The insurance industry… five years from now

Jules Verne was always described as an author who was ahead of his time. Through his fictional works Journey to the Centre of the Earth and Twenty Thousand Leagues Under the Sea, he introduced the concept of a completely different world from the one that was known at the time.

While the world is nowhere near the landscape described in Verne’s books, we are living in a world where the pace of change is so rapid that it is becoming hard to predict what the world will be like five or ten years from now. 

What will this mean for the insurance industry? This was the topic that was covered at the recently held Insurance Institute of Gauteng (IIG) Insights session. 

Extreme change

For a while now, insurers have been sitting down and trying to figure out how technology will affect the way that products will change and how distribution models will evolve. 

“One of the ways in which technology is impacting the insurance industry is that there is a definite move from tangible risks to intangible risks,” said Shehnaz Somers, Head: Commercial Underwriting at Santam. 

Cybercrime is having a huge impact on the African continent with it becoming one of the top risks that companies face. While there is no physical damage to property or goods, there is a risk of business interruption and reputational damage that companies will have to overcome. 

Toney Tsuen, Head: Technical Underwriting – Commercial at Discovery Insure, added to this by pointing out that cyber crime is currently the number one rated risk for any company that holds data. Further, it is the fourth most reported crime in South Africa with an estimated R2,2 billion in economic losses resulting from internet fraud and phishing risks. 

It is not only direct hacks that can cost a company dearly. Tsuen pointed out that since 2016, social media blunders cost companies in the region of R750 million. This can also become very far reaching; recent statistics show that there are 22 million internet users and 7 million mobile users in South Africa. 

This risk is currently very extensive. 

Major concerns

In May, FAnews published an article on the 2018 Allianz Risk Barometer where business interruption was named as the top risk facing companies in South Africa. 

The release of this report came hot off the heels of the Enterprise Listeriosis crisis and the earlier Steinhoff saga. Both companies were prime examples of how business interruption can affect a business which does not close its doors to the public during a crisis. 

These are examples of business interruption facing companies that can still operate during a crisis. However, most of companies in South Africa are small to medium enterprises; what happens when they face business interruption? 

“Discovery has found that 14 out of every 100 companies do not operate during a crisis such as business interruption. If it is a larger company that is listed on a stock exchange, it can lose over $200 billion in the value of its shares. However, this is the scary part; we have found that 23% of companies fail to recover their share price after a crisis,” said Tsuen. 

Most of these statistics relate to big companies. If a SME had to close its doors during a crisis, would they be able to recover enough to reopen? 

Huge adjustments

Perhaps the biggest impact that technology will have on the insurance industry is that the job market will face significant change. 

It will change in the sense that some jobs will fall away, new jobs will be created, and the nature of other jobs will have to evolve. 

Seelan Naidoo, Regional Head: Property & Engineering at AGCS Africa, said that the role of the underwriter will become more important in the future because they are at the coalface of the insurers business. 

“In the future, underwriters will be more client facing and will take on a lot more roles where they will be decision makers; they sit with a lot of data and will, in future, be able to interpret this data and make decisions based on it. They can also be innovators when it comes to designing products that will be able to address the new risks that insurers face,” said Naidoo. 

The risk landscape will significantly change where insurers and clients will have to review their risk management needs. 

“We need to change as an industry if we want to be ready for the new products and risks that are facing us. Companies who do not invest in technology will be the industry losers,” said Naidoo. 

Editor’s Thoughts:
Early adoption is one of the key ingredients of success in the industry. In the future, risk management will play an increasingly important role in the industry. New roles such as Chief Technology Officer will be vitally important to the success of a company. Is the industry ready to face all these changes? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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