How health.com.au became the only new private health insurer in 30 years

Private health insurer health.com.au took out the Start-up Award at the national Telstra Australian Business Awards last week. At just over two years old, the start-up has already signed up 40,000 Australians to its policies, with projected annual revenue of $46 million.

Two years ago, Andy Sheats decided he was done at realestate.com.au, and was ready to try something new. While he was reviewing options for new jobs with a range of online companies, he came across a small team with the “kernel of the health.com.au” and decided to make it happen.

“There was a lot of need, and it’s a massive sector, so it’s the perfect thing to go into,” Sheats told StartupSmart, adding the industry is worth $16 billion in Australia.

“Health insurance is such a complicated, consumer-unfriendly product that I thought it was begging for some clarification and maybe some innovation.”

Sheats says he was helping to develop the business plan when a personal experience with his family’s own health insurer, and the influx of seed capital, crystallised his commitment.

“Our own health insurer showed me how old school and old fashioned the industry was, and I realised what a great opportunity this could be,” Sheats says. “Then we raised $3.6 million in seed funding in four months. And I thought, gee that’s a validation, I’d better do this. Everything else went to the side.”

Sheats says he was aware launching a new business in an industry where all the other players were 30 years old meant he would have to pitch an improbable business idea.

“Let’s face it, all start-ups are improbable. If it was so obvious, why hasn’t it been done? And every industry will ask that,” Sheats says, adding their strategy was to focus on industry-savvy investors, particularly early investors in iSelect and the MIB float.

The company has raised $36 million in capital, $29 million of which came from individual investors.

“Up until $29 million, we had no venture capital or institutional investors as they weren’t interested. Early stage companies are really hard to fund. If you need to raise $30 million for something like this, it’s really hard. The last $5 million we got was from GBS ventures, who only invest in health companies,” Sheats says.

Health.com.au’s range of coverage options were designed specifically for online search engines such as iSelect, and for customers to research and purchase their coverage online.

“Before Google, every website was a bit crazy. But someone worked out that if they optimised them for Google, they’d be found more often, and this created a whole new business model for web developers,” Sheats says. “Online comparison tools are like that for insurance.”

The private health insurance industry has significant barriers to entry. Sheats says the main one was getting their licence to serve as a health insurer from the government.

“It was very difficult as they hadn’t issued one since 1977. It took four months, but that’s quite quick as there is no paved road to get a licence, it just doesn’t happen all that often. But one of the regulator’s roles is to create competition. They were very rigorous, they made us do the work but they were really helpful,” Sheats says.

They also joined the Australian Health Services Alliance, which includes the majority of the small insurers. The move enables health.com.au to access the national range of hospitals at more affordable rates.

“These guys been really welcoming for the most part, as we’re not competing with them directly as they have a really entrenched membership. They’ve been fantastic because they saw us as a way of stirring on the big guys,” Sheats says. “Essentially it’s a duopoly, plus everyone else.”

The “big guys” are Medibank and Bupa. Sheats says they’re so focused on each other health.com.au has largely been able to “slip under the wire”.

“Occasionally they’d do things that didn’t feel quite fair, but I think they’re only thinking about themselves, rather than out to get us,” Sheats says.

Sheats says they plan to be among the top 10 insurers in five years.

“We’re number 20, but the difference between top 10 and 20 is quite significant. We’d need to grow five times our current size,” Sheats says. “What we really want to do is get a spot at the big table with the big boys, and then our real differentiator, what we’re really in this game for, is to show what good customer service looks like that and foist it on the whole industry.

Sheats adds that Amazon, Zappos and The Iconic are known for outstanding online customer service, and he is committed to making health.com.au the first Australian brand to earn a global reputation for exceptional customer service.

“Our version isn’t just to fill the call centres with more people. It’s about how do we follow the expectations of our customers so they can have get customer service online, as that’s where people want to be,” Sheats says.