Death of Insurance as we know it
The profitability model of traditional insurance business runs counter to the conception of insurance as a mechanism to compensate policyholders.
Policyholders expect their claims to be paid when they suffer losses. Delayed settlement could lead to unimagined costs for the insured.
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From an insurer’s perspective, every cedi of claim paid inversely impacts profits, holding other things constant. The default position of traditional claims processing is, therefore, to look for every excuse in the book to avoid, delay or reduce the amount paid in claims to the barest minimum.
Claims [mis] handling owing to the misaligned interests of parties lies at the heart of the rocky relationship between insurance companies and policyholders and explains the historically unyielding atrophied rate of insurance penetration.
Insurance by the old playbook is giving up on incumbents in other parts of the world and will hit home soon enough. Thriving in the marketplace of the future requires insurers to rethink their business models in fundamental ways.
Changing phases
The UN estimates three fifths of Africa’s 1.35 billion population to be below the age of 25, with some 300 million of the world’s estimated 1.8 billion millennial population living on the continent. The bulging population of younger millennials and Gen Z-ers present opportunities for growth but also threatens the traditional insurance model.
Young adults have recorded a higher propensity to urbanise than older populations in developing nations. Urbanisation has been shown to be positively correlated with insurance consumption in many studies. A huge youthful population with the prospects of high urbanisation, the generally increasing literacy across the continent and improving economics should signal good fortune for insurers. Unlocking the youthful market, however, requires insights into the behavioural patterns of these peculiar residents.
In general, younger Africans are less tolerant of mediocrity and mistreatment than their older cohort. They are more likely to check for online reviews about an insurer in their buying decisions and are generous to share their experiences as well. Ignoring negative online sentiments of this group could be perilous.
Quitting and keeping promise
Among the many snide jokes about insurance is one about it being a promise to pay, which never gets fulfilled. Insurers pull up a panoply of busybody doctrines and so-called principles when the time comes for it to pay. In many advanced insurance markets, these doctrines have seen significant reforms towards fairness to policyholders.
In plain terms, an insurer which fails to honour claims and on time has no business staying in the market. Challenger insurer models are proving what should already be intuitive: paying claims fairly and speedily is the best sales strategy and a more sustainable profitability model. The probabilistic nature of insurance profits from large numbers.
Doing well
Funding social causes in tangible ways offers a proven avenue for insurance companies to gain some moral capital. I must add that policyholders can tell superficial CSR schemes from genuine impactful social causes. Behavioural models implemented by Lemonade, the standard-bearer of the new-age insurance model, have shown so far that policyholders are less likely to engage in immoral conduct against their insurer whom they perceive to be a good moral actor.
Technology first
Technology offers enormous opportunities for optimising insurance operations and delivering unmatched convenience to policyholders. Many insurance processes do not need the faculties of human beings. I have been impressed by the recent adoption of chatbots by Hollard and Enterprise, as well as the NIC’s MID. More scope exists for insurers to utilise technology in underwriting processes, policyholder engagement and retention and claims processing. The market of the future is attuned to convenient technological processes,
Opening up books
The negative public perceptions about insurers is stoked by inaccurate perceptions of their profitability. The emerging trend is for insurers to be transparent about how their premiums are spent. A typical transparent model discloses what percentage of premiums fund administration expenses and what goes towards paying claims. Unspent claims-provisioned funds are applied as policyholders choose. In other parts of the world, policyholders choose to have their funds spent on social causes they care about.
Relevant research
I cannot overemphasise the value of relevant research to an insurer’s sustainability. The impact of AfCFTA, with the likely borderless trade in services, the behaviour of the Ghanaian and African youth, which is relevant to understanding insurance demand patterns, and global trends that have significance for Ghana and Africa should engage insurers’ research investment.
Unless you are investing in research, you will struggle to survive the coming wave.
The author is a Chartered Insurer, [email protected].
