Contributor: Romeo Osogworume
Historically, Insurance has been viewed as a “win-lose” product. When a claim is successful, the policyholder “wins,” while the insurer “loses” and vice versa. Due to the uncertainty associated with insurance policies, a large number of people have been deterred from purchasing them. Insurance policies can be complicated, and not all policyholders are aware of all of the fees, coverages, and terms included in a policy. According to Morgan Stanley/BCG consumer survey, nearly 50 per cent of policyholders have one or fewer interactions per year with their insurers, and less than 60 per cent of those who made the contact, are satisfied with the experience.[1] Technology has no doubt influenced every sector of human existence, and the insurance industry has also felt the impact of technology.
Will the introduction of technology in the insurance industry improve the relationship between policyholders and insurers? This article seeks to examine the concept of ‘Insurtech’ and how technology has affected the Insurance industry.
What Is Insurtech?
The term ‘Insurtech’ is coined from the combination of two words ‘Insurance’ and ‘technology’. Insurtech is the use of technological innovations designed to make the current Insurance model more efficient[2].
The term “Insurtech” also refers to companies that use technology to innovate and disrupt the Insurance industry. It is the intersection of ‘Insurance’ and ‘Technology.’ It has gained popularity as a result of new, disruptive companies and products that capitalize on the deficiency of older, established providers.
According to Agusto & Co., the Nigerian Insurance Industry’s gross premium income (GPI), increased by 15 per cent year on year to 592.3 billion in the fiscal year 2020[3]. With the emergence of growth in the Insurance industry there is a need to harness tools that aid the development of the Insurance industry.
Many customers are dissatisfied with traditional insurance models’ slow, stringent processes, and they frequently choose not to purchase Insurance policies. People in modern society want to be able to buy travel insurance, life insurance, health insurance, property insurance, and other products with the tap of a finger on their devices, rather than having to sift through stacks of forms. Insurtech startups are aware of this and have developed a method, for people to obtain easily accessible and ultra-customized insurance policies.
How Does Insurtech Work?
Insurtech improves the customer experience by streamlining and improving backend procedures.
Insurtech improves the backend process via chatbots and smartphone apps etcetera. Client support staff are no longer required by insurance companies to respond to every customer concern. Many can be answered by chatbots, which respond to inquiries automatically, at all hours of the day and night.
Apps for smartphones also improve the consumer experience. Rather than printing photocopies of licenses and other documents, the app will allow customers to take a picture of the document, and then submit it via their phone. This way, consumers and companies save time and resources.
Artificial Intelligence refers to intelligence shown by computers or robots. A subcategory of Artificial Intelligence (AI) is machine learning. Machine learning is a technology that allows machines to “learn” over time. It makes use of algorithms to simulate neural networks in the brain. Machine learning enables computers to learn by extracting patterns from raw data, rather than following pre-programmed instructions.
Verification and identification of documents submitted online are done through a process referred to as “Know Your Customer (KYC)”.
The AI used by Insurtech firms usually carry out the following functions:
- Risk modeling: This is the process of analyzing claims data in order to forecast the likelihood of future losses.
Demand modeling: This is the use of mathematical models to estimate premiums and forecast future product demand.
- Fraud detection: Using machine learning to detect fraudulent patterns of behaviour that are not obvious to human adjusters.
- Claim processing: Increasing the automation of claim reporting and processing. Machine learning is being used to assist underwriters in analyzing data collected from applicants, flagging errors and verifying accuracy.
THE REGULATORY FRAMEWORK FOR INSURTECH IN NIGERIA
The Insurance Act, 2003 is the law for the governing of the general insurance industry in Nigeria. Section 4 of the Insurance Act establishes the National Insurance Commission (NAICOM), as the regulatory body for Insurance business in Nigeria.
The National Insurance Commission is in charge of guaranteeing the efficient administration, monitoring, regulation and control of the insurance industry in Nigeria, as well as the protection of insurance policyholders, beneficiaries, and third-party beneficiaries of insurance contracts.
For any company to operate as an Insurtech company in Nigeria, such a company is required to be registered with NAICOM, and obtain relevant licenses and permits.
The National Insurance Commission of Nigeria (NAICOM) has recently teamed with FSD Africa to create the BimaLab Insurtech initiative in Nigeria, which will allow for the implementation of ideas for improving insurance in the country.[4] BimaLab Nigeria aims to close insurance market gaps by educating, nurturing, and promoting innovators and Insurtech startups.
The program invites promising Insurance innovators to apply for a chance to contribute to the insurance industry’s growth, by bringing creative ideas to the table.
Applicants must fundamentally define and illustrate how their innovations answer to difficulties in the insurance sector, with a strong focus on the social effect, in order to be considered.
