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.