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Thinking outside the boxToward the end of the 1990s, South Africans already were well accustomed to the idea of infomercials. Verimark, Glomail and the ilk were slogging away happily, selling us – stuff, is as apt a word as any. And before that, having Les Franklin offer us comprehensive funeral cover for “less than a rand a day” was nothing about which to get excited.
But in the early 2000s, a new player entered the infomercial market. Offering short-term insurance, this new contender – liveried in a garish combination of green and purple – did not seem to be anything special. Its only redeeming factor was an innovative yet unusual twist at which those au fait with the insurance industry would have baulked.
The company, of course, was OUTsurance, and the twist was its innovative OUTbonus, whereby the company would reward its clients with a percentage of premiums paid, should three years go by without a claim being made. And the longer one remained a client, the shorter the OUTbonus period would become.
“I suppose it was a risky move, but we believe that when you start something new, you have to do something different. It would thus have been more risky to have launched a new company without a differentiating factor,” commented co-founder and current joint chief executive officer, Willem Roos.
That unusual offering, coupled with the company operating as a direct insurer – effectively eliminating the role of the broker – helped lift OUTsurance from the “home-shopping” slum land in which it made its debut.
Today, OUTsurance is a financial leviathan than moves around money in the hundreds of millions of rands, having become a much larger company than its three founders
had envisaged.
OUTsurance was built by René Otto, Howard Aron (current joint CEO) and Roos. The three colleagues became acquainted while they worked at Aegis Insurance.
The seeds for OUTsurance were planted when the two were presented with an opportunity to present to the Aegis board, regarding that company’s future strategy.
As Roos tells it: “We got an opportunity to present to the shareholders of Aegis about Aegis’s future strategy, and then René and I did a presentation on direct insurance. And Laurie Dippenaar [then chairperson of Aegis and from RMB Holdings], the shrewd businessman that he is, said this is an interesting thing – we must come and see him.
“And we went to Laurie, and put out a whole plan on how we felt it could happen in future.”
The trio of Otto, Aron and Roos came together to pursue the idea and were given the opportunity to present it again to Dippenaar. “We presented [the business plan] to Laurie and the RMBH board, and I was actually surprised that, within a space of six weeks, they approved it and backed us with quite a nice lot of capital,” says Roos.
Since then, Otto has departed from OUTsurance (currently he is CEO of MiWay), leaving the company in the hands of Roos and Aron. Speaking upon Otto’s departure, Roos is known to have said that, “It was a pity that René left. I think our skills were quite complementary.”
Regardless of the loss of one of its founders, the concept was sound and Aron and Roos took full advantage by building on those fundamentals. As Roos describes it, “It’s become a bit more than a start-up today.”
Aside from the enticing nature of its actual product offering, the method of how the offering is made has been a key driver in the company’s growth. The infomercial path may be looked upon as less classy than traditional above-the-line advertising efforts, but there is no denying that for OUTsurance, it evolved into a substantial payday.
Unlike most companies, OUTsurance has seen a very close correlation between how much it advertises and how much new business it generates. “Our business is about advertising a lot and generating responses, which we then convert into business. [There’s] a fairly direct correlation, absolutely,” says Roos.
At its current size and level of success, eager investors on numerous occasions have raised the question of listing, to which the team consistently has answered in the negative. Its lack of interest for the move is explained easily by its cash-flush nature and a strong contingent of shareholders, should the need for additional capital ever become a necessity.
In the past, Roos himself has questioned the motivation behind such a move. Asked about the potential for a listing while talking to Moneyweb’s Alec Hogg, he answered, “You really need to think, fundamentally, why list if you don’t need capital? We have a large advertising budget, so there is also no issue of getting more visibility in listing.”
Now in its twelfth operational year, OUTsurance is forging ahead with plans for international expansion. Currently, the two CEOs find themselves in offices on opposite ends of the Earth, with Aron based in Australia and Roos minding the home front.
Anticipating a slowdown in its growth thanks to the company’s increasing market share in the short-term insurance business within the South African market, the decision was taken to expand internationally, rather than to enter new markets locally. Says Roos, “We believe we’re very good at [the short-term insurance] business and, instead of trying to expand into a whole host of other markets in South Africa, why don’t we look at international markets, where we can go and apply our recipe?”
After considering its competitive advantages, the two markets where those advantages could be applied best were split up between Australia and Brazil. Though Brazil seemed the more interesting of the two, the land Down Under won thanks to its English-speaking citizenry.