BENEFITS OF INSURTECH
- A Wider Selection of Products: Insurers can construct a more comprehensive operational support system for their products, acquire numerous technological advantages, and adapt to different operational needs with the help of technologies, such as, Cloud computing, Big data, Artificial Intelligence, the Internet of Things, and Blockchain.
- Claims Management: Smart contract features (which are features that computer programs are intended to automatically execute legally relevant features have), enable the automation of numerous processes; which is essentially how Insurtech makes claim management easier. This has a lot of advantages – including enhanced flexibility and transparency, as well as improved customer-insurer interactions.
- Detection of Fraud and Risk Mitigation: The Insurance Information Institute reports that fraud accounts for about 10 per cent of the property/casualty insurance industry’s incurred losses, and loss adjustment expenses annually.[5] As a result, companies invest millions of dollars every year to ward off insurance fraud.[6] By establishing a decentralized digital depository, Insurtech can assist in the detection of fraud and the elimination of errors. This entails verifying the legitimacy of policyholders and their claims, as well as giving a full transaction history. It can prevent transaction duplication and document all transactions for public records.
- Identity Verification: Customer document records can be checked by issuing agencies using Insurtech. It also enables the organization to keep track of its consumers’ information.
- Processing Payments: Insurtech is also being utilized to make insurance premium and claim payments more efficient. For example, vehicle insurance policyholders who have an account from which payments are sent regularly. based on the number of miles driven. Each autonomous vehicle’s telematics system, records and transmits the miles driven in real-time, and the premium is computed and paid automatically.
THE CHALLENGES OF INSURTECH
Although Insurtech is a welcomed development in the insurance industry, there are some challenges that Insurtech companies currently encounter. Some of these challenges include:
- High/Bureaucratic Regulation: The insurance industry is an industry with heavy regulation via legislation. This presents a challenge for newcomers to the industry. First, navigating the complicated, ever-changing regulations necessitates expertise and experience that many new businesses lack. The cumbersome regulatory environment in the insurance industry, has often deterred startup Insurtech companies from properly exploring the insurance industry.
To ensure efficiency in the insurance industry, Insurtech firms should seek the services of experts, that are adequately knowledgeable with the legislations involved in the insurance industry.
- Data Protection and Privacy: With the prevalence of data breach sagas reported in recent years, many persons are very concerned about the collection and storage of their data. Because insurance companies need a lot of data to effectively assess each application and offer the best coverage, many users are hesitant of disclosing a lot of personal information, without knowing how it will be used.
CONCLUSION
Insurtech is a relatively untapped technology sector in Nigeria. The insurance industry is still in a state of inertia. This current state of the insurance industry requires the involvement of agile insurance technology companies, to introduce innovative ideas. I believe that NAICOM needs to open up the industry, by licensing carefully vetted Insurtech firms.
With the emergence of Insurtech, a truly online-only insurance company in Nigeria is possible. It will be very beneficial to the country because it will save money on buildings and other industry artefacts.
Insurtech can help to unlock the value of insurance in Nigeria and grow the sector. But that can only happen if entrepreneurs take the initiative and NAICOM supports them. In all, the Nigerian government should create policies that will enable easier Insurtech participation.
REFERENCE
- RCG ‘Role of Insurance Technology (InsurTech) in the Transformation of the Insurance Industry’ RCG Global Services < https://rcgglobalservices.com/role-of-insurance-technology-insurtech-in-the-transformation-of-the-insurance-industry/> accessed 15 February 2022 ↑
- Janet John ‘4 Startups driving insurance adoption through tech’ (2021) Spotlight, Tech News < https://nairametrics.com/2021/06/22/four-startups-driving-insurance-adoption-through-tech/> accessed 15 February 2022 ↑
- Agusto&co ‘2021 Insurance Industry Report’ (2021) Agusto&co. <https://www.agustoresearch.com/report/2021-insurance-industry-report/> accessed 15 February 2022. ↑
- Regtech Africa, ‘Nigeria: How to apply for NAICOM’s BimaLab insurtech innovative solution program’ 2022 < Nigeria: How to apply for NAICOM’s BimaLab insurtech innovative solution program – REGTECH AFRICA> accessed 17 February 2022 ↑
- NICB ‘Just How Fraud is There in the P&C Industry?’ (2020) NICB < https://www.nicb.org/news/blog/just-how-much-fraud-there-p-c-industry> accessed 17 February 2022 ↑
- Breeze, ‘What is Insurtech? The future of Insurance, explained’ (2022) Meta Breeze < Insurtech: The Future of Insurance, Explained | Breeze (meetbreeze.com)> accessed 17 February 2022 ↑
