Leveraging Digital Technology in Building Resilience in the Heat of Global Economic Tussle: A Re/Insurance Perspective
This is my guest speaker’s speech delivered at the 22nd AIRDC Conference on Monday, 26th September 2022 at Labadi Beach Hotel, Accra-Ghana on the theme Building Resilience in The Heat of a Global Economic Tussle.
I am truly honoured to address this distinguished gathering today. And I would like to thank the Association of Insurers and Reinsurers of Developing Countries (AIRDC) for the invitation extended to me. It truly is an honour.
Let me start by, first of all, congratulating the AIRDC, for the invaluable work that it has done in the past and continues to do in developing and expanding international collaboration and cooperation in the fields of insurance and reinsurance among the insurance fraternity, especially in the developing countries. The current paradigm for winning is collaborating to compete. It is the businesses who would be able to find the right collaboration even sometimes with competitors who would win.
The general theme for this year’s event is “BUILDING RESILIENCE IN THE HEAT OF A GLOBAL ECONOMIC TUSSLE”, while my presentation is on “Leveraging Digital Technology in Building Resilience in the Heat of Global Economic Tussle: a Re/Insurance Perspective”.
I believe the two could not have been more aptly put. The troubles of the global economy as we’ve all been bombarded with on the international news media for the past couple of months and as you have all been feeling in your home markets, is far from over. To quote our President Akufo-Addo when he addressed the UN General Assembly’s 77th annual high-level debate “Every bullet, every bomb, every shell that hits a target in Ukraine, hits our pockets and our economies in Africa.” By extension, this would hit the economies of other developing countries.
As consumers from Britain to the United States feel the pinch of the highest inflation in decades, rising food and energy costs are squeezing household budgets in developing economies, too.
Central banks around the world in response to the troubling inflation rates have been raising interest rates this year, with a degree of synchronicity not seen over the past five decades.
Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic which has been exacerbated by the Russian attack on Ukraine.
In Ghana for example inflation has increased significantly from 9.7% in August 2021 all the way to 33.9% in August this year. That’s a jump of about 24 percentage points in just a year. What has our Central bank done? Well, it has over the same 12-month period increased our Monetary Policy Rate from 13.5% to 22%, with the policy rate lagging significantly behind inflation. The jury is out on whether monitory policy-led interventions are appropriate for the challenges we currently face.
According to a new comprehensive World Bank study, as central banks across the world simultaneously hike interest rates, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging markets and developing economies that would do them lasting harm.
So, is there a way out for the global economy ?, especially with the continued heightening of uncertainties on the global stage, the Russia-Ukraine conflict, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks? Well according to World Bank Group President David Malpass. “To achieve low inflation rates, currency stability in countries like my Ghana and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should also seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”
Ladies and gentlemen, so what is the Insurance industry to do in all of this “Global Economic Tussle” as the theme of this year’s event puts it?
Let’s first of all look at the impact of the global economic downturn on the Re/Insurance industry.
Analysts at Moody’s Investor Service said ongoing inflation and slowing economic growth are the most likely challenges to impact the insurance sector, as it’s more insulated from other ongoing issues in healthcare such as supply chain problems, labour shortages and high-interest rates.
For one, should economic changes drive job losses, that would negatively impact enrolment in employer-sponsored coverage, the analysts said. During the 2008 recession, the fear of layoffs and job cuts drove many people to seek care while they were insured, driving up utilization and the associated costs.
Should the economy similarly decline, an increase in utilization like that in 2008 would be likely, the analysts said?
Slower economic growth would also hurt investments made by insurers, according to the report, which could make it harder for those seeking to raise capital to do so.
For some, there will be a general slowdown in demand. Since the economy is slower, fewer businesses and individuals have extra money to spend on insurance despite its importance. Even though it won’t hit rock bottom, the demand for insurance will go down and the market will become even more competitive. This has to be put within the Developing Countries’ context where insurance penetration is very low. Statista reports in January of this year that in Africa the insurance industry represents less than one per cent of insured catastrophe losses worldwide, although it’s home to almost 17 per cent of the global population.
However, despite the low levels of insurance uptake, there continues to be increased interest and focus from major international brokers, insurers and reinsurers. In 2017, the value of insurance premiums in Africa amounted to almost 45 billion U.S. dollars.
