According to Investopedia, Insurtech refers to the use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model.
In 2016 there was a lot of hype around Insurtech, specifically in the UK with record levels of investment. In this article we take a look at how the Insurtech sector is maturing in South Africa.
Working on the next big thing
The topic of Insurtech is being discussed more and more around the world. I spent a week in the UK, one of the world’s financial innovation hubs, and had the privilege of attending the British Insurance Brokers' Association (BIBA) Conference and Exhibition in Manchester.
This gave me some fantastic insight into how the British Government and businesses are collaborating to drive innovation and development of the insurance industry in the face of Brexit.
What is immediately evident in the British context is how proactive businesses have been when it comes to investing in new concepts like Insurtech and Fintech. This eagerness to adopt new ideas is illustrated by the ‘We Work’ office park in Aldgate, which is packed with glass cubicles full of developers working on the ‘Next Big Thing’.
There is a buzz in the air as teams of innovators huddle around tables laden with massive screens turning coffee, beer and Wi-Fi into new ideas. I could almost imagine having pizza box sized holes in the doors so that those inside would not need to be disturbed by opening the door.
BIBA is the largest insurance broker seminar in the UK. Recently much of the attention has shifted from traditional insurance providers to new Insurtech solutions, with tech exhibitors showcasing direct sales technology, customer portals and product innovations among many others. Venture Capitalists and Private Equity in attendance looked for innovative ideas and investment opportunities
It seems as if 2016 was the year of Insurtech hype with tech talks showcasing concepts like blockchain, digitalisation and channel activation. 2017 is very much a year of development, with many of these technologies moving from R&D to practical applications and rollout, with a focus on technologies which enable the business of tomorrow.
What is happening in the UK?
It is all about the customer in the UK insurance industry at the moment. Growth and innovation are geared towards simplification, with mobile-adaptable portals and web interfaces which give customers the ability to transact with ease. Everything is aimed at improving the customer’s experience and meeting the customer’s needs.
New technologies are emerging to fill these requirements, such as the ability to create, launch and distribute new products quickly and with minimal IT involvement. Another key area is customer centricity and creating a single view of the customer across multiple lines of business. This in turn leads to the concept of usage-based insurance, which allows the customer to tailor their insurance coverage to suit their lifestyle, and turn products on and off at will. Finally there is a lot of excitement about the emergence of artificial intelligence technology, which promises to improve analysis of the ever-increasing volumes of data being generated.
The UK holds several advantages over South Africa when it comes to the development of new Insurtech. The first major advantage is the value that the British Government places on Intellectual Property. There are several incentive schemes for tech entrepreneurs, which actively promote technology development. The availability of Venture Capitalists and Private Equity Investors also makes growth much easier for anyone who may be onto the ‘Next Big Thing’.
The second advantage is the competitive nature of the insurance industry in the UK. There is always competition in every facet of the industry, which results in access to more insurers as well as better service from service providers. This gives the customer a wide choice of service providers, which in turn drives innovation as the players in the industry seek to differentiate themselves by providing more value to the customer.
The third advantage is the nature of the client base in the UK. There is a massive middle class of customers who all have a similar level of access to technology. When dealing with customers in the UK, you can safely assume that they have smart phones, internet access and bank accounts no matter where they live or work. This allows innovation to be directed towards these platforms without the risk of alienating part of the client base.
South Africa represents several unique challenges to the development of new technology. Firstly, the variety and geographical distribution of the client base makes building scalable ‘one size fits all’ solutions very difficult. This in turn leads to increased cost and complexity when introducing and adapting any new technology to the South African market.
The second challenge is that of investment and business direction. In order for significant growth to occur, a technology company needs investment from outside sources. Unfortunately, the political and legislative climate in South Africa causes uncertainty in investors, which in turn makes attracting investment more difficult and results in reduced growth.
Finally, the insurance industry in South Africa faces a significant legislative barrier to entry. The Retail Distribution Review (RDR), the Protection of Personal Information (POPI) Act and other compliance regimes may serve to protect the nation, however they come at the cost of hugely increased operating overheads for the industry. This effectively creates a barrier to entry for new, smaller companies into the South African market, which in turn promotes monopolies.
Surprisingly, given the above challenges, Insurtech in South Africa is in many ways more advanced than in the UK. Skills shortages and labor laws have forced companies to look for technology solutions to their problems. This means that most insurers are migrating or have already migrated to new technology, and so do not have the same legacy system issues as their European counterparts.
Mobile apps and client portals have existed for years; however there is an emerging shift in focus towards collaborative computing. This allows for the emergence of niche players who specialise in the construction of gateways and interfaces to other suppliers, who in turn specialise in managing their parts of the industry. This leads to an increasing need for specialist business analysis in order to ensure that the disparate systems are all talking the same language, and that nothing is lost in translation.
Many of the technology advances are currently geared towards the upper end of the market; however there is a growing need to provide the same level of service to the emerging market as well. The emerging market represents new challenges in the requirement for price sensitive solutions that are simple to distribute and service. Those who crack this conundrum will likely be the winners of tomorrow.