By Oyetola Muyiwa Atoyebi, SAN
In Nigeria, insurtech is a relatively untapped technology sector. The insurance industry is still in a state of inertia; this current state of affairs necessitates the involvement of agile insurance technology companies in order to introduce innovative ideas. Because of the uncertainty, many people have been deterred from purchasing insurance policies. Insurance policies can be complicated, and not all policyholders are aware of all of the fees, coverages, and terms that come with them.
The rapid advancement of technology in the twenty-first century has resulted in the emergence of several innovations that have improved operations across a wide range of industries. The use of technology in the insurance industry has given rise to the concept known as ‘insurtech.’ With insurtech firms now operating in the insurance industry, the insurance industry is bound to see a slew of innovations that will have a significant impact on the operations of insurance companies.
Historically, insurance has been viewed as a “win-lose” product. When a claim is successful, the policyholder “wins,” while the insurer “loses” and vice versa. Due to the uncertainty associated with insurance policies, a large number of people have been deterred from purchasing them. Insurance policies can be complicated, and not all policyholders are aware of all of the fees, coverages, and terms included in a policy. According to a Morgan Stanley/BCG consumer survey, nearly 50% of policyholders have one or fewer interactions per year with their insurers, and less than 60% of those who made the contact are satisfied with the experience. Technology has no doubt influenced every sector of human existence, the insurance industry has also felt the impact of technology.
Will the introduction of technology in the insurance industry improve the relationship between policyholders and insurers? This article seeks to examine the concept of ‘insurtech’ and how technology has affected the insurance industry.
What Is Insurtech?
The term ‘Insurtech’ is coined from the combination of two words ‘Insurance’ and ‘technology’. Insurtech is the use of technological innovations designed to make the current insurance model more efficient.
The term “insurtech” also refers to companies that use technology to innovate and disrupt the insurance industry. It is the intersection of ‘insurance’ and ‘technology.’ It has gained popularity as a result of new, disruptive companies and products that capitalize on the deficiency of older, established providers.
According to Agusto & Co., the Nigerian Insurance Industry’s gross premium income (GPI) increased by 15% year on year to 592.3 billion in the fiscal year 2020. With the emergence of growth in the insurance industry there is need to harness tools that aid the development of the insurance industry.
Many customers are dissatisfied with traditional insurance models’ slow, stringent processes, and they frequently choose not to purchase insurance policies. People in modern society want to be able to buy travel insurance, life insurance, health insurance, property insurance, and other products with the tap of a finger on their devices, rather than having to sift through stacks of forms. Insurtech startups are aware of this and have developed a method for people to obtain easily accessible and ultra-customized insurance policies.
How Does Insurtech Work?
Insurtech improves the customer experience by streamlining and improving backend procedures.
Insurtech improves the backend process via chatbots and smartphone apps etcetera. Client support staff are no longer required by insurance companies to respond to every customer concern. Many can be answered by chatbots, which respond to inquiries automatically at all hours of the day and night.
Apps for smartphones also improve the consumer experience. Rather than printing photocopies of licenses and other documents, the app will allow customers to take a picture of the document and then submit it via their phone. This way, consumers and companies save time and resources.
Artificial Intelligence refers to intelligence shown by computers or robots. A subcategory of Artificial Intelligence (AI) is machine learning. Machine learning is technology that allows machines to “learn” over time. It makes use of algorithms to simulate neural networks in the brain. Machine learning enables computers to learn by extracting patterns from raw data rather than following pre-programmed instructions.
Verification and identification of documents submitted online is done through a process referred to as Know Your Customer (KYC).
The AI used by Insurtech firms usually carry out the following functions:
- Risk modeling: this is the process of analyzing claims data in order to forecast the likelihood of future losses.
- Demand modeling: this is the use of mathematical models to estimate premiums and forecast future product demand.
- Fraud detection: Using machine learning to detect fraudulent patterns of behavior that are not obvious to human adjusters.
- Claim processing: Increasing the automation of claim reporting and processing. Machine learning is being used to assist underwriters in analyzing data collected from applicants, flagging errors, and verifying accuracy.
THE REGULATORY FRAMEWORK FOR INSURTECH IN NIGERIA
The Insurance Act, 2003 is the law for the governing of the general insurance industry in Nigeria. Section 4 of the Insurance Act establishes the National Insurance Commission (NAICOM) as the regulatory body for insurance business in Nigeria.
