King Price’s Master of Coin
‘We like to think of ourselves as a serious insurer who doesn’t take ourselves too seriously.’ CFO Paul Stedall recently celebrated a year of working at King Price, where they aim to make a notable impact in the market just by doing insurance differently.
CIARAN RYAN: Today’s podcast is sponsored by Draftworx, which provides automated drafting and working paper financial software to more than 8000 accounting and auditing firms and corporations. CFO Talks is a brand of the South African Institute of Business Accountants. What a pleasure it is today to welcome Paul Stedall, who is the Chief Financial Officer at King Price. Now, here’s the story, Paul liked the insurance company King Price enough to leave a 20-year career at one of the big four consulting firms to become CFO at King Price. In his previous role, he spent five years as King Price’s audit partner, and it was, what he says, the client everybody wanted to work with. The company’s quirky brand persona, it’s values-based approach to its people and its business, and an incredibly entrepreneurial culture made it an easy decision when they approached him to become the new master of coin. He has a keen eye for technical accounting, which is going to be critical as the company looks to introduce a life insurance offering in 2021, the insurer is also placing a greater emphasis on data and analytics to respond faster to volatile and a highly competitive market. First of all, Paul, where are you talking to us from?
PAUL STEDALL: Thanks Ciaran, I am based at home at the moment, working in Pretoria.
CIARAN RYAN: Can you kick off by telling us a little bit about King Price? We in South Africa know King Price very well. You do have this kind of quirky advertising and marketing, and the brand is very prominent. Just tell us how it fits into the insurance ecosphere, and also what attracted you to the company?
PAUL STEDALL: King Price is predominantly a non-life insurer, and for man on the street that’s property, cars and anything that’s moveable. We’ve been around for eight years and I think we like to think of ourselves as a serious insurer who doesn’t take ourselves too seriously. I think, as you’ve mentioned, I think our ads are pretty successful on that front. But we definitely have supersized ambition and we’re chipping away at our plans to make a notable impact in the market just by doing insurance differently. One of our more recent product launches was ‘Pay per K’, with chili care insurance, and that’s been an absolute runaway success. So that’s really helping us gain market share from competitors, and from previously uninsured…
CIARAN RYAN: Just explain that for people who are not in South Africa, who might not understand that.
PAUL STEDALL: Pay per K was designed around people working from home during lockdown and just the general expectation that people are going to be working very differently from how they were in the past. So we expect to see people on average traveling less per month. So it doesn’t make sense for us or for an insurer to continue charging a fixed monthly premium. So the Pay per K product was really designed around the amount of kilometres you travel. Clearly the risk remains the same as an individual and the vehicle that you’re insuring but if you’re traveling less, you’ve got less chance of having an accident, so you should pay for that lower risk.
CIARAN RYAN: Okay, then the second part of that question was what attracted you to King Price?
PAUL STEDALL: It really was the culture and just the overall vibe of the people that I had interacted with when I was the external audit partner, as you mentioned. So it gave me deep insight into the purpose and the values of the company, and that all really resonated with me in joining an organisation that I thought I could see myself in the next phase of my career.
CIARAN RYAN: How does King Price fit into the insurance ecosphere was also part of that question. Give us a sense of where are you particularly dominant? Is it in motor vehicles? Is it in houses, property? What is it?
PAUL STEDALL: The single largest risks we have on covers is in the property space, probably close on 85% of our total book is property. Then the next would be property insurance. So those are probably the predominant risks that we cover at this point in time.
King Price Living launching this year.
CIARAN RYAN: There are obviously big plans at King Price, we did mention that there’s going to be this launch of a life insurance product. What does that mean for the company from a human resources and a financial perspective? Are you going to have to beef up your balance sheet for these extra risks that you’re got to be taking on, and what are some of the other challenges in launching this?
PAUL STEDALL: That is our next big, exciting venture, something we’re calling King Price Living, and that’s on the back of the Stangen Life business that we acquired from African Phoenix last year. Stangen used to be the insurance arm effectively of Ellerine, it was part of African Bank, and we saw it as a really good way to get into the life insurance market. So we’re really scaling this as a digital life and dread disease offering. So the impact on resourcing will definitely not be proportional to the size that we expect the business to grow too. So really using technology to be the primary tool for selling the product, as opposed to a call centre. From a financial perspective, I guess at this stage we don’t expect it to have a significant capital requirement. We’re looking to partner with a reinsurer who has scale in the life insurance space and they can help us grow the portfolio without exposing the company and the shareholders to undue capital risk. So we don’t expect significant capital contributions required to shore up the balance sheet as the product gears up for launch. I guess the uncertainty in the space, as I’m sure you can appreciate, is the unknown long-term impact of Covid and when the vaccines are rolled out and how that all translates into mortality rates in the short to medium term. So that’s really the biggest uncertainty in going into the life space at this stage. But we’re obviously monitoring developments in that space quite closely.
