ICT in the Business of Insurance in Africa
It’s all about the customer right now.The insurance sector is grappling with the same sorts of cost pressures evident in other industries, and “outsourcing is a trend” among most players, says Haydn Pinnell, MD of Gallium.
It’s not €˜simple’ outsourcing, however. There is a lot of demand for Gallium’s software and application testing services in the insurance market now “because of some of the pressures the sector is facing”.
Fierce competition means client-retention for insurers is critical, and companies require a “faster time to market with new, innovative services”.
This is “no different to anywhere else in the financial services industry,” Pinnell says. Adriaan Rossouw, account manager at business application provider Softworx agrees, and goes so far as to say that insurance has “almost become a commodity”.
The competition from banks and other financial services companies only serves to increase the pressure. “There is a big reliance on intermediaries,” explains Rossouw. “And historically they’ve been left to their own devices.” Now, insurance companies have realised that whoever controls the intermediaries controls the “share of wallet”, and insurers have begun opening up their systems.
“They need to give intermediaries access to their information, and better decision-making tools,” Rossouw notes. “This is a big drive going forward €¦ by opening up systems to external parties”, insurance companies are going to be able to grow their books significantly.
“Insurers want to get a lot closer to intermediaries, whether they’re independent or captive.”
This obviously means a substantial number of external people accessing the company’s systems, a decision that has significant impact. Gallium’s Pinnell says that together with the mindset change around intermediaries, “traditional insurance players are having to re-engineer and relook at the way they are doing business with their customers”.
The rise of the direct (online) insurance players has almost forced this reaction. Insurers are becoming laser-focused on how they retain their customers, explains Pinnell. They want to do “better business, quicker”.
This re-engineering impacts on whether or not “they refresh or continue using their legacy applications and systems”. It also impacts on what technology they’re using.
“It’s all about the customer right now,” states Pinnell. Rossouw agrees: “It’s been very product-focused, not customer-driven”.
Within insurance companies, the allocation of people to product versus to customers is changing.
“There is a much bigger focus on the customer,” he says. “This brings with it challenges around systems.”
Traditionally, a customer’s spending on insurance is very much split into sectors. The challenge is to “bring that information together into one view of a customer,” says Rossouw.
“Insurers want to break down those silo walls” and this will help grow cross-selling of products and services. The Holy Grail is to “try to get a customer to spend all of their money with one insurance company, instead of splitting it up.” There is a delicate balance, however, between the drive to change the model, while at the same time containing costs.
Rossouw says Softworx hasn’t “seen too much in terms of deferring costs, but some of the roles within IT have been outsourced. “For instance, the BI role might be provided by external service providers.”
Pinnell says that even though South African financial services companies often do pioneer in terms of products and services, insurance, specifically, is subject to global influences. “We’re seeing stricter, tighter regulatory and governance-type requirements,” he adds. While global regulations are driving decisions locally, technology choices are largely driven per market, says Pinnell.
Some insurers are driving strategy from South Africa, others are being dictated to from their global owners/partners overseas.
Growing opportunities
The insurance sector in Africa only represented about 1.3 percent of the global insurance business in 2007, according to Swiss Re Economic Research. In the €˜South African Insurance Industry Forecast to 2013′ by RNCOS Industry Research Solutions, 85 percent of the current African insurance market is in South Africa. Both figures demonstrate the undertapped potential of the insurance market on the continent.
The industry faces major challenges, however, according to the African Insurance Organisation, including underdeveloped insurance organisations, a weak insurance regulatory environment, need for expertise in the sector, and lack of ICT infrastructure.
Even with the challenges, there is one insurance sub-sector – micro-insurance – drawing significant interest. Micro-insurance is insurance for low-income people. In €˜Insurance in Developing Countries: Exploring Opportunities in Microinsurance’, Lloyd’s estimates there is potential for 1.5 to three billion new policies globally. The Micro-insurance Centre estimates only four percent of Africans and less than one percent of poor Africans are covered by micro-insurance.
Major insurance companies like AIG, Zurich, and Swiss Re have entered the market. AIG was the first major player to enter micro-insurance in Africa, partnering a local microfinance institution in Uganda in the 1990s.
This interest will naturally lead to opportunities for the ICT industry. For example, the International Livestock Research Institute (ILRI) has developed satellite technology to assess weather conditions, such as drought patterns, which could lead to livestock deaths. This technology will help insurance agencies determine whether or not to honor such claims. Eric Gerelle, director of IBEX Projects in Switzerland, says there is a gap in the market for ICT providers. To deliver insurance products and services effectively on the ground, agencies of any size need a strong back office and ICT infrastructure.
Gerelle points out that small agencies generally take the wrong approach in developing their businesses. They start selling policies before developing the infrastructure to support the business process. In fact, they often do not have the requisite skills and knowledge to develop such an infrastructure.
According to Gerelle: “Software as a service (SaaS) providers will be the real winners in this space.” A SaaS platform can provide applications for many agencies simultaneously. Also, application developers might find opportunities to plug their solutions into a SaaS provider’s platform.
Gerelle says SaaS supports a federated model for the micro-insurance industry. Small agencies would get the ICT strength of major insurance agencies while maintaining the advantage of having knowledge of the local markets.
Asked how the mobile market would influence technology in micro-insurance, Gerelle is firm: “Mobile data and handsets are definite drivers for the market, but the key is creating the back office capability first.”
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