The threat of tech

Some in­sur­ers are wak­ing up to fin­tech eat­ing their lunch

The Africa Report - - CONTENTS - By Mar­cia Klein in Cape Town

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 takeup of in­sur­ance in many coun­tries. But in­sur­ance cov­er­age is grow­ing.


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 com­pan- ies. 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.”


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 Zim­babwe, 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 startup 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.”

In South Africa, Dis­cov­ery uses tech­nol­ogy to track the life­style choices of its health in­sur­ance clients

Adrian Gore, the founder and chief ex­ec­u­tive of Dis­cov­ery, which has reaped the re­wards of early tech adop­tion

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