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Cognitive technology reshaping Africa’s insurance sector

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By Uzo Nwani

Underinsurance remains a feature of many African economies. With the African Development Bank (AfDB) revising its projected GDP growth rate for the continent to 3.7% from 4.2% by 2018, the region’s relatively low uptake of insurance is one key indicator of its underdevelopment.

For folks in the technology space, the insurance sector’smicro and macro issues are often opportunities for technology adoption and utilization.

Technology adoption is however not the key challenge confronting Africa’s insurance sector. A more fundamental problem plaguing the growth of Africa’s multi-trillion-dollar insurance industry is the issue of trust.

Nigerian lawyer and human rights activist Femi Falana recently explained at an insurance colloquium that while most insurance companies in Nigeria are anxious to collect premiums, they are reluctant to pay claims. And when they agree to pay, the payment is deliberately delayed. “One account of such delays is when motorists and drivers fight on the roads to determine who would fix their damaged vehicles,” Falana explained.

In a recent interview with the UK’s Financial Times newspaper, Paul Norman of KPMG East Africa opines that without trust, the industry is as good as nonexistent:“There’s a trust deficit gap — people don’t buy insurance because they don’t trust the providers,” he says. “They don’t think the promise [that a claim will be paid] is going to be delivered. Claims are not paid quickly, fairly or correctly. It’s a huge pain point across the continent.”

While the adoption of advanced technologies like big data analytics, cloud and cognitive computing will certainly boost the operational performance and efficiency levels of insurance firms (and businesses generally), insurance industry practitioners and institutions must work harder to fix the sector’s trust issues, working in concert with technology firms who will support their market development plans with appropriate solutions and systems.

APA Insurance, a Kenyan insurer catering to both individuals and corporates, recently turned to IBM to optimize its claims processes. The insurance underwriter can now gain greater visibility into policies, premiums and loss ratios through IBM Analytics Solutions, ultimately improving its product offerings, service delivery and customers experience.

While IBM continues to evaluate APA’s adoption and integration of its business intelligence (BI) solutions, the bigger picture is that there is a pent-up demand for insurers and improved risk management services across sub-Sahara Africa. Technology could help unlock the sector, further contributing to the continent’s gross domestic product (GDP).

The International Monetary Fund (IMF) has recently predicted that emerging markets and developing economies will be at the forefront of growth for 2017-18 at more than double the rate of advanced economies.

African insurers will no doubt increasingly use technology to rejig their business models, including as a tool to cope with changes in the markets and changes in regulation.

Technology will also eradicate the industry’s traditional boundaries, allowing new entrants to compete with the established behemoths in the industry. And as markets mature, insurance practitioners will also have to come up with strategies to better manage risk and technologically savvy customers. To succeed, insurers will have to work faster, more efficiently and, above all, smarter.

The report of a studyby the IBM Institute for Business Value (IBV), “Insurance 2025: Reducing Risk in an Uncertain Future” reveals that two technological trends will have a high impact on the future of business across industries: the rise of cognitive computing, and the increasing potential for decentralization of systems and decision making.

If systems are decentralized, the question will be where the center of control will sit, and how fragmented the networks will be. For example, limitations imposed by privacy concerns, regulation, or liability could hamper the use of devices encourage the device autonomy and the centralization of control.

Cognitive computing refers to next-generation information systems designed to accelerate, enhance and take advantage of human expertise. These systems can learn large amounts of data, reason with purpose, and interact with humans naturally.

Their ability to handle unstructured data and range across wide subject domains gives them opportunity to remake business processes. We believe these technologies will have reached maturity by 2025.

An IBM IBVinsurance survey in 2016 found that 79% of insurance company leaders believe technology will have a major impact on their organizations, and 71% said they have begun to use cognitive technologies. When combined with artificial intelligence (AI), cognitive systems can enable insurers to assess the risk of loaning to an individual to a high degree.

We believe that insurance companies should consider these four moves to succeed in the next decade:

1) Increase flexibility: Take out expenses and build in flexibility by moving core systems to a hybrid cloud that are available as-a-service, which enables experimentation and entry into new markets entry at low costs, on secure platforms. As products move to “as-a-service” models, turn legacy systems into components to help sustain cost competitiveness.

2) Develop partner ecosystems: Organizations in the insurance industry will need to collaborate to have the best data about consumers and the risks of loaning money to them.

The goal is to cultivate partnerships and membership in ecosystems within the insurance industry. When using “as-a-service” products, an insurance company will need to cooperate with service partners to offer the complete package.

3) Improve predictive capabilities: Insurance companies will need to improve their speed of change by bringing together technology, business capabilities and product investment. They should use analytics, pattern recognition and data to chart progress, as well as understand customer behavior and risk parameters.

4) Embrace innovation: Leading innovators build an organization with a corporate culture and design processes that encourageinnovation. Corporate structures can be made more flexible by streamlining internal innovation processes, with centralized funding and investment models.

Embracing innovation will build skill with component technologies of whichever future scenario wins, providing the capabilities necessary to prosper in changing conditions. And building agile development and business service composition skills will keep your organization nimble enough to capitalize on market changes.

As African economies expand and evolve, C-suite executives in Africa’s insurance sectorwill need to look towards the future, embracing cloud and cognitive systems to maintain their organization’s competitive advantage. By using this holistic approach, they can continue to transform their business even as their industry is restructuring all around them.

Nwani is IBM’s Global Markets ClientExecutive for West Africa.