CIARAN RYAN: It’s just interesting that in the discussions that we have had with insurers on CFO Talks, during Covid it seems that people are hanging on for dear life to their policies. Now, if you go back over the years, there was always a fair amount of churn. Particularly when you’re talking about vehicle insurance and life insurance, these policies would just lapse. But what has been the experience, you haven’t launched it yet, but you’ve obviously looked into this, is this something that you’re noticing as a trend, that people are becoming a little bit more concerned and hanging onto their policies?
PAUL STEDALL: On the Stangen current book we don’t have a significant life component, it’s mostly funeral space, and that people have held onto it. It’s not an expensive product. It gives the immediate financial needs in the event of a death. So we haven’t seen significant lapses during Covid in the funeral space. I think if you look at the non-life space at King Price itself, I think we’ve got some pretty savvy clients who understand that penny-wise and pound-foolish when it comes to insurance is probably not a good look. We only had a handful of clients who looked to cancel their cover when we entered the hard lockdown in April last year, and we were actually successful in retaining the majority of them on a lower level of cover, being just for third party damage, fire and theft, and if they were traveling on the roads for essential services. So I think we were more fortunate than I understand some of our competitors were in retaining the book and not seeing a large churn.
CIARAN RYAN: The actual business of managing a lifebook has got some intricacies. You’ve obviously got actuaries there who know what they’re doing. Have the risks changed in the life insurance business particularly during Covid?
PAUL STEDALL: We’ve definitely seen mortality increasing. Then, as I mentioned, the risk of fraud, has definitely increased with the pandemic. So there’s definitely been an uptick in large claims in the life space, and a lot of those have repudiated after investigation that they have turned out to be fraudulent. I think the risks from a mortality perspective are really the key risk that has changed, and I guess we’re hoping that’s a temporary change until the vaccine is in place and things come back to normal, whatever that new normal is.
CIARAN RYAN: We were just talking before we started recording here about fraud in this space. I’ve been watching some of these crime episodes where the husband kills the wife and tries to claim the insurance policy, thinking that nobody would notice. Is this something that is happening in the life space or is it something you’ve always got to be on the lookout for?
PAUL STEDALL: Sadly, yes, people do off their partners when they’ve taken out a life policy.
What we’re seeing in the funeral space is that some people even take out multiple policies on extended family members, I guess in the macabre hope that one of them does pass for whatever reason, that they can claim the funeral proceeds from that. It’s definitely out there and not just in the movies and YouTube.
‘This year we’re projecting our premiums to be around the R2.5 billion mark.’
CIARAN RYAN: Goodness gracious, okay. Can you give us a sense of the size of the King Price business in terms of premium income, number of policy holders, how does it fit in to the rankings?
PAUL STEDALL: It’s a huge market in the non-life space. This year we’re projecting our premiums to be around the R2.5 billion mark, and that would at the end of June represent about 240,000 policy holders with about 350,000 individual risks on cover. So I guess we’re small in the larger market share perspective, but definitely being noticed by the larger players. Our commercial book is growing nicely, and we’ve got some really exciting products coming out in the commercial space in the not too distant future.
CIARAN RYAN: How long has King Price been going?
PAUL STEDALL: Last year was its eighth anniversary in June.
CIARAN RYAN: Wow. Who started it, give us an idea of how it started up?
PAUL STEDALL: This could be a podcast on its own. Gideon Galloway started, it, it took him about four years behind the scenes to eventually get investors to back him on his desire to really make a difference to the insurance industry. He had seen a presentation by somebody in Germany that showed that the cost of repairing a new BMW versus a ten-year-old BMW, exactly the same type of impact, was half of the cost of the older vehicle. So in his mind, the traditional model of just increasing your premiums annually with inflation didn’t make sense. That’s really where the birth of the decreasing premium idea came from. So once he found investors who shared his vision and supported the purpose of giving back, as opposed to just being a company that takes profits and distributes it for shareholders’ use, there’s a large drive to reinvest the success of the organisation into communities and the like. So it was important to find a shareholder that shared that belief and that was happy to support that vision. That was the start eight years ago.
CIARAN RYAN: An incredible growth story.
PAUL STEDALL: Absolutely, I think the compound growth year-on-year has been around 30% over those eight years.
