A recent report from the International Finance Corporation (IFC) shows Africa has the highest number of insurtechs launched, compared to other emerging markets. Insurtechs within emerging markets have rapidly grown from 17 in 2000 to 481 in 2019.
Africa has also demonstrated a more rapid growth of insurtech launches than other regions. 2.5X between 2015 to 2019, which is also higher than Latin America and Asia at 1.5X and 1.7X, respectively. South Africa and Kenya have the most significant number of insurtechs on the African continent. South Africa accounts for 25 percent of the insurtechs, and Kenya comes in second, accounting for 12 percent of insurtechs.
Digital technology is now the buzzword on the lips of chiefs of industries, government officials and other relevant stakeholders. Some watchers have said that either you embrace digital technology or die, especially for companies. Digital technology includes all electronic tools, automatic systems, technological devices and resources that generate, process or store information. Digital technology is driven mainly by the ability to gather information and convert same into data to support strategic decisions.
Digital technology has led to the exchange of data across devices. The data exchanged between devices are varied, such as personal (name, addresses, contact details, etc.), social media activities, medical records, banking transactions, etc. Data is essentially the plain facts and statistics collected during the operations of a business. Data has, therefore, become an essential element in decision-making across many organisations.
An area that, from the early 2000s, has seen some significant applications of digital technology is insurance. The concept of insurance is based on the idea of pooling risks, and underwriting is most often based on past loss experiences and risk modelling. Most of the prominent industry players and regulators of the sector are yet to take advantage of digital technology to improve the bottom line. Africa’s insurance market, currently worth US$70billion, is the second-fastest growing market for insurance globally after Latin America due to steady economic growth in most countries, combined with a largely underdeveloped insurance sector, per a report by the IFC.
The narrative around digital technology in insurance is changing very fast in the Insurance industry. Ghana has taken a bold step not to be left behind in the innovations in the industry. The National Insurance Commission of Ghana (NIC), with the support of stakeholders, in 2021 successful passed into law the new Insurance Act 2021 Act 1061.
The new act has introduced new life into the industry in Ghana, following examples in the United Kingdom, Nigeria, India and the United States that have embraced digital technology. The new act has an additional category which is forward-looking. The Innovative Insurance License is a new category, among others.
“An innovative insurance license may be granted in the class of Innovative Insurer or Innovative re-insure” as per the new act. Another introduction is the Innovative Insurance Intermediary License. The innovations in the industry by the regulator must be considered a positive development. The new regulations in the act, coupled with the recent increase in capitalisation, are likely to change the industry, and improve the penetration of insurance which is around 1 percent (2019) in Ghana compared to the Gross Domestic Product (GDP).
Insurance penetration in Ghana has remained very low due to many factors. According to the IFC, the low insurance penetration is attributed to behavioural biases affecting decision-making. These are Trust bias, Status quo bias, Availability Heuristics, Religious and Cultural Beliefs and the Complexity of products. These biases have affected the industry, including the bottom line. Insurtechs have emerged as a viable solution to increase adoption as they innovatively solve problems faced by traditional insurers. Insurance companies are typically not viewed as technological pioneers.
Insurtechs can support the industry to change these biases and improve Trust, which seems to be one of the main complaints from the populace. Insurtech companies leverage technology to support and improve traditional insurance value chains. These companies, primarily start-ups or owned by insurers, develop new systems and new business models that help improve different parts of the insurance ecosystem.
Insurance companies may adapt Insurtech at one or several stages of the process from the operations’ front, middle or back end. Some of the roles that Insurtechs can fulfill are:
- Insurtechs can utilise alternative digital distribution channels (ADCs) to reduce the cost of reaching the customer. These are through mobile phones, tablets, and computers. Access to these gadgets lowers the barrier to entry for customers. Traditional distribution models are expensive and require large numbers of personnel to manage effectively. There are an estimated 10,000 insurance agents in the industry in Ghana.
- Insurtechs can provide e-policy forms (either as onboarding or filling for claims) through a device. The insurer can carry out a real-time investigation to accept the claim or not. The customer does not need to produce many documents because the platform accepts pictures, scanned documents, etc. Insurtechs can play a role in the pre-contractual stage, i.e., before the policy is issued to the insured.
Insurtech makes the claims processes more straightforward and convenient for the insured, thereby reducing the costs of filing insurance claims. This has been achieved by creating a platform and loading insurers, insured and vehicle workshops/garages or linked insured patients to doctors and insurers (in case of life or health insurances) This way, these Insurtechs provide a better and smooth experience for customers, given that claims settlement is one of the most critical elements of customer engagement.
- The insurtechs can assist customers in managing their portfolio of various insurance policies along with other integrated services like finding suitable insurers and recommended products. These companies create a platform with products from all insurers; and through a recommendation engine, customers can make informed decisions right from the comfort of their devices. However, sometimes, the customer may need to engage with a professional for advice.
- Insurtechs offer price comparison websites, sensitisation through mobile devices, and embedded insurance products. Given the cost of first movers, it is essential to support customer education in insurance and the consumers being overwhelmed by the number of policies and products.
- Insuretech firms can help to improve product development. These companies gather data from different points to help insurers develop new or improve existing products more quickly than in traditional ways. The use of technologies not only lowers overall insurance costs, but also allows insurance plans to be better tailored to customer satisfaction.
- Insurtechs assist insurers in back-office operations concerning underwriting, risk management, and regulatory compliance. These third-party companies help insurers access customers’ risk profiles more precisely through better-calibrated data instead of relying on traditional proxies (like gender or age). This has been achieved by combining Big Data and Artificial Intelligence. With the availability of personalised customer data, insurers can do away with putting all members of the same class into the same basket.
- Insurtechs may also improve risk control and risk assessment mechanisms to reduce moral hazards. For example, some Insurtechs have developed tools that track drivers’ risks to fleet safety, better the risk assessment, and make practical the decision making of Insurers, especially when deciding to go for underwriting risk and setting correct premium to match risk level.
- Technology can also help insurers conduct Know-your-customers (KYC) checks by detecting and facilitating compliance with anti-money laundering laws. Insurtechs can build stronger relationships between insurers and customers through fraud reduction and process efficiency improvements. This is necessary as consumers often wait a long time to receive payments or can be mis-sold policies by unqualified agents.
Traditional insurers and new Insurtech start-ups may, to some extent, complement each other. With its extensive infrastructure and colossal capital, traditional insurers could acquire technology from (or merge with) start-ups which challenges the traditional method of insurance with new technology.
At the beginning of 2022, the National Insurance Commission, with the support of development partners such as Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), FSD Africa and others, organised the first insurtech accelerator programme in Ghana. The objective was to identify the innovative ideas that Ghanaians have developed to support the industry.
The organisers received over 500 applications and selected ten start-up insurtechs for the cohort. These companies underwent a 10-week programme to prepare them for the new opportunities. These companies are ready to collaborate, engage and partner with insurers to develop a vibrant and profitable industry for the benefit of the populace.
In conclusion, traditional insurers may have a practical framework ensuring compliance with regulators, whereas start-ups may have to start from the bottom. Insurtech has a wide range of applications – from adapting and applying new cutting-edge technologies to enhancing the industry’s decades-old infrastructure for new insurance products or more precise risk assessment and control. Such introduction benefits customers by offering more choices or tailor-made choices along with lower premiums due to technology being able to find them belonging to the low-risk group.
>>>the writer is CEO/Co-Founder, Figtech Limited (myfig) – Award winning Insurtech