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Technology and Disintermediation

A recent article in Insurance Gateway® titled Thematic considerations for the future of the insurance industry by Rahima Cassim, Fund Manager at Ashburton Investments, contains some interesting thoughts on where the industry is heading.

“With the evolution of technology, there has been an incremental shift in the balance of power from the insurers to the insured.  Consumers have become empowered to hunt for the best prices, products and services in what has become a highly commoditised industry. To gain a competitive advantage against this backdrop, insurers must better navigate the shifting technological landscape and deliver superior customer service and product innovation. We examine the relevance of technology, vertical integration, disintermediation and collaboration as key themes for the sector, and we explore their impact on the industry and its consumers.”


“Data is regarded as the backbone of the insurance industry. What began as simple information sharing in Lloyds Coffee House, circa 1688, has been honed and shaped by technology over time. As technology became more powerful and widely available, insurers have been able to more effectively and efficiently gather and interpret data. They can more scientifically gauge the appetite for risk, profile, price and package it for brokers to sell.”

The article discusses new challenges for actuarial and financial models, citing a local company as a prime example of what can be achieved.

“A prime example of this innovative thinking is Discovery, which has been a significant industry disruptor, primarily through its use of the Internet of Things (IoT) used to gather data for its more robust modelling techniques.  Instead of just reducing the cost of claims, it is focused on limiting the risk of claims manifesting from the outset by managing its customers behaviour patterns.”

“The optimal use of technology seems obvious, but there are some obstacles keeping traditional insurers from riding this wave:

  • An inability or unwillingness to invest in legacy platforms. These old platforms are often unable to cope with big data, complex analytics and varying consumer expectancies. Insurers with old systems are not in a position to adequately gather or analyse the data available, and antiquated systems are more vulnerable to cyber-crime (a negative consequence of globally increasing technology).
  • A scarcity of skills in the industry.  Experienced underwriters, catastrophe modellers and actuarial professionals are in short supply, especially in emerging economies.
  • A more onerous regulatory environment.  With a raft of new regulations being implemented, data in particular is becoming increasingly regulated, for example under the Personal Protection of Information Act (Popi).  The solvency 2 (SAM) regulation being implemented this year calls for greater balance sheet strength.  Smaller players in the industry could come under financial strain just from carrying this regulatory burden alone.”


“In the past, insurance brokers would sell a generic insurance product from a range of insurers to a customer. In recent years, innovative insurance companies have begun to sell directly to customers, thus we are seeing a disintermediation of the broker model. The advent of the internet has also made it easier for customers to compare different products and prices, making the role of the broker less relevant.  In addition to competing for customers against direct models, pending regulations like the Retail Distribution Review (RDR) will make it more difficult for independent brokers to remain profitable.”

“The above dynamics are driving an industry-wide re-evaluation of the role of brokers as distributors and advisors.  As the distribution aspect continues to transform, the advisory role that traditional brokers play should not be disregarded.  The need to explain different products, assess and communicate the risks and create customised or specialist insurance solutions to a consumer inundated with options, keeps the advisory aspect of the broker model highly relevant.  How the distribution and advisory aspect of brokers evolves over time remains to be seen.”

“Technology, vertical integration, disintermediation, and collaboration are not stand-alone factors in the changing insurance landscape. They are integrated trends that are expected to manifest over time in more robust margins and less volatile earnings growth…”

Click here to read the full article.

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2 Responses to Technology and Disintermediation

  1. Rob Glenister 23 March 2017 at 2:02 pm #

    Good article, thanks Paul. Of interest, particularly in the financial adviser arena, is the advent of robotic advisers. Many perceive this direction as yet another threat to the traditional adviser.

    And they are correct. What we need to appreciate is that with the continuous advancement of technology, the traditional adviser can no longer exist. Change is inevitable and if you cannot change, you will lose out.

    Another key point is that once you begin to appreciate that technology is an enhancer as opposed to a substitute, it’s amazing how if can work for you.


    • Paul Kruger 23 March 2017 at 2:13 pm #

      Very valid feedback, Rob. The challenge is to identify what will help, and what not. To rephrase the old saying somewhat: attitude, more than aptitude, will get you there. If you regard technology as the enemy, you are fighting a losing battle.