Brazilians are not big on mobile phone insurance and that’s something insurtech Pitzi wants to change, by providing better experiences for consumers who need devices fixed or replaced while creating conditions for large insurers to develop that market.
After building a career at financial institutions such as Morgan Stanley and Warburg Pincus, Daniel Hatkoff moved to Brazil from his native United States in 2012. He then noticed that local smartphone adoption was taking off but it was hard to get devices repaired when needed.
“The whole distribution supply chain was very slow and unpredictable. Shops didn’t want to keep the stock needed to fix devices as costs were very high due to the macroeconomic conditions at the time,” the entrepreneur says.
Waiting a month to get an iPhone screen replaced in Brazil as opposed to the next-day standard Hatkoff was used to in the US presented a business opportunity that led to the creation of Pitzi: “Our goal is to support the insurance market in transforming their businesses to cater for new demands of the digital world.”
Less than 3 percent of Brazilians currently have mobile phone insurance, according to data from Brazil’s National Federation of General Insurance. This, says Hatkoff, is due to high prices, services that aren’t good enough and the fact that traditionally, it was only possible to insure new devices, at the moment of purchase.
“This [percentage of insured phones] is too low, especially considering the high crime levels seen in Brazil, as well as the the cost of devices,” the founder points out, adding that his goal is to get 30 percent of all phones insured in Brazil within the next two years.
Fixing the system
Pitzi sought to reduce timescales for mobile phone maintenance of four weeks down to about ten days on average, by planning stocks of parts more efficiently with data analytics and machine learning. The company has three operational centers handling maintenance and logistics in addition to other sites ran under an Apple-Foxconn type of arrangement.
According to Hatkoff, the time and cost involved in fixing a smartphone meant that most Brazilians, especially those on lower incomes living outside large urban centers, continued to use damaged devices. “People usually suffer when their phones get unexpectedly damaged as that incurs additional spend they had not anticipated.”
The economic downturn seen in Brazil over the last few years also meant that the average ticket of mobile phones sales went up – local consumers spent 11% more on a phone in Brazil last year in comparison to 2017, according to data from IDC – in order to hold on to them for longer.
“[The shift to more expensive devices] tends to happen at times of crisis. That has been happening everywhere in the world though; not everyone is looking to change their mobile device every year anymore.”
Such market changes mean that it becomes more crucial for consumers to get devices back fast when repairs are needed. According to Hatkoff, these developments are also changing consumers’ perceptions about the need to buy phone insurance.
“We have seen that behavioral shift in our own penetration rates, the number of people who have purchased insurance directly from us and through our partners has increased,” he says.
“In order to respond to that we are focusing on fixing devices in partnership with insurance companies in cases of accidental damage, but also providing phones to consumers when they are stolen, as quickly as possible.”
So far, Pitzi has managed to close deals with six large insurance companies with a presence in Brazil including AXA, Zurich and Generali. The idea is to achieve a five to tenfold increase in business in 2019, through the expansion of current project activity and new client acquisition.
According to Hatkoff, large incumbents have traditionally shied away from insuring phones, due to complexities around fixing them but also the high levels of fraud, whereby consumers would claim a phone has been stolen in order to receive the original value of the device in cash. This led to an increase in cost as well as bureaucracy involved in traditional insurance processes.
Pitzi sought to change that by providing refurbished phones – which, according to Hatkoff, are as good as new, since they undergo various quality assurance tests at the firm’s fulfilment centers – very fast to insured customers. This, says the founder, reduces costs to insurance firms as well as fake claims, since potential fraudsters know they will get a phone rather than cash.
“Many insurers are also struggling to be able to deliver mobile phones to customers fast, due to complexities around logistics or operational issues,” Hatkoff says. The startup has hired João Souza, formerly a senior operations executive at Apple, to further enhance its supply chain capabilities and ultimately get customers reunited with their phones within one business day.
Pitzi will also make further enhancements in its data strategy and machine learning, which plays a key role in fraud prevention. The company’s engine combines information on the claimant’s phone hardware, software, user characteristics and other indicators that may suggest potential fraud to create a rating, which is then passed on to insurance companies.
The main challenge going forward, according to Hatkoff, will be to help large incumbents navigate the complexities associated to mobile insurance as well as proving that the integration works before scaling. As the business grows, the entrepreneur will also seek to explore additional opportunities within insurance for mobile phones.
“Like any fast-growing startup, the challenge is to keep everyone excited and engaged as we scale,” Hatkoff says. The entrepreneur points out that having experienced investors is also key: Pitzi’s main backer, Thrive Capital, is a co-founder of US health insurance unicorn Oscar, which is currently valued at $3.2 billion.
“When I started the company, the word insurtech was unknown in Brazil. We are now building an ecosystem here and trying to facilitate the entry of new startups in that segment, because there is a lot to do,” the entrepreneur points out.
“What has impressed me the most so far is that local insurers are starving for innovation. Despite their issues around legacy and processes, they are now really open to us, which creates many opportunities for insurtech at a national level.”