Adapt or die, insurance industry told - Tracker reports on the IISA 2014 Conference
Tech and Big Data With 1163 key insurance role-players present from 379 companies in 24 countries, this week's Insurance Institute of South Africa (IISA) 2014 Conference at Sun City was held under the banner of “The Business of Insurance is Insurance” but, in hindsight, may have been more aptly entitled, “Survival of the Fittest.”
Speakers from National Treasury, the FSB, decision makers from SA’s top insurance companies, analysts and crime-fighters, painted a picture of an industry under immense pressure to keep up from every angle. Astute and empowered consumers are yielding power with a booming and demanding voice, as expectations rise and risk profiles change. By the same token, government and regulatory bodies are exerting downward pressure on insurers to comply with new regulations – TCF, SAM, and RDR - which are set to be a reality by March 2016 - and criminals are collaborating to defraud the public and corporates to the tune of billions of rands, placing a huge financial burden on the industry.
But in challenge lies opportunity, and international and local speakers gave a rally cry to drive hard towards technology and big data, seize the opportunities in Africa, unite against crime, focus on customer-centricity, and adhere to regulations. Here we summarise the key pillars in more detail:
The Rise of Big Data
Mike Pritula, Director at McKinsey, spared nothing in his assessment. “The industry is becoming more data driven, and if you and your management team don't fully embrace technology, your company will not be successful.”
“We track the performance of every major insurer and major global carriers. Our projections suggest that Africa alone will generate $80bn of additional short-term premium, which is nearly as much as Western Europe, but you’ll need to bring your best game to this market.”
The growth of the Internet, social media, and mobile and stationery sensors are creating more data about risks, behaviors, and fraudsters than ever before. This data has given rise to an ecosystem of new analytics suppliers, but Pritula challenged the industry if they knew the vendors that collect and aggregate data, build models, and interpret data. “The landscape is remarkable,” he added. “Ask yourself, how much analytic talent do you have in your company? Who is the chief data officer and to whom does that person report? If you and your company ignores this revolution, you do so at your own peril.”
A Global View on Insurance Innovation
Chairman of Aon Global Risk Consulting and Aon Center for Innovation & Analytics, Stephen Cross, continued to beat the innovation drum, focusing on improved efficiencies in the industry through technology. He highlighted, from the perspective of the broker, the need for a better understanding of the behavior of the customer through data analysis. AON are leading from the front in this regard, having started employing data scientists in their Innovation Centres. Cross argues that, “There will be disruptive innovation in both the underwriting & broking world - displacement will occur. If we crudely call insurance “capital” and brokerage “distribution” then you seriously have to consider our competitors to be the likes of Amazon, Facebook, and LinkedIn, who are very much in the distribution space and can crowd-source capital.” If that wasn’t enough for delegates to chew on, he added, “The short-term industry is at a point where it can be completely automated." In light of the current disintermediation debate, a few eyebrows were raised.
While these comments may strike fear into brokers, it is evident that new risks will also shape the 21st century broker. Understanding, quantifying and mitigating new world risks are essential. And while the technology continues to be adopted, cyber risk increases - which he labeled “the new asbestos”. Evidence of underinsurance across the region is that the total cyber premiums in the insurance market last year were estimated at $2b. Measure that against European P&C premium alone of Euro 440 Billion.
A Local View on Insurance Innovation
Adrian Gore asserted Discover Insure's position with his combination of insight and supporting data that helped to illustrate the point that the marketplace had changed, and, if you can adapt, you can succeed. He proposed that companies will lead if they pursue “shared value”, an authentic and realist philosophy towards consumers and social responsibility where there’s an obvious win-win for all involved.
Gore has mirrored the successful model employed in his Vitality offering and overlaid his philosophy into the world of car insurance through Discovery Insure, using reward to drive good behavior and change risk profiles through telematics, if you’ll pardon the pun. "There's a land grab around understanding the data," he said.
And it’s working. From a sample of 40 000 drivers who were using the Discovery Insure app, driver behavior improved by 20% in the first 2 days, simply because they were being tracked and rewarded. This resulted in an average of 37% less accidents and a 137% increase in “excellent driving behavior” over the previous 12 months. The end result would be better drivers, safer roads, less casualties and a significant impact on GDP of 1.5% if road accidents were reduced by a third.
