Root wants to change the insurance game in South Africa – Here’s how it works

Root recently launched its new insurance platform, aptly named Root Insurance.

The platform allows developers to build insurance products using its API, and aims to reduce financial investment, upfront costs, and compliance problems when launching an insurance product.

“The platform not only reduces costs and time to market drastically, it also takes care of administering the insurance policies,” said Root CEO Louw Hopley.

But can a developer simply access Root Insurance and its API, and create a successful insurance product with “a few lines of code”?

MyBroadband spoke to Hopley to find out.

Money and risk

A crucial aspect of providing insurance, and financial services in general, is compliance and licensing.

Hopley said there is a range of requirements to consider when launching an insurance product, including an insurance licence, capital to back client risk, and reporting to the FSCA.

“There are many big and small things to have in place before you can sell your first policy,” said Hopley.

“The Root Insurance platform takes care and enforces most of these requirements out of the box. For the rest, we work with insurance partners like MMI Holding’s subsidiary Guardrisk, to allow us to provide expert guidance and use their licence to launch products to market fast.”

He said they are also involved in guiding and reviewing products built by developers, and look at market conduct and how customers are treated.

“This gives developers peace of mind that they won’t operate outside of regulations, and gives comfort to the end consumer.”

The capital aspect of an insurance product is also catered for by Root Insurance, said Hopley.

“Legally, the insurer who backs this risk is responsible for paying all claims. The amount of capital that needs to be put down depends on the specifics of the case, like the type of insurance,” he said.

“We have partnerships with insurers and reinsurers already set up, which means developers don’t need to participate in risk or put up capital if they don’t want to or are not yet able to.”

Hopley said they also help developers determine the best option for their product and facilitate its setup.

“When it comes to actual money management for operating the insurance product, the platform takes care of handling all cash flows directly, from premium collection to claims payouts, and doing the necessary reporting on that.”

“Developers can therefore build on top of the Root platform knowing that all policies are backed by the necessary capital and regulatory licences.”

Risk

Calculating risk and a company’s exposure to it is another key aspect of insurance products.

In the case of Root Insurance, Hopley said risk management is taken into account.

“On the platform, we call insurance products product modules, to prevent confusion with the app on the front end, which we’re used to calling products,” he said.

“Product modules contain all the key aspects and rules, such as policy wording, underwriting requirements, and risk pricing.”

“These are typically dictated by the entity carrying the risk. The platform effectively enforces these rules, as well as key regulatory compliance requirements, ensuring that the products offered are financially sound and legally compliant.”

Hopley said there are several “standardised” product modules on the platform that developers can access.

Reinsurers, which calculate risk pricing, can also assist in defining and launching unique modules, he said.

Selling insurance

Hopley said the launch of Root Insurance will allow companies to easily sell insurance to their customers.

“The platform packages all the things required to operate an insurance offering and enables you to get set up faster and much more cost effectively – making this a lot more feasible.”

This includes startups, and established companies with customer bases – such as national retailers which want to sell funeral cover to their customers.

“It could also help existing insurers launch new products to market much faster,” said Hopley.

Now read: Tariffs on tech imports will hurt the United States