it took two months for the board to agree and they provided us with R120 million start-up capital on an incremental basis. In the end we used only R90 million of that. Our experience was quite unique in that we were fortunate to be part of Aegis, in which RMBH had a stake.
Because we worked within the group there was a great deal of trust right from the start. In the first two years, we lost R55 million before turning cash positive. The business plan had estimated a loss of R53 million, so we did not do too badly given that our set-up costs were enormous.
I have to stress that we were not ostentatious in any way, and we still do not spend on things that are unnecessary. Our premises are comfortable without being showy.
What are the key attributes you look for in your staff?
Before skills, we look for attitude, drive, ambition and passion. Skills can be acquired, but these other qualities are either inherent to the person or not. I always ask job candidates “what have you done that has added the most value to the company where you work now?”. If they can answer that question then I know that they can help to improve our business.
How do you go about the hiring process?
Initially, we were determined not to have an HR department, but of course we soon found that it was impossible to function without one. We have a fantastic corporate culture and we are good at managing it. That said, companies are always under pressure when they recruit.
In our case, because we have grown so quickly, we are probably not always as consistent as we should be. We have a fairly high staff turnover in the call centre, which is an area I would like to address in future, but which is probably due to our tough performance culture. But we pay well and, as a result, we also have a number of highly qualified senior people who manage the call centre.
Complex calculations are at the heart of the OUTsurance business design. How do you eliminate the potential of error?
The only way to manage risk is to employ very competent people. Being an actuary myself, I know that our financial people have to be able to combine science and art. Having the right people in place is usually more important than other checks and balances.
Obviously, good systems are key. From the beginning we built a technology platform that would be able to handle up to 10 million clients. Any big financial institution is dependent on systems. With our business model a robust technology platform is crucial. Howard built an industrial strength system on a shoestring.
How do you drive innovation at OUTsurance?
We reward staff members who come up with the best new idea every month, but we do not have innovation programmes in place. I don’t believe in that. Innovation ultimately comes from appointing the correct people and allowing them the freedom to explore.
Because our business model itself was so innovative, we are constantly focused on tweaking our processes incrementally to give clients better service by reducing claim times, improving the experience of our service, and making it more consistent.
Our biggest innovation has been the OUTbonus, a world first which rewards customers who consistently do not claim on their insurance policies. Skilled people using sophisticated systems ensure that the company delivers on its promise – “you always get something out.”
Essential OUTsurance, which offers affordable cover for vehicles that are worth less than R50 000 and older than five years has also been an important innovation. We are targeting the 65% of vehicles on South African roads which are currently uninsured. The vast majority of these are older vehicles where drivers argue that the cost of cover is too high considering the value of these vehicles.
What do you do to build and maintain loyalty?
Our product is designed to build customer loyalty because it is a built on a progressive system of financial reward. Loyalty was one of the key aspects of our business which we identified upfront. We spend a vast amount of money on acquiring customers, and they only become profitable to us if they remain with the company for several years.
As a result, we rate awesome customer service very highly. It is one of the cornerstones of the business. It is part of our culture and part of our value system. Also, our remuneration system is performance-based and we incentivise good customer service. We monitor a variety of customer service measures on a daily basis.
Advice on developing a business model
- Know what your competitors are doing, but don’t focus on that.
- Make your processes methodical. After a while that level of performance and dedication becomes the norm.
- Make sure you stick to your principles and do this long enough to gain momentum.
Advice on differentiation
Understand your differentiators. You should be able to explain them eloquently in two minutes so that your grandmother can understand them! Differentiation is like a big moat that you build around your business. Differentiators are created over time, provided you have the discipline to implement what you learn – it’s not about being clever, but about having tenacity.
Advice on sales
- Senior management must micro-manage sales. I still run daily sales reports.
- Sales and marketing is the lifeblood of the business. The worst thing you can do is to skimp on these two functions. Cut back on the coffee, but not on the marketing budget.
The OUTsurance group is active in the short-term insurance market and continues to grow and perform extremely well. It has become an established and trusted brand in a relatively short period.
OUTsurance posted excellent results for the year ended June 2006:
- Net earned premium income increased by 24% to R2,1 billion (2005: R1,7 billion)
- Headline earnings increased by 24% to R369 million (2005: R297 million).
- A 1,4 times covered dividend of R263 million was declared for the year (2005: R210 million).
At 30 June 2006 OUTsurance had total assets of R2,1 billion (2005: R1,8 billion) with a solvency margin of 43%. New business volumes from all sources continue to be encouraging. Given the dramatic drop in the underwriting profits reported by most of OUTsurance’s competitors, the expected hardening of premium rates is beginning to materialise.
As a result of OUTsurance’s disciplined approach to underwriting, it is well placed to benefit as this process plays out. RMBH’s attributable share of OUTsurance’s headline earnings for the year amounted to R234 million (2005: R194 million).
What are the three most critical factors that have determined the success of OUTsurance?
- The right team with the right skills.
- A business model that focuses on competitive advantage.
- A marketing strategy that is backed by an ability to sell.