Insurtech Key in Tackling Insurance Fraud

Fraud remains a menace for insurers in Kenya. This is despite collective measures by the stakeholders in the industry to collectively negate the vice.

In Deloitte’s Insurance Outlook Report 2019, it is estimated that 25% of underwriting industry income in Kenya is fraudulently claimed. The biggest casualty of fraud is medical and motor vehicle classes of business.

The regulator, IRA-Kenya, set up Insurance Fraud Management Unit, and pushed local players to introduce internal detection mechanisms to mitigate fraud. The Association of Kenyan Insurers (AKI), the industry’s lobby group, has also come up with tools to address the fraud menace. This includes rolling out of virtual motor insurance certificate and Integrated Motor Insurance Data System (IMIDS), a centralised repository of motor insurance data.

Still, despite numerous measures put in place, fraud continues to have far reaching implications on Kenyan insurance companies in several ways including increased cost of doing business due to investigations, huge claims ratio and insolvency.

Industry trust among consumers also continues to abate, while many underwriters are allocating huge claims reserve ratio that would otherwise had been put to other useful investments options.

InsurTech firms are well poised to tackle fraud in the insurance sector. Through technology and large data reserves, they can put in place processes that would provide the ability to respond quickly when fraud is detected. Some of the techniques applicable include; data mining, use of artificial intelligence, and making use of big data.

Through data mining, insurtechs can determine data patterns and identify the likelihood of certain claims being more fraudulent than others. For example, by developing a machine learning tool, one can be able to examine each line of entry on claims, compare the entries against predetermined rules, for example the amount claimed and area code, then rank the claims in the order of the most likely to be fraudulent. This will highlight results that can be further investigated for higher probability of fraud.

Insurtechs are able to deploy different types of Artificial Intelligence tools to monitor and analyse, say, disgruntled employees, who are considered largest fraud catalysts within the insurance industry. Sentiment detection, a type of AI tool, could be used to analyse emotions, feelings and attitudes in written reports. The insurance company could develop a list of keywords that can be strong indicators of a sentiment.

“For example, internally one could identify warning signs of fraud by searching employee reports or emails for words that would imply that an employee is disgruntled for example, exhausted, inconsiderate etc. This would then allow management to follow up and carry out further investigations,” says Deloitte in its Insurance Outlook Report 2019.

Through AI, one is able to detect anomaly that can prove useful in deriving patterns. The analysis can determine the frequency and amount of claims for particular individuals, therefore give a warning indicator if a claim exceeds the usual amount or give an indicator when a policyholder submits more claims than usual within a particular period.

Lastly, by using big data, Insurtechs are able to get more accurate results since machine algorithms are able to learn from large amounts of data. The data can be collated from interactions on social media, smart devices such as wearables and telematics. This is then compared against pre-set rules to determine fraudulent claims.

Role of InsurTechs in Addressing Financial Inclusion in Developing Countries

Tom Kamau is a bodaboda rider stationed at Seasons, a mushrooming lower-middle class dwelling along Kasarani-Mwiki Road, Roysambu Constituency, a few kilometres West of Nairobi’s Central Business District. Until recently, when the Kenyan government issued a directive requiring all motorbike taxis to be insured, he did not have an insurance cover.

Still, he says, the process he endured to secure himself with a Personal Accident cover was long, tedious and cumbersome. His application took four days. This is a massive dent to his Ksh1,000 daily net income that goes to his rent, pay school fees and savings at the end of the month.

“Our nature of work does not allow us to waste any time. Each minute counts, because at any given time, someone is constantly seeking our services,” says Mr Kamau.

In respect to this, insurance companies will benefit greatly by partnering with insurtech firms to customize solutions that will cater for unique insurance needs of different market segments.

This is because insurance technology firms have amassed a massive array of data that addresses specific needs that would be left uninsured by traditional underwriters.

At WazInsure, we have unique resources at our disposal to provide innovative, disruptive solutions that will enable proliferation of financial inclusivity to every individual, regardless of their disposition.

The era of strict competition between fintech startups and incumbent insurers is abating. More companies are cognizant of the advantages of insurance-insurtech partnerships, from a more extensive customer base and increased access to funds, to faster and cheaper technology.

Kenya’s insurance penetration has dropped to 2.43% to the country’s GDP – the lowest in 15 years. There are more than 90% of the population currently living their lives without the stability and opportunity that basic insurance cover can bring. Leaving these people unserved isn’t just a humanitarian problem; it’s a business problem.

For example, by integrating our data-driven platforms, insurers are able to profile their customers’ risks more accurately, making better underwriting and claims decisions. A customer would wish to know if they can receive an insurance cover through their mobile phones, or online, seamlessly and with less bureaucratic restrictions.

They would also want timely processing of claims.

Insurance is fundamentally a social good, but has remained mistrusted for quite a long time. Adoption of technology is one way of lessening the suspicion. Through insurtech, there is an opportunity to make this crucial, yet sometimes opaque industry, more human.

