How technology is changing insurance in Kenya

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How technology is changing insurance in Kenya

Thursday, December 23, 2021

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From BITANGE NDEMO
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summary

  • The total value of insurance premiums in relation to gross domestic product (GDP) is between two and three percent.
  • With the question no longer of whether the insurance industry should digitize or not, Covid-19 has accelerated the need for a digital transformation of the industry.
  • A report from Mckinsey & Company shows how insurers are collecting a wealth of data, but few have found a way to monetize this asset.

We all know that insurance touches every aspect of our economy by covering almost every measurable risk. In Kenya, however, the growth rate of insurance seems to have stagnated.

The total value of insurance premiums in relation to gross domestic product (GDP) is between two and three percent. That is not comparable to a country like South Africa with 13 percent and shows that we are still a long way from one of the countries with the highest penetration rates in the world.

However, this may change if the insurance sector in Kenya unlocks the potential of data in insurance management. With the question no longer of whether the insurance industry should digitize or not, Covid-19 has accelerated the need for a digital transformation of the industry.

A report from Mckinsey & Company shows how insurers are collecting a wealth of data, but few have found a way to monetize this asset. The new “Data as a Business” model indicates that the industry is facing a new change.

And enter a new world of connected cars, connected personas and connected life, in which trillions of small things are connected and generate data.

According to the global survey of insurance CEOs conducted by KPMG International in 2020 that the digital catalyst has been since COVID-19, insurers are clearly needed like never before. And that the transformation of the sector has been almost universal.

According to 85 percent of insurance CEOs, COVID-19 has accelerated the digitization of its operations and the creation of next-generation operating models. Eight in ten (78 percent) think data accelerated their work of creating a seamless digital consumer experience.

A similar percentage (79 percent) also see the need to develop new business models and sources of income.

Yet despite the fact that COVID-19 has brought the digital revolution in insurance closer than it did before, many Kenyan insurance companies find digitization overwhelming as it requires significant investment.

In addition to consumer needs for digital experience, the regulatory requirement of capital adequacy (the availability of sufficient capital to prevent a business failure) weighs heavily. Therefore, absorbing possible losses in the existing business models is a great challenge.

The current business model of many Kenyan insurers is causing them to evade insurance innovation and are now facing pressure to change their operating and business models.

And just as FinTechs have changed the banking sector, Insurtech will change the insurance industry. There is already widespread use of big data to understand risk, artificial intelligence to build trust, the Internet of Things for insurers to capture driver behavior in real time, and blockchain to develop parametric products.

InsurTech start-ups and companies that operate completely outside the traditional insurance sector are penetrating the territory that in the past largely belonged to the insurers.

Insurtech funding reached $ 5.3 billion in the third quarter of 2021 and exceeded $ 15 billion for the year, according to Forrester Research Inc. That was more than double the previous year’s $ 7 funding, which was the all-time high of 377 deals.

In an article for EY on large commercial insurers and reinsurers need to revise their offerings to better serve their clients’ needs, Isabelle Santenac predicts that modernized technology will enable people to re-qualify while creating a new culture promote the customer, the process efficiency and the operational agility of the business models of the insurers in the next decade.

In addition, companies are becoming much more data-driven and dependent on effective partnerships and collaborations. These qualities are required to counteract competition from smaller players.

Santenac sees a highly specialized market for commercial reinsurance. A global reinsurer that works with smaller teams to develop innovative risk transfer solutions, manage general agents (MGAs) and build momentum while leveraging market trends to create and conquer profitable niches.

Agile portfolio managers, on the other hand, increase ROI by pooling strong delegated powers, and MGAs / Managing General Underwriters (MGUs) will find profitable niches.

To respond to some of these challenges, the industry needs to know the customer much better, and that requires training in data analysis to build predictive models that adequately meet customer needs. In addition, more resources will be needed to meet the challenges and costs of implementing capital adequacy.

As digitization pervades almost every process in the insurance industry, new technologies will play a key role in balancing risk and return, from policy pricing to claims management and customer service to underwriting and even risk analysis. Technology has disrupted many key functions.

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