Anton Ossip for Discovery Insure re-inforced Gore’s presentation from the previous day. He said, “There are four indisputable truths. All drivers are irrationally optimistic. Secondly, traditional pricing is not fair. People are priced by average and not by the individual, yet telematics allows the insurer to relate the price to the individual’s driving behaviour. Thirdly cost drivers are causing benefit reduction and premium increases which places insurance carriers under a significant amount of pressure. Finally, more consumers are buying direct, and we’re seeing a reduction in the amount of advice, because telematics acts as a ‘risk coach’. It’s all about understanding the data. If you cannot use it properly it’s quite frankly meaningless.
Ossip concluded, “Telematics is not the future, it’s the now. It’s the antidote to the pressure we see from a cost perspective and saves real lives. It also shifts the responsibility to the financial advisers to become a risk coach to their clients.”
Tracker Head of Insurance: Sandra Page, takes us behind the scenes on this leading vendor’s change making, “We are first and foremost a data intelligence company and we use our expert collection and interpretation of the big data to keep our customers and their cars safer. We have been aware, through the shrinking global marketplace and lightning fast pace of tech disruption that the local vehicle intelligence industry needed to change to keep up. We worked hard to put measures in place and are now seeing the benefits of this. The marriage of mobile, big data and skilled intelligence is where our insurance partners will win.”
Hanna Barry, in an article for Moneyweb, climbed in with supporting calculations from Discovery that suggests South Africa “spends roughly R300 billion a year on road fatalities. This amounts to 8% of its GDP and nearly three times what it spends on public sector health.”
She wrote: "Speaking to journalists after his address, Gore said that insurance companies that opt not to use customer behaviour as a factor to rate risk will be at a serious disadvantage. “Policyholder behaviour accounts for 50% of an insurer’s risk. If insurers don’t move to change behaviour they will be selected against,” Gore noted.
A final word from Tracker, “Answering the need to empower insurers and improve the value proposition to clients through data, Tracker has recently launched a mobile application for insurers. Intuitive driving safety data management and immediate response will all be possible from a smartphone. This will enable drivers to build up a portfolio of information on their own driving habits and use this data as a starting point for renegotiating premiums based on the information that is available on the mobile app,” says Page.
“Tailoring to the needs of the insurer, Tracker can white label the mobile app, which means that any Internet Protocol (IP) the insurer wants to integrate into the existing app will then belong to the relevant insurer. From experience, different insurers want to use the mobile app for different reasons. It will depend on what the specific company wants to achieve. Reasons for using the app can vary from driver behaviour, competitions, retention and rewards.”
Crime and Corruption
Hugo van Zyl of the South African Insurance Crime Bureau (SAICB) delivered an impassioned plea to the industry, literally down on one knee, to help join the fight against crime and join the SAICB. In a spirited, if not chilling presentation, he provided insights into the evolving mechanisms related to vehicle crime and corruption, and the impact financially on insurers.
“Vehicle crime is not about the love of cars. It’s for money. Some syndicates steal 5 Citi Golfs a day, or Golf 7’s or Golf 6’s. There are 4 in a group and they steal for 5 days a week. They make approximately R1m per day, 5 days a week, times 20. “
He cited current trends being the theft of trucks, trailers and cargo, accident staging, chop shops, the cloning of vehicles, false documentation and huge cross-border syndicates. By the same token, he also shared the positives – the increased involvement from SAPS, SANDF, and SADC countries, the pound clean ups in Gauteng, Lesotho, Mozambique and Swaziland, and vehicle testing stations and Provincial Vehicle Crime Forums (NVCF).
The successes he mentioned included 30 cases to the value of R58m, and 10 cases to the value of R74.5m, with a total saved for member companies of R114m, and the total saved for the uninsured of R70m.
FAnews spoke to Michael Nieuwoudt,Sales Director at Tracker, #2014InsuranceConference on the evolution of Tracker - Click here to view the video.