CIARAN RYAN: That will certainly bring you to the attention of the competitors. You touched on a point there, which is something, whether it’s unique or not, I’m not quite sure, but the idea of declining premiums. So the incentive would be, just taking that BMW example, it costs half the price to repair a new one, as it does to repair an old one. Therefore, the incentive would be to encourage people to get newer cars, and if you have a newer car that your premium would decline as the years go on, is that correct?
PAUL STEDALL: It applies equally to new cars and older cars. So I think the underlying premise is that your car depreciates on a monthly basis. Yes, it is cheaper to repair a new car just because of technologies, they take a bumper off and replace it, as opposed to having to panel beat panels and the like in the past. But the underlying premise is that your vehicle depreciates and with the value getting less, your risk to replace or repair should be less.
CIARAN RYAN: The carpool in South Africa is growing. This is one of the problems that we have with our road system, it’s just carrying a great number of cars. The last time I looked, is it nine or 12 million cars on South African roads? Maybe you’ve got those figures, but I think the real critical statistic there is what percentage of those are insured? Do you know what that stat is?
PAUL STEDALL: I don’t unfortunately have that at hand, but I do suspect that it is a very low percentage, especially in the lower LSMs, where vehicles are a means to an end. I think if you look at salvage yards, the extent to which they are packed, it’s often that people just can’t afford to repair the vehicle if they haven’t got it insured. So my assumption would be that there’s a large proportion of the vehicle owning population who aren’t insured.
CIARAN RYAN: I’m going to look that up just now But just give us a sense of how the business has been doing since the lockdown started. We’re one year into the lockdown, are people holding onto their policies?
PAUL STEDALL: As I mentioned a little earlier, we’ve had most of our clients holding onto their policies, understanding that insurance isn’t something you want to gamble with. Where there was a real financial constraint, they moved down to a lower level of cover and then moved back once the hard lockdown ended and moved back into traveling and the like. But the Pay per K product was launched exactly for that purpose to give an alternative option to a fixed or decreasing premium, and really only paying for insurance for the kilometres you travel. So that’s brought us a lot of new clients, who are looking for something that’s more flexible and that fits their driving habits with this new post-Covid work environment.
CIARAN RYAN: Let’s switch gears. Now, tell us a little bit about your career journey and where did you start up? Where did you grow up? Where did you go to school and how did you end up here now?
PAUL STEDALL: I’m a Pretoria boy, born and bred. I went to school at Pretoria Christian Brothers College, so a good Catholic boy. I studied in Pretoria and worked my first ten years of my career in Pretoria. The only change was when I was appointed as a partner to one of the big four and joined the financial services team in Johannesburg. So I did the daily Sandton shuffle, along with the rest of the people from up north. But my wife and I, with our families all being in Pretoria, just felt that support structures and quality of living for us was important, so we we’ve stayed in Pretoria and plan to do so until I retire one day, hopefully to a little cottage at the coast. We were brought up in an Italian way of life, my mom was born there and came across with my grandparents after the war in the early ‘50s. So I would say we’re a very close and loud and well-fed family. I also married an Italian, just by chance, not that I went out looking for an Italian, so we are still quite close to the Italian way of life.
CIARAN RYAN: You married an Italian-born lady?
PAUL STEDALL: Italian parentage, South African-Italian, yes, also a chartered accountant.
CIARAN RYAN: Fascinating, do you speak Italian?
PAUL STEDALL: I do conversationally. I can make myself understood and I can understand it. So it’s more than passable, which is great to have as a third language.
CIARAN RYAN: Did your parents, like a lot of Italians coming to South Africa after the war, did they settle around Orange Grove in Johannesburg?
PAUL STEDALL: I think my grandparents were some of the few that settled in the north of Pretoria. So it was Pretoria, Port Elizabeth, Johannesburg and there was a small Durban community that established over those years.
CIARAN RYAN: I think it’s something that’s not really well known is the contribution of the Italians in the post-war development of South Africa. A lot of very, very highly skilled architects and engineers came out as well. So a lot of these fantastic bridges that you see around about the place and dams and roads. Concore was an Italian construction company, which has been bought out by, I can’t quite remember who, but a tremendous contribution made by Italians in post-war South Africa, you’re probably aware of that.
PAUL STEDALL: Yes, even up to the Lesotho Highlands Water Project, the construction company responsible for that was an Italian company.
CIARAN RYAN: So the Italian blood runs thick in your family?
PAUL STEDALL: Absolutely and proud of it. Proudly South African as well but it’s a good balance.
