Health.com.au is a disruptive health insurer from Melbourne that seeks to “reinvent how people view health insurance in Australia,” according to founder and CEO Andy Sheats.
While heading up strategy at realestate.com.au, Andy Sheats saw an opportunity to disrupt the $16 billion health insurance industry in Australia.
“For the most part, it’s a very old-school industry,” said Sheats, now CEO of health.com.au. “In fact, it’s one of the oldest of old-school industries because most of the health insurers come out of unions and employers and the International Order of Odd Fellows.”
Sheats saw room to break in because, while many people had private insurance, customer service was dated and confusing, he said.
“Nobody knows what they’re covered for,” he said. “It’s very old-fashioned. They want you to go down to their office and give them the receipts for your hospital so they can pay for it, or post it to them.”
Health.com.au takes “a more modern, online approach to this old-school industry that allows people to actually do more online,” said Sheats.
For example, the startup lets people file claims online without sending any receipts, verifying the authenticity of the claim afterward. It also has digitised much of the paperwork that has historically been involved in the industry, he said.
Health.com.au began development in June 2011 and sold its first product in April 2012. The company was named startup of the year last month at the Telstra Business Awards.
Even with a compelling idea, breaking in wasn’t going to be easy or cheap.
“It’s a very highly regulated industry, so you have to build a balance sheet to meet the credential requirements, plus you need to have all the systems and processes like a bank, totally bulletproof.”
Removing all the paperwork has “taken a lot of not just web development, but a lot of work with other health funds, with the regulator and industry to come up with new business processes that actually supersede the old business processes.”
In addition, “it’s a highly contested market, so cost of acquisition for customers is pretty high.”
Health.com.au raised $3.6 million in a seed funding round to get to launch, he said. Over the last two years, it has raised a total of $34 million in equity.
“One thing that we’ve done that is probably a bit different from most startups is we’ve gone through individuals rather than [venture capitalists] primarily.”
The startup plans to do an initial public offering (IPO) in 2015, he said. “It really is a function of us funding the next stage of growth, more so than it is an exit. It’s another fundraising, essentially.”
Since launching in April last year, the startup has added 40,000 customers and raised significant revenue. Sheats said the company had a run rate revenue of $45 million in August.
It has a similar-sized network to other health insurance providers, he said. “The only way we could do that as a startup business is there’s a buying group that about 20 health insurers subscribe to that actually negotiate” with the healthcare providers, he said.
Health.com.au so far has focused its products on the domestic market. It does not yet offer overseas visa cover, but will in the future, he said.
Sheats attributes part of its success to having a compatible technology platform with iSelect, a health insurance comparison website. “We couldn’t scale the business that quickly if we were just hiring staff.”
With cost savings from the online approach, Health.com.au has invested in enhancing the online customer service experience, Sheats said. “Over time, you get some cost savings, but really our focus is on hitting the needs of the segment of people who really prefer online.”
It’s difficult to be a startup in Australia for financial, cultural and regulatory reasons, according to Sheats.
“It’s ironic to me because Australia is in my mind the land of small businesses and individual people starting businesses, but it isn’t really a small-business-friendly place and it’s even less a startup-friendly place,” he said.
“People who start businesses are viewed as pirates.”
From a regulation standpoint, Sheats said tax rules preventing startups from offering share options to employees has been a big problem. Three-year-old changes to tax law require that the employee is taxed on the value of the share option when the option is issued, before any payments are made.
However, Sheats said he sees a lot of talent and the scene has somewhat improved over the last few years.
“Part of it is there have been some successful startups and that kind of whets the appetite. But it’s still decades behind the real infrastructure approach that you would see in San Francisco.”
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