InsurTech can address some big challenges: lack of consumer knowledge, lack of access to consumers, differing consumer needs, low trust, inexperienced customers and high-cost structures. However, InsurTechs tend to focus mainly on increasing access and lowering costs, and many are still stuck at the digitisation stage. There has been some movement away from MNOs, although there’s been a rise in partnerships with e-commerce and e-hailing platforms. Greater use of data and analytics includes machine learning and AI, chatbots, telematics and smart contracts. Finally, parametric, demand-based and peer-to-peer insurance all show how InsurTechs are innovating.
The first Expert Forum of 2020, moderated by MiN ED Katharine Pulvermacher, examined the hype around InsurTech and how it can help scale up inclusive insurance in emerging markets.
Pieter Janse van Vuuren, Research Analyst at Cenfri in South Africa, pointed to recent data from Willis Tower Watson suggesting that InsurTech is attracting billions of dollars in investment - more than US$2 billion in Q4 of 2019 alone. The Cenfri InsurTech database tracks 292 InsurTech companies in 85 countries, with Africa leading the way. But, said Pieter, they tend to focus on existing, easy-to-reach markets rather than new customers.
What are the biggest challenges faced by microinsurance that tech can solve?
Sarfraz Shah, Project Manager of Micro and Agriculture Insurance at APA Insurance in Kenya believes that outreach, trust and awareness as well as understanding of insurance can all be solved by technology. InsurTechs can help insurance companies think beyond the big cities, help them think about that person who lives in a remote area and has never even heard of insurance. He recognised that when one looks at policy documents, insurance has been packaged so it is very difficult to understand.
“Technology can help by making access and distribution easier,” said Sarfraz. “In Kenya, for example, Pula enabled a partnership with MNO Safaricom which has 33 million customers, 15 million of whom are farmers, who now have access to agriculture insurance. That’s a big hope for me - in coming years we’ll see more and more of that kind of thing.”
Brandon Mathews, CEO at Stonestep in Switzerland, said that without tech, serving mass populations is a pain. “Making collections of less than five cents a day, tracking whether they paid the correct premium - you need an army of people to do that,” he said. “When we started in Brazil in 1999 our claims adjusters were doing about four claims a day each, by the time I left in 2007 it was 120 a day. The best is yet to come, building trust through technology.”
What preconditions must be met for a market to be able to leverage InsurTech?
“An open regulator which encourages innovations is a first,” said Sarfraz. “Secondly, a tech-trusting market: for example, Safaricom uses USSD (Unstructured Supplementary Service Data) which enables you to send money anywhere. People already use it and trust the technology.”
Brandon added that insurance products need three elements: data (understanding the risks), capital (to back those risks) and regulation (which allows you to perform in the market). “All three need to evolve,” he said. “It’s not just about enabling regulation, it’s about encouraging the supply of insurance by having flexibility around distribution schemes and commissions. This is a supply-side problem - if we don’t make it attractive to suppliers to sell, we’re going to have access problems. Regulators need to see the growth of the market as the first priority.”
Which markets are ahead in terms of InsurTech adoption and which are ripe for action?
“In two markets we had to get sign-off from the banking, telecoms and insurance regulators - that was already a pretty tall order for an InsurTech which was just trying to make things more efficient!”, explained Brandon, adding that the markets which are ahead are those with uncapped commissions. “I’m not advocating for excess but with uncapped commissions there’s certainly more activity,” he said. The other precondition mentioned was some form of mobile money platform, as on one side it shows the flexibility of regulators to encourage inclusive growth, and on the other, it allows premiums to be collected efficiently.
Sarfraz added that there are different markets and different mindsets, but questioned whether they are learning from each other. “Look at what went well in one country, and ask if can be done in another country,” he recommended. “Look for similar partners - for example a seed or fertiliser company if you want to reach farmers.”
Are there any InsurTechs which have launched and are going beyond break-even with no grant funding at all?
The resounding answer was “No!”. The margins are not very high, and if it was easy, insurance companies would have done it on their own. It’s a big challenge - in most African countries InsurTechs are getting grant funding but they are also under a lot of pressure from the wider community to show sustainability beyond their grants, according to Sarfraz.
Brandon agreed with his fellow panelist, saying he was unaware of any micro InsurTechs that are cashflow-positive – perhaps only BIMA or MicroEnsure, but said that even then, it’s taken a long time for them to get there. “You have to spend to grow, and we’re still in the spending and growing phase, building up insurance markets - we’re not yet in the developed market phase where we’re just trying to squeeze efficiencies,” he said.
Do you see any signs that uber-hyped InsurTech in mature markets is finding its way to developing countries and overcoming exclusion there?
Pieter stated that the majority of global investments are happening in the US and Europe. The share of investments going to emerging markets is growing, but a lot of the InsurTechs are headquartered where the capital is, so it’s not always clear from investments exactly where people are operating.
“Developing markets will deliver better tech solutions than developed markets because they need to reach the mass population - the people who are riding motorbikes, not driving a Mercedes,” added Brandon.
What’s your wish list to support the uptake of digitisation and the scaling up that we want to see?
“Before we talk about InsurTech we should talk about infrastructure - if you don’t have running water and electricity, InsurTech is not a priority. That aside, the key building blocks are digital payments, digital ID and regulation for innovation. There’s a lot of talk about sandboxes but it’s actually just about regulators being approachable and engaged, especially in smaller markets,” said Pieter.
Sarfraz added, “Some insurance companies feel threatened by InsurTechs - one of my big efforts is to get the insurance industry to look at these partners and enablers more positively. Plus, grants for innovation would be a great development, and I would like to see InsurTechs becoming properly licensed insurance companies.”
“One very practical thing - if we could get rid of wet signatures [physical signing], that would be wonderful. In terms of what the MiN and the community of practice can do - it’s easy to understand the vision of everybody being insured, and it’s easy to look at markets where it’s working and say isn’t that great - but we need a better idea of what the early stages look like and how to encourage them,” concluded Brandon.
Members of MiN can access the full recording and presentation slides of the Expert Forum at this link.