Measuring up against the world

If 2019 could be described by the financial services industry, many insurers would say that it has proven to be a watershed year for the industry. Regulatory reform has been a major industry influencer as regulation moved towards the Twin Peaks model. In addition, after gaining momentum for two years, the Fourth Industrial Revolution has made some serious demands when it comes to business models and the delivery of value.

At the beginning of the year, Deloitte published a report which discussed the challenges that insurers would face during the year. How has the industry reacted? 

Cloud computing

As the Shared Economy increases its influence, cloud computing has become important as many services that drove insurer legacy systems were shifted online using software as a service. 

The report points out that more core business capabilities will likely move towards the cloud as carriers continue to pursue legacy system modernization. Industry research points out that insurers are already leveraging cloud applications for core operational activities. However, the report adds that there is still plenty of room for growth here. 

This has been a feature in the South African insurance industry as local insurers are increasingly automating claims processes and are using cloud based tools to analyse data. This allows them to price risk more accurately and to customise products at levels never seen in the industry before. 

The report points out that, given these trends, technology vendors are likely to increasingly direct their investments to develop innovative cloud-based alternatives. This will most likely spur more insurers to look to the cloud first when replacing on-site legacy systems and adding new functionalities. 

The report adds that, as with any transformation, getting the most out of cloud mobilisation will likely require planning, management, and upskilling. To maximize these benefits, insurers should develop a multi-year cloud strategy and be flexible in their approach. 

The future of work

Traditionally, the insurance industry has always been a significant employer in any country. 

The Deloitte report points out that insurers seem to be up against several obstacles in maintaining, let alone expanding or upgrading, talent in the digital age. 

One obstacle is supply and demand. The report adds that while about two-thirds of US insurers said they planned to increase staff during 2019, this may be problematic given the average unemployment rate of 3%. 

This problem is exacerbated in South Africa where insurers want to expand their teams and venture into Africa but face a higher unemployment rate. 

The report adds that robotic process automation and artificial intelligence (AI) that can automate manual tasks are rapidly infiltrating the industry, remaking or eliminating jobs that are labour intensive and even some with cognitive requirements. 

Insurers will likely be challenged to retrain and repurpose workers impacted by tech upgrades to make more productive use of time and talent. 

This is where a fine balancing act needs to occur. It is undeniable that the automation of certain processes will gain momentum in the industry. However, technology is only as good as the parameters that are programmed into it. AI is largely governed by the principle of garbage in equals garbage out. 

Technology also lacks context. Perhaps the redistribution of skills within the industry needs to be in areas where either the final decision needs to be made by humans when it comes to claims or humans need to oversee the dispute resolution process. If this does not happen, the industry Ombudsmen may be kept very busy. 

Regulatory reform

Regulatory reform has arguably been one of the biggest agents of change when it comes to any insurance sector around the world. Spurred on from the 2008 Global Financial Crisis, regulators have been obsessed with focusing on increased client protectionism. 

The report points out that there has been a global shift in regulatory focus from solvency to market conduct. We have seen examples of this in the South African market through the implementation of the Retail Distribution Review, the implementation of the Default Regulations and the standard set by the Association of Savings and Investment South Africa (ASISA) regarding cost disclosures. 

The recent fine that was imposed on Steinhoff by the Financial Sector Conduct Authority (FSCA) is a statement of intent that insurers need to make sure that their market conduct is up to standard. 

Measuring up

The South African financial services industry has always measured up well when compared with other global industries. The fact that international trends are being felt in the South African market at the same time as their international peers proves that the industry does not exist in a void. While the industry does face significant challenges, we can be proud of our industry. 

The fact that our industry is so strong is driven by the fact that we have some of the best skills in the world when it comes to advice, financial planning and technological skills that are in high demand everywhere in the world. 

Editor’s Thoughts:
Take pride in what you have achieved. Be proud that you face challenges, because challenges create opportunities for those who are ready to embrace it. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.