Positive spin on HIV
Insuring what others have always believed was uninsurable
Sizwekazi Jekwa —Finweek
June 5, 2008
MOST PEOPLE THINK being diagnosed with HIV is a death sentence. So a company that specifically insures clients diagnosed with HIV is probably one of the most unlikely entrepreneurial ventures you might expect to find. But that`s exactly what investment banker Ross Beerman set out to do two years ago when he embarked on a journey to create affordable life insurance for HIV-positive South Africans.
Having acquired a considerable amount of financial expertise in the United States working for boutique investment bank Legg Mason in Philadelphia, and later being part of the team that established what now constitutes Abil, Beerman was looking for a new challenge when he had a conversation with Dr Avon Urison about HIV/Aids.
From that conversation Beerman and long-time friend Paul Stanley decided to investigate the possibility of providing life cover to HIV-positive people. "We discovered there were very limited products for anyone diagnosed with HIV, despite the fact that life expectancy for any well-managed HIV-positive person was as much as 35 years in the US," says Beerman.
The only life cover products in SA available to HIV-positive people - now known as old-generation life policies - were limited to Rl00 000 cover with exorbitant premiums, making them largely unaffordable. Small wonder they were rarely marketed to the public.
"The old-generation policies weren`t real life insurance, mostly because the average life expectancy for unmanaged HIV sufferers was only eight years - which explained why the life industry wasn`t interested in that market," Beerman says. "A typical life insurance business has a medium- to long-term business model that requires companies to collect premiums for a number of years before they can become profitable. So the HIV market was not insurable."
After researching the subject, Beerman realised that in order to make HIV-positive people insurable, he`d have to influence and track the behaviour of policy holders.
Says Beerman: "We wanted to move our client pool from the eight-year life expectancy group into the 35-year life expectancy category."
However, the challenge was that all the existing life policy models and systems used historic information to determine, manage and price the future risk of an individual.
So Beerman and Stanley decided to set up a team, including Michael Dalby, a former McKinsey & Company consultant and an engineer by training, to create a model that would assess and track future behaviour and base the risk calculations on current versus past information - what`s now known as continuous underwriting.
To achieve that, Beerman and his team realised they`d have to closely monitor and manage the health-related information of their clients. Says Beerman: "Offering life cover to people who have contracted HIV is in fact no different from providing cover to people with diabetes or any other chronic illness that requires constant management."
Result: What is now known as the AllLife policy. Beerman says clients undertake to adhere to particular behavioural patterns, which include regular medical check-ups, and taking treatment if and when required. Clients also give AllLife permission to access all their medical records.
What is equally compelling is that AllLife is reinsured by the world`s third largest reinsurer - Gen Re - a wholly owned subsidiary of the Berkshire Hathaway Group, owned by renowned investment billionaire Warren Buffett. Standard & Poor`s rates Gen Re an AAA company.
With a wealth of experience and expertise in the re-insurance industry, Gen Re has worked closely with AllLife in the development phase of its product. "We were actually looking into the issue of providing life cover for HIV-positive clients when Ross Beerman and his team approached us. We helped them design a product we felt comfortable about insuring," says Peter Temple, MD of Gen Re Africa.
The first AllLife policy was introduced in February 2006 and the company began to aggressively market it in August last year. The campaign worked. Currently, AllLife has more than 1 000 clients and employs 30 people, including sales staff and qualified nurses. It also recently entered into a joint venture with Sanlam that will see it administer an HIV-positive life policy called LifePower on Sanlam`s behalf.
Both Dalby and Beerman readily concede AllLife doesn`t expect to become a profitable business until 2010. But the market potential is huge. AllLife`s target market is South Africans who belong to the LSM 5 segment and upwards. That`s a staggering 2m HIV-positive individuals.
What makes the product unique and competitive is that no other company worldwide has the IT and admin systems in place to provide the service. Although Beerman declined to comment on the company`s turnover at this stage, he indicated that R25m start-up capital had been invested in the business. That`s more than adequate to manage the transition to 2010, when the company is primed to break even and turn a profit.