CIARAN RYAN: By the way, I just looked up this thing about the 12 million cars, this was in 2018, 12 million cars in South Africa, 70% uninsured. The source of that is the AA, the Automobile Association. So I think that’s pretty accurate. So it’s a problem I guess that there are so many uninsured vehicles, but it also shows the extent of the market that can be tapped there.
PAUL STEDALL: Yes, there’s huge potential there and it will remove some of the strain on the fiscus with the Road Accident Fund and the like. The more well-priced insurance products that are available, the higher penetration that we’re going to see in that uninsured market.
‘I aim to create a conducive environment for my teams to thrive and succeed.’
CIARAN RYAN: Just talk for a minute about your role as a CFO, you have an audit background, but this is actually a small part of the weaponry that’s required for tasks confronting the modern CFO. Do you feel that academia adequately prepares you for this role?
PAUL STEDALL: I’d say yes and no. Academia at university stage, definitely not, the theoretical basis there. The time you spend in public practice or private practice that’s good preparation to the extent that you get to work with a whole host of different personalities under different stress scenarios that prepare you for the unknown. But I’d say no, in that, at least in my view, the audit field
is a reasonably superficial look at what’s happened in the past, with a limited look forward to what could happen in the future for the organisation. In a CFO role, you’re looking back at decisions taken and the impact of those on the business going forward from a strategy perspective and like. I think what audit did prepare me well for in this role is working in teams. I’ve always believed that if you build the right team around you, you’re creating a legacy of capable individuals who thrive in being allowed to do what they do best. So what I aim to create with all my teams, and the same is true here at King Price, is just to create a conducive environment for my teams to thrive and succeed. I saw a quote from Simon Sinek recently, which I think resonates quite well with me, leaders who get the most out of their people are the leaders who care the most about their people. That’s really it for me, I want the people that work with me to really enjoy what they’re doing and enjoy working for me, and I think just get the best results out of people from that mantra.
CIARAN RYAN: And I guess people working for you, they do want to be challenged and they do want to learn. In a way they want your job, right?
PAUL STEDALL: Absolutely and that would be a great legacy if one of the team internally could replace me down the line. I think that would be an ultimate goal.
CIARAN RYAN: There have been a lot of studies done and I bring this up quite often with CFOs, defining the role of the CFO. It’s no longer so much the technical side, yes, you’ve got to be on top of IFRS, and you’ve got to be on top of the legislation, the POPI ACT, the Protection of Personal Information Act and all that sort of thing. But there’s a lot more to it and you’ve touched on a few of them there like strategy and team management, communication is a vital part of that. There was a study out Queen’s University in Canada called from CA to CFO, it really defines more than 30 different competencies that are required like strategy, you’ve really got to be on your game, you’ve got to know the sources of finance, you’ve got to have good relationships with the banks. This is one of the reasons why the South African Institute of business accountants launched the CFO SA designation is basically to recognise people for having accumulated those competencies. But my question really to you is these are things that you’re going to learn on the job, they’re not something that you’re going to pick up in school, right?
PAUL STEDALL: Yes, absolutely, I think it’s quite interesting that there’s been a recent launch by SAICA with Professor Mervyn King on the role of the CFO becoming a chief value officer. So the move from CFO to CVO, they’re calling it. It just shows even further how the role is moving out of just finance to the more holistic value that can be added to the organisation.
CIARAN RYAN: So your job is really adding value to the organisation you work for rather than being the record keeper that was the expected role in the past.
PAUL STEDALL: Absolutely.
Expansion into Europe
CIARAN RYAN: Just looking down the road five years, how will King Price differ from the company it is today?
PAUL STEDALL: I think it will be significantly larger than it is currently, not necessarily in the number of people that we employ but definitely in the number of policies that we hold and the premiums that we write. I think at the same time, we’ll have an incredibly fast-growing life business that disrupts current market offerings. I think that just from a structural perspective, we should also be pretty far down the road of establishing our IP in Europe. It’s a journey that we kicked off in November through an investment in a Danish insurance underwriting manager, and the aim there is to get a license in Europe to launch life and non-life, using a similar approach to King Price, but obviously not using the King Price brand, which isn’t known there. So we have a brand that we’ve got access, which is well-known in Europe it will be launched on that basis. Then I think from a tech perspective, we’re on a journey now to having the most agile are plug and play type enabling infrastructure just to ensure that we can adapt to changes with speed and not be constrained by systems that are just added to and added to and that become cumbersome, slow and non-responsive
CIARAN RYAN: Interesting that you just mentioned Europe, is that your first launch of a business outside of South Africa?
