Insurers are coming for you in a big way. With the use of technology, they will be able to harvest your information and know your likes and dislikes even before you sign up with them.
There will also be no place to hide as you surrender your information to secure a cover. This will mostly affect those sectors whose cover is mandatory such as motoring and marine.
While insurance assessment involves voluminous paperwork, site visits and relying on police abstracts to determine whether you get paid when a loss occurs. This has changed.
Technology is changing the speed veracity and claims assessment. It may also change the way insurance firms do business. As big data possibilities grow exponentially, so is their integration into the future of insurance.
By paying for your beer using mobile money - M-Pesa, T-cash and Airtel Money - or with your debit or card and thereafter get involved in a car accident, you will inadvertently have given yourself away as having engaged in drink-driving, making ineligible for a claim settlement.
The call history on your phone before an accident, which can be accessed and analysed by insurers and cross-referenced with the time when the accident occurred, may also rule you out of a settlement.
“Yes, it will be possible. I can then assess what you were doing before if you are in a pub and you bought beer, then using blockchain, I can access Safaricom records because you will have signed in advance that you have given me the rights to assess you for insurance and assessing you means I have access to certain records. So we have to accept that is the future,” said Jubilee Holdings Chief Executive Officer Julius Kipng’etich.
Insurance firms hope that blockchain, cryptocurrency and the Internet of Things (IoT) will allow them to do what has previously only been imaginable.
For instance, IoT will revolutionise the insurance sector because everything will have a chip, just the way the Global Positioning System works.
So when somebody says they were involved in an accident at point A, the car chip can confirm that. Blockchain technology will also help insurers to verify the identity of their customers, making it easier to administer insurance.
At the garage, you can send pictures of the damaged auto and an insurance firm can even do an online assessment of the damage and estimate the cost.
“Indeed, technology has never before been utilised better by insurers in large-scale. This is because, through the adoption of technology, underwriters are now able to save time, money and risk,” said Actuarial Society of Kenya President James Olubayi.
“Technology has halved fraudulent cases, eased underwriting processes from the sale of products to the issuance of claims and improved customer experience,” said Mr Olubayi.
Technology will also make it easier to assess claims, identify locations and verify the authenticity of the person.
The same will be replicated in the medical insurance sector where fraud is prevalent as well as other key sectors of the insurance industry.
“At Jubilee, we are getting ready for the new technology and in a few years, this will be commonplace,” said Dr Kipng’etich. He noted that big data has already enabled the insurer to remove barriers, with enough set of data now at their disposal to assess risks.
“At Jubilee, we have said that we will never refuse cover, we will price the risk. The minute you start putting exclusions like some companies have for seniors over 60, it means a section of the population is excluded. For us, we have said no. We are going to have a product for seniors and we are going to price those risks,” said Dr Kipng’etich.
Mr Olubayi observed that actuaries are involved more with risk management even as insurance firms seek knowledge and understanding of blockchain technology, heightened security systems and big data, with increased pressure to deliver.
“Through our various working parties at The Actuarial Society of Kenya, we are always researching on the increasing areas of innovation and cryptocurrencies affecting the insurance markets,” he said.
The Kenyan insurance sector has failed to grow past three per cent of the gross domestic product - shrinking in recent years.
Although insurance premiums in Kenya, for the first time crossed the Sh200 billion mark, penetration was t 2.7 per cent of GDP, with the neighbouring countries of Uganda at 0.88 per cent Tanzania at 0.9 per cent.
The industry is facing losses, with the Insurance Regulatory Authority noting that 20 out of 32 medical insurance firms suffered underwriting losses totalling Sh621.64 million in the financial year ending December 31, 2016.
The combined industry profit before tax decreased by Sh1.3 billion to Sh12.8 billion in 2016 from Sh14.1 billion recorded in 2015.
This is despite a concerted effort to increase uptake, including the most recent attempt to inject Sh20 billion by activating Section 20 of the insurance law that makes it mandatory to insure marine cargo locally came into effect in January last year.
Deepak Dave of Deepak Dave of Riverside Capital Advisory said the initiative was hampered by lack of sufficient knowledge in the market, but that is slowly changing.
“Marine insurance tends to have high and volatile. To introduce the product here, pricing was kept low. It’s seen less uptake even so and companies have rapidly raised rates to the right level,” said Mr Deepak. Jubilee’s Dr Kipng’etich, meanwhile, said the insurance industry approached marine with the existing business model so they never adjusted.
“We never even educated our staff and we are telling the international players to cede to the locals. Those ones are experts. They have built expertise for years so to beat them, we also need to build expertise in assessing risks. We went into it without capacity. A few have started and in a few years, we will have full control of that segment the challenge has been the underwriting part and assessing the risk,” he said.
Another thrust that was expected to push insurance penetration was bankassurance which was a function of banks, locking in their customers to insurance products.
Currently, there are 26 licensed bancassurance agents in Kenya, up from 19 in 2015, with the latest acquisition being by Prime Bank which took up a majority stake in Tausi Assurance.
