Insurance of the future

Yusuf Bodiat, Acting Chief Financial Officer of Lion of Africa Insurance.

We are living in an extremely fast paced world, where a large component of success is driven by technology. New apps are launched every minute and software is outdated very soon after being released. Millennials (also known as Generation Y) are now entering their prime spending years, and since they are one of the largest generations in history, they command the type of items which are produced, at the pace that they want it to be produced and enhanced.

The world as we know it is changing. Many urban households in first-world countries have more devices than people living in it. Pre-schoolers are able to fly drones with precision. Most people are able to type faster than they can talk. A smart-home is no longer a term from a sci-fi movie. Driverless vehicles will be the norm in the near future. There may also be a time (very soon) where the use of cryptocurrencies over-takes the use of traditional payment methods.

So how will all these technological advances impact on the short-term insurance industry? It may be a good idea to understand where we have come from to better understand where we may be going.

Insurance is a form of risk management and a means of protection from financial loss, often seen as a grudge purchase. Although the industry has evolved significantly over the years, the basic concept of insurance still remains the same: the insurer receives a premium from the insured in exchange for covering the insured for future losses.

From a technological point of view, a lot of advancement has occurred in the last decade. Not only are we able to apply for insurance and register claims through mobile apps, the turnaround time on all processing has significantly improved. In addition, the automation of such processes allows policyholders to deal with their insurance needs any time of the day (24/7), since the technology is not restricted to business hours. The use of technology has also allowed for the hard-paper trail to be reduced (in some instances eliminated completely), such that a policy can be confirmed telephonically with no physical signature required.

The basic concept of insurance should remain; the insurer receives a premium from the insured in exchange for covering the insured for future losses.

Looking into the future, from a premium payment perspective, the industry may need to be able to accept premiums in the form of cryptocurrencies. As the industry is highly regulated and until cryptocurrencies are regulated in any way, how will industry react to this potential need by policyholders? What types of system security is required to protect client data? How do we ensure that no exchange laws are impacted and do we now venture into the sensitive topic of cross border transactions?

The other side of the transaction, and possibly the more complex part, is dealing with the items which are being insured.

Take a driverless vehicle as an example. Traditional insurance is clear that a vehicle is classified as motor insurance, regardless of it being commercial or personal lines business. However, if a driverless vehicle were to be insured, is it classified within the motor or engineering class? One could argue that the item being insured is not a vehicle but rather electronic equipment, which then falls within an engineering policy. Does the industry have the necessary skills to underwrite this risk? Is there a higher risk of fire as there are more gadgets in the vehicle which are prone to ignite? Is there an additional risk of theft through the vehicle’s server being hacked and the vehicle being remotely driven away? If the technology were to malfunction, what is the quantum of potential liability claims in the event of an accident?

The industry will have to develop the necessary skills to underwrite these risks.

These are just two examples of change that is inevitable. A significant amount of time, money and resources will be required to enhance and continuously improve systems and technology in general.

The most important question is, is the industry ready for this change?

Charles Darwin is quoted to have said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”