Insurance for $2 a month: The business model of African start-up Turaco

Insurtech start-up Turaco offers medical, life, asset and vehicle insurance to mass-market consumers in Nigeria, Kenya and Uganda at an average premium of about US$2 per month. Turaco embeds its insurance into the products and services of third-party companies such as Sun King (residential solar energy systems), One Acre Fund (financing of seed and fertiliser for smallholder farmers), Tugende (financing for motorcycle taxis), M-KOPA (pay-as-you-go access to smartphones, solar lighting and solar-powered appliances) and VisionFund (Uganda-based microfinance provider). Turaco doesn’t underwrite the policies; it acts as a broker, linking insurance firms to end customers through its technology and partnerships.

Turaco recently raised a $10 million Series A fundraising round led by the Cathay AfricInvest Innovation Fund and Novastar Ventures. Jaco Maritz asked Turaco CEO and co-founder Ted Pantone about the company’s business model and insurance demand in Africa.

Using M-KOPA and VisionFund as examples, explain how Turaco’s insurance is embedded with other companies’ offerings.

When an individual buys a pay-go asset from M-KOPA, they get a call from M-KOPA’s call centre to see if they would like insurance. If they opt-in, Turaco is notified and we can reach out to the customer to onboard them to the insurance and activate the cover. M-KOPA adds the fee for insurance to the payments the customer is making to M-KOPA and remits the premium to Turaco.

If an individual takes a loan from VisionFund Uganda, the loan officers notify them that hospitalisation and life insurance is included in the loan. Borrowers have the option to upgrade to family cover at an additional fee. As that loan is disbursed, Turaco is notified and we activate the cover.

The technology we built is a policy and claims administration platform that integrates via APIs to our partners’ platforms to make know-your-customer (KYC) data sharing, policy activation, billing, etc. a seamless process. It provides backend support and typically does not need to be adapted by a partner.

Do most of the insurance purchases happen online or offline?

The decision to buy insurance typically happens either through channels that mimic how our partners sell (e.g. through partners’ agents) or through our call centre outreach. Due to the nature of our customer base, and a large number of people having a lack of access to technology and bank accounts, offline purchases of our products are more prevalent compared to online purchases.

So, Turaco basically connects existing insurance firms to customers, through your technology? Turaco doesn’t get involved in the claims process, etc?

Yes. We spend significant time designing bespoke insurance product bundles which we shop around to different insurers to underwrite. Our approach unlocks a new market for insurance companies and makes insurance accessible to customers for which it previously was not. This is partially done through technology but also relies on effective product design; most of the product bundles we’re offering aren’t an “off-the-shelf” product by the insurance companies.

Our role in the claims process varies based on the product. Our tech-based approach – using WhatsApp integration, fraud scoring algorithms, and mobile money payment – enables quick turnaround on claims payment. In all cases, we act as an advocate for the claimant, supporting the consolidation of information to enable us to shepherd it through the claims process as quickly as possible.

How does Turaco generate revenue?

Revenue is generated via commissions.

Insurance penetration in sub-Saharan Africa is below 3%, one of the lowest rates globally. Share your thoughts on insurance demand in the region. Are there certain types of insurance for which there is greater demand than others?

While many think there is low demand for insurance in Africa; we have debunked this myth. When we get customers on the phone, we have conversion rates exceeding 50%. It is precisely because our base-of-the-pyramid customers are so vulnerable to financial shocks that they see the value in insurance.

Our innovations that have enabled high conversion rates are all around making insurance purchases frictionless, leveraging the brand trust of our partners, and designing products that make sense for our customer base (affordable, simple, and valuable in that they cover highest risk events).

We primarily sell forms of medical and life insurance with some asset cover for productive assets or assets purchased on credit. Importantly, most of our medical insurance isn’t focused on solely reimbursement of bills but also of lost income given that so many of our customers are informally employed.

The insurance that isn’t selling as well in the market are products where companies have just cut prices and benefits to try to target them to underserved customers but no other consideration has been given to ensuring the broader design is adapted to the unique needs of these customer segments. Similarly, any insurance where someone has to make the active decision to make the payment for their premium (e.g. monthly reach into their pocket and send the money to the insurance company) haven’t been as successful.

What are the biggest challenges of running this business?

Disrupting the traditional insurance industry. We see ourselves as a tech disruptor but that’s hard! We’re constantly engaging with the regulator and underwriters to collaborate on new ways of doing things, but unsurprisingly, they aren’t as agile as we are as a 100-person start-up.