“It was easier to find a top team of people and relocate them to Australia,” says Roos.
What was most interesting about the move was the decision to enter as a start-up, as opposed to making an acquisition as a means of entering the market. Even more challenging is the fact that the majority of Australia’s short-term insurance industry follows the direct methodology, robbing OUTsurance of an advantage that gave it the lead in South Africa.
Roos insists, however, that that is not a primary factor and ultimately, the company’s success in Australia lies in the numbers. “Our fundamental advantage is not about dealing directly, it’s about calculating your premiums accurately for the risks you take on.”
Recently announced the winner in the Best Entrepreneur category of the South African chapter of the Ernst & Young World Entrepreneur Award – an award well overdue, some may say – the pair has established itself within the ranks of the South African business elite.
But the awards and success have not given them reason to sit on their laurels. A quote from an interview with the two CEOs in the Financial Mail a few years ago well sums up their attitude: “People who run the business must research the business. We must constantly explore and question,” said Aron. “We must lead with the ideas – otherwise, why are we here?”
Q&A with Willem Roos
Most people do not dream of starting their own insurance company. Growing up, what did you envision yourselves doing?
I never thought I would start a business. My plan simply was to get a decent qualification from university and then a good job.
Howard always showed a flair for business and was “wheeling and dealing” from a young age!
Do you have a history in the industry?
Before joining OUTsurance, Howard was the CEO of Corporate Warranty Administrators, which sold and administered motor warranty products for vehicle manufacturers and banks.
I was fresh out of varsity, having studied Actuarial Science.
Where did the idea for OUTsurance originate?
The idea of starting a new direct personal-lines insurers came from Otto. René, Howard and I worked together at Aegis Insurance during 1996, and we formed a team to pursue
the idea.
Only once we decided to start a new direct insurer, did we come up with the name OUTsurance and the OUTbonus concept.
Starting any kind of new venture can be tricky, how were you able to raise the money to start OUTsurance?
We approached Laurie Dippenaar, then chairperson of Aegis. We compiled and then presented a business plan to him and the RMBH Board.
RMBH then provided the start-up funding for OUTsurance.
All of this happened within six weeks. I remain amazed about how quickly the entire process unfolded.
There is a famous anecdote about Sir Donny Gordon, when he started Liberty. The story goes that during Liberty’s early days, if one client indeed had made a claim, it would have sunk the company because he did not actually have the money! How were the early days at OUTsurance?
We were fortunate that from the beginning, we had shareholders with substantial financial resources.
However, we always have, and will continue, to spend the company’s money as if it were our own.
Now OUTsurance is a R100-million entity. Does that level of success surprise you?
Yes, indeed. OUTsurance became a much larger company than we envisaged.
Having said that, we always ran the company like a public company and built infrastructure and systems that would be able to scale up if the volumes came.
Most people became aware of OUTsurance thanks to the home-shopping style ads that, I think, still play in the morning. Was that always part of the plan?
Our “infomercials” still play in the mornings!
It has been an effective medium, but we only started it a couple of years after forming the business.
How important were those early ads in creating awareness?
All forms of advertising are a key component of our strategy, from television to radio to print and the Internet. We have to advertise if we want people to call us!
Together with providing clients with awesome service, it is the lifeblood of our business.
It is quite fair to say that today, OUTsurance operates on the same level as Old Mutual, Sanlam etc. Is there still room in the market for you to surpass them, or have you reached saturation point?
OUTsurance’s competition would be Santam, Mutual & Federal, Auto & General, Hollard etc.
Have we reached saturation point? Absolutely not! The direct market in short-term insurance is growing still, and we have many plans to expand to the commercial and life insurance markets.
We are also very excited about our expansion into Australia.
If we ever tell you that things have reached saturation point for OUTsurance, then it would be time to make way for a new generation of entrepreneurial managers.
How is the expansion into Australia progressing?
Our expansion into Australia is progressing well. Howard and a team from OUTsurance relocated to Australia during 2007 and You.Insured (www.youi.com.au) launched in October 2008.
To date, we have exceeded our sales forecast and we are very excited about building a good business Down Under.
Why did you take the decision to start a new business there, as opposed to making an acquisition?
OUTsurance has no particular skills in making acquisitions and integrating businesses. We prefer to start new businesses without any legacy.
Neither did our research into the Australian market indicate that there were any appropriate target companies.
We are entrepreneurs at heart, and chose to follow the entrepreneurial way.
Zaid Kriel
