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Technology vital for industry growth

07 August 2014 Jonathan Faurie

At the beginning of the year, FAnews pointed out that technology will be a major influencing factor in the future of the insurance industry. This was based on the adoption of telematics by some of the country’s largest insurers, as well as the increased use of Big Data to customise products to suit individual risk profiles.

The industry’s approach however, has been somewhat tentative. Some companies have adopted technology with open arms as they feel it can add a significant value proposition to clients. Other companies are adopting a wait and see approach while they weigh up the advantages and disadvantages technology will offer them.

Early adoption

Even though there are companies who are reluctant to use technology, they will eventually have to adapt at some point. Telematics may not necessarily suit the business model of every short-term insurer, however, there is no reason why Big Data should be ignored and it will only be a matter of time before companies realise this. The question is, will it be too late? Technology is advancing at such a rapid pace, and playing catch up can become a major task if it is not embraced as soon as possible.

While this may seem like a daunting issue to deal with, Martin Vipond, Partner: Management Consultancy at KPMG, points out that it is easier than it seems. “The biggest mistake companies make is to separate their digital strategy from their established company strategy. In today’s society, every good strategy has a well-defined digital component,” says Vipond.

The point is to communicate the value proposition in an efficient manner. Vipond points out that intermediaries need to find the correct balance between too much and too little client interaction. The Valued Insurer study by KPMG shows that the public shy away from insurers because they feel too loved, in other words intermediaries and call centre agents are constantly “harassing” them, or they drift apart, because they feel like their intermediary does not care about them or their changing circumstances.

Technology, in particular social media, has the ability to change this as the customer can do basic research on the company’s website or social media page, and then engage with the intermediary on a level they feel comfortable with.

BRICS hunting ground

Vipond points out that in the developed world, the life insurance space is extremely saturated. In an effort to look for growth markets, insurers are taking the plunge and are increasingly venturing into developing markets in order to take advantage of the significant demand which comes from these markets.

This is either being done on a geographical basis, a product basis, or both as companies are actively defining their target base and are aggressively targeting them.

One of the more concerning statistics from the Valued Insurer survey is that 72% of insurers feel that their current strategy does not adequately support the notion of building trusting relationships with clients and investors. This may be because there is still a high level of confusion on the insurers’ unique product offerings. The client needs to become the centre of the insurer’s, and intermediary’s, universe where product information is communicated in a clear and concise manner.

This is a huge undertaking as intermediaries see a large number of clients a month. It is even harder if the responsibility rests with the insurer who then needs to cold call every one of their clients to explain and highlight the product offering they have purchased in detail. Technology such as interactive applications and gamification is the perfect and inexpensive way to achieve this.

“It is important for insurers and intermediaries to seek a clear understanding of valuable clients, how they will behave and how best to retain them, as well as how to attract new ones. This can be done by creating simple policy terms that are short and concrete, and aided by the use of technology to help customers understand these terms.”

How to use technology

If technology is not going to be embraced by the industry, it may well be forced onto them. Central to the new regulation being brought into the industry is the fact that the customer must be protected at all times. This needs to be monitored by systems and processes which can quantify this. The only logical way to achieve this in the modern financial services industry is by using technology.

There is a concern in the industry that the adoption of these systems and processes may come at a significant cost. This however does not need to be the case. Vipond points out that it can be as simple as improving the visibility of a company’s social media presence.

“Insurance products are increasingly being sold to a younger audience. Companies need to look at how this specific market interacts with each other. They are connected to the internet through smartphones and tablets and they interact with friends through social media. If a company has a meaningful social media presence, they can gain significant credibility within this market,” says Vipond.

Dangers of technology  

When does consumer protection become too good for the customer at the expense of being detrimental for the insurer? Where is this line drawn? The logic industry regulators use when motivating the need for increased regulation is that it is professionalising the industry to the benefit of the insurer, in that clients are becoming increasingly educated and can engage with insurers on a meaningful platform.

However, have we taken the Protection of Private Information Act (POPI) into account? If a company uses telematics as a key product in their service offering, who does the information belong to? It currently belongs to the insurer, but there is an increasing trend in the US and Europe to transfer this ownership to the customer. The customer can then take this information and enter into negotiations with insurers to decrease premiums if they are good drivers. Subsequently, insurers will be able to increase premiums or refuse cover to people who are bad drivers.

Editor’s Thoughts:
From the above it is evident that there is an issue of responsibility. If information garnered from technology is used responsibly, it can benefit both industry stakeholders and the public. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Cynical Simon, 08 Aug 2014
Listen my friend,stop harping on technology! Technology is not the cure-all for the industry,,
Nothing will ever take the place of good old fashioned underwriting .Rather encourage these greedy money makers who pose as insurers to return to the principles of insurance.
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