Opinion by Cornel Schoeman, Chief Operating Officer at GENRIC Insurance Company Limited
Given its game-changing impact on every aspect of the insurance value chain – from product development, underwriting, marketing, distribution, to policy and claims management and fraud detection – it’s little wonder that insurance markets are seized with how to innovate through leveraging Insurtech, whether internally, through partnerships, investments or acquisition.
Many hard lessons have been learned in the process. As much as Insurtech was touted as the cataclysmic change that would disrupt the traditional insurance sector – it has not been a silver bullet. While it brings opportunities and tremendous efficiencies to the fore, some of it exponential, it’s also had its fair share of challenges, notably in the distribution, financial, and regulatory models. As hype gives way to reality, the fundamentals of insurance in terms of financial models, regulation and distribution are not going away soon – balance is needed between digital game changers and traditional, trusted insurance models.
Rather than trying to disrupt the relationship between insurers, brokers and consumers, Insurtech is increasingly applied to bring these indispensable role players closer together, in more efficient and cohesive models and processes that better serve insurance consumers.
One such area is in emerging markets – like South Africa – where insurance penetration and financial literacy are low compared to emerged markets. While many solutions for emerging markets are tech-driven, marketing and distribution still relies very much on face-to-face interaction with intermediaries to provide the education and trust needed to sell an insurance product into a sceptical market, where financial literacy is low. A key lesson is that tech-driven does not necessarily equate to tech-distributed!
Technology and digital business models are necessary to close the protection gap in emerging markets, while at the same time, insurers and brokers are well versed in the challenges of getting these solutions to the intended consumer whilst remaining financially sustainable.
Where Insurtech has been fundamentally valuable is in the improvement of processes in the insurance value chain which leads to lower costs and better customer experiences and service. Consider the application of advanced data and analytics in telematics, wearables for interactive health solutions, data that allows for better pricing and risk modelling, driving better customer behaviour and risk management, and technology such as drones, satellites and geo-mapping used for underwriting and claims management.
There is no disputing that Insurtech is impacting the entire insurance value chain, from product development, underwriting, marketing, distribution, contracting and policy management, to claims fulfilment and fraud detection and prevention. While in the early days of the great fintech and Insurtech revolutions, many start-ups attempted to compete directly with traditional players to disrupt and up-end the established business models, the realities of regulation, complex financial models and real-world market dynamics have served up a different outcome.
Today, even when new tech-based insurance businesses are set-up, they are reliant on the support, structures and deep market insights of traditional insurers, reinsurers, and intermediaries. There is no side-stepping the onerous regulatory and capital requirements of operating in the insurance market.
No insurer or broker can ignore Insurtech and its impact on models, processes and operational efficiencies. Likewise, the best insurance technology is not a sustainable business model without the complex financial and actuarial models, the compliance and the distribution models needed in a market where insurance is always sold, never bought.
Collaborative partnerships between insurance carriers, intermediaries and insurtech and fintech firms, whilst not without their operational and cultural challenges, will fundamentally improve the outcomes, costs, and efficiencies for insurance consumers – who ultimately determine the sustainability and return on investment for every player in the insurance value chain. There’s no substitution of the other, rather it’s about embracing the innovation that Insurtech brings to traditional models that helps build stronger, more resilient insurance businesses and insurance consumers.