Partnering with Insurtechs to Curb Fraud

The furore surrounding insurance fraud in Kenya is well justified – in fact, what sector in the country is more prone to fraud than in the underwriting market? Who is the best equipped to curb this vice – threatening 40% of underwriter’s earnings other than insurtechs?

There is no industry more data driven than the insurance sector, yet the traditional players continue to face challenges in making good use of this data to optimally make decisions. Insurers are still stuck in the past, according to recent report Reinventing Life Insurance Agency Distribution Globally from Morgan Stanley and the Boston Consulting Group, stating that the sales processes remain “old- school”, cumbersome, inefficient and inconsistent with the fast evolving customer expectations that are now being set by digital leaders.

Kenyan insurance sector growth has been stagnant over the years. Latest statistics from Insurance Regulatory Authority (IRA-K) shows that Gross Direct Premium Growth Rate was at 3.5% in 2018 compared to 6.3% in the previous year, while its penetration ratio stands at 2.43% during the period under review, a drop from 2.68% registered in 2017.

General insurance – largely motor and medical classes of business – remains the biggest casualty in fraudulent claims. Coupled with other factors, the business registered KES1.65 billion underwriting loss in 2018 compared to KES1.65 billion the previous year.

To right this decline, it is time insurance stakeholders genuinely embraced data going forward. And what better way to build a more resilient infrastructure than to partner with insurtechs?

Insurance technology firms are capable of creating an entire ecosystem where an underwriter can be able to deliver personalised offers based on deep customer insight, come up with broad set of services offered around an integrated set of customer needs and offer real-time monitoring propositions around key risk objects such as cars or homes.

According to Jean-Nicholas Hould, Co-Founder and Chief Data Officer of Breathe Life, an American Enterprise Commerce Platform targeting the Insurance Industry, as much as traditional players have wealth of existing data in their domain, partnership with insurtechs cannot be gainsaid.

“Partnering with an insurtech is typically much faster, less risky, and more successful than going it alone,” he says.

Underwriters will take advantage of clean data sets and more cutting-edge modern technology such as AI and machine learning. Insurtechs understand the mindset of a consumer, and their immediate needs.

Insurance firms still use archaic methods to analyse and manage claims, that is, by employing human intervention, using bales of paperwork and phone calls. What this means is that there is an opportunity for real threat when it comes to fraudulent claims and applications.

Through closer collaboration with insurtech, an underwriter is able to optimally utilise credible data, a necessary ingredient for product development and pricing. Also, this partnership can mitigate risks associated with claims as fraudulent applications are detected way before they can do any harm.

Insurtechs are able to achieve this through use of predictive analysis, text mining, use of new technologies to help investigate and monitor specific claims, enable more transparency throughout the claiming process, offer identity validation and timely pay the claims.

Already the industry – IRA Kenya, Association of Kenyan Insurers and respective players – have rolled out mechanisms to combat fraud, including application of technology. Still, fraudsters are constantly and tirelessly testing vulnerabilities in their systems.

Capturing fraud in the market is arduous, as it involves use of adjustors, investigators and police force. This can be simplified through data analysis and the comprehensive cross-referencing of data points across internal ones and external databases.

At WazInsure, we offer tailor-made products for insurers can be able to assess the key indicators of risk at both the insurance application stage and the claims stage.

Underwriters can benefit from our predictive framework to look at the past claims activity and behaviour of an individual and generate a relative risk score to help make an assessment at point of quote or when settling a claim.

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.

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.