By Clement Chinaka
THANK you for your kind invitation to share my thoughts on the occasion of this Insurance Survey and Awards event. I am acutely aware that this is coming at a time that is difficult and unprecedented in a generation.
I am encouraged that organisations like AMH (Alpha Media Holdings) can still organise such programmes that facilitate analytical review of the insurance industry’s performance and exchange of ideas among business leaders in Zimbabwe. Well done to the organisers and congratulations to all that will be honoured in this event.
In my short presentation to you tonight, I would like to do three things:
To offer some brief commentson the current state of the insurance industry in Zimbabwe;
To discuss key issues in the insurance industry that characterise the new normal
Conclude by offering some thoughts that business leaders here can use to develop the insurance industry in Zimbabwe.
The need for protection against adverse events in the form of some kind of indemnity against a material loss or provision of financial support to surviving dependants on the death of a breadwinner has been around as long as the monetary economy has been around, and the need has grown as society becomes more affluent andmembers became more individualistic, leading to changes in the way the insurance industry was organised.
What I am saying is, insurance has been around for a long time and our predecessors took steps to ensure that it survived several changes and stages of human and economic development. It is now our turn to make sure the industry thrives through the current changes, into what we call the new normal.
Insurance in Zim
Turning to Zimbabwe, the formal insurance industry as we know it today dates as far back as 1895 when the then Mutual Life Assurance Society of the Cape of Good Hope today known as Old Mutual established an agency in what is now, Harare. Several other players have come to the fore as you know.
There is abundant empirical research from advanced markets as well as emerging markets on the nexus between insurance industry and the performance of the general economy. That is, insurance and pensions industry require an economy that is doing well for them to thrive, and in turn a strong insurance and pensions sector enables economic growth. The insurance activity, both as a provider of risk transfer and indemnification and asset gatherers, contributes to economic growth in the following ways:
- facilitating trade and commerce (the most ancient insurance activity),
- mobilising domestic savings,
- Allowing different risks to be managed more efficiently encouraging the accumulation of new capital.
The importance of the health of the local economy to the fortunes of the industry is higher in an environment like Zimbabwe where the industry players are restricted to investing insurance and pension assets in the local market. If a fish depends on a small pond as its habitat, the health of its surroundings becomes a matter of life and death.
Now, it is well documented that Zimbabwe has experienced very difficult economic conditions in the last two decades. You guys are suffering a second hyperinflation episode in less than 20years. Most of you in this event today have lived the experiences, and the insurance industry has contracted severely over this period. We need all parties to do all that is necessary for the economy of Zimbabwe to perform at its potential so that the insurance sector works well.
An outsider’s view
The Covid-19 pandemic and associated economic difficulties are making affordability of insurance difficult for many people in the short term. Insurance penetration is estimated to have declined markedly from around 6% to below 2% over the last decade. Yet, remarkably, the number of key insurance carriers has not changed much for decades — a trend that we see elsewhere in the world.
General insurance penetration was onlyb0,66% in 2020. In 2021, 55% of insurance is in respect of motor insurance. This is followed by fire insurance at 15%, then personal accident and bonds and guarantees at 5%, engineering at 3,4% and farming at 3,4%. The rest of the classes are tiny.
I believe a large part of that is due to compulsion of motorists to have at least 3rd party insurance. This is an economy that prides itself as agrarian, yet agriculture insurance is only 3%? I think there is plenty of opportunity in this sector.
In terms of distribution, 54% of general insurance is written via brokers and 45% is written directly and via tied agents. Digital distribution is still very low.
Life insurance penetration was even lower in 2020 at0,27% for insurance while pension penetration was only 0,38%. Around 41% of life companies business is insurance products and 59% is pensions. On the insurance front, 86% of insurance premiums are for funeral, 8,5% is for group life assurance.
Distribution of life insurance and pensions is dominated by employed staff accounting for 59% of premium flows, individual agents account for 38% and branches only 4%. There are only about 3300 people involved in selling insurance, which is small. Very little is distributed digitally.