PAUL STEDALL: We launched King Price Namibia four years ago as our test of how the IP and systems translate outside of the South African environment. Obviously, Namibia is quite similar to South Africa but still operating in its own jurisdiction with its own risks and the like. So it was a test market for us, which has been massively successful. So that’s a positive and it’s just showed us that that the technology can be shipped around and plug and play to launch. So that was the first foray, there will definitely be more into Africa, but Europe is the immediate ambition, not the traditional large markets though. So no Germany, UK. France where there are long established old insurers who serve a population that aren’t necessarily tech savvy or not keen to engage with an insurer on a tech platform. So we’re looking at the countries that have a higher tech penetration, where a digital offering will be easier to roll out and be more widely accepted.
CIARAN RYAN: So five years from now we can expect King Price or whatever brand it’s operating under in Europe, for example, would you also expect to see it in other African countries?
PAUL STEDALL: That is the intention, yes. I don’t think it will go too far north, and probably in the anglophone countries only, for obvious reasons. But definitely wider than just Namibia.
CIARAN RYAN: Quite a fascinating pipeline that you’ve rolled out there, going into Europe. Just give us a sense of the most challenging and defining moments of your career. Everybody wants things to go smoothly but sometimes they don’t. Give us a sense of what were some of the big challenges.
PAUL STEDALL: There’s one challenging situation that always comes to mind when I get to asked this question and it’s a singular audit client experience that spanned the whole of my ten years as a partner, it was literally for three financial years that spanned ten years. It was a client where we uncovered massive fraud and maladministration, and that kind of risk level pushed everything through the roof. But the challenges there gave me lots of learnings in the late nights in the audit room. That really changed my perspective on organisations and how easily processes can be overridden for nefarious outcomes. While it was probably the most physically challenging environment I was in for those years, from a professional experience perspective it definitely gave me a much stronger foundation from a risk management and view on business perspective.
CIARAN RYAN: It sounds like it was a priceless learning [experience], something that you wouldn’t have gotten outside of that.
PAUL STEDALL: Absolutely. I’ll try to attach a price to it, my sanity and some of the grey hairs, but I definitely got more out of it than it took out of me. The defining moment of my career was the career change that I embarked on a year ago, recently it was my one-year anniversary at King Price. That’s created so many opportunities for growth and has reignited in me a curiosity for new things that I last had when I was a young boy. This change at King Price has really been, I think, defining for me for the next stage of my career.
CIARAN RYAN: Congratulations on your one-year anniversary and it does sound like you really have moved into the fast lane there based on what you’ve been outlining, here’s the future. Just a couple of quick questions before we wrap up, what do you do in your downtime? You’re married, you’ve got kids?
PAUL STEDALL: Two beautiful girls, aged eleven and eight. Most weekend spare time is spent with them, which is great. But Saturday mornings are for my cycling passion, so that’s my time to go out with the club, so that’s what keeps me out in the fresh air. It’s road cycling, I have never taken to mountain biking but I’m being pressured on the King Price side to join the mountain bikers.
CIARAN RYAN: Are there any books that you would recommend? They don’t have to be technical, they can be fun books.
PAUL STEDALL: This is my Achilles heel. I wish I had more time or made more time to read. I haven’t read a good book in years. But when I do, I’m still drawn to fantasy novels, like Terry Pratchett’s Discworld series, it gives me some escapism. It’s not everyone’s cup of tea, but I have always enjoyed them.
CIARAN RYAN: It sounds like it’s a great escapism.
PAUL STEDALL: Absolutely, it lets my mind wander a bit.
CIARAN RYAN: I think that is one of the things that a lot of people, CFOs and people in senior positions are finding is that you don’t actually have a lot of time to read books. So probably reading a lot of stuff online. You’re staying up to date, the news content is being fire-hosed at you.
PAUL STEDALL: It’s overwhelming, absolutely.
CIARAN RYAN: I’ve often got like two books on the go at the same time and I’ll switch between the two…
PAUL STEDALL: One day when I’m big [laughing].
CIARAN RYAN: What a fascinating discussion. Paul, thank you so much for coming on. I really do want to stay in touch and just see how this year plays out for you. It’s a great story, your personal story, and I think the King Price story as well is one that we really want to follow. I’m excited about the launch of the life insurance product, your venture into Europe and possibly into other African countries. So please let’s stay in touch and get you back on again for an update in a few months.
PAUL STEDALL: I look forward to it, thank you.
CIARAN RYAN: Thanks so much. That is Paul Stedall, who is Chief Financial Officer at King Price Insurance.