Could ExtrasJar lower your insurance costs? Experts weigh in
An insurance disruptor is targeting consumers fed up with high prices and confusing policies.
Brisbane-based startup ExtrasJar wants to overhaul how we pay for our health insurance and pet cover.
This could be timely. New figures from Finder show 13% of Australians have reduced their health cover or ditched it completely in the past 6 months.
So, how does ExtrasJar work?
ExtrasJar breaks from the traditional model of health funds in a few key ways:
- You don't have to sign up to a policy and choose a tier
- You don't have to serve any waiting periods
- Your extras benefits don't expire every 12 months
Instead, you essentially "invest" via ExtrasJar's app to build up a pot of health funds.
You can make one-off or recurring deposits – from just $10 per month – into an account accessed on ExtrasJar's app.
The money you put into your account gets invested by ExtrasJar in exchange-traded funds (ETFs), much like micro-investing platforms such as Spaceship or Raiz.
In return, ExtrasJar pays you "units". These can be used at any time to pay for health extras or pet treatments, be it at the dentist, optician, physio or vet.
Any unused funds accumulate and roll over each year. And you can withdraw your money at any time (funds clear in around 10 business days).
Who is behind ExtrasJar?
ExtrasJar is the brainchild of founders John Connor and Reece Frazier.
Previously, Connor spent 2 decades working in insurance and banking, including roles as a senior pricing actuary in Australia and the UK.
Frazier's recent professional background is in product marketing. However, according to Connor, it was Frazier's decade-long service in the Australian Army that led to the inspiration behind ExtrasJar.
Having suffered a collapsed lung in the army, Frazier found his health extras cover wouldn't pay out for complex physio and related services during his long recovery.
"There's this assumption that when you pay for your extras, it's all covered," explained Connor.
"But, it really isn't. There are limit caps and all kinds of bands to the policies."
ExtrasJar was committed to helping people get around "excessively confusing" cover, he added.
Connor said their target age demographic in particular was those in their 20s to mid-40s.
The cost of health insurance wastage
APRA figures show that, in total, out-of-pocket expenses and premiums for extras policies alone cost policyholders $12 billion per year.
Meanwhile, the amount paid back in benefits is just $5.6 billion.
"As an investment return, it's 47 cents on the dollar, on average," said Connor.
"On average, you're paying nearly $1,000 for extras; but you're only getting $448 back in benefits."
"Over 20 years, for a couple, that's $20,000 [being wasted]. It's not a small number."
Connor added: "We want to give more than half back – right to the consumer."
ExtrasJar's future growth plans
- ExtrasJar launched in July but has some wins to its name already.
- Last month, it raised $291,000 in equity crowdfunding via Birchal.
- Earlier in the year, ExtrasJar completed a seed round with Sydney Angels as the lead investor.
- It's launching full health cover and a pet insurance plan early next year.
What fees does ExtrasJar charge?
There's a $5 monthly subscription fee to meet card payment costs and ExtrasJar's operating costs.
Plus there's a funds under management fee, which Connor says is "a small percentage" of the funds held. Some revenue also comes from a commission on premiums.
But, Connor said, any costs will be well under what people will get back in savings.
"Our goal is to keep the fees low for the customer," he added.
Finder experts give their 30-second verdicts
Kylie Purcell, investments editor
"Using an investment fund as a way to grow spare cash that would otherwise be idle is certainly an interesting idea, especially when paired with insurance.
"ExtrasJar fees start at $5 per month which would be a relatively high portion of your funds if you only have a small pool of cash invested.
"Before jumping in, make sure to look at how your money is being invested along with the costs involved. Be sure to check out the product disclosure statement (PDS).
"These costs aren't always obvious, and no 2 managed investment schemes are the same."
Tim Bennett, health insurance publisher
"The way ExtrasJar operates is in a lot of ways very basic, but the way they're applying it to health insurance is really interesting.
"It's a bit more like your nan stuffing cash under the couch for a rainy day than the old-school model of insurance, and that is pretty refreshing."
Alison Banney, money editor
"This product is mainly being compared to a traditional private health insurance extras policy, but we need to also compare it to the idea of 'self-insuring' with your own cash.
Savings account interest rates are now paying over 4% p.a., and they're continuing to go up each month. Also, a savings account won't charge you any fees, and you can access the money whenever you want – it is truly your money."
Read more about how ExtrasJar works on its website.
With major health funds putting up their prices on 1 November, now is a great time to shop around a better deal on your cover.