It may come as a surprise but insurance is genuinely one of the world’s oldest business models. The first historical record of something very similar to the modern insurance model of commercially distributing risk dates from 1750 BCE. Merchant ships setting sail from Mesopatamia, an ancient civilisation located around the Tigris and Euphrates rivers (covering territory that today is modern Iraq, Kuwait, east Syria and Southeast Turkey) were covered by an insurance system that compensated the cost of those lost at sea. These provisions are detailed in ‘The Code of Hammurabi’, a set of laws written in Babylonian that is one of the oldest deciphered writings in the world.
In the nearly 4000 years since, the way that the insurance industry has worked has really only changed very superficially. However, that is now changing. The internet age has significantly changed the insurance industry already. From the perspective of consumer-facing insurance products that has been most noticeable in the form of price comparison and value comparison websites making the market far more competitive and bringing costs down for the end consumer. A recent Deloitte study highlights the ‘nine most significant technological advances’ disrupting the insurance industry. In order of nearest to longest term impact, these are:
- Price comparison websites & insurance aggregator
- Mobile internet interactions
- Cyber risk insurance
- Telematics-based services
- Value comparison websites
- Social brokers
- Peer-to-peer insurance
- Sharing economy insurance
- Autonomous vehicle insurance
What is InsurTech?
Broadly speaking the term ‘insurtech’ can be defined as using new technology in insurance to improve customer experience, alternate delivery for cost savings, increase efficiency, simplify policy management, personalise insurance products and increase competition to offer more innovative products. This can take many forms and we’ll focus here on consumer-facing insurance. Using the information distribution capacity of the internet to compile comparable insurance offers, and consumers being able to easily access that information, can be considered the first wave of ‘insurtech’. That led to more informed purchases and greater competition, however it didn’t fundamentally alter the underlying mechanics of insurance – how risk analysis and therefore cost is calculated and who carries that risk: insurance companies and reinsurance companies.
Other consumer facing internet and tech-centric developments to insurance coverage mentioned in Deloitte’s list include value comparison sites, social insurance brokerage, P2P insurance and sharing economy insurance. These are more innovative and disruptive of traditional insurance business models.
Social Insurance Offerings
Social insurance focuses on smaller groups with more specific insurance needs that fall outside of mainstream product categories. For example, houses with thatched roofs may not be eligible for coverage under standard home insurance products due to the increased fire risk. Obtaining coverage would have previously been prohibitively expensive. Social brokers use internet-based research and social media to group individuals with more specific needs poorly served by mainstream insurance products. They then negotiate an insurance policy on behalf of the whole group, which makes it economically viable.
Peer-to-peer insurance can take a few forms. It can be a structure where a group buys the same insurance product together and receives a rebate on premiums if the whole group generates a profit ie. makes minimal claims. Another model is potentially cutting out a traditional insurance provider altogether. The p2p group pools insurance payments into a non-profit cooperative-style fund with claims then paid out of this.
Shared Economy Insurance
Sharing economy insurance caters to products and services that have multiple users. This could be for car-pooling where consumers pay a subscription for x hours of shared cars per month or year, similar systems for sharing use of agricultural machinery or vehicles or Airb2b-style accommodation.
Increased Personalized Insurance
Another side to insurtech is the integration of tech to provide both personalised and big data in the provision of more personalised quotes. Wearable technology that monitors health can reduce life insurance premiums for healthy individuals, while technology the monitors driving behaviour can reduce car insurance for statistically safer drivers.
Pooling this kind of personalised data, generated by tens or hundreds of thousands of individuals, or potentially millions, also gives insurance companies greater insight than ever before, allowing them to make more precise risk analysis models and facilitating a more personalised, granular approach to offers.
Pakistan’s Insurance Market
Pakistan’s insurance market can be considered relatively underdeveloped in both an international and regional context. However, it is developing at pace. A 2017 report by consultants Milliman shows gross written premiums have seen an average year-on-year compound growth rate of 13% over the past 5 years. However, this is from a very low base and competition is an issue, particularly in the life insurance segment. There are only 9 insurers providing life insurance in Pakistan, including two under the ‘Family Takaful’ group ownership and one state-owned operator.
Competition improves outside of life insurance with 41 providers, though again 3 are Takaful-owned and one a state owned company.
Source: Milliman – Pakistan: Growth and developments in the insurance sector
However, overall penetration (as shown in the image below) is still incredibly low with only 0.29% of Pakistan’s population holding life insurance and 0.91% any kind of insurance product compared to the emerging market rates of 3.2% and a world average of 6.3%.
Source: Milliman – Pakistan: Growth and developments in the insurance sector
InsurTech in Pakistan
Within the national context of Pakistan’s extremely low insurance penetration, the insurtech revolution is of particular significance. Rapid growth in access-to-internet penetration, lower barriers to entry in the shape of legacy systems and liberal regulation that allows 100% foreign ownership adds up to the Pakistan market being fertile ground for insurtech.
The first major factor in favour of insurtech is access-to-internet penetration in Pakistan, particularly through mobile devices such as smartphones. The fact that average value per premium is relatively low in Pakistan also means that insurtech business models generally having lower overheads and being to offer more personalised quotes makes the market more attractive to them. Social insurance brokerage and p2p insurance are also insurtech models that have particular value and potential in developing insurance markets. The growth of sharing economy models in localised commerce and business initiatives also means this kind of insurtech insurance product has a potentially significant market with strong growth prospect.
A lean, innovative, internet-based, competitively priced and accessible insurtech landscape is required by Pakistan’s economy and population with financial inclusion a huge factor in further developing economic growth. The consumer need and benefit is clear and the Pakistani market is also far more attractive to insurtech business models than traditional insurance models. This will again hopefully feed back into additional consumer benefits by increasing choice and competition in the marketplace.
Mawazna.com is a leading Pakistani financial services aggregator, comparison platform and marketplace for consumer-facing finance products including insurance products. The Mawazna.com platform provides Pakistan’s consumers with access to a wide range of suitable products, allowing them to conveniently select those which best suit their needs. It also offers insurtech, insurance and other consumer-facing personal and general finance products access to a large market of Pakistani consumers.
“Mawazna Karein Apne Liye, Apno key Liye”.