The impact of COVID-19 on digitisation in the insurance sector in sub-Saharan Africa
The impact of COVID-19 on digitisation in the insurance sector in sub-Saharan Africa29 May, 2020 •
The COVID-19 pandemic has exacerbated a number of existing challenges in the sub-Saharan African (SSA) insurance industry and has placed further pressure on the need to address these challenges. The lack of digitisation across the continent has been strongly highlighted in the last few months, with many insurers’ operations heavily constrained and new sales limited. However, this also means that COVID-19 has acted as a powerful trigger for insurers in seeing the value and need to digitise their own internal processes, followed by the fast-tracking of existing plans or adoption of new plans to digitise their operations. The greater efficiency offered by this shift may constitute a major opportunity for enhanced insurance market development in the medium to long term in SSA.
A major source of inefficiency in SSA insurance markets is the lack of digitisation across the value chain. Many insurers across the region still have traditional business models and rely heavily on brokers and agents for distribution (Thom, Hougaard, Gray, Msulwa, Rinehart-Smit, de Waal, 2019). Claims processing and policy management also largely remain reliant on in-person engagement in most markets. COVID-19 and particularly the social distancing mechanisms employed by governments have emphasised the need for insurers to be able to operate digitally. More than 60% of SSA countries have implemented quarantine measures and lockdowns, have restricted travel and have cancelled public gatherings (IMF, 2020). Digital engagement is therefore a priority for both insurers and regulators in the short term. This may also be an opportunity to enable innovation and more efficient operations in the long term.
However, can the COVID-19 crisis truly shift the way in which insurance is sold and engaged with in the region over the long term? At a webinar hosted by Cenfri and the Digital Frontiers Institute (DFI) to discuss these issues in more detail, Elias Omondi (Insurance Regulatory Authority Kenya), Craig Thorburn (World Bank) and Pravin Kalpage (Hollard) provided their inputs.
The restrictions on the movement of people, goods and services have created challenges for how insurers traditionally operate.
There is a real need to fast-track digital adoption amid the restrictions brought about by COVID-19. However, transitioning to digital engagement with customers remains a challenge due to two major constraints:
- Customers remain accustomed to face-to-face engagements and in-person interaction. It remains difficult to build sufficient trust with most consumers through digital interaction.
- Regulation in many SSA countries prohibits e-signatures and electronic contracting.
On the other hand, the main challenges experienced by the Insurance Regulatory Authority (IRA) came from the staff themselves, who had to revise their work schedules, develop new expectations around what can be done and figure out new ways to ensure accountability.
Despite the challenges the pandemic brings to the insurance sector, it presents some potential opportunities for insurers to digitise various aspects of the value chain.
There is a greater incentive now to digitise various aspects of the insurance value chain. One of the key opportunities for insurers emerging from COVID-19 is around digital sales, e.g. call-centres or end-to-end mobile sales. In Zimbabwe, for example, Hollard has been able to sell 3 million policies with their technology partner Econet, using only a digital interaction. Insurers can also engage with customers through mobile applications, calls, social media and USSD when it comes to policy servicing, and they can use drones, satellites and artificial intelligence to assess risks. The use of such technology, and regulatory changes such as acceptance of e-signatures, will help with the selling and processing of insurance policies digitally and will improve the accuracy and efficiency of underwriting, risk assessment and claims processing.
Insurers also face trust issues with customers, who prefer face-to-face engagement. Across seven SSA markets, agents and brokers accounted for 47% to 62% of policies sold, based on premiums (EY, 2016). However, COVID-19 has forced many customers to engage digitally, which may go some way in helping insurers overcome trust issues that customers may have. Although the pandemic has initiated a shift in how customers think about virtual communication, to ensure that the switch to digital engagement be maintained, greater investment in technology, consumer education and communication is needed. For example, insurers should focus on user experience design to ensure that digital channels are simple and convenient to use. In the future, convenience and flexibility are likely to become more important, with insurers developing telematics and on-demand products to become more responsive to customers’ needs.
Lastly, the effect of COVID-19 on mortality, illness and unemployment has made these issues particularly salient for individuals. This has highlighted the value of insurance and the role that it can play in helping businesses and individuals to manage risks. It has, in some cases, translated into a greater demand for insurance products and offers an additional opportunity to extend sales.
To make the most of the opportunities arising from COVID-19, regulators also have a critical role to play in creating an environment facilitative of innovation in the insurance industry.
- To support the industry in the short term, regulators need to monitor business continuity and prudential risks by revisiting liquidity and capital requirements to help insurance companies to survive the pandemic and to continue to pay claims. In addition, regulators should update stress testing around economic volatility and claims impacts and become more flexible about reporting/submissions.
- As a result of the restrictions, there is also a need for regulators to become creative with ongoing monitoring and supervision by enabling virtual engagement, such as remote onsite inspections, changing policies to allow for e-signatures and electronic submissions. A key realisation for the IRA was the importance of continuous consultations with the industry and creating an “ecosystem to ensure that the industry can withstand the pandemic”.
- As insurers have begun moving towards digital provision, market conduct considerations must be revisited, to ensure that customers remain protected and that digitisation does not lead to increased exclusion. In addition, adjustments to policies should be made, where possible, to ensure that policies do not lapse. This can be done by providing some flexibility in payment timelines or making allowances for premium reductions or holidays.
- In the long term, regulators need to look towards ensuring market development and the recovery of the sector, of which enabling innovation is a key component. The IRA is planning on promoting sandboxes and is setting up an innovation hub and platform to encourage collaboration between insurtechs, technology partners and insurers. The IRA has also recently published microinsurance regulations and is considering the piloting of cell captives to expand the menu of available licences to innovative entrants. As a key component of the long-term response, insurers and regulators need to consider how they can give consumers access to health and business- or income-interruption products that do not have exclusions. This would require access to pooled resources, government support or other risk transfer mechanisms, for example a pandemic risk pool.
Shifting the industry’s focus away from the short-term response and towards long-term adaptation to a new post-COVID market environment is key.
COVID-19 is both an immediate threat and a long-term driver of disruption to the insurance industry. While insurers are currently focused on immediate adaptation, maintaining solvency and ensuring operational resilience, they must not lose sight of longer-term imperatives. There is a risk that insurers will remain caught up in dealing with the immediate risks and assume that market conditions are going to return to normal. They need to start planning on how they can emerge from the crisis into a world that will be fundamentally different and more digital, and it is this shift in focus that will allow insurers and regulators to withstand the current crisis.
 Telematics involves the use of wearable devices or GPS trackers that monitor a client’s activity. The aim of this initiative is to lower customers’ health or driving-related risks, which allows them to negotiate cheaper insurance premiums (Janse van Vuuren and Hougaard, 2020).
 On-demand insurance enables consumers to use a mobile app to purchase as-needed insurance for personal belongings, home and travel insurance, and by-the-mile car insurance, usually when the asset requiring coverage is in use and at risk (NAIC, 2020).
 Saliency bias refers to the fact that individuals are more likely to focus on items or information that are more prominent in their minds, and availability bias refers to a tendency to overestimate the likelihood of events influenced by how recent the memories are or how unusual/emotionally charged they may be.
This work forms part of the Risk, Remittances and Integrity programme, a partnership between FSD Africa and Cenfri.