How Mutual and Cooperative Insurers in the Developing World Will Benefit from InsurTech
The InsurTech revolution is in full swing with millions of pounds being invested trying to re-think inefficient and outdated operating models.
With the demand for low cost insurance growing at a phenomenal rate and a large increase in the number of member and community based organisations (cooperatives and mutual) especially in the developing world, the demand for innovative, cost effective technology has never been higher. 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 but to date, traditional technology solutions have been ill equipped to support this market.
It is a fact that technological advances will be primarily focussed on developed markets. However, while the internet of things and telematics might have limited relevance (today), the advances in open source software, mobile and blockchain have the potential to make a significant impact in these developing markets.
Open Source Software
One major challenge in today’s market is the high cost of software used for distribution. Not only are the licensing, implementation and support costs of traditional platforms used in mature insurance markets prohibitive for developing markets but a lot of these systems can be over complicated.
Open source software is often the only option in these situations and now with the advent of high quality solutions for Insurance such as OpenUnderwriter, some of these community and microinsurance projects have started to become a reality.
However, it’s not just about the cost of software, the implementation approach plays a large part in the success of any project. Historically software vendors have had a ‘one size fits all’ approach. A mentality which can work well in established markets but can stifle growth and innovation in a developing economy. A more collaborative, iterative approach allows prototypes to be built and deployed quickly. The open source ecosystem encourages organisations to contribute to the source code which in turn increases the feature set for all users. This sharing mindset allows far more rapid growth and innovation. 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.
More and more people are using mobile devices to transact and the the modern consumer now demands to be able to purchase any product or service, including insurance, whenever it suits them. The issue in the developing world is that while mobile usage is very high, the number of smart phones is relatively low due to the high cost and limited availability of mobile internet. This is especially true in rural communities.
One major challenge is how to provide insurance to people without access to the internet or a bank account.
One increasingly attractive option is to use a relatively low tech and cost effective service like SMS to transact business. OpenUnderwriter has recently teamed up with mobile payment provider Swifin (www.swifin.com) to allow micro insurance products to be bought by SMS. Once an agent has collected the risk details, premiums can be collected on a monthly basis by SMS. Claims can also be paid quickly and simply using the same method. This opens up a whole new market that previously was difficult and costly to service.
Another technology with potential benefits that is being talked about in InsurTech circles is blockchain. With blockchain, all transactions are logged including information on the date, time, participants as well as the amount of every transaction in an immutable record. This has the potential to drastically reduce the amount of paper contracts that are currently being produced whilst also streamlining and speeding up the claims process, which can be far more critical for micro insurance products. It also paves the way for far more anti-fraud measures.
So in summary, while the developing world may not see all the benefits immediately, the InsurTech revolution will certainly act as a catalyst. Whilst the premiums may be lower, an increasingly efficient operating model coupled with large volumes will start to make these markets very attractive.
About the Author
David joined the OpenUnderwriter team in March 2014 and has 25 years’ experience delivering complex technology solutions to a range of organisations in both the financial services and retail sectors. He was previously the CEO of Insurecom and led the successful acquisition by Applied Systems Inc. He has also previously held senior positions at BT and Sainsbury’s. David is responsible for the overall business strategy of OpenUnderwriter. David sits as a non-executive director for other innovative, fast growth technology firms.