Why Insurtechs Should Be a Priority For Traditional Insurance Firms

Technology is defining how insurance companies will maintain or improve their revenues and customers. In Deloitte’s A demanding future: The four trends that define insurance in 2020, the incumbent insurance industry stands on the precipice of profound change – and this will be pegged on its ability to partner with InsurTechs to drive its businesses.

One area that Insurtechs are winning in the underwriting industry is the ability to use big data to capitalise on inefficiencies experienced by traditional insurers. Insurtechs have invested in myriad of tools to access this data – then use and apply it correctly to inform optimal business development, strategic choices and decision-making.

The best option is for the traditional insurance firms to partner with insurtechs, as they have amassed massive data and come up with technology tools that are valuable to their businesses. Through the guidance of insurtechs, they will be able to come up with sound pricing models, seamless underwriting processes, solid fraud detection capabilities and sensible product development.

For example, according to Deloitte’s Insurance Outlook Report 2019, big data will allow development of products that will cater to specific customer needs as opposed to one size fits all products.

“…individual fitness trackers would enable people who lead active lives to get discounts on their life insurance while those who lead sedentary lives would be charged an additional premium,” says the report.

In PwC’s Harnessing the Power of Disruption, InsurTechs are naturally keen to drive commercial value of traditional insurers. Also, their proliferation in the market is a testament to their compelling execution of emerging technologies making it worth the partnership.

In an increasing data-driven insurance environment, use of Artificial Intelligence  (AI) is becoming a common phenomenon. Through AI, an insurer is able to provide – with greater speed and greater accuracy – an entire insurance stretch across the value chain, from the back office to the front.

Even then, without this key parameter called Big Data, it would be an uphill task to execute desired outcomes when employing the use of AI’s tools and applications.

Once the data is obtained, analytics is then applied to generate insights from the data. Thereafter, these insights are applied to business functions such as product development and marketing. This now results in an impact, which could be in the form of increased revenue, better utilisation of resources and improved customer experience.

With wanton financial resources and reserves, why can’t the incumbent just create a formidable data-rich department instead of partnering with an InsurTech?

Many traditional insurers have tried this, but are faced with several obstacles. Majority of them lack appropriate IT infrastructure and human resources to optimally explore big data as a solution for their businesses. Others are not aware of the potential that big data presents and how they can tap into it.

Issues of data protection and costs associated with overhauling entire IT infrastructure are also deterrents.

According to Deloitte’s A demanding future: The four trends that define insurance in 2020report, incumbent firms can no longer rely on organic growth or internal innovation. The winners will be those that can forge alliances with innovative start-ups; ally with InsurTech; and consolidate with their peers. A rapidly changing industry will require unprecedented deal-making skills.

Digital Solutions Answer to Untapped Insurance Market

How does the largely untapped insurance market in Kenya benefit from technological innovations? The answer lies in tapping into the growing and remarkable digital solutions being conjured up by innovative startups.

Kenya’s insurance story mirrors that of any other sub-Saharan country (apart from South Africa and Morocco) – low penetration rate. This affects the most vulnerable in the society, the low-income households.

At 3% of the country’s GDP, insurance rate remains unremarkably low in Kenya. The largely uninsured are low-income earners, who are often crippled financially in case of a disease, accidents or weather-castigated poor harvest.

In Deloitte’s Unlocking new markets; Digital innovation in Africa’s insurance industry, while middle class consumers tend to reduce financial vulnerability by means of insurance, the ‘bottom-of-the-pyramid’ consumers often do not have access to or cannot afford insurance products.

What then? This is when technology and innovation meets underwriting. The word coined from the convenient marriage is insurtech. Roughly put, it is the digitization of insurance process to advance efficiency and cost-reduction.

How can insurtech bridge the uninsured gap and enable financial inclusion, especially to the low-income earner, comprising 74% of waged employees in Kenya according to a report by Institute of Economic Affairs?

First, cost. This is a necessary ingredient in the insurance sector; from premium underwriting to offsetting a claim. Maintaining low costs in mass insurance remains a key challenge. By adopting strategies employed by insurtechs, insurers will improve their business processes thereby cutting costs and increase customer satisfaction. This, in the end, brings down the cost of a policy, giving the uninsured opportunity to be covered.

In a research by The Centre for Financial Regulation and Inclusion (Cenfri), Swiss Re Foundation, Munich Re Foundation and United Nations Office for Disaster Risk Reduction, there is positive socio-economic impact of affordable insurance products.

Secondly, let us explore data. As is often told, Data is King

The insurance industry is rich in data. That cannot be gainsaid. Still, we need new data and analytics to allow new customer insights. This is because consumer needs and behaviour patterns keep on changing. 

At WazInsure, we provide data-driven insurance solutions to make the insurance value chain not only transparent but also ultimately cheap and cost effective for all insurance stakeholders, improving on workflow effectiveness, cost savings and customer satisfaction.

By leveraging on technology, insurance firms can penetrate a wider reach faster and efficiently at a click of a button. According to Communications Authority of Kenya’s 2018/2019 Q1 sector statistics report, the country’s mobile phone penetration crested the 100% mark. This means, on the surface, that everyone is connected to a mobile phone.

The high mobile penetration has been further boosted by tremendous growth of mobile-based transactions. More than 90% of Kenyans have mobile phones while those who have access to internet services are estimated at 84%.

A research by PricewaterhouseCoopers (PwC) says data consumption in Kenya is expected to grow by 41.1% to reach 984 Million Gigabytes in 2022.

By leveraging on the high mobile phone accessibility by Kenyan consumers, and taking into account the attraction of using mobile money platform to conduct financial transactions especially among the low-income earners, we have an opportunity to drive insurance penetration in the country.

Through the above approaches, WazInsure intends to play a crucial role in mitigating the negative effects of financial shocks and in doing so reducing financial vulnerability.