BY IAN ONDAR
Domestic uptake of insurance products has been low. A recent study report by Cytonn Investments puts insurance penetration at 3%. This is despite the projected growth as a result of increased consumer confidence due to the rigorous policy reforms by the regulatory authority.
The rapid penetration of mobile connectivity has resulted in a dynamic shift in several key industries, from the disruption of conventional banking models to expediting service delivery by government and its agencies. The key drivers of this transformation have been identified to include product innovation, an insatiable demand by the incipient middle class, bancassurance and integration of web-based functions into core underwriting operations and, finally, expansion of listed underwriters seeking a further reach than the domestic markets.
Mobile-based applications as expected have had a considerable impact on underwriting in Kenya. The emerging trend by the key actors has involved trying to find ways to assimilate mobile innovations into the customary models. This has stimulated quite a contest, with a handful of the forward-looking insurance companies releasing mobile-backed products, in an attempt to capture the residual uninformed and rural citizenry. InsureAfrika is the most notable company dedicated to providing automated underwriting in Kenya. A newer entrant, PesaBazaar, also offers similar services including comparison of insurance products and generating quotations. These entities, even though they cannot be defined as automated underwriting systems, they are the pioneers of disruptive technologies set to upset conventional purchasing of insurance.
Automated underwriting systems have been defined as a technology solution, which is designed to perform all or some of the screening functions traditionally completed by underwriters, and thus seeks to reduce the manpower, time and/or data necessary to underwrite an insurance application.
The Insurance Regulatory Authority (IRA) has however not enacted a proper licensing criterion under which such companies can be categorized. The identification system principally recognizes insurance agents, insurance brokerage firms, and intermediaries among others. Therefore any companies offering such unique services have to be validly constituted under the existing system before they can be allowed to operate. This dilemma has resulted in the companies opting for an agent’s licensing.
The Insurance Regulatory Authority has played a commendable role by cleaning up the public perception of the insurance industry. A decade ago insolvent underwriters inundated the sector. After tens of liquidation and receivership, mergers and acquisitions the regulator managed to tame the insanity. By updating the minimum share capital requirements, separating the general from life business policyholders can once more have their peace. The Risk Based Supervision and expected mergers and acquisitions are among the key factors that will further strengthen the insurance sector.
The sector has in the last five years witnessed reasonable standards highlighted by the increasing interest from foreign companies enthusiastic to set up shop in Kenya.
Mobile Connectivity Effect
Mobile connectivity, estimated locally at 80%, remains the only plausible avenue of emancipating products to the masses, presenting a favorable environment for disruptive innovations in the insurance industry. Banking has greatly benefited from mobile-backed innovations through partnerships with major telecommunication operators. One in eight Kenyans has access to banking services. It can be said that at this exponential rate, banking services are at their optimal saturation. The high financial inclusion can be credited to the innovations reliant on mobile money systems that availed banking services to the rural unbanked populations. The Global Findex Database 2014 placed the number of adults with a mobile money account at 58%.
This preoccupation with easing service delivery by several market segments will no doubt offer intriguing innovations. A 2015 report by Communication Authority of Kenya indicated Internet connectivity at 71.1%. The current mobile money subscribers stand at 26.7 million. Already, according to the report, the market had benefitted from 700,000 additional mobile money subscribers in 2015. The regulator doesn’t have to play a passive role in this Digital Darwinism. IRA, as of now, has no capacity to license a fully automated underwriting system. As a regulator overseeing combined shareholder equity estimated at 117.9 Billion as of September 2014, the regulator should be at the forefront of discharging its obligations as stated in Cap 487.
The Authority might be squatting on its mandate under the presumption that actors will develop industry guidelines through self-regulation. However Section 3A (e) of CAP 487 include among the objects and functions of the Authority to “promote the development of the insurance sector”
Proposed guidelines will have to deal with the secondary actors, an insurance sector blacklist, consumer rights and protection and relevant constitutional provisions that may be applicable including Article 31 guarantees to privacy and access to confidential information.
