Johannesburg, 05 Jan 2017
All aspects of business have been transformed by the introduction, and subsequent rapid growth of digital technology. The insurance industry is not spared from the necessity to transform - indeed it is the eye of the digital hurricane, says Simon Carpenter, Chief Technology Advisor at SAP Africa.
Digitally savvy consumers expect deep individualisation and ease of access to any product or service at the touch of a button. It is for this very reason that insurers have to adapt their approach to engage authentically and contextually with their customers and innovate to meet their ever-evolving needs.
Within this framework of continuous change, there are three clear trends under the broad spectrum of the digital economy that have a profound impact on the insurance industry. Across life, health, property and casualty categories - insurers have to adapt to if they hope to remain relevant.
1. The first of these trends is the access economy: with Uber and Airbnb pointing the way, one of the questions insurers will have to ask themselves is what happens to the risk profile of the insured item - be it car or house - when it is put to novel, previously unheard-of uses. Related to this is, what will happen to industry revenues when there are simply fewer items to insure as a result of them being used more efficiently across multiple consumers.
2. Another noticeable trend is the rise of insurers disintermediating their channels to market: arguably, the ubiquity of Internet access and smart mobiles devices means there is little need for today's broker networks as the insurer has the ability to reach clients directly at lower marginal costs. In so doing, insurers can generate much deeper insights into client needs. Branchless and broker-less insurers are already emerging around the world and will only continue to grow going forward.
3. Very much linked to this trend is the rapid emergence of the Internet of things and big data analytics: with its Connected Vehicle, Vehicles Insights and Connected Home solutions, SAP is already able to help insurers to ingest and analyse massive amounts of data so that they can create new services and outcomes for their clients. For example one SAP insurance customer is combining earth observation data from the European Space Agency with data from its own systems, augmented with mapping data to understand risks on a global scale and to quickly spot potential fraud related to natural disasters. In this way it can manage risk more accurately and, at the same time, guide customer behaviour with advanced warnings of potential events. There are similar opportunities in the life and health realms, where data from wearables and social networks can be combined to give a much more accurate picture of client behaviour and which will help insurers to price risk in a much more customised fashion.
In line with this, the industry is increasingly seeing new entrants that are quick into the market with products and carry a fraction of the overheads of traditional insurers. A major trend associated with these new entrants - not only in South Africa, but globally - is that they are selling insurance packaged with other services. Car manufacturers, for instance, are offering insurance through their financial services subsidiaries - and private security companies are partnering with insurance companies to offer a joint package of services.
Essentially then, the traditional way of selling one insurance product at a time is swiftly becoming outdated, particularly among millennials who now form the majority of the insurance pool. Insurers therefore need to change the traditional way of doing business to remain relevant - or else they run the very real risk of simply disappearing.
As such, the most critical question that insurers need to ask themselves is how prepared are they for the digital economy and how quickly can their infrastructure be geared towards new ways of doing business.
Ultimately, remaining flexible and connected will make all the difference for insurers fighting to remain competitive. Moving forward, CEOs in the insurance sector will need to concentrate on is ensuring that they have the correct information platforms, people and partners combined with imagination, a culture of experimentation and agility and the will to disrupt themselves in order to stay ahead in a dynamically different world.
For more information, visit the SAP News Center. Follow SAP on Twitter @sapafrica
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