Insurers will require more data at a granular level to meet the new reporting requirements. FILE PHOTO | NMG
The insurance industry in Kenya is in a transition phase and
will remain so for the next few years as companies grapple with the
implementation of a uniform international book-keeping standard, IFRS
17, which takes effect on January 1, 2021.
Insurance
companies will now have to re-look at their valuation models, capability
of current systems and assess the changes to be made to ensure
compliance with the new standard.
Salient among these changes is that insurers will require more data at a granular level to meet the new reporting requirements.
This
represents a big opportunity for the industry to grow its data
analytics capability so as to better capture trends and draw decisions.
The risk – price relationship in insurance places data analytics at the
very core of the insurance set up.
With requirements
for increased data capacity and systems to match within the framework of
the incoming IFRS 17, insurance companies will have at their disposal a
treasure trove of information that remains very relevant in the running
and growth of the business.
Through data analytics,
insurance companies can assess products based on factual historical data
and can even narrow down to a geographical location. Different
locations and demographics in the Kenyan market face varying perils and
have unique insurance needs.
The analysis of data
allows for a strategic and informed re-think of product packaging to
more relevant, affordable and need centric insurance covers.
Could it be that the low insurance penetration in the Kenyan
market is driven by amongst other things, the generic nature of
available products?
The marketing function could well
make use of such data and roll out ‘targeted marketing’ to reach the
populace with a personalised message and relevant products.
Insurance
companies that will strategically invest in the data analytics space
will differentiate themselves from their competitors. With increased
comparability and results transparency being at the fore of IFRS 17, the
competition for market share in the insurance sector will increase.
Through
the analysis of existing data, insurance companies are already looking
to re-evaluate and disintegrate risks attached to various products. This
will ultimately lead to a superior pricing mechanism that is bound to
give them competitive edge.
The separation of
underwriting results from investment income in the new framework will
distinctly bring to the fore the true source of earnings for insurance
companies.
Stiff competition in the past has resulted
to some players in the industry resulting to price undercutting -
offering lower prices to lock down business instead of pricing based on
the risk insured.
Insurance companies that will assess
risk supported by insights from data analytics will therefore be ahead
of the curve in complying with future potential guidelines from the
regulator to clamp on price undercutting based on the shift in reporting
requirements.
Fraud in the insurance sector remains a
reality. The numerous players in a typical insurance contract does
little to alleviate the risk of collusion.
Through data
analytics, Insurance companies can establish trends based on historical
transactions and in particular loss making contracts to assess for
indicators of fraud.
Fraud
remains a challenge due to the lack of data sharing across insurance
companies. Be it the non-existence of data, lack of uniform data or the
high set up and maintenance cost of a centralised set up to house and
stream data to and from the various insurers, none of these challenges
measures up to the ever increasing cost of fraud year on year.
The
ability of an insurance company to anticipate claims has far reaching
implications in ensuring proper pricing, accurate reporting on loss
making contracts and increased efficiency in claims processing.
By
leveraging on data and analytics, insurers can assess the nature,
probability and likely quantum of claims arising from written business.
This represents a potential quick win in curbing loss making contracts
and better insights into the profitability of insurance companies.
The
potential gains of data and analytics in the insurance sector will
require commitment and investment by players in the industry. Insurance
companies face a significant challenge in the collection of relevant
data in a usable format.
This shifting landscape of
data in insurance heralds the dawn of a new age of opportunity,
innovation and differentiation whose impact will undoubtedly translate
into gains for the insurer and insured.
Frank Mumo Regional financial analyst, Jubilee Insurance.
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