Insurers should prepare for new wave of innovation that will follow disruptions

SA is excellent at insurance. Walk into the boardroom of a foreign insurer and you are likely to hear positive mention of specific SA insurers and their leading innovations. There’s a budding theory about this: SA insurers have been subjected to unique pressures that created innovative mindsets.

SA’s historically untapped mass market segment, for example, offered unique opportunities and unique challenges. Traditional insurance products couldn’t and didn’t work in this segment. So SA insurers went to work on finding a solution. What followed was a range of unique, tailored solutions that spoke to the specific needs of the SA mass market.

Similarly, SA has some of the world’s most complex and difficult conditions for motor insurance. But insurers innovated with telematics products to create attractive products for motorists.

Drivers of change

By some coincidence, SA also has a very strong cohort of actuaries. The exact causes merit some investigation, but actuarial science remains a much more prestigious and popular field of study here than in many other countries.

Due to these and other contextual factors SA has historically punched above its weight in the race for innovation in insurance. But there is now a new set of forces in motion that demand further leaps forward. There are four primary drivers of change in insurance:

• Consumers in all industries are becoming more demanding. Uber, Netflix, Google Docs: innovative technological leaders have heightened expectations everywhere. Consumers now expect tailored services, digitised operations for convenience, instant delivery and human interfaces (through digital platforms). Our experience also suggests consumers are increasingly prepared to offer up personal data in exchange for more tailored experiences. In the context of insurance, this specifically places pressure on insurers to produce more tailored risk and premium assessments.
• South Africans demand a focus on people and their needs; not process adherence. The disjuncture between insurers’ traditional perspective of process adherence and compliance and ordinary South Africans’ justifiable demand for fairness and transparency came into sharp focus with various high-profile and damaging claim disputes in recent times. In the new era of social media and citizen activism, it is critical to prioritise transparency and compassion at every step; and especially in the customer journey.
• Disruptive technologies are fundamentally changing the game. Computing power is growing exponentially. The cost of computing is also declining rapidly. Many new data science-driven insights are thus available, in real time, by tapping into previously underutilised sources of data. These analytic tools are enabling a much deeper understanding of individual risks. And given that insurers are fundamentally in the business of pricing risks, it allows for smarter, more personalised pricing. The team with the best data science will win this race. Technology is also bringing other changes. Autonomous vehicles, ride sharing and other revolutions in the motor industry are rapidly reducing the total risk pool in motor insurance and thus also rapidly reducing the potential revenues in insuring these risks. This implies a move for insurers out of the traditional risk pools and towards growing risk pools such as cybersecurity, environmental and reputational risk.
• The emergence of insurance ecosystems is changing traditional insurance business models. In the past the model was simple: The insurer sold a product to cover the customer’s risks and the customer paid premiums for it. For some insurers, this is changing. Insurance is no longer being sold in isolation, but with other products, such as banking services, health care or funeral services. In such ecosystems the insurer forms part of a team of service providers jointly delivering a set of services to the customer. These ecosystems produce immensely powerful data sets and models that can be leveraged to produce value for customers and the insurer. For example, ecosystem data is typically able to detect when a customer is likely to have children for the first time, empowering insurance companies to proactively offer life insurance and other savings products for the child’s education at the right time, in the appropriate form.

Significant disruption is already occurring, and SA insurers and actuaries should be ready for the new wave of innovation that will surely follow. We see several concrete implications of these forces of change. To stay competitive and meet customer expectations, insurers must digitise all elements of their business. The old compliance and process-based way of work does not meet the needs of the moment; data and analytics are the future of insurance and companies should invest now in their data science capabilities.

Despite the intense focus on technology, insurers must retain a human touch. In those critical moments when people face adversity and rely on their insurer, human judgment and human support remain non-negotiable. Sound, data-driven strategies, executed rapidly with agile ways of working, most likely within the context of insurance ecosystems, is the key for SA to remain at the cutting edge of insurance.  

• Ikdal is a senior partner MD at the Boston Consulting Group. This is an extract from a speech delivered to the Actuarial Society of SA’s annual national convention.