The National Insurance Commission is in charge of guaranteeing the efficient administration, monitoring, regulation, and control of the insurance industry in Nigeria, as well as the protection of insurance policyholders, beneficiaries, and third-party beneficiaries of insurance contracts.
For any company to operate as an Insurtech company in Nigeria, such a company is required to be registered with NAICOM and obtain relevant licenses and permits.
The National Insurance Commission of Nigeria (NAICOM) has recently teamed with FSD Africa to create the BimaLab insurtech initiative in Nigeria, which will allow for the implementation of ideas for improving insurance in the country. BimaLab Nigeria aims to close insurance market gaps by educating, nurturing, and promoting innovators and insurtech startups.
The program invites promising insurance innovators to apply for a chance to contribute to the insurance industry’s growth by bringing creative ideas to the table.
Applicants must fundamentally define and illustrate how their innovations answer to difficulties in the insurance sector, with a strong focus on the social effect, in order to be considered.
BENEFITS OF INSURTECH
- A Wider Selection of Products: Insurers can construct a more comprehensive operational support system for their products, acquire numerous technological advantages, and adapt to different operational needs with the help of technologies such as cloud computing, big data, artificial intelligence, the Internet of Things, and blockchain.
- Claims Management: Smart contract features( which are features that computer programs that are intended to automatically execute legally relevant features have) enable for the automation of numerous processes; which is essentially how insurtech makes claim management easier. This has a lot of advantages – including enhanced flexibility and transparency, as well as improved customer-insurer interactions.
- Detection of Fraud and Risk Mitigation: The Insurance Information Institute reports that fraud accounts for about 10 percent of the property and casualty insurance industry’s incurred loss adjustment expenses annually. As a result, companies invest millions of dollars every year to ward off insurance fraud. By establishing a decentralized digital depository, insurtech can assist in the detection of fraud and the elimination of errors. This entails verifying the legitimacy of policyholders and their claims, as well as giving a full transaction history. It can prevent transaction duplication and document all transactions for public records.
- Identity Verification: Customer document records can be checked by issuing agencies using insurtech. It also enables the organization to keep track of their consumers’ information.
- Processing Payments: Insurtech is also being utilized to make insurance premium and claim payments more efficient. Take for example, vehicle insurance policyholders who have an account from which payments are sent on a regular basis based on the number of miles driven. Each autonomous vehicle’s telematics system, records and transmits the miles driven in real time, and the premium is computed and paid automatically.
THE CHALLENGES OF INSURTECH
Although Insurtech is a welcomed development in the insurance industry, there are some challenges that insurtech companies currently encounter, some of these challenges include:
- High/Bureaucratic Regulation: The insurance industry is an industry with heavy regulation via legislation. This presents a challenge for newcomers to the industry. First, navigating the complicated, ever-changing regulations necessitates expertise and experience that many new businesses lack. The cumbersome regulatory environment in the insurance industry has often deterred startup Insurtech companies from properly exploring the insurance industry.
To ensure efficiency in the insurance industry, Insurtech firms should seek the services of experts that are adequately knowledgeable with the legislations involved in the insurance industry.
- Data Protection and Privacy: With the prevalence of data breach sagas reported in recent years, many persons are very concerned about the collection and storage of their data. Because insurance companies need a lot of data to effectively assess each individual application and offer the best coverage, many users are hesitant of disclosing a lot of personal information without knowing how it will be used.
Insurtech is a relatively untapped technology sector in Nigeria. The insurance industry is still in a state of inertia; this current state of the insurance industry requires the involvement of agile insurance technology companies to introduce innovative ideas. I believe that NAICOM needs to open up the industry by licensing carefully vetted insurtech firms.
With the emergence of insurtech, a truly online-only insurance company in Nigeria is possible, it will be very beneficial to the country because it will save money on buildings and other industry artifacts. Insuretech can help to unlock the value of insurance in Nigeria and grow the sector. But that can only happen if entrepreneurs take the initiative and NAICOM supports them. On the whole, the Nigerian government should create policies that will enable easier insurtech participation.
AUTHOR: Oyetola Muyiwa Atoyebi, SAN.
Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm) where he also doubles as the Team Lead of the Firm’s Emerging Areas of Law Practice.
Mr. Atoyebi has expertise in and a vast knowledge of Telecommunications, Media and Technology Law and this has seen him advise and represent his vast clientele in a myriad of high level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of a Senior Advocate of Nigeria.
He can be reached at email@example.com
CONTRIBUTOR: Romeo Osogworume
Romeo is member of the Corporate and Commercial Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Technology Law.
He can be reached at firstname.lastname@example.org
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