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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