CORNEL SCHOEMAN: Finding the balance between digital game changers and traditional insurance models

Given its game-changing impact on every aspect of the insurance value chain — from product development, underwriting, marketing, distribution, to policy and claims management and fraud detection — it is little wonder that insurance markets are seized with how to innovate through leveraging insurtech, whether internally, through partnerships, investments or acquisition.

Insurtech refers to the use of technology innovations designed to find cost savings and efficiency from the current insurance industry model.

Many hard lessons have been learnt in the innovation process. As much as Insurtech was touted as the cataclysmic change that would disrupt the traditional insurance sector, it has not been a silver bullet. While it brings opportunities and tremendous efficiencies to the fore, some of it exponential, it has also had its fair share of challenges, notably in the distribution, financial, and regulatory models. As hype gives way to reality, the fundamentals of insurance in terms of financial models, regulation and distribution are not going away soon — balance is needed between digital game changers and traditional, trusted insurance models.

Rather than trying to disrupt the relationship between insurers, brokers and consumers, insurtech is increasingly applied to bring these indispensable role players closer together, in more efficient and cohesive models and processes that better serve insurance consumers.

One such area is in emerging markets — such as SA — where insurance penetration and financial literacy are low compared to emerged markets. While many solutions for emerging markets are tech-driven, marketing and distribution still rely very much on face-to-face interaction with intermediaries to provide the education and trust needed to sell an insurance product into a sceptical market, where financial literacy is low. A key lesson is that tech-driven does not necessarily equate to tech-distributed!  

Technology and digital business models are necessary to close the protection gap in emerging markets, while at the same time, insurers and brokers are well versed in the challenges of getting these solutions to the intended consumer while remaining financially sustainable. 

Where Insurtech has been fundamentally valuable is in the improvement of processes in the insurance value chain, which leads to lower costs and better customer experiences and service. Consider the application of advanced data and analytics in telematics, wearables for interactive health solutions, data that allows for better pricing and risk modelling, driving better customer behaviour and risk management, and technology such as drones, satellites and geo-mapping used for underwriting and claims management. 

There is no disputing that insurtech is affecting the entire insurance value chain, from product development, underwriting, marketing, distribution, contracting and policy management, to claims fulfilment and fraud detection and prevention. While in the early days of the great fintech and insurtech revolutions, many start-ups tried to compete directly with traditional players to disrupt and upend the established business models, the realities of regulation, complex financial models and real-world market dynamics have served up a different outcome.

Today, even when new tech-based insurance businesses are set up, they rely on the support, structures and deep market insights of traditional insurers, reinsurers, and intermediaries. There is no sidestepping the onerous regulatory and capital requirements of operating in the insurance market.

No insurer or broker can ignore insurtech and its effects on models, processes and operational efficiencies. Likewise, the best insurance technology is not a sustainable business model without the complex financial and actuarial models, the compliance and the distribution models needed in a market where insurance is always sold, never bought.

Collaborative partnerships between insurance carriers, intermediaries and insurtech and fintech firms, while not without their operational and cultural challenges, will fundamentally improve the outcomes, costs, and efficiencies for insurance consumers — who ultimately determine the sustainability and return on investment for every player in the insurance value chain. There is no substitution of the other; rather it is about embracing the innovation that insurtech brings to traditional models and that helps build stronger, more resilient insurance businesses and insurance consumers.

• Schoeman is COO at Genric Insurance.