“Many insurtech start-ups are focused on working with the industry to make it more efficient, often by focusing on the claims process, providing telematics solutions, or adding AI and data analytics,” says Susan Holliday, Principal Insurance Specialist, Insurance and Financial Guarantees, Financial Institutions Group, IFC, in a note published at EM Compass.

Relationships between insurance providers and insurtech start-ups are developing in a number of different ways, and it is becoming clear that no insurer or broker can afford to ignore insurtech, she adds.

Partnerships between insurance companies and insurtech & fintech firms, while not without cultural and operational challenges, generally improve customer service and make the production process cheaper and more efficient, say Ms Holliday.

Why Incumbents should Build Partnerships with InsurTechs

Largely frowned upon as competitors by the traditional insurance firms, InsurTech disruptors are now finding favour in the eyes of the incumbents.

The market is witnessing an increase in collaboration between InsurTechs and the insurers, and more partnership is expected to grow over the coming years.

Interest into the InsurTech space has skyrocketed, with last year witnessing $3.1bn being invested into the sector, according to data by FinTech Global. This figure is almost double the $1.6bn, which had been funded over the course of 2017.

A survey by Capgemini, dubbed World InsurTech Report 2018, says these digital insurance start-ups are redefining customer experience, developing new business models and improving efficiency from product conception to claim settlement.

InsurTechs have agile structures, streamlined operational costs, risk-taking mindsets, and data-driven experience models, hence are proving themselves better and faster at addressing customer needs, says Elias Ghanem, FINTECH Lead for Continental Europe at Capgemini.

“The days are gone when insurers communicated with customers only when claims were filed. InsurTechs have altered the traditional low-interaction model between insurer and customer by leveraging connected devices and Internet of Things (IoT) to drive product innovation and reinvent customer engagement,” he says.

The Capgemini’s survey points out that almost 96% of insurers seek to collaborate with InsurTech firms, in order to improve their services and keep up with consumer demand for digital capabilities and better customer service.

Through Artificial Intelligence, InsurTechs are able to monitor extensive risk factors, enabling insurers to engage in proactive risk mitigation services, and to provide timely care interventions. This, in essence, deepen their relationships with customers.

Better customer retention, new revenue streams, and operational efficiency improvements are just some of the benefits that make InsurTechs attractive partners for insurers.

InsurTechs, on the other hand, look to traditional insurers’ extensive customer bases as the key to scaling their offerings.

In its Insurtech: the new normal for the insurance industry?, PricewaterhouseCoopers have summarised InsurTech competencies across several areas of the value chain and ranked them in importance as follows:

  • Meeting changing customer needs with new offerings
  • Leveraging existing data and analytics to generate deep risk insights
  • Offering new approaches to underwrite risks and predict losses
  • Enhancing customer interactions to build trusted relationships
  • Empowering insurers with sophisticated operational capabilities
  • Leveraging broader ecosystems

For insurers, says the report, it will be crucial to build closer relationships, bridging the contrasting cultures and focusing on the joint opportunities. Being an investor alone in InsurTech will not be sufficient.

“It is important to be a true partner in an innovative, new value proposition combining the long-term experience of incumbent players with the creativity and agility of an insurtech,” says the report.

KPMG, in its Insurtech 10: Trends for 2019, a research undertaken jointly with The Digital Insurer, says that InsurTech is the means to transform insurance from an arcane policy-led industry into one that succeeds by placing the customer at the heart of everything it does.

“Executives must embrace this change — and rapidly — if they are to benefit from the opportunities and not get left behind as the industry is transformed,” says Will Pritchett, Global Head of Insurtech KPMG International, in the research.

And for insurers to survive in the increasingly digitialised, they should start to recognise that disruption and innovation can ultimately benefit them, should they seize the opportunities presented by new technologies and business models. As much as InsurTech firms are in some cases challengers, they also offer excellent partnership opportunities.

According to KPMG, the main hurdle to insurance- InsurTech partnerships is in the area of business integration, and this may explain why some traditional players are unwilling to make the collaboration move.

The integration obstacle is in the areas of advisory, engineering or architecture. This has been the missing link, and for InsurTech to succeed, both innovators and insurers will need to work with business integration specialists in a three-way partnership.

“We know that plugging in technology isn’t going to make it happen all on its own; it must be part of a program to reengineer the whole organization into a fully connected digital business. Insurers must think in terms of running a two-speed business that preserves the qualities of the old, while placing their talent, focus and digital energy towards the new model, which will become the engine of their transformed business,” adds KPMG’s Mr Pritchett.

This requires leadership to recognise it is not just about changing technology, but also about shifting the business model. It is expected to become the new business as usual, but this requires many of the old skills to navigate the data and security controls that must be in place to build products and platforms that operate in a new global marketplace.

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.