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Insurance: The threat of tech
African banking is no stranger to financial technology, known as fintech. In some areas it is leading the way, especially in loan, payment and remittance technology. But in the sedate world of insurance, fintech has been slower off the blocks, especially on the continent.
That is not to say that insurers are sleeping on the threat. According to PwC research published last year, around half “of insurers [globally] fear that up to 20% of their business could be lost to standalone fintech companies within the next five years.” The threat comes from nimble feet. PwC said tech startup companies “are accessing and analysing data in new ways and in record time, not hindered by legacy technology systems as their incumbent competitors are.”
This does not mean the industry is at a point of weakness. Running an insurance company requires heavy lifting: policies need large pools of capital, and regulation is tight. Fintech companies generally do not want to be insurers but to provide services to the industry. Innovative technology can reduce costs and bureaucracy and help to keep customers happy.
Insurers are waking up to the fact that they need to speed up the adoption of fintech. And they are betting big. Investment in ‘-insurtech’ grew from $800m in 2014 to over $2.6bn in 2015, according to Accenture research. A fraction of this is directed towards Africa, where there is a low take-up of insurance in many countries. But insurance coverage is growing.
Funding is up
A Disrupt Africa funding report showed that African tech startups in all sectors raised more than $129m in 2016, with the bulk going to fintech companies. The number of startups securing funding rose 16.8%, with South Africa, Nigeria and Kenya clinching the bulk of the deals.
South Africa has the continent’s most developed insurance market. And much of the fintech innovation in the insurance space has taken place at South African insurance group Discovery – an early adopter of fintech in health insurance, and later in car and life insurance. Through its Vitality offering, Discovery uses tech solutions to track gym visits, for example, so as to reward customers that make healthy choices and thus reduce Discovery’s outlays.
Jamie Whittaker, the chief digital officer at Discovery, says insurance “is possibly behind the curve in adopting new technology, but this is changing rapidly.” Discovery, he says, was bolder than its competitors: “For years we have been pushing what technology was available to push out products, cut costs and save time when it comes to servicing people.” Discovery uses technology to connect with members, doctors, pharmacies and hospitals.
He adds: “Ten years ago, we put a number of systems in place which would now be commoditised. But back then, they weren’t easily available – things like customer -relationship management systems and communication systems. We have always been at the forefront of tech adoption.”
With car insurance, for example, technology is used to monitor driving habits and get quick assistance to the scenes of accidents. Members’ behaviour is monitored through technology and, again, good habits get rewarded.
For Discovery, the advantages of using advanced fintech are numerous. And it’s not just about collecting data, says Whittaker, but also “passing data back to members and helping them change certain behaviours”. The idea is that being told that you regularly speed on the motorway might help you check your speed in the future.
And fintech also cuts admin costs. “In the call centre, for example, Discovery has managed to reduce volume using self-service options by 60%,” says Whittaker. There has also been significant growth in the use of internet and mobile claims processes, reducing the time it takes to process claims. He explains: “The best interaction with a health or insurance company is no interaction. We want to remove complexity and administrative burden.”
Looking to China
Originally, Discovery developed its own technology, but it has changed its approach over time as off-the-peg solutions improved. “We recognise the tech space in finance and insurance is a lot more exciting and fast-moving than 10 years ago, and we are taking advantage of startup innovation.”
Whittaker says the most exciting fintech development is taking place in China, “where they have the ability to get out to a large -marketplace very quickly […]. We have partners over there. We see their challenges and opportunities, and look at how these can be adapted for an African context.”
He adds that focusing on technology from the United States can be problematic: “We are often blinded by the bright and shiny Silicon [Valley], but often the application is limited in Africa. Our client base and populations are different.
In Africa, there is lower income, less connectivity and unique African problems that need to be solved. We also are aware of the quality of people we have and the context they have and we need to leverage off our own smart people.”
Innovation in the insurtech space is also taking place in other African countries, especially in terms of micro-insurance (see TAR80, May 2016). In the fintech space, banks, telecom operators and startups are competing for a share of the market. For example, in Zim-babwe, mobile operator Econet introduced its EcoFarmer mobile–based insurance programme for agriculture producers in 2013, after an unsuccessful foray into life insurance. It followed up with EcoSure, a low-cost insurance offering, in December 2014, hitting one million customers in early 2015. Both services use Econet’s EcoCash -mobile-money platform.
Back in South Africa, Discovery executives say they are aware of the role that disruptors can play. “Any small startup has the capacity to be disruptive. It doesn’t take money or manpower, they just need to find a niche,” says Discovery’s Whittaker. “Our challenge is to keep up, to partner with them and to outdo them. Lots of large organisations become encumbered, and we are aware of that and structure internally to compete.”
One such potential disruptor is South African Riovic, which connects people looking for insurance with low premiums. Riovic co-founder and chief executive Phiwa Nkambule says Riovic has partnered with one South African insurance broker and reached launch stage.
“What we are offering is unique,” Nkambule tells The Africa Report. “The full model will be funded by people-to-people insurance – funded by people with lower operating costs than the big insurers – making it cheaper.” There will also be different pools of funds with different risk rates that will be applied depending on the insurance required.
While startups are more agile than big companies, raising funding is challenging. “We started with bootstrapping from founding stage up until we were ready for market. We were in development stage for two years – all self-funded. We had investors ready, but there was no revenue at that point,” says Nkambule. “We have only started engaging potential investors now, and are working with Rand Merchant Insurance’s (RMI) incubator -AlphaCode, which provides us with support.”
RMI launched the AlphaCode hub for supporting and funding new business ventures after realising that its core business “is being threatened by new, disruptive ventures”, according to its website. Riovic is perfecting its model in South Africa, is involved in a start-up in Zimbabwe and has other international aspirations. “The financial sector has focused on payments and loans rather than insurance,” Nkambule says.
“There is huge potential in Africa at the moment in the micro-insurance sector, which has not been doing well, largely because insurance companies find it too expensive to provide insurance at this level.” Nkambule adds: “But there are a large number of people, such as subsistence farmers and owners of cheaper cars who cannot afford insurance. We are making insurance out there as cheap as possible.”
From the March 2017 print edition