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Some brokerages are not adapting

07 October 2021 | Views Letters Interviews Comments | All | Myra Knoesen

New risks are coming that insurers need to be ready for, and this will be difficult without the correct technology in place, according to Richard Rattue, Managing Director of Compli-Serve SA.

“Innovation is around us, in every industry, providing solutions and benefits within business and to the end consumer. Through the use of Artificial Intelligence (AI), Machine Learning (ML), gamification, the IoT (Internet of Things), Decentralised Finance (Defi), Peer2Peer insurance and also emerging new markets, all industries are able to deliver greater efficiencies and almost instant customer solutions, that integrate seamlessly into our lives,” said Wendy Pederson, Chief Technology Officer at Fulcrum Group. 

Why it’s critical that we adapt

“Two very compelling arguments can be made as to why adapting new technologies is crucial. Traditionally insurance is about spreading risk to reduce the impact of specific events and reinstatement of the insured as best possible,” said Eugene Wessels, MD Africa, Genasys. 

“Recent technology changes have altered the landscape to enable risk prevention, mitigation and early determination, which help reduce the number and severity of incidents. While many of these technology advances were not intended for insurance, the benefits to insurance make a compelling financial argument, especially in a low growth economic environment and associated increase in competitiveness,” added Wessels. 

“Digital interconnectivity is key to taking advantage of these technologies, through automation and APIs, where insurance should become a value add instead of a grudge purchase. Consumers are used to technology and choice; insurers must adapt or else others will fill this void,” emphasised Wessels. 

“Existing risk can be reassessed and remodeled with technology, allowing for smarter targeted products. Plotting consumer behaviors and the risk they pose again allows for smart product development and cost-effective delivery with technology,” said Rattue. 

Digital interconnectedness

“Outperformers are planning to partner extensively with providers, to take advantage of digital interconnectedness, to understand customer behaviour and create products, based on dynamic pricing. Part of this journey is using the technology to collect and aggregate the data to enhance the claims experience and improve claims management. There is an increased uptake of using technology for motor insurance and the combination of telematics data and driving analytics,” said Wessels.

“Access to better and cleaner data is the key driver to the delivery of smarter products via smart channels,” added Rattue. 

“The inclusion of AI and ML as part of the customer service journey results in more satisfied customers that can engage with business, anytime, anywhere. Well trained robo-advisors can have bi-directional engagement with clients, collecting information and concluding queries and sales, whilst the business does what it does best, innovate,” said Pederson. 

POPI, AI and IoT

“IOT and AI entails the sharing and integration of data through technology, which technology is then used to interpret the data and form decisions (without human intervention). This has obvious benefits for a data driven insurance industry, however, will not escape regulation. We can already see aspects of AI and IOT being addressed by the Protection of Personal Information Act (POPIA),” said Hanna Gurgul, Head of Legal of Compliance at Fulcrum Group. 

“POPIA challenges are yet to manifest themselves, however we can see issues arising over consent, some direct marketing practices and data security for smaller brokerages, to name but a few of the technology-based concerns,” said Rattue. 

“While regulations like POPI are intended to protect the consumer, the disconnect between regulations and technology hampers innovation, which the consumer demands. AI relies on data from different sources and identifying trends to be effective, POPI tries to limit the use of data to its intended purpose. They are at different ends of the spectrum,” said Wessels. 

“Technologies and regulatory measures could either decrease or increase the risks of digital interconnectedness. POPI was written by policymakers, and not by software engineers or software architects, and to make technology comply with POPI could hinder the intended functionalities of the software. Software engineers need to consider how data is collected and processed by their respective software platforms, as well those of third parties, including the relationship and linkages with data analytics. From a legal point, contractual relationships between parties need to be revisited, and the POPI compliance measures for the various technology stacks can bring either opportunities or compliance issues for the various vendors,” added Wessels. 

POPI, insurance and data

“Insurers and brokers will need to assess how they share data with various entities within the insurance value chain, and for what purpose. Each entity within the insurance value chain will also have to clearly ascertain whether they process data as a Responsible Party or as an Operator, as prior authorisation of processing by the Information Regulator will be required where the linking of data with unique identifiers occurs between different Responsible Parties. This assessment may be tricky, given that insurance cover is often linked with non-insurance products. Industry stakeholders may want to explore an industry code of conduct to regulate this linking of data,” said Gurgul. 

“POPIA also creates restrictions around the use of automated decision-making to create a profile of a person which has legal affects. The profiling of a person which affects the insurance premium may well be regulated accordingly. The risk associated with algorithmic profiling, without any human intervention, is that these codes may be programmed with historical prejudices or bias and, without the ability of the machine to apply ethical or subjective considerations, such prejudices may be carried over in the code. Essentially, appropriate measures must be in place (either in a contract or a code of conduct) to protect the legitimate interests of the data subject. Similar protective requirements are introduced under the General Data Protection Regulation (GDPR), where the Responsible Party/Controller must provide sufficient information relating to the logic of the decision making, as well as give the data subject an opportunity to contest the decision, express his point of view and/or demand human intervention,” added Gurgul. 

Adapt and adopt

“Insurers and underwriters will need to use technology to leverage off big data in order to become more competitive. Insurers are dependent on brokers for the canvassing of this data. Where insurers become more tech enabled, so the broker will be required to evolve as well. Policyholders are expecting digitised solutions for faster and streamlined services,” concluded Gurgul. 

“All businesses have to adapt, not just brokerages. Client demographics, product offerings, competition and consumer demands will change over time. Any business that refuses to move, will fail. Brokerages that want to deliver on their customer requirements need to adapt and adopt their strategy to connect and align their business capabilities, to assist their policyholders. We are seeing that certain policyholders want to buy all their insurance from one brokerage. It is important that these offerings are seen as a function that enables the needs of the customer, and not merely as a strategy deployed by that business unit within the brokerage. Other brokerages are not adapting and prefer to continue without the investment in a connected architecture that aligns their operations around the customer to capture their business,” concluded Wessels. 

“There is an old adage in business - ‘adapt or die’, which really puts it plainly… end of story. Failing to adapt, and continuing as is, will not work, certainly in the long-term,” concluded Rattue.

Writer’s Thoughts
As mentioned above, new risks are coming that we need to be ready for. Wessels highlights that some brokerages are not adapting and prefer to continue without the investment in a connected architecture that aligns their operations around the customer to capture their business. Do you believe this is sustainable? Please comment below, interact with us on twitter at @fanews_online or email me - myra@fanews.co.za

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