New Zealand's car, home and contents insurance market, of which Insurance Australia Group (IAG) has about 66% marketshare, presents new "challenger brand" Youi with an opportunity to show consumers there's a compelling alternative, says Youi's CEO.
The South African owned insurer announced its New Zealand launch today, having received a licence from insurance regulator the Reserve Bank. Youi says it's investing "close to $60 million" in capital, and will have 420 New Zealand-based staff by next April.
Youi is entering a market where IAG, fresh from its takeover of Lumley, has about 50.5% of the overall New Zealand insurance market, around 66% of the home and contents and vehicle insurance market, and 40% of the intermediated (sold through brokers) insurance market. IAG operates the AMI, State, NZI, Lumley and of course IAG businesses.
Commerce Commission chairman Mark Berry told interest.co.nz last month that when considering IAG's application to takeover Lumley, the Commission had concluded new entry to the New Zealand insurance market would be difficult. Berry said the need to set up and establish a network, get a new brand accepted by the public, and going through "all the regulatory hurdles," would take time.
Against this backdrop Youi NZ CEO Daniel Matthee told interest.co.nz it's important to understand Youi sees itself as a challenger brand, and it already competes with IAG in Australia.
"I think our offering is based around the fact that we ask more questions of our customers, we understand their insurance needs better, how they use and don't use their cars, what features and factors are important around their insurance needs, and then we tailor make policies and a quote that is suited to an individual's needs," Matthee said.
"We plan to communicate that via online marketing campaigns and above the line television campaigns as well as through word of mouth."
"We fully understand that we're the challenger. There's a much larger player in this market that we are conscious of. But we also think it's a sophisticated player and there won't be irrational behaviour," said Matthee.
'Three to four years for sustainable, profitable business'
As it launches Youi is promoting the "Youi Wall" on its website. It says anyone can share their experiences here, giving current and potential customers insight into whether they're making the right decision about their insurance provider.
Matthee said the $60 million of capital would be sufficient to service Youi's business needs even if it outperforms management's best estimates "by some margin."
"Our first objective is to build a sustainable business which is profitable. We expect that we should be able to do that within a three to four year window," said Matthee.
"We don't have an overall marketshare goal that we're striving to achieve. I think we're new, we're going to go about it in a very prudent and measured fashion, (and) we need to build sufficient scale so that we can have a sustainable business. But we won't do irrational things to get marketshare," he added.
With a direct to consumer business model Youi plans to underwrite each client individually so isn't looking to become an insurance underwriter to the likes of banks, Matthee said.
'Sound risk-adjusted capitalisation & prudent business plan'
AM Best, an international credit rating agency focusing on the insurance industry, said it has assigned a financial strength rating of B++ (Good) and an issuer credit rating of "bbb" to Youi NZ, with the outlook assigned to both ratings stable.
"Youi NZ is a newly formed company licensed as a non-life insurer in New Zealand. The company is wholly owned by Youi Holdings Pty Ltd (Australia), which in turn is controlled by OUTsurance Holdings Limited (South Africa). The ultimate parent is Rand Merchant Insurance Holdings Limited (South Africa)," AM Best said.
The credit rating agency said Youi NZ's ratings are based on its sound risk-adjusted capitalisation and a prudent business plan.
"The company’s net premium-to-surplus ratio is anticipated to remain under 0.4 times throughout its first five years of operation. In addition, the assumptions used in the company’s business plan are based primarily on the group’s actual startup experience in Australia."
"Partially offsetting these positive rating factors are Youi NZ’s lack of operating history in the New Zealand market and the challenges in executing its business plan amid heavy competition from established insurers within the region. Factors that may trigger negative rating actions include a material adverse deviation of its risk-adjusted capital relative to its business plan due to a failure to meet its planned underwriting and investment performance," said AM Best.
Youi said it set up offices in South Africa and New Zealand a year ago to service Australian customers in a "follow the sun" operation, meaning it could help customers on a near 24 hour basis. It said New Zealand based staff total about 280 employees, which will rise to 420 by April 2015.
“We’ll be working hard to ensure that Kiwis get a great deal with us and we’re totally committed to the market, investing close to $60 million in capital. Having call centres in three countries has assisted us with strong growth in the Australian market due to extended operating hours and increased customer satisfaction. This has provided us with a lot of confidence that we can offer New Zealanders the same service offering," said Matthee.
Here's Youi's background information:
. OUTsurance first launched in South Africa in 1998. Fast-forward 16 years and OUTsurance is now the largest direct insurer in South Africa, with a workforce of more than 2,600 people
. Youi, a wholly owned subsidiary of OUTsurance Holdings, launched in Australia in 2008 with a handful of employees, and has since grown to over 1,300 employees - and still counting.
. Youi is the fastest growing car and home insurer in Australia and in a short period of time has become the fourth largest car insurer. Youi customers in Australia could fill Eden Park five times, with over 700,000 policies active with Youi.
· Youi’s New Zealand offices were originally opened to service the Australian business, with a longer term strategy to enter the New Zealand market.
· Youi New Zealand was granted an official license to operate in New Zealand for New Zealand customers on 28 July 2014.
· Youi’s team is very important to their success, so employing the right people is paramount for the business. Youi lives by the mantra to ‘hire character and train skills’. That means they’ve done away with the cookie cutter approach. They simply employ the right person for the job.
· Youi’s international expansion plans have been referred to as the ‘chasing the sun’ approach to staffing. Youi has call centres in New Zealand, South Africa and Australia so that when a client calls, Youi has a staff member to answer the call as part of their working day with no late night shifts impacting staff ensuring its clients always gets the best service available.