What would the global economic tussle do to this growth we started recording before the twin catastrophe hit our world? I am sure industry experts gathered at this conference would provide us with insights into the trends and together we would find ways to revive the growth. Truly the developing world and for that matter, Africa is the frontier 4.0 for several opportunities including insurance. We need to take advantage of it ourselves.
So, is there a way out for the insurance industry in particular I ask? I believe the answer is yes. But more importantly for me, can digitalization help in building resilience in the industry?
I’ll focus on the latter.
Back to Sub-Saharan Africa, insurance penetration, as I have earlier intimated, remains considerably low, with countries like Ghana, Nigeria, Senegal, Mali, Cote D’Ivoire, Togo, Benin and the like recording penetration rates below the African and global averages of 2.6% and 7.4% respectively according to research by Deloitte.
In most of these markets which can be extrapolated to other Developing countries, with South Africa and Namibia being outliers, poorly tailored products, cumbersome claims processes and unsuitable premium collection methods, coupled with limited awareness, negative public perception about insurance and low purchasing power are some of the factors constraining the growth of their insurance industries.
The gap between the size of the economies listed above and their industry’s respective sizes reflects a sizeable opportunity for growth.
Given this untapped potentially huge insurance market, several InsureTech start-ups and investors have turned their attention to countries like Nigeria and Ghana. In addition, local entrepreneurs are increasingly focusing on creating solutions for currently large un-serviced and under-serviced markets.
The research shows that most of these InsureTech companies deploy a range of digital tools such as advanced Customer Relationship Management (CRM) systems, Artificial Intelligence (AI) powered virtual assistants, data analytics and geo-tagging to reach customers that were regarded as unviable by traditional insurance companies in the past. To compete with these new market entrants, key traditional insurance companies have started to turn to digital tools to develop products for under-serviced market segments.
Again, here is where I would love to draw parallels and recommend collaboration with Mobile Money and other digital financial industry. What the traditional brick-and-mortar banks could not do in over 100 years, the Mobile Money and digital financial industry were able to do in less than a decade. Driving financial inclusion on scales previously unbelievable. On the back of this categorizes of the market which the Anglo-Saxon literature calls as ‘informal’ but I call the ‘real sector’ of our economy, now mobile money can offer these categories of the market, loans and saving products, using digital transformation tools.
To further build resilience, insurance companies can leverage AI and data analytics to assist with risk mitigation and fraud detection. The introduction of innovative Customer Relationship Management systems will not only improve customer experience but potentially attract new customers. Improved access to customer data due to the introduction of the Ghana Card in Ghana and the National Identification Number (NIN) in Nigeria, as well as the use of the Bank Verification Number (BVN) and other Digital Identification systems and, has made the use of these CRM systems much more effective and powerful.
In addition, leading insurance providers have started to improve customer experience by getting closer to their customers through the use of emails, instant messaging platforms, mobile applications, Unstructured Supplementary Service Data (USSD) and more recently social media. To use a mix of these technologies, customers do not need advanced smartphones or other mobile devices but can access them through feature phones and entry-level smartphones. Additionally, there is a point of inflexion as technology is driving the cost of smart mobile devices further down and the adoption of smartphones in the global south is on the increase.
To overcome issues related to the claims and premium collection process, insurance companies have started to utilise mobile payment services or mobile airtime-based payment methods in some instances, which do not require traditional bank accounts. By doing so, insurance companies can service parts of the unbanked population, which used to be inaccessible for insurance companies that relied on bank accounts for claims and premium payments.
Increasingly in recent years, traditional insurance companies have formed partnerships with InsureTech start-ups or mobile operators to expand their reach to previously underserved or unserved market segments. Collaboration is the way to go to douse the heat of the global economic tussle
In Ghana, for example, the Mobile Insurance (M-Insurance) landscape has been very promising since the introduction of Tigo’s Family Care Insurance pioneered by then telecoms company Tigo, MicroEnsure, Bima Mobile and Vanguard Life Assurance at the end of 2010, MTN’s mobile life microinsurance products in 2011 and Vodafone’s SafeNet insurance.
By providing a low-cost and high-volume-driven channel to make insurance available for low-income people and thus giving them the ability to manage their risks, m-insurance has shown the potential to play a key role in reducing financial exclusion and deepening microinsurance in Ghana.
Now let’s all turn our attention to risk assessment, which accounts for a significant amount of the premium price clients pay.