The need for our industry endures throughout economic cycles. Indeed, the industry itself can be a catalyst for economic growth. That is why I believe that our responsibility as leaders is not diminished but rather elevated by the changes we are witnessing in the country and the world. The key is to be in tune with what is happening and responding to meet the timeless insurance needs in the changing circumstances.
Key trends in the new normal
One of the key challenges facing the world is how increasingly unequal it is becoming. The Covid-19 pandemic itself has not only opened our eyes to the debilitating levels of inequality in the world, it has, perhaps more alarmingly showed us how vulnerable those that are financially excluded are to disasters.
High levels of inequality pose significant political risks and that is not good for business. A key question is what role we can play as leaders to make financial services more inclusive and thus bring more people into the mainstream economy.
Improving market conduct
Another issue the insurance sector faces across the world and in Africa, specifically, is low trust in the industry. The industry needs to focus on its sustainability. It must demonstrate its value to strengthen public credibility. This is achievable if businesses act with care and integrity in all aspects of their operations. How insurers respond in key moments that matter, particularly at the point of claim, dictates public perception of the industry.
There must be a culture of treating customers fairly. Better targeting of products to the customer segments they are designed for, improved onboarding of customers, clear communication, and products must perform as advertised, fair claims processes and give customers opportunities to express their views on the company’s performance are characteristics of good market conduct principles that are being rolled out across the world.
Trust is further enhanced by a level playing field for all players that can only be facilitated by strong, knowledgeable and well capacitated regulators, whose main aim should be to maintain a healthy and thriving industry for the benefit of customers, insurers and other industry players. Risk based solvency regimes are crucial
Insurance has been relatively slow to feel the digital effect, owing to regulation, large inforce books and the fact that newcomers seldom have the capital needed to take on insurance risks onto their balance sheets.
A study by McKinsey found that staying competitive in a digital world will require far more than the addition of a direct sales channel or a few automated processes. Even the term “digital transformation” can underplay the responses required, suggesting as it does that the change needed is purely technological.
The goal must be to meet the customers’ expectations, which have been transformed by digital technology. Customers want simplicity, 24hour access and quick delivery, clear,relevant information about product features, and innovative tailored services designed for the digital age.
They have the same expectations whatever the service provider, insurers included. In insurance digital is changing how products and services are delivered and increasingly it will change the nature of those products and services and even the business model itself.
Currently the focus of insuretechs is largely distribution, pricing and product development — in that order. P&C is the at the forefront followed by health insurance and then lastly, life insurance.
As the world is going online, en-masse, we have seen an increase in cybercrime. McAfee estimates that close to US$1 trillionwaslost to cybercrimein 2020. This requires significant investment in business resilience and intrusion detection capabilities.
In 2020 most African economies suffered from the reaction to the threat of the pandemic rather than the health impact of the virus itself.
The insurance industry was hit via business interruption claims in the short term insurance space. Health insurers initially benefitted from Governments taking responsibility for treating Covid-19 sufferers. We are seeing this trend reverse now with health insurers facing rising claims. Mortality claims have been very bad in South Africa and now Namibia.
The two countries have some of the highest incidents of Covid-19 incidences per million people in the regionand they have the highest insurance penetration on the continent. Luckily, so farfor most, the pandemic is an earnings event rather than a capital event. That may change as more variants emerge and if the pace vaccination roll out remainsslow.
The pandemic and vaccination trends are themselves shaping insurance underwriting. We can expect a wave of price increases in both direct insurance and reinsurance and alsoexpect changes to policy terms depending on comfort with ability to quantify and price the risks.
Some questions still beg for answers, for example: what will the world do with the results of the work from home experiment?What is going to happen to property values, if the demand for office space plummets because of work from home or hybrid of partially working from home and working from the office?
