Showing value over promising the world
We are all aware of the disruptions that are taking place in the insurance industry, but are we aware of the true extent of this?
For the most part, the short term insurance industry has faced the biggest disruption as technology, and tech focused start-ups, make their presence known and felt among a very focused client base. The question is: is the short term industry the only one being disrupted?
The other half
Speaking at the 3rd annual African Insurance Forum, Bryan McLachlan, MD of Instant Life which was purchased by ABSA last year, said that the life insurance in South Africa is currently vulnerable to disruptions as new companies in the industry, and throughout Africa, are able to use technology to leapfrog legacy platforms.
This is concerning for the industry as it was one of the corner stones that the South African financial services sector was built on. Traditionally, the rest of Africa looks towards the South African life industry to pick on trends within the sector. If we lose this visibility, we may lose relevance on the continent.
The start of the perfect storm
According to McLachlan, the challenging elements in the industry are coming together to create a perfect storm.
“Despite the insurance business model being hundreds of years old, the industry has been poor at educating people about the benefits it presents to society. Further, there has been a low level of innovation in underwritten life insurance. This has been the case until very recently when the industry wizened up to the benefits technology offers,” said McLachlan.
Another challenging aspect within the industry is the fact that a lot of companies are still operating with old fashioned and uncompetitive ‘cost plus’ pricing models. This has enabled the industry to maintain profitability despite apparent inefficiencies, but McLachlan pointed out that it has also made industry stalwarts defensive when it comes to margins.
The final two challenges that are contributing to the perfect storm from an industry perspective are complex products that serve what are simple needs and the accelerating ‘increasingly intrusive’ regulation.
Winds of change
The second element of the perfect storm is the power shift towards clients.
“Technology has spoilt clients in a way. Consumers these days want instant gratification. The stories we hear about Lemonade settling an insurance claim in 60 seconds will be the new normal in the future. This is a far cry from where the life industry is at the moment where it typically takes two weeks and multiple meetings to make an underwritten life insurance purchase,” said McLachlan.
Power is also shifting towards clients in the sense that they have a voice over social media, they are connected, they have knowledge and access to information and they expect convenience.
“This is also not only limited to the younger age group. Today’s 70 year olds are active online and have accounts on social media, are active on WhatsApp and know how to use Skype. Traditional thought patterns are constantly being challenged,” said McLachlan.
Batten down the hatches
To prepare themselves for the oncoming storm, companies need to find coping mechanisms that incorporates technology. If you can’t fight the storm, make sure you can ride it out.
“Cloud computing and technology are the best mechanisms that companies can use to survive the oncoming storm. Through this, companies can leverage the best information and skills from anywhere in the world. it allows companies to become extremely efficient by being constantly turned on. Further, information and skills become transportable,” said McLachlan.
He added that those with access to Big Data will also hold a distinct advantage as it allows them to access key information about clients that other companies cannot get. While telematics products were hindrances in the past, they are products and services that very few companies can do without in the current operating environment.
Latent opportunities
The uninsured gap in South Africa was reiterated by McLachlan who pointed out some interesting figures. The life insurance gap in South Africa currently sits at an estimated R29 trillion. While most of us would assume that this exists mainly among lower income earners, McLachlan insists that it is the higher income earners who are most affected.
He also pointed to the fact that there is an economic shift in the country towards the middle class. Life insurance in the country is expected to grow by 9.4% a year in terms of cover and by 7.5% a year when it comes to the demand for cover.
Editor’s Thoughts:
We need to bear in mind that clients will favour convenience and perceived value over inconvenience and promised value. Clients no longer trust promises, they want to see value. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
