There are some powerful forces reshaping the insurance industry; increased competition, challenging capital markets, regulation complexity, and customer demand for better service, more products, and deeper experience.
Today’s insurance carriers must maximise operational efficiency in order to boost productivity, protect profitability, and maintain market share.
Trends in 2020 will be underpinned by solutions that enable increased efficiency, improve underwriting and risk management, and perpetually advance the customer offering and experience, and grow the profitability of the organisation.
When we talk about technology and the distribution opportunity with affinity partners, we need to first understand what affinity partners are, why this opportunity exists, and what technology is enabling for them in terms of distribution.
What do we mean with “affinity partners”?
In our context they are retailers, financial institutions, and telcos. And can be any business for whom insurance is not their primary revenue source.
If we look at some stats and trends:
- South Africans spent R31 900 per second in retail stores in 2017
- R 1 T in sales generated in 2017
- 3.6% average growth year on year
- Main contributors are general dealers (including supermarkets) and retailers in apparel, 44% of sales or R440bn
- Shift towards transactional, lending and saving solutions
- Opportunity exists to capture additional customer-specific data through expansion of existing client base
- Data can be used to improve loyalty programme, drive customer behaviour, improve risk management and pricing accuracy
- Opportunity exists to cross-sell adjacent products such as savings and investments
Telcos begun to realise immense potential in directly ‘owning’ customer data
Aim is to own the customer and cross-sell products
Mobile phones offer significant opportunity to the insurance market
- R115.2bn opportunity for SA’s short-term insurance industry by 2020
- Bancassurance is a major distribution channel in SA
- Direct distribution growing at faster rate (15%) than intermediary channel
- Cost-effective distribution channels such as: bancassurance, internet or mobile will be essential
- In retailers up to ¼ of revenue is generated by financial services
Why is this an opportunity?
Affinity partners are in constant pursuit of delighting customers by providing a seamless and frictionless consumer lifestyle. That lifestyle partner sells you your groceries, and your financial products in one supposedly seamless journey. Below we are looking at 4 key drivers that can make digital distribution omnipresent.
What affinity partners have in abundance is really rich data. What they don’t have in most instances is all the data in one consolidated place.
One true data source
At the core of why this opportunity exists is the enormous amount of untapped rich data sitting across these affinity partner groups. Exploring their own information that has been collecting and accumulating over decades, can unlock incredible value for carriers.
Data can tell us when consumers’ lives and living conditions change, behavioral patterns change, when they move from one geography to another. A lot of these insights are locked up in the loyalty programmes and store card information.
Of course particular attention has to be paid to data infrastructure, lakes and warehousing that aids in using this data.
The challenge is the increasing concern of how private data is collected and used. One tool will not solve this complexity around data, we need ongoing evolving discussion and implementation of remedies.
With advancing AI models we need to understand the social implication. The other policy and regulatory implication to consider is that the government is far from understanding and so are we, the collective understanding of social impact has not caught up yet. We need to ask if regulation is going to be enough, and not if it works, or if we need it. The question is thus how do we advance the regulatory process to keep up with protecting industry and society.
One true data source further enables the Affinity Partner to look at Business (Product) mix. To Innovate for products that yield high ROE, getting rid of legacy products in their portfolio, develop products that are easier to distribute, which enable further allocation of resources to product development, and have products and processes that can be easily and efficiently administered. And according to a 2019 McKinsey report, reallocating resources to optimise your business mix enables 3-4 % points higher return to shareholders each year.
Content Management Systems will start to transform into Intelligent Management Systems with the use of data insights, with returns manifesting in future-facing and future-proof decisions and actions. Carriers will transform into analytics-driven businesses by using AI and content mining capabilities that convert traditional files into usable insights, along with external data sources.
The utility of data insights delivers to the 5 need states of the digital consumer:
We will look later at how digital distribution – technology – drives this outcome.
Urbanisation and demographic shift
Currently South Africa is one of the most urbanised countries in sub-Saharan Africa, with 64.8% of its population in towns and cities. In OECD member states the percentage of the population living in urban areas average 80.3%, and 47.8% in Nigeria and Kenya, respectively.
The United Nations’ Population Division estimates that the continent’s population will grow by 114.4% between 2010 and 2050, and by 2050 the median age will be 26.4 years old. Towards 2050, the urban population will have risen to 54.8%, bringing 780 million new city dwellers to the African metropolises.
Urbanisation implies increases in insurable assets and lives as the new urban population becomes more affluent and more aspirational. More people have money to move around.
A considerable potential for growth is driven by:
- A growing young population
- Rising literacy levels
- A fast emerging middle class.
