Gaining Competitive Advantage Through Collaboration
Technology has played a large part in addressing the challenges faced by mutual and co-operative insurers in the developing world, but it is time for new and more innovative approaches to be considered.
Enabling huge areas of the globe develop insurance solutions depends very heavily on cheap and reliable technology. The demand for low cost insurance is growing at a phenomenal rate and as a result we’ve seen a large increase in the number of member and community based organisations (cooperatives and mutual) especially in the developing world. With enormous potential benefits to both state and consumer, low cost insurance provides a financial safety net to some of the lowest income families around the globe.
Technology is evolving at an incredible rate and is completely changing the way we live our lives and the way we transact our business. Consumer demands are changing and Business must keep pace with these demands if they are to remain relevant and successful.
In the developed world, where budgets are big and expertise is plentiful, companies can still struggle to get technology right and we’ve seen several large names disappear over the last 10 years. In developing nations there are additional challenges, but with good planning, collaboration and innovative thinking there are huge opportunities.
Only now, with the advent of high quality open source software solutions for Insurance such as OpenUnderwriter, have some of these community and microinsurance projects started to become a reality. Technology has always played a large part in solving many challenges, but new innovative approaches need to be considered – something that can be difficult for a traditionally conservative market. The balance is to find non-traditional approaches that offer efficient benefits already proven in less risk adverse sectors.
Historically software vendors have had a ‘one size fits all’ approach. A mentality which can work well in established markets, it can stifle growth and innovation in a developing economy. Insurers either develop their own solutions for in-house use, or they purchase off the shelf from specialist software houses. Once committed it becomes very difficult to migrate to alternatives. A lack of open standards means future migration to new software is never easy and the large financial and resourcing commitments makes it very difficult to justify change. Include on-going licencing and support charges from the software vendor, or internal support and development costs and these challenges can seem insurmountable.
In emerging markets it is essential to address financial and resource commitments. Organisations are typically a lot smaller and have low premiums and low caps so reducing transaction cost is key. Therefore a collaborative and iterative approach to system implementation - where organisations come together to develop open standards and systems - is the only way to deliver value quickly and sustainably. Fostering flexibility on all sides is crucial to deliver an infrastructure truly fit for purpose - and not just a replica of another country’s established operating model.
Not only does this reduce the financial burden to any one organisation, industry collaboration also allows businesses to become stronger as they work together and take ownership of the tools required to run business. It is easy to think that insurers may lose some competitive advantage by collaborating with their peers, but real competitive advantage is how effectively you use the tools at your disposal – not just in the tools themselves.
However, having the right software platform is only the first piece of the jigsaw. In new and emerging markets not only is there a lack of historic risk data to help in the development of pricing models, but the actuarial resources (both tools and experts) required to model and analyse the data are not in place either.
This is a prime example where technology on its own, however good, is not enough. Good data, good technology, good users – these are all part of the same package, without one element, the results are going to be seriously compromised. Without data or actuarial capacity, it will be a real struggle to design sustainable microinsurance products. The industry not only needs to utilise new technology, they also need to develop new skillsets.
One project we are involved in is a pilot in Ghana to provide the insurance industry with better risk analysis and actuarial capability. Using OpenUnderwriter, the Ghanaian Insurance Association (GIA) is creating an industry-wide risk data repository and reporting facility. The project involves global parties, but key to its success is significant Ghanaian representation - people who understand local culture, regulation and insurer infrastructures.
Finally, good technology and good data are useless without a knowledgeable and well supported user base.
As a result of work in emerging economies we have come to the conclusion that the lack of adequate data sharing, training and educational materials, in addition to technology are barriers preventing vulnerable populations to get access to insurance products.
Many insurance start-ups in emerging economies, where for example farmers form a mutual or a cooperation, have so far been unable to go beyond the pilot stages and are therefore only reaching very small populations. The lack of training materials, the lack of adequate insurance data, affordable technology and infrastructure are only part of the scalability problem.
Also at issue are the questions of the design of insurance products, the efficiency of business processes, distribution channels and the ability of insurance providers to integrate their experience and systems with other organizations involved in providing services to the populations in need of insurance products.
In conclusion, in order for these cooperative and mutual organisations in the developing world to stand on their own two feet there are three essential components;
- Affordable technology platforms
- Data collaboration
- Education and support
Once all three of these challenges are addressed and made readily and easily available, then the microinsurance sector in the developing world can really start to thrive.
This article is co-authored by Matthew Tomlinson from Open Underwriter and Michiel Berende who is a freelance microinsurance and technology consultant, and facilitator of the Microinsurance Network Technology Working Group.
They are currently working alongside a number of other partners to kick off an initiative that supports all organisations who struggle with the above mentioned issues. The aim being to support those who have the goal to deliver insurance to vulnerable populations.
This initiative will create an online portal providing a centralized and open repository of resources to unify the currently disparate efforts to implement and support microinsurance. This one-stop shop for all industry stakeholders will provide an end-to-end framework for identifying and implementing a solution, designing and rolling out a product, accessing expert support, and country-level databases.
About the Author
Matthew is a founder of OpenUnderwriter and has over 20 years’ experience working in the Insurance sector. He has extensive experience in delivering complex solutions in both general and commercial lines for Lloyds and London markets working with companies such as Talbot Underwriter, Brit and Catlin. Matthew has been at the forefront of the design and overall direction of the OpenUnderwriter suite of products. Matthew is also an active member of the microinsurance community and has been involved in a number of major projects in developing countries across the world.
Michiel Berende works on microinsurance and technologies for microinsurance as a freelance consultant for various organisations around the globe. Among those organisations are the Microinsurance Network, PharmAccess Foundation, the International Labour Organisation, the German Federal Enterprise for International Cooperation (GIZ), the Inter-American Development Bank, Dutch insurer Achmea, and others.
Michiel chairs the Microinsurance Network Technology Working Group. The focus areas for the Working Group include standardisation, data collection, communication, management information systems and services to support insurance practitioners and trainers working with these organisations.
Michiel previously was an underwriter and process manager for Dutch cooperative insurer Interpolis, nowadays a brand of Achmea. In this role he got involved in international microinsurance when he visited India in 2004. In India he supported DHAN Foundation in their search for insurance technology. Working at the grassroots inspired Michiel to go live and work in India. There he worked at the Tata - DHAN Academy where he established a knowledge centre for mutual insurance. In 2006 Michiel became a member of the CGAP Working Group on Microinsurance, nowadays called the Microinsurance Network.