Insuretech, Fintech as Threat to Group Life Insurance
The Group Life Insurance which today stands as major source of bulk premium for the insurance industry is at the risk of losing its relevance with the emergence of insure-tech and fintech,
With all the disruptive innovations trending in insurance business space such as insurtechs and fintechs with their accompanying Artificial Intelligence (AI), robotic process automation (RPA) as well as advanced analytics which targets at removing manual underwriting and pricing activities, improving underwriting predictability and profitability, the place of insurance policies like the group life insurance and key man insurance policies has remained a question.
A question especially in the nearest future because the innovations are targeted towards improving on what human beings do using technology which apparently will to a large extent reduce the number of human beings in operation replacing them with robots and machines.
Since the emergence of these technologies and their applications in insurance business, interest has always been on their positive contributions towards insurance business with little or no consideration or thinking on how they may affect the business.
Analysts viewed that unless its negative effects if any is viewed and analysed, incumbent insurers cannot brace up on how to meet these challenges it will throw up.
They said without this other side consideration, many insurance CEOs clamoring for technological innovations in insurance business operation cannot make reasonable investment in it.
GROUP LIFE INSURANCE
By its nature, group life insurance is a policy that provides coverage to a group of people typically those who work for the same employer whether public or private sector employers.
In Nigeria, the group life insurance policy is compulsory by virtue of the pension Reform Act 2004.
Section 9 sub section 3 of the act requires employers to maintain life insurance policy or death service benefits scheme in favour of their employees for a minimum of three times the Annual Total Emolument of the employee.
Because of the compulsory nature of this particular policy Nigerian insurers scramble for the business every year and are ready to sleep at the corridor of government insurance agents’ offices if only to participate in the business. Many underwriters are ready to do anything to get the business.
Given this rush for the policy underwriting, government and its insurance agents price what they like for the policy knowing fully well that insurers cannot afford to reject their pricing irrespective of how low they bided.
For instance, this year, government’s budgetary allocation for the policy was N9.6 billion much below the N15 billion it paid on the same policy last year. It is still not certain if more funds will be budgeted for it or not.
KEY MAN INSURANCE
The Key Man Insurance policy or Key person insurance on the other hand is a life insurance policy which a company buys on the life of a top executive or another critical individual.
Such insurance cover is needed if that person’s death would be devastating to the future of the company.
The company pays the insurance premium and remains the beneficiary should the key person dies.
This policy is more popular in other climes where insurance contract is given much priority. Here in Nigeria, it is mostly taken by businesses on behalf of the owner and on some.expatriates.
Looking at the above two policies they centre on human labour raising the question on what happens in the medium or long term when technology usage in insurance becomes more pronounced than it is today thereby replacing greater population of workers these policies cover.
It also raises question on how insurers can look outwards for huge premium yielding policies that can replace the group life insurance especially these days that continued shrinking in government revenue is forcing it to diminish premium payable on the group life policy.
INSURANCE TECHNOLOGY ANALYSTS’ POSITION
Insurance technology analysts like Deloitte believe that the future of insurance underwriting will be enabled by third party and alternative data , analytics and cognitive technologies, digital technology and Internet of things as well as robotics.
Deloitte viewed that by embracing digital technologies, underwriters off load administrative tasks, and forces on strategic complex risks where experts advice is needed.
PWS, in its 27th annual Global CEO Survey viewed that most insurance firm managers see Fintech and other technological solution as challenge .
It said despite the emerging trends, a disconnection exists between the amount of disruption perceived and insurers’ willingness to invest to defend against or take advantage of the innovation.
PWC observed that greater number of industry players claim they have fintech at the heart of corporate strategies but few explore partnership with fintech companies and very few actively participate in ventures and incubator programs.
INSURERS’ VIEWS
Speaking on the relevance of technological innovations in insurance business and its short, medium and long term effects, the Managing Director Afriglobal Insurance, Mr Casmir Azubuike noted that the relevance of technological advancement in modern insurance business cannot be overemphasised. He said technology is important and highly needed in modern insurance business transaction.
He however said this should not in any way rule out the indispensability of human workforce in the industry whether in the short or long term.
He quite agree with the power and efficiency of such technological solution as Artificial Intelligence but said it cannot and will not displace human labour force in insurance business.
He said, “The question is to what extent will Artificial Intelligence work, will it do all that human do the answer is no this is because there are aspect of roles and responsibility Artificial Intelligence will handle but not all .Again even the articficial intelligence is controlled by humans to a large extent.
He cited instance of what happened in some countries during the COVID-19 lockdown where an artificial intelligent object knocked at people’s door with the intention of delivering medicine but when the occupant of the room opened the door, the AI object was starring at him without performing any action .
He said AI could work perfectly but could do all things without human factor coming in especially in this part of the world where literacy level was low.
On the effects on human labour related insurance policy, he said the effect is still remote and may be felt at the long term not in short or medium term.
He further looked at the effect from another perspective saying it will even put more money in the pockets of insurers than the group life policy.
According to the Afriglobal insurance boss, this is because these technological innovations must be equally insured with insurance firms agains failures and the emanating losses.
According to him even the ATM machines are insured therefore Artificial Intelligent objects will also be insured.
He said the insurance premium to be paid on one AI object could be more than premium paid on life insurance cover for 100 CEOs. He said because of high cost of procuring AI, the premium cost will be high too and insurers would receive high premium.
What insurers needed to do, he advised, is to study technological trends in the industry and follow up on how to take advantage of every challenge they come with to grow their sector.
TECHNOLOGICAL BUSINESS MODEL
THISDAY recalls that some years back the insurance sector operators, at their annual mega conference usually held at NICON Hilton Abuja centered the theme on market disruption through the use of modern technology.
Discussants at the conference, agreed that if Nigeria insurance sector should achieve the projected trajectory growth, which has been a tall dream of the regulator, the National Insurance Commission (NAICOM) in particular and the industry operators, it needed to disrupt the existing business model which it has been using over the years and embrace a novelty model which is anchored on modern technology utilisation.
This, they said, should cut across all activities in the business of insurance such as marketing, product design, distribution and service delivery model among others.
NAICOM
The Commissioner for insurance, Mr Sunday Olorundare Thomas shortly after the COVID-19 pandemic, stressed about assembling directors of insurance companies in Nigeria at a conference and addressings them on the need to adapt to new business model.
He said, “The rapid changes brought about by the COVID-19 pandemic in many fronts have drastically opened doors of opportunities for many positive thinking minds and created serious setback for many who are not able to cope with the speed at which some of these changes appeared. An obvious example is the technological advancement in the insurance industry, which has been accelerated by the COVID-19 pandemic, compelling many of us to shift from the traditional ways of conducting business to more sophisticated and technology driven mechanisms”.
The commissioner informed the insurance directors that it was for this same reason that the Commission had successfully launched the NAICOM Portal on September, 1 2021; deployed to ensure effective and efficient interface between the Commission and its stakeholders.
Thomas warned operators who might choose the position of laggards in this race for technological advancement in their operation saying, “It is imperative to inform you here that any company that is lagging behind in this regard is inadvertently phasing itself out of business. Your respective attitude towards information technology funding in your various companies will go a long way in determining the longevity and existence of not only the companies, but the retention of the brand names or corporate identities. This is food for thoughts.”