echnology application to solve problems has always thrived in Nigeria. The various challenges of development have inspired numerous apps embedded in existing technologies to solve problems. In the same mode, newer evolving technologies adapted to emerging markets such as ours are also finding acceptability among users. Take the case banks ATM that provides a transaction notice to the customer whenever the debit card is used at the machine. Although the notices (alerts) come with a cost to the mobile wallet of the customer, it has been wholly accepted because of the benefits.
Aside from a few emerging insurance startup technology firms offering low-scale embedded policies in partnership with existing insurers, the insurtech frenzy is absent in Nigeria. Yet only technology offers the greatest possibility of increasing penetration in the country. Octamile and Insurpass are in the embedded category; etap and botsurance are on the motor trade while Pula and Izanu are doing agric. There are many more. Perhaps about a total of two dozen altogether are active in the country. Their impact will yet gain traction in the coming years. China and Europe are leading in the delivery of insurance through technology. However, the peculiar Nigerian demography should constantly guide deployment.
The Nature of Insurance Technology
Technology is revolutionizing every aspect of our activity and insurance, too is experiencing it. The rapid change is evident throughout the insurance value chain: from the design, underwriting and pricing of products, their marketing and distribution, through to claims processing and the ongoing management of customer relationships.
Inclusive insurance offered to customers through technology is not a one-size-fits-all offering but is profiled according to customer type, “the country-specific context and conditions; the distribution models typical for inclusive insurance; other elements of the insurance lifecycle.”
Profile of the inclusive insurance customer
It is targeted at the underserved segment of the population with the following profiles identified by IAIS; “Low education levels and low insurance awareness; Low levels and irregular streams of disposable income; Low levels of formal identification document penetration; A living environment that makes it difficult to reach inclusive insurance customers; A lack of trust in insurance providers and a negative perception of insurance.”
Looking at the above profile, it is not wrong to extrapolate that 80 per cent of Nigeria’s population is within this range which offers investment opportunities for Insurtech firms.
In my previous article, Nigeria SDG Status and Insurance Ahead 2023, I established the fact that insurance penetration can only be tackled from an economic perspective, an integral part of government policy driven from atop to achieve some defined goals. Insurance and the role it plays in economic development is too important to be left alone to practitioners only and perhaps, to lobby groups. The uptake of insurance from Nigeria’s population and demographic perspective is very weak. It will require energizing to bring it to pace with that momentum needed to solve economic problems. Without laying a proper growth foundation, even Insurtech startups will be unable to achieve the necessary leap in penetration.
Historically, Nigeria’s insurance perception was corrupted by a generation of consumers who believed insurance to be a deception. They built up this belief at a time when insurance boomed and uptake, particularly life insurance was high. These people took up long-term savings policies in the hope that the value of the investment would appreciate throughout the policy. However, hyperinflation dealt with the value of the final benefit to such an extent that it was almost worthless. In addition, a story of ‘small prints’ (meaning hidden and unexplained clauses) was waxed into it and subsequently passed on to other generations. The result is the destruction of the image of insurance on two fronts;
1) Avoidance or reneging on promises and thus, not trustworthy
2) Insolvent and low investment profiling
These two problems have lived with insurance and insurance with them up to the moment. The insurance category that took the greatest hit is personal line insurance whereas wholesale corporate insurance emerged as the growth driver of insurance in Nigeria.
The ultimate promise to the individual who purchases insurance (insured) is to pay his claims when a loss occurs. Insurers should go a step further in the in-between period of inception and discharge of responsibility. The often quoted axiom, ‘the customer is king” should not be looked at exclusively from the standpoint of revenue but equally the acceptance of responsibility for full disclosures to the insured of all particulars that may render his expectations unrealizable. For instance, if insurers had in the time past mentioned herein explained to buyers of long-term insurance the probable effect of double-digit insurance, and offer hedges at a cost, much of the damage to insurers’ image would have been mitigated. Even now, revenue generation seems to be the driving force of customer relationships. The Insurtechs should do better to create awareness of the products they distribute and not hide under virtual cover. Insurers may develop a diverse and continuous training module aimed to equip salespeople with customer orientation and expectations. These pieces of training should form a component of a going-to-market strategy for organizations.
These arguments may be countered by pointing at AI (Artificial Intelligence) specific methods for the creation of an insurance value chain in the digital space. ‘Customer-specific targeted marketing, Chabot, Robo-advice, internet sales and price comparison sites, Social media and SMART phone/device distribution channels” have been recognized by regulators to provide real-time and need-based products to consumers.
Indeed the report, Increasing Digitalization in Insurance and its Potential Impact on Consumer Outcomes”, an Issue Paper by the International Association of Insurance Supervisors (2018) identified these flaws; “Social media applications may not be transparent to consumers. This can result in consumers being “nudged” without being aware – such as when consumers are confronted with unsolicited offerings based on their use of the internet. There is a risk that customers are persuaded into buying products or add-ons that are not in their best interest.”
The Paper also endorsed the benefits and says “the use of social media may enable insurers and intermediaries to better reach target markets” including possible “reduction in marketing costs, improvements in customers’ experience.”
Interestingly the Fintech Forum of IAIS states in its 2022-2023 Strategic Roadmap that in-depth analysis of the Insurtech trend will continue to focus on “safe, fair and ethical adoption of Artificial Intelligence and Machine Learning and the use of governance of data.”
Further underscoring the importance of customer protection, the group is also studying blockchain, Distributed Ledger Technologies and Application Programming Interfaces (APIs) and open data which are key drivers of financial technology.
To situate insurance as providing solutions to people’s needs is an unavoidable basis for planning the success of Insurtechs. This requires that scale and pricing based on the principle of affordability should be major components at play from the outset. Any projection based on premiums and profit would fail to attract and impart larger groups.
The time of the generalists is over. Embedded insurance delivers insurance where and when it is needed. Insurance of the future now thrives on solving specific problems of the consumer using big data. An article in The Digital Insurer (TDI) describes the new insurance model thus, “The embedded insurance of today is a seamless – or near seamless – customer journey that allows the consumer to make a purchase decision without the need for a hard sell or hard-fought customer acquisition on the part of the insurer.”
There are possibly a dozen important and compulsory insurance legislations that could be derived, micro-managed and offered where they are needed and in partnership with emerging Insurtech startups. The low-hanging fruit in this journey is health and motor insurance. Compared to other types of insurance, these two drive everyday activity. There is still a lot of investment to be made in the right technology to achieve the desired scale. Most importantly, implementing government agencies would require interface technologies that complement private sector Insurtech entities. Therefore, collaboration is key, and increased awareness concerning data protection laws must be a high priority among players to not deepen the existing distrust towards insurance.