As exponential, digital-driven technologies transform the 4th Industrial Revolution from a buzzword into reality, the financial services sector - and insurance in particular - face massive disruption, it starts with a radical reimagining of the very model insurance has been built on since its origins in the 14th Century, and Africa is no exception.
Several trends are emerging on the continent that pose a significant threat to the business models of established insurance companies, but also offer enormous opportunities to those astute and nimble enough to seize them - incumbents and newcomers alike. These trends exist in the realms of digitisation, but more importantly, in digitalisation.
Digitisation is about optimisation, taking existing business and operating models and applying digital technologies to make them work more smoothly and efficiently. In the admin-heavy insurance sector this typically involves automating many aspects of the assessment and claims processes as well as risk profiles and actuarial models.
Digitalisation, by contrast, as Gartner defines it; is an entirely new way of doing business. It’s about opening up new markets, acquiring new customers, offering new products and moving into new industries. Essentially, very little of your current business model remains in world in which you embark on a digitalisation journey.
Trend 1: From insuring things to enabling and protecting a better life
Traditionally, the insurance business has been about covering objects against risks, whether these be jewellery, vehicles, homes, lives or health. Yes, insurance companies in their marketing may have paid lip service to the customer, but in reality, their business model has centred on the items being insured.
Digitialisation is upending this paradigm, putting the customer at the centre of an industry that’s increasingly less about things and more about risk and improvement services to enable and protect a better life.
Interestingly, it’s technology in the hands of customers that’s been helping to fuel this trend and South Africa is no laggard in this respect. The recent evolution in health insurance from bolt-on loyalty programmes to complex, behaviour driven ecosystems – are paving the way for a model where insurers allow customers to lower their risk profiles, and reward them for desired behaviour in real-time.
Trend 2: Tech-savvy customers may be your biggest disruptor
Tech-enabled consumers are increasingly taking control of their own health monitoring and risk management. Services previously guarded by insurance companies because they provided competitive advantage are now easily accessible to the public at large, albeit those at the higher end of the income scale.
For instance, wearables such as Fitbit and Apple Watch provide immediate feedback and put consumers’ health data into their own hands. People can track their calories, exercise minutes, heart rate, ovulation and period cycles all on their own, without help from their medical insurance companies.
In the household insurance and security space, consumers have a large and ever-growing selection of internet-linked cameras, sensors and apps to choose from that allow them to monitor their homes, offices and possessions, many of which don’t require costly contracts.
They will increasingly demand to pay less for such services because digital innovation has provided the tools for them to do their own risk management and monitoring. With this in mind, the question insurance companies need to ask themselves is: How do we find ways to continue to innovate and deliver meaningful solutions?
A handful of forward-looking companies are already doing this, with one leader in the field giving its customers free Apple Watches and other wearables provided they meet specified monthly exercise and nutrition targets.
Trend 3: Fintechs and fragmentation
Technology driven financial services start-ups (FinTechs) and specifically those who focus on insurance (InsureTechs) are already starting to disrupt the industry.
They’re doing this by taking one segment of the traditional insurance value chain - search, compare, monitor or claim - and excelling at it. By providing the best service in respect of this component, they’re able compete on only this price as opposed to the entire value chain. Essentially, they can hone their organisational competencies and deliver a high-quality service that the incumbent may not be able to match.
The fragmentation of the value chain that results from this can lead to a race to the bottom as incumbents and newcomers compete for an ever-diminishing slice of the insurance pie.
Trend 4: Product of One
A second way InsureTechs are disrupting the insurance market is with what’s known as the “Product of One”, an approach that’s gaining popularity in the insurance industry because it is customer-centric.
Through these offerings, consumers are now able to choose how, when and what they want to insure without being forced to fit into a specific insurance box or “one size fits all” comprehensive package. For example, instead of a customer taking a comprehensive insurance plan for a car, which involves a monthly premium, they may choose to pause their insurance during times when they are not using the car.
Such an approach can be customised almost infinitely. A 4x4 owner, for example, may drive his or her vehicle on tarred roads most of the year but opt for added insurance on their tyres for just the four days of an upcoming off-road trip. Two innovative South African InsureTech companies are already making waves by offering componentised short-term insurance; where clients can control aspects of their policy and adjust their cover as needed (e.g. by pausing accident cover), without having to contact the insurer.
Granularity of this sort wouldn’t be possible without digitalisation. The Product of One is business model disruption is enabled by digital because you can’t respond to this trend as an insurance company unless you’re digital at the core. Traditional systems simply don’t support this level of flexibility.
Trend 5: Strategic data partnerships with adjacent industries
There’s a saying that data is the new gold or oil and nowhere is this truer than in insurance. Data is the very lifeblood of the industry, with everything from the actuarial models to the risk profiles based on data.
So, it’s hardly surprising that insurance companies have until now jealously guarded this information. But there’s a growing awareness of the value of thinking outside of the traditional data box.
For example, whereas traditionally a company offering insurance on a car would ask a prospective customer about their use of the vehicle, a lot more information could be gleaned if the company had access to (suitably anonymised) service data from the automotive dealership.
Another example that’s already happening in South Africa is that of a leading health insurance company partnering with major retail chain to understand how its customers shop. Yes, it rewards you when you buy healthy food, but in return, it and its retail partner now have access to a treasure trove of data, giving them a significant competitive advantage over other insurance companies and retailers.
African and South African insurance companies can do a lot more to leverage similar data sharing partnerships which would open doors to new opportunities and help foster the growth of both partners in new markets.
Trend 6: AI, the gig economy and the future of work
There’s no escaping the fact that implementing the business model changes required by a digitalisation strategy will a require significant financial investment. Finding the capital for this in a low-margin sector like short-term insurance is no easy feat, which makes reducing costs more important than ever.
Many insurance companies rely on large call centres, especially when it comes to customer support. They can automate a portion of these tasks through artificial intelligence (AI) and bots, but for complicated queries humans still want to talk to humans. It seems then, that there is no way out of the traditional call centre… or is there?
You don’t have to have all those humans sitting in the same building. The growing gig economy puts a distributed workforce at the disposal of insurers. Instead of paying someone a fixed salary to sit in a cubicle for X hours a day, an insurer can pay them for each successfully resolved issue. Thanks to technology, these gig employees can work from wherever they choose anywhere in the world, and queries can be resolved from any device.
Such elasticity in terms of staffing means insurance companies can have a full complement of call centre agents over busy claims periods like Easter and Christmas while scaling back during slacker times.
While automation will inevitably mean fewer jobs in areas like actuarial, claims processing and other internal functions, the vast quantities of new data flowing in will require a new breed of employee able to make sense of it and create better products.
Yes, there will be fewer people doing the robotic tasks best suited to machines, but there will be more people building amazing things and concentrating on customer experience. In this respect insurance companies should start to look a lot like technology companies.
If these trends show us anything it’s that those insurers committed to innovation will continue to access new markets, drive behaviour change and prosper. If they aren’t currently doing so, now is the time for organisations to look at how to shape business culture to fully leverage digital technologies in order to unlock the myriad new opportunities presented by digitalisation.