This has prompted Treasury to set up new laws governing this emerging trend under the Bancassurance Regulations 2018 where a person licensed to conduct bancassurance business shall only act as an insurance intermediary.
Under the regulations, they shall not undertake or engage in the actual business of underwriting of risks or give the impression of being the underwriter of the insurance products to its customers.
Banks, according to industry experts, should remain a channel, no different from a mobile platform, a branch, a broker or an agent so the key point is who is the underwriter taking the risk. Mr Deepak said bankassurance is never a panacea particularly as both sectors are depressed enough that there is little attraction for anyone to merge, sell or set up.
“Let’s be frank, perhaps in many cases, the bankers and insurers know each other well enough to hesitate to mix different cultures and product styles,” he said.
The problem in cracking insurance in Kenya’s may be that the non-life business accounts for 60 per cent of insurance premiums while life insurance constitutes the balance, unlike in other markets.
Out of this, motor vehicle and medical accounted for 66 per cent of this general business and 40 per cent of total industry premiums respectively in 2017.
With a claims ratio of 60 per cent, it means that for every shilling of written premium, 60 cents is claimed before the expiry of the insurance contract which haemorrhages most businesses. “When they sneeze, everybody else catches a cold. They did sneeze last year, growing by a mere 40 basis points year-on-year. This seems to have dragged down the entire industry,” said the head of banking research at Ecobank Capital, George Bodo in a commentary.
The market is also lopsided, with most players playing on the fringes and barely making any business sense. “I think the top five control 80 per cent of the market out of 47 insurance companies,” Dr Kipng’etich said.
The Jubilee Insurance boss expects some consolidation to happen, including mergers and acquisitions, especially when the regulator starts implementing risk-based capital.
“Some will be undercapitalised and will be encouraged to merge. When that happens, Kenya will become attractive to international players. Those who want to come in, do not want to enter Kenya with small units. You enter the country with a larger unit,” he said.
Mr Deepak said valuations in insurance are too low and unattractive to buyers, with too much investment concentrated in real estate, another depressed sector.
“New regulations in both sectors mean valuations are unlikely to become predictable and stable for now,” he said.
While technology offers a silver bullet, players in the industry say there is so much that can be done to boost insurance.
Being that this sector is highly dependent on economic activity, only increased per-capita wealth ultimately makes the sector genuinely successful.
“In the short-term, actions such as lifting the interest rate ceiling would boost liquidity and capital movement in the economy, generating the very economic activity, improved asset valuations and commercial activity that will improve profits and performance,” Deepak said.
Dr Kipng’etich said the insurance sector must first deal with its main competitors, harambees, by telling Kenyans to mitigate risks in advance rather than raising money after the event.
He said it also has to deal with is the church, prayers as a risk mitigation thing. “Why would people prefer harambees and got to churches rather than pay into a pool. It’s the same logic. But why is it easier to sell those two?” posed Dr Kipng’etich.
He said insurance firms must then address trust and the speed of claims.
Insurance firm should then address capacity to pay those claims, meaning the industry must be properly capitalised, which goes to all issues of risk management, corruption so that there is adequate capital to meet claims anytime.
“If we address those three things as Jubilee Insurance then insurance will begin to spread, we have already mapped those three and we know the details of exactly what we want to do to win trust, to speed up processing and to ensure we have adequate capital to pay the claims as they occur,” said Dr Kipng’etich.
Insurance companies must also invest in mass education to enlighten the public on the benefit of insurance. It must also deal with fraud which, according to KPMG, has driven premiums higher by up to 20 per cent to manage the extra cost incurred.
However, the Insurance Regulatory Authority wants to strengthen the sector’s police unit the same way lenders have equipped the banking fraud unit.
Finance Cabinet Secretary Henry Rotich has also introduced in Parliament the Insurance (Amendment) Bill, 2018 that seeks to punish fraudsters with penalties of up to ten times the amount swindled.
Dr Kipng’etich is optimistic that the industry can double numbers in the next five years to five per cent. He said the industry will also be looking for fiscal incentives such tax incentives, where you get some relief for some saving in insurance.
He urged the industry to focus on livestock and crop insurance because they touch on the common man.
“What we need now is more data analytics in light of climate change. IoT can allow us to measure algorithms that allow prediction. It will allow companies to price livestock and crop insurance,” said the Jubilee Insurance boss. It may, however, require the Government to give some guaranteed minimum returns to offer some level of support.
“The broker will survive. If you want an example of the broker who survived is the travel agent. They used to get nine per cent from the airline, but now they get two per cent from the client. The airline never pays,” said Dr Kipng’etich.
The industry would also benefit from a pool similar to the credit information sharing in the banking sector to offer scores based on risk. The database of rogue claimants would help the industry reward good behaviour and punish culprits.
“Insurance must reward a no claimer for the short-term if for a year I pay Sh100,000 and I have not claimed anything for five years, the insurance company should reward me for making no claim - giving either cash or a discount in the next premium,” he said.