Dynamic thinkers are trying to use technology to change almost every conceivable industry across South Africa and the world. Every couple of months another financial technology or “fintech’’ startup pops up and says it will be able to “cut out the middleman”, creating a more efficient business. Technology may make parts of the insurance industry more efficient but this should not be at the expense of the role and value that only a broker can provide to clients, writes Peter Todd, Constantia Insurance CEO.
South Africa’s economy includes a financial services sector which is critical to the country’s health, delivering around 20% of economic output each year, according to Statistics South Africa. This makes it the most dominant sector in the country, with insurance playing a key role within it.
Consider that many large infrastructure projects could not be developed if companies were unable to insure them against their numerous inherent risks. Think of the effect on a family’s livelihood if the bread winner dies or a home burns down, without insurance in place to cover the financial consequence. But as with many other industries, the insurance industry is also facing changes brought about by technological innovation.
Insurtech emerged around 2010, with a view to making insurance products more accessible and less burdened by admin, and to drive innovation in an industry, which up to that point had hardly been at the forefront of change and innovation. Eleven years on, insurtech technologies include applications which are driven by artificial intelligence, machine learning, blockchain and the Internet of Things (IoT). Many of these technologies focus on automating distribution, administration, claims processes and even advice.
But what role does the broker have in this new insuretech world? Will we all eventually be subjected to discussing our insurance needs with a robot?
Undoubtedly, insurtech can make some insurance processes quicker and easier to complete, but can it replace the role of the broker? Asked differently, is insurtech a threat to the brokers’ existence? Insurance products are complex which is why minimum qualifications and experience is required to become an insurance practitioner. In an ever changing world insurance professionals are also required by law to contiuously develop their knowledge.
Consider for a moment the recent crises faced in South Africa. Before Covid-19, not many people understood what contingent business interruption cover was and how it could protect their businesses. Before the civil unrest and looting in July, very few people realised that their insurer did not cover them against civil unrest, let alone what SASRIA stood for.
Even if a robot could do a good job in explaining the need for this cover in the specific circumstances, what could be the next crisis for South Africa or the world? How should one be protected against the rising threat of cyber crime, climate change or another pandemic?
Regardless of what the future holds, the role of brokers in advising their clients should never be underestimated, both in ensuring their clients have appropriate cover in place and assisting them at claims stage. Trying to quantify the insured loss of profits following a business interruption event, can be extremely complex, with material consequences if you get it wrong.
Insurtech should complement the role of the broker by providing more efficient processes and reducing their administrative burden, thereby allowing the broker to focus more on advising their clients. But the focus seems to be more about replacing the broker and automating advice. Insuretech initiatives always stand alone and are considered a distinct channel, competing against the “broker channel”. It seems some insurance providers are hedging their bets – if insurtech does succeed in replacing the broker, how quickly will they turn their backs on the brokers that built their businesses in the first place?
Either approach entirely on its own is wrong. We must recognise the important role that brokers play in our industry and embrace insurtech in a way which enhances their role and does not replace it. More than ever we need people to have access to the right insurance products. We live in a world with an increased fragmentation of risks, with new ones emerging all the time. Not only could South Africa face more riots and looting in the future, but how we live is also changing. South Africa is battling through an energy distribution and management crisis and the evolution of the power grid to move away from coal to alternatives will be complex, delicate and arduous. Things will break and people will suffer heavy financial losses. Having a broker on-hand to advise and ensure that individuals and businesses have the correct insurance products is more important than ever, to ensure the sustainability of our economy. If SASRIA had not existed, what would the June riots have taken from our economy?
Insurers should ask themselves how much they are spending on insurtech versus the development of brokers. Then there is also the question of whether as a country with an offical unemployment rate of more than 34%, we would benefit more from investing in people and skills rather than from investing in technology designed to remove people from the equation?