REINVENTING THE WHEEL
Iftikar Ahamed intimates that insurers need to reinvent their business models
Compiled by Yamini Sequeira
A pandemic is not included in the scope of insurance and usually, any such cover is excluded from policies. But the coronavirus of 2019 has created awareness and a corresponding demand for health insurance to expand, and there have been substantial payouts in the past year or two due to SARS-Cov-2.
Iftikar Ahamed says the key question to ask after COVID-19 ends is: ‘What’s next, and when will the next virus come our way?”
POTENTIAL He notes that this is so in the case of life insurance: “If we recall lessons from the past, the financial crisis of 2007/08 brought the banking sector into the spotlight; and now, the pandemic has insurance in its crosshairs.”
“There may come a point at which it is wise for insurance companies to reflect on the reason for their existence and the role they play in society as entities that take on and manage risk,” Ahamed adds.
It will be extremely important for insurers to establish a seamless and consistent experience at all touch points, which will be the gold standard on the way forward. He asserts that they will have to reinvent themselves to grow and achieve scale, and create attractive shareholder value.
“Innovation will be key, and those who embrace and deploy the new imperative will do well. It will not be acceptable to innovate at snail’s pace and take gradual steps. Those who succeed will need to have the speed of a startup and scale of a sizeable core business. What used to be done in years needs to be achieved in months and even weeks perhaps, to meet the changing demands of the market,” he elaborates.
Ahamed notes that insurance is generally not a happy subject of discussion and there’s a possibility insurers may lose their relevance if they continue to avoid risks by offering products that are irrelevant or covers that are limited using highly technical jargon that’s not understood by laypeople.
Customers are unwilling to pay for products that have limited value and are locked in by clauses in small print, he explains.
“Insurers have attempted to improve value therefore, and preferred to ride on the investment aspect of insurance products and used rates of return to entice customers. The returns on these products are very limited and may perhaps be the domain of asset management companies,” he avers.
He posits that if one projects the growth of per capita income here and compares it with a nation such as Thailand – where the comparable figure is closer to US$ 7,000 – there’s “potential for Sri Lanka’s life insurance sector to increase almost sixfold to Rs. 600 billion when income levels in this country move towards that value.”
INTROSPECTION Ahamed explains that “insurers will need to think about achieving scale and aim at areas they want to operate in with greater focus.”
“Companies that can come up with a well thought out business model, which will take into account the insights and trends that were brought on by the pandemic, would be able to grow substantially, renew themselves, and secure leading market positions by enabling and delivering value creation,” he opines.
Insurance is an intangible product and relies on a promise to deliver based on an occurrence that’s usually an adverse event for those who take out a policy. Further, insurance is always sold and not bought.
So while it is reassuring to assume that the online space and digitalisation will create a rush, and an explosion of insurance in the digital arena, it’s more likely that the gains for the business as a result of that trend will apply through already established distribution methods, resulting in greater productivity and efficiency.
The challenge for life insurance businesses will remain in the distribution of products, and resources such as manpower and technology that are required.
Examining the main obstacles to progress, he notes: “Insurance is a financial services business; and as such, it needs scale or higher business volumes to be successful. With penetration levels being very low in this country, achieving such scale has proven to be challenging. The traditional form of life insurance distributed through ‘tied agents’ is one of the most expensive ways of distributing insurance products.”
“The insurance sector needs to start thinking outside the box and provide customers with the type of cover they require, at the time they need it, as well as use methods that are convenient and at the price customers are willing to pay,” he asserts.
Ahamed suggests that the sector looks at expanding ‘insurance intermediaries’ to include other products such as bancassurance. Affinity groups include telecom entities, travel agents, aggregators, points of sale, direct sales channels, websites, finance companies and so on. These will help put the local insurance sector on a par with the models adopted by other markets and will be a necessary change in the post-pandemic era.
EXPERIMENTATION Businesses need to start from scratch, question everything and make changes to their working models based on evidence.
There is no road map or playbook, as what we have experienced has been unprecedented, he declares. A lot of the learning will come from experimentation and being able to benefit from mistakes made.
Given that current working models across major cities in the world have developed and thrived over the years, it’s likely that we will eventually return to the office as we know it. In his view, physical proximity and face-to-face interaction is “perhaps the most expedient way to do business as human beings are social animals.”
Ahamed’s outlook for 2022 is that the economy will be buffeted by inflation stemming from supply side disruptions, and exacerbated by a shortage of foreign exchange.
“Insurers will be further impacted by health claims as a result of medical inflation but would have the advantage of rising interest rates that they’ll earn on fresh cash flows and repricing existing investments,” he concludes.