Secondary actors
Primary interest has often been attached to the fiscal competencies of the insurance companies. An observation of the 2013-2018 IRA Strategic Guidelines indicates even more aggressive capital requirements. Many analysts are of the opinion that the only way ‘smaller’ companies are to survive the cut is by merging. The fascination with capital requirements bottlenecks growth of other vital components of the sector and excises their role.
Unknown to many, the insurance regulator also, as a result of its mandate under Section 3A (C) of the Insurance Act licenses all persons involved in or connected with insurance business including loss adjusters and assessors, risk surveyors and valuers. These classes of actors draw very little publicity to their role, for good measure, due to the amount of confidentiality they are obligated to.
They investigate and prepare reports to be submitted to their principals after claims have been filed. A role that in reality is fundamental in how claims are assessed and processed. These are the entities that filter genuine claims and in so doing reduce unpredicted liability from fraudulent ones. IRA reported in 2015 that companies have lost Sh324 million to fraudulent claims.
This vital component has suffered lack of oversight due to focus on the primary actors. Perhaps, this disregard may have contributed to a newer avenue of fraud. If so, what futuristic recommendations and guidelines have then been suggested by the regulator?
With financial performance contingent on the aggregate claims being compensated, it stands to reason that similar guidelines should be collectively imposed on all actors regardless of how little a role they play.
The Treating Customers Fairly (TCF) Model pioneered by the IRA is a positive stride in boosting consumer acuity. Joint awareness seminars could similarly be implemented to educate the masses on the inner intrigues of the insurance industry. In the process, insurance products may perhaps be demystified. More defined guidelines should be implemented; deadlines on submission of reports, penalties for engaging or aiding fraud.
Insurance Fraud Registry
The prevalence of fraud in the insurance sector led to the establishment of the Insurance Fraud Investigation Unit stationed as a department with exclusive jurisdiction relating to such matters.
Association of Kenya Insurers (AKI) had discussed a sectoral response. The Integrated Motor Insurance Data System (IDIMS) linked to the Kenya Revenue Authority is to facilitate the detection of fraud and assist in management of motor certificates. It could enable the insurance companies flag offenders and prohibit them from accessing any services. This service is yet to be fully realized.
Consumer Protection
Too much attention has overshadowed consumer rights. As companies seek to avoid negative profit statements, the market has ignored the concerns of consumers. Routine complaints revolve around unauthorized deductions for life products, unpaid maturity benefits, frustrated individuals seeking outstanding injury claims some years old. A similar trend inferred from such complaints exhibits the ignorance of policyholders of the Insurance regime. The fact that agents are misleading the citizenry with unrealistic promises cannot be ignored. Mis-selling by agents is incentivized by the substantial commissions they stand to receive.
What next?
These are the salient features that any soft law regulation should be concerned with. A mobile-based innovation would certainly have to incorporate all or some of these as fundamental operational elements.
Conclusion
The access to mobile-backed services is evidently increasing equality of access to commercial services to minority groups. An economist, Leora Klapper, with the World Bank has recognized the resultant effect as giving greater parity in account of ownership between men and women, between rich and poor, and between older and young adults.
At the pinnacle of this revolution it would be prudent to also involve the other actors who would play an integral role. Mobile innovation need not be viewed as a threat to the conventional methods of underwriting. Their decade-long deployment has subjected them to rigorous testing evolving from simple application to integration into everyday aspects of our daily lives.
The sector would greatly benefit from uniform regulation to enhance the public trust in insurance products. The disruptive technologies have had adverse effects in economies where they have superseded legislation. All indicators point to a likelihood of a fully automated system being developed. The technological advancements and adversarial competition prevalent in the industry in marketing products will necessitate the discovery of an unexploited frontier which will enable them capture the fertile market segment. The last frontier of underwriting will have to be adequately legislated and the Regulator holds the discretion to usher in the next chapter of underwriting.