In the past week the IPCC report on impact of climate change report was released. It paints a discomfiting reality of the future. It begs tow questions form insurers:
- What are the implications for the risks they carry
- What can theindustry do to drive the change required to avert disaster. Should insurers, some of the largest owners of asset pools consider incentives and disincentives for industries that are harmful?
Some thoughts on what to do
Now, having said all this, I offer my thoughts on how I believe insurance business leaders can meet this moment in history. I believe we need to focus on three things:
- Invest in personalisation of more aspects of the customer journey;
- Develop flexible product solutions suitable for a challenging regulatory and financial markets environment
- Invest in skills and capabilities of the new economy
I will unpack these points briefly:
- Personalisation of customer journeys – the advances in digital in other industries has raised the bar in insurance as well. There are several areas that present opportunities for personalisation and improvements in customer experience:
- Continuous underwriting–Mortality underwriting as it is currently suffers from two flaws: first, it is constrained to a single moment in a customer’s life – the initial sale. Thus the only data available at that point is past morbidity and behavioural data of the customer. Second, it fails to account for customer lifestyle changes in the life of the policy. Increased data and device connectivity and telematics present an opportunity for personalisation. We must invest in continuous “one-touch” underwriting, with dynamic adjustment based on customer behaviour and suggested personalised actions to significantly drive healthier behaviour. Telematics are also bringing the capability to monitor driving style and offer advice to motor insurance
- Personalised, Omni channel customer journeys – Covid-19 has accelerated many of the digital and Omni channel elements that were in their early stages in many markets such as robo-advisors, video conferencing, and web chats. Recent McKinsey survey of European consumers found that 54 percent of customers now prefer direct or digital channels, up from 38% before the crisis. While frontline professionals will continue to play a critical role in reaching customers, we must embrace the integration of physical and digital channels in the new normal. Agents can be armed with advanced analytics on their customer base as well as centrally provided digital leads. Additionally by reducing the price of distribution, we can reach to more financially excluded people.
- Fit-for-purpose product solutions – the ever changing regulatory landscape and volatility in markets will reward insurers who invest in innovation and flexibility. I see two areas for change in the product space:
- New solutions tailored for different life stages – as they say, life happens. Our insurance offerings should evolve as life happens to our customers. In the face of increasing pressure on disposable incomes, we should leverage data to develop new age products that increase coverage and premium flexibility in keeping with customers’ life stages. In Japan, for example, a leading insurer offers medical, asset accumulation, and protection against dread disease and mortality wrapped into a single product, enabling the customer to add or reduce coverage as their circumstances change.
- Differentiate – Insurance companies are competing with not just their peers but also industry alternatives such as pure wealth and asset managers. As such they should increasingly seek to differentiate themselves through value-added services and nonmonetary benefits. Convergence of health and life insurance in Asia and Europe, for example is seeing life insurance companies offer administrative support for medical visits, health management, and telemedicine. Advances in data and ecosystems plays are making expansion to adjacent services possible.
- Skills and capabilities of the new era – underpinning the foregoing strategies and a path to growth in the next normal is a requirement for new talent and new capabilities.
- A radically new-look workforce, supported by skills of the future – Research at Harvard Business School predicts that by 2030, 44% of insurance work activities have the potential to be automated. Roles that focus on repetitive work and manual processes will cease to exist in their present form, while technology and digitally savvy workers will increase in value. Emotional, interpersonal, and social skills will also become more critical, especially for customer-facing agents who can help consumers address their changing financial and coverage needs. We therefore have to invest in the workforce of the future
In conclusion, it is clear that changes in customer behaviour, new competitive threats, the pandemic and perhaps more candidly, a brave new world for all of us – presents an opportunity, but also a burning platform for insurers to rise to the challenge and thrive. Future generations are banking on us to deliver the future.
Once again, congratulations to the award winners tonight.
Chinaka was guest of honour the relaunch of the Zimbabwe Independent Insurance Survey last week on Thursday. He is the managing director Rest of Africa at Old Mutual.