Insurtech can and will help in the promotion, standardisation and harmonisation of takaful products, as well as their broader integration with existing Islamic finance mechanisms. Partnerships, collaboration and ecosystems need to remain in focus and takaful operators need to start exploiting these avenues further if they intend to compete more effectively on a global scale and continue to grow.
Digital disruption is a widely-used term today as technology continues to change the way we do business – disrupting many industries including insurance. Technology is invading the insurance sector across all segments – and takaful players are beginning to take heed.
In a recent survey by global research and advisory firm Gartner, more than 86% of insurers polled acknowledged their revenues will be at risk from future technological disruption – a clear indicator that the insurance industry is changing. While some legacy insurers are more than 300 years old, many fledgling InsurTechs are less than 300 days old – and the coexistence of both old and new in the InsurTech ecosystem has resulted in massive benefits.
Just as the advent of FinTech shook up the financial sector, there is a growing recognition the insurance industry will benefit greatly from the surge of innovation brought on by InsurTech firms. People are putting their money behind these disruptors too, with investment in the InsurTech industry doubling between 2017 and 2018, according to Gartner.
While the invasion of technology in the conventional insurance space is widely recognised, it has yet to make a mark with takaful operators. Some operators try to leverage the increased use of technology in various domestic markets, but these tend to be operators applying tried and tested tools to deliver benefits such as automation and other process-related efficiencies. What has yet to be seen is the direct application of technology to radically change or devise a new business model, a different means of engaging consumers or even, a differentiation of products and solutions.
Solution to takaful woes
InsurTech is necessary for Islamic financing practices such as takaful to maintain and grow market share. Failure to keep pace will inevitably weaken the competitiveness of takaful operators, especially when faced with an increasing uptake in disruptive business models in the conventional insurance space. InsurTech can and will help in the promotion, standardisation and harmonisation of takaful products, as well as their broader integration with existing Islamic finance mechanisms.
With financial inclusion a major issue in countries where there is a growing market for Islamic finance, InsurTech may well provide the solutions to help balance the disproportionate servicing of customers, particularly where currently there seems to be a reluctance in the acceptance and adoption of takaful products, in addition to limited awareness.
The emergence of tech-savvy consumers such as Gen-Y/ millennials highlights the huge potential for takaful operators and the wider insurance industry in general. Millennials are by far the most tech-savvy generation, but they are under-served, signalling a significant need for more agile and simpler financial services.
Tech not a cure for all ailments
The growing use of mobile devices and the shift towards greater technology adoption in the consumption of financial services underpin the further growth potential of takaful products and services to this ever-increasing segment of the market. However, in adopting new technologies it is important for operators to ask the following:
- Can non-traditional d istribution channels be tapped into?
- Can we foster innovation?
- Can we learn anything from previous false starts and technology failures?
- Can data insight and analytics be utilised to accelerate product development?
- Are there any compliance issues that need to be addressed and what challenges will we face?
- In the digital world, how do we manage and mitigate risks more effectively?
Technology can help bridge existing divides and plug many holes, but it should by no means be considered as a cure for all ailments. That is to say, the means in which technology is applied need to be carefully considered. Merely jumping onto the InsurTech bandwagon will not necessarily translate into success. Much effort, thought, time – and of course a little luck, are required.
Today’s consumers have access to a range of different services and offerings across multiple domains on a daily basis – where needs can be met via various sources. This increases consumers’ expectations and the products and services emanating from the insurance sector need to keep pace. So, if pure technology is not enough, what can be done to attract and keep consumers engaged going forward? What needs to happen to help firms accentuate the value they offer and stand out from the crowd?
Understanding consumer needs still paramount
Understanding consumers’ real needs for insurance is often overlooked in the industry. This usually requires an appreciation of more than just insurance – the thinking needs to expand beyond having a focus on just products and providing different types of cover. It needs to encompass the development of new services to address the real need rather than hinge on insurance products alone.
There are many drivers that insurers can consider. The rising healthcare costs for instance, require solutions that go beyond the mere payment of claims. What is needed is the development of ecosystems – something that looks beyond the traditional value chain.
An ecosystem comprising multi-sector partners could provide considerable benefits and be immensely successful, if solving the customer’s real problem is seen as the single most important point of consideration, and without being limited by the boundaries of the traditional insurance vertical. Cooperation should be the standard and not limited to just players within the insurance sector alone.
A few years ago, when the term InsurTech was first coined, it was mostly used to describe US-based challengers Oscar and Lemonade, who wanted to attack the established order with new products or distribution models. Since then, the definition of InsurTech has slowly shifted to ‘enablers’ – innovative tech companies that focus on assisting established carriers to improve and innovate specific parts of the insurance value chain.
What is beginning to happen now is a move towards ecosystems, where all parties in an ecosystem have a role to play in helping to improve and strengthen the insurer’s value proposition.
More collaboration necessary
For the insurance industry to continue to evolve, adapt and grow, both InsurTech and insurance firms need to collaborate more. Technology experts trying to disrupt the market can make early in-roads (and have done so), but as more established incumbents begin to react, progress inevitably begins to slow down and each party starts to see one another as a threat.
Such scenarios will do little to help the sector expand – stalling progress rather than fostering and encouraging it. With more partnerships and collaborations between InsurTech and insurance firms, this is particularly relevant for takaful operators, as they aim to build on and increase their market share.
It is still early days, and although InsurTech firms have already made a major impact, the market continues to evolve rapidly and consumer needs are ever changing (and more demanding). And so, opportunities to innovate, disrupt and grow remain strong. Partnerships, collaboration and ecosystems need to remain in focus andtakaful operators notably need to start exploiting these avenues further, especially if they intend to compete more effectively on a global scale and continue to grow further.
At Charles Taylor InsureTech, we aim to provide solutions and services that do not just help to enhance and transform legacy operations, but also help to build and support ecosystems. The partnership and collaboration approach we adhere to, enables firms across the insurance vertical to connect with other service providers, engage with consumers and innovate quickly, something that all carriers and not just takaful firms need to do more of.
The last three years have seen much disruption, and the next three years are likely to see this disruption increase; but more from within the sector rather than externally. Will this generate the kind of rewards that firms hanker after – especially where takaful operators are concerned? Only time will tell.
Author: Shahid Safdar, Managing Director MENA, Charles Taylor InsureTech
Published in Middle East Insurance Review November 2019