I want to illustrate how different technologies can be used to improve risk assessment, which in turn can reduce safety margins and costs.
Assessing risk via Video chat platforms
Today, there are video chat capabilities which allow risk engineers to assess risk remotely. This is going to continue to be ubiquitous with the improvement in technology including 5G with high bandwidth, high speeds and very low latency. Remote site-specific risk assessment capabilities bring insurance companies the following benefits:
It reduces the cost of travel expenses.
It speeds up risk assessment since risk engineers do not lose time on the road.
It reduces corporate greenhouse gas emissions and carbon footprints.
Because risk scoring combines both objective and subjective assessments, it lowers biases. When insurance firms must underwrite a business with several sites, subjective judgment may vary from expert to expert. Remote assessment, on the other hand, ensures that a single risk engineer may analyse several locations in a short amount of time.
COVID-19 brought this to the fore and accelerated its development and we in the developing world should take advantage of the post-COVID-19 era that has levelled the playing field.
Boosting data availability with IoT devices
Smart devices (IoT) such as smartphones, watches, automobiles, SMART Cities and factories are all around us, providing real-time data from their surroundings. Therefore, insurers can gain a greater understanding of their clients and the health of their insured assets, and use this knowledge to:
Perform more precise risk assessment.
Transforming risk assessment from a static process to a dynamic one and nudging their customers to act responsively as a loss prevention strategy.
Insurers can get personal information about their customers via smartphones and wearables, such as daily exercise data, sleep quality data, and heartbeat data. Also, data can be collected constantly from equipment, shipments and many complex systems and integrated with predictive maintenance systems to even mitigate and address risk. The availability of such data not only improves risk assessment but also mitigates risk inherent in insured catastrophic systems.
Furthermore, the availability of such data opens up the possibility of adjusting premium prices based on client behaviour. Some health insurance firms, for example, offer lower premiums if their customers exercise more. Similarly, several auto insurers offer discounts to customers who drive more cautiously, the same can be applied to homes, shipments, utility plants, factories and other complex insured systems. Because such behavioural changes and predictive and smart repair systems imply fewer claims for insurance companies.
Using AI models to improve the conduct of quantitative risk assessment
According to research done by AI Multiple, and Artificial Intelligence industry analyst, various AI models are effective solutions for interpreting data and automating risk assessment processes as follows:
Advanced Analytics: Each variable (such as driving speed, driving location, age, gender, and so on) is related to risk in a certain way. When compared to manual methods, advanced analytics are useful tools for obtaining parameter values for each variable and making quick computations.
Optical character recognition (OCR): This is a subset of natural language processing that aids insurers in automating underwriting. According to Accenture, underwriters spend half of their time on repetitive duties like data entry. Information can be extracted from digital documents using OCR. As a result, insurers can use OCR to extract data from medical reports, questionnaire forms, and other documents.
Chatbots: Chatbots can interact with insureds to conduct interviews to derive customer information.
So how can insurance companies speed up their digital transformation process?
As I have said earlier, the key is knowing how to collaborate, even including collaborating with competitors to win is the critical paradigm shift that is required. There are skill sets to know who and when to collaborate with for maximum impact. Collaboration with InsurTech start-ups is one of the simplest and most cost-effective approaches for insurance companies to accelerate their digital transformation journey.
Data from research by IBM indicates that 81% of outperforming insurance businesses surveyed have either invested in or are already working with InsurTech businesses, compared to 45 per cent of all others. These insurers are embracing InsurTech for their ability to help drive new growth, promote efficiencies and accelerate innovation. Their goal is to incorporate new technologies harnessed by InsurTech that can redefine the way insurers interact and engage with customers. You either innovate and cannibalise or you would be eaten by others. Which is your choice and which is more sustainable?
Many of these InsurTech companies create cloud computing solutions to help insurance companies improve their claims processing, underwriting, fraud detection, and customer service skills.
To end I’d like to say that the global insurance industry has been at a watershed moment for a while now. We have all witnessed the growing impact of FinTechs – financial technology start-ups – on traditional banking and heavy investment in insurance technology (InsurTech). It’s about time we actively embraced digital platforms to build our resilience going forward.
Here are some recommendations by some experts including IBM.