Property and casualty insurance are expected to grow by a compound annual growth rate (CAGR) of 4.3% between 2017 and 2025, much higher than projections in the mature markets.
Another driver towards digital distribution enablement is the, Increased smartphone and internet penetration
Consider the below metrics:
- The insurance market in Africa accounts for only 1.2% of the global GWP per annum (SA Insurance, PwC, 2018).
- South Africa alone accounts for $42B of the total GWP, or 0.89% of the global market.
- Global non-life premium growth is forecast to remain around 3%. In emerging markets, growth could increase by as much as 6-7% annually over the next two years (The Great Pivot East, Sigma 3, 2019, Swiss Re).
- The large numbers of un(der)insured, the potential to speed up access to them make the opportunity of insurance growth viable.
- The demographics of the population, their adapting behaviours that connected devices advance, and the internet, and social media, all combine to make access easier and increase penetration levels.
The increasing smartphone and internet penetration in SA and ROA offers enormous potential to affinity partners.
- In 2018 there were 293m mobile internet users in Africa. This number is projected to be 483m by 2025. That is a 10.6% CAGR.
- Across the SSA region mobile data usage will grow four-fold from 1.7 in 2018 to 7.3GB per month per person by 2024.
- In 2013 the Mature Markets owned 60% of the digital universe, and the Emerging Markets 40%. In 2020 this ratio flips.
- By 2025 mobile operators in SSA would have invested $60B in network infrastructure.
With the above in mind it is evident that the African population is leapfrogging straight to the 4th IR. And Affinity Partners can opt to facilitate inclusion with digital distribution and interaction capability that speaks to the various preferences of their target market.
Multiple UX and CX preferences
UX is the customer’s interaction with the brand, most often a digital product such as a website, app, or piece of software, and here the Affinity Partner with the help of data can look at more quantifiable data like clicks, page views, or time spent on a particular page.
WIth CX, on the other hand, it encompasses the totality of the consumer’s experience with the Affinity Partner and includes what happens across each of the various touchpoints.
Technologies like NLP and AI are already commonplace in our homes in the form of Alexa and Siri, fused with web and email channel automation, steer carriers towards efficiencies in workforce management, improved issue resolution, tracking and monitoring of interaction data of their customer to enable analysis towards better products and services, overall improvement of the Customer Experience (CX).
Thanks to the industry getting better at understanding and building Machine Learning (ML) and Artificial Intelligence (AI) models, Intelligent Process Automation (IPA) could further advance the industry.
By unlocking the carriers own data we can now equip a bot with learning, evaluation and decision-making capabilities – therefore increased material impact in the form of higher business returns.
Each of these drivers aid better: The automation that technology enables through data insights, speeds up the process of underwriting, and reduces loss ratios enabling higher economic profit.
This profit can be shared in terms of providing more affordable products to the under/uninsured, which makes it more accessible to the under/uninsured, and more data is gathered as more people have access to the appropriate products, accurately priced.. Which perpetually drives further automation. The modern operational challenge for insurers concerns operational effectiveness. It has to be faster, better and cheaper to ensure long-term sustainability.
Adopt a digital ecosystem model
For insurtechs a viable inroad into the very regulated and structured industry is forming ecosystem business models with incumbents, distribution partners (like affinity partners), and brokers.
McKinsey predicts that by 2025, ecosystems will be responsible for 30% of global revenues. Carriers who use digital platforms, build ecosystems of customers, providers, and specialist service providers. Insurtech startups are pivotal partners to traditional carriers who are looking towards a digital transformation.
The barrier to entry is the conception of a single solution for an individual problem or portion of the business process. The way to facilitate change is to adopt a smartly orchestrated ecosystem approach, where one delivers an enterprise platform solution as opposed to the conventional bolt-on solution.
The overarching trend is towards an external perspective rather than a conventional internal solution. Carriers are looking outside of their traditional value chain, and even outside of their industry towards solutions offered by other industries and the digital economy. Carriers are becoming reliant on ecosystem partners in 2020.
Affinity Partners are sitting on valuable data. Consolidating that data across the whole value chain delivers powerful insights that can produce simpler and speedier, decision-making cycles digitally.
Some key drivers impacting technology driven distribution in the Affinity space are the exploration of their large untapped data, exponential smartphone and internet penetration rates, urbanisation and shifting demographics, and new generations’ UX and CX preferences.
Automated and accelerated distribution, pricing, underwriting, administering all the way through to claims and reporting, equates in higher productivity, which should leave room to make products more affordable, which advances access for the un- and underinsured.