Recommendations for insurers: It’s all about flexibility, agility and collaboration
(Increase customer interaction value)
Touchpoints with customers are opportunities to engender trust, loyalty and satisfaction. This means interacting more often and providing value to the customer. Embrace InsurTech philosophies around customer-centricity, experience and usability. Think about customers holistically – what they want, what they need, what they aspire to. Determine how you can contribute to a broader, more compelling experience, and by so doing, expand wallet share. You need to use digital tools to be able to predict what customers do not know they need now and into the future and provide them to woo them. It is no more about historical analytics but predictive analysis and disruptive innovation.
(Improve agility and flexibility in product development)
Simply providing venture capital for an InsurTech is not an adequate strategy. Consider your value chain and how InsurTech strategies and activities can impact how, when and where you do business, including the products and services you sell. Mne social conversations to analyse customer trends and patterns. Learn from and collaborate with other industries and work to dramatically shorten product introduction cycles. Look beyond traditional risk coverage to introduce innovative packages of products and services. This is the time to fail fast and fail forward
(Give up to get back)
Re-evaluate the philosophy that you need to own the entire insurance value chain; insurers will not be able to develop everything on their own. Actively seek collaboration partners and opportunities not only with InsurTech businesses but with other parties – perhaps in other industries. Develop or become part of one or more compelling insurance platforms as part of the new ecosystems. Collaboration with the Competitor is key. Keep or build the role of “life companion” for customers by aggregating brands, products and services of many start-ups and industry players, leveraging relevant capabilities and know-how. This is not the time for single markets but for supermalls. Accidental buying is going to be critical going forward. Soon, and very soon no one is going to download your insurance app just to buy insurance. It has to be in the neighbourhood where I go to do other things. Let’s learn from the retail giants.
Recommendations for InsurTechs: Scale to succeed
(Identify scalable niches)
Size matters in insurance, and not just for risk carriers. Differentiation and distribution scales create winners. Join digital hubs to expand reach to scale more quickly. Seek to work with reliable insurance platform providers, both on the technology and the business side, with international or global capabilities, if necessary.
(Look beyond insurance)
Traditional insurers tend to focus solely on insurance, shunning “adjacent spaces,” whether within the industry – such as providing non-coverage products and services – or without. Look for opportunities to inhabit these spaces both for content and distribution.
(Create “InsurTech inside”)
Form a building block that is easy to integrate into the insurance value chain. “Insurtech inside” can incorporate insurance into broader services, such as warranty coverage with a product sale that includes customer support or customization.
Recommendations for regulators: Direct disruption – Industry and the world have changed, stop regulating industry 4.0 with 1.0 regulations. One of our major challenges is the regulators globally. Especially those who are not able to keep up with the fast pace of digital transformation. If I cannot understand it then you stop. That has to end if the Insurance & Reinsurance Industry in the Developing World is going to catch up with the rest. You need industry people to come work within the regulatory system when they are at their prime not when they are retiring from the industry. That has to change.
(Prepare for technology)
Some technologies, such as AI, IoT, Big Data and blockchain, will open completely new ways of doing business. Think through how new technologies might disrupt existing processes, allowing the industry to keep reasonable control of the current business and products, thus minimizing issues to customers.
(Think in ecosystems)
The industry is becoming more varied, including not just traditional insurers, but also various full and partial insurance platforms. Consider broadening the regulatory scope by certifying platforms, ecosystems and an aggregated mixture of products, services, brands and processes for the benefit of customers.
(Create partnerships for better oversight)
With technological change accelerating, relevant expertise goes beyond insurance specifics. Collaborate with technological compliance specialists, such as SGS and TÜV, or other relevant bodies, to certify distinct parts of new insurance processes such as cloud, security, blockchain, IoT or risk platforms to help increase transparency.
It is time for regulators to also collaborate. Pull down the China walls and stop the turf wars. It should be all-play-all. You need to regulate collaboratively. Industry lines are blurring, geographic boundaries are being torn down. The only way to win is to regulate collaboratively with other regulators, industry players, academia and even customers. It is a time to mainstream sandboxes for innovation and integrates them within your regulatory frameworks.
In doing all of this we need to also carry our policymakers and our legislators along.
At this juncture, I’ll like to thank you all very much for your attention. Let us all collaborate to compete and win. Let’s leverage on digital transformation to build resilience in our businesses and ride these global business challenges The time for the Developing World is now and you are all critical in rewriting our success stories. Thank you. Akpe
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