The pace of technological change over the last one hundred years has been phenomenal and unprecedented. Advancement in technology related to health care for example have dramatically increased chances of surviving illness and disease, and enhanced our ability to live following organ failure or the loss of a limb.
Technology is the making, modification, usage, and knowledge of tools, machines, techniques, crafts, systems, methods of organization, in order to solve a problem, improve a preexisting solution to a problem, achieve a goal or perform a specific function. It can also refer to the collection of such tools, machinery, modifications, arrangements and procedures. Technologies significantly affect our ability to control and adapt to the natural environments.
The word technology is derived from a Greek word (technología); which is a combination of téchnē), meaning "art, skill, craft", and (-logía), meaning "study of-" The term can either be applied generally or to specific areas: examples include construction technology, medical technology, and information technology.
The human species' use of technology began with the conversion of natural resources into simple tools. The ability to control fire increased the available sources of food and the invention of the wheel helped humans in travelling in and controlling their environment. Since then, technology has permeated through our daily routines, changing the way we cook and eat, the way we travel, and the way we work and interact with one another. What is more, the rate of change appears to be increasing, especially in the world of communications. Never before has so much information been accessible to so many people around the world.
A major /new technological development has recently been witnessed is Nairobi , Kenya where city-dwellers send money by mobile phone to rural relatives, while doctors in city hospitals diagnose patients via video-streams and remote sensing.
Other recent technological developments, including the printing press, the telephone, and the Internet, have lessened physical barriers to communication and allowed humans to interact freely on a global scale.
However, not all technology has been used for peaceful purposes; the development of weapons of ever-increasing destructive power has progressed throughout history, from clubs to nuclear weapons. In addition, many technological processes produce unwanted by-products, known as pollution, and deplete natural resources, to the detriment of the Earth and its environment.
Various implementations of technology influence the values of a society and new technology often raises new ethical questions.
Insurers have been involved in these technological developments over the years as it has provided the security required by the innovators and developers to put their ideas into practice. Without this security, these ideas might never have seen the light of day.
With new technological developments comes risks and opportunities. The greatest risk for the insurers is not to invest in technology in the first place.
For insurers of any size, everything—claims management, policy administration, distribution/agent management, regulatory compliance, risk/catastrophe management, customer service/retention—revolves around technology. Insurers need technology to better understand customers, markets and products and underwrite risks. The industry therefore need to investment in research and development, which has been seriously lacking. Technology is also important in the area of rating and pricing and will assist greatly in getting proper and accurate rating /pricing for risks.
A company that falls behind in technology would find it impossible to stay competitive, much less gain competitive advantage over the competitors. That’s why industry-leading institutions invest as much as 20% of their overall operating revenue back into IT, helping to explain how they stay as industry leaders.
Unfortunately, insurers have not fully utilized technology to improve core business functions and have failed to grow links with the research centers e.g. Earthquake, Climate, Cancer, Fire Prevention centers etc. As a consequence, they have put too much reliance on out dated computational methods of modeling risks which leads to mis- pricing, which eventually affects the bottom line profit. Combined with failures in risks management, the results can even be more disastrous, with serious ramifications on the normal functioning of society and the economy.
Another risk that faces the industry, especially with the advent of Solvency 11 is risk modeling.
Primarily, Solvency11 is concerned with the amount of capital that insurance companies must hold to reduce the risk of insolvency. It reflects new risk management practices necessary to define required capital and manage a risk. A solvency capital requirement may have the following purposes:
• To reduce the risk that an insurer would be unable to meet claims;
• To reduce the losses suffered by policyholders in the event that a firm is unable to meet all claims fully;
• To provide early warning to supervisors so that they can intervene promptly if capital falls below the required level; and
• To promote confidence in the financial stability of the insurance sector
Choosing or coming up with the wrong model will lead to the risk being undercapitalized with serious solvency implications, or over capitalized, and therefore too expensive to manage.
When it comes to catastrophic risks modeling, the Insurance Industry has also been caught napping. They have continued to use out of date technology for Catastrophic risk modeling. This implies that there is never adequate knowledge of the exposure of risks being covered, and consequently under Insurance and mis-pricing are common. Ultimately, there is a real threat to the solvency of the institutions that depend on them for security.
Going into the future, technology will be a serious balancing act. On the one hand, continuing development in technology will help spur economic activity, improve well being and support longevity. On the other hand, there is likely to be risks attached to new technology, which will need careful assessment and management. If we get this balance wrong, failures could lead to a dangerous slow down in innovation, research and development, as mistrust of technology will grow.
How we balance risks and opportunities will shape our future and the Insurance Industry has a multi faced role to play in striking the right balance.
Embracing technology will be important for the industry to improve the way it underwrites its risks, process claims, markets its products to consumers and identifies risks that threatens its own solvency. And by acquiring expertise in new technologies and growing links to the latest research and developments, the Industry will also be well placed to raise awareness amongst the wider general public. This could be through appropriate pricing of risks or through collaborative efforts with other industries, sectors and government bodies.
Insurance companies have long aspired to the goal of becoming truly customer centered, as opposed to the traditional product/policy focus. Until recently, however, many organizations fell far short of that ambition, hindered by legacy systems, bulky corporate cultures and a lack of enabling technologies. Today it's a much different story. Far from being the cautious tech laggards of the past, insurers actually are taking the lead in exploring innovative and technology-driven to interact with policyholders, customize offerings and channels for both customers and distributors, and generally transform the all-important customer experience. But it's hardly "mission accomplished," as insurers of all sizes and lines of business are dealing with an increasingly tech-savvy customer base that is demanding control, convenience and transparency in all their financial services transactions.
The bottom line is that there are a wealth of new opportunities for insurance organizations to build new and more profitable types of customer relationships - and along with this a host of new and complex challenges and risks. Ultimately, the institutions that are able to harness explosion of data, adopt new digital-based forms of customer interaction, and implement frictionless and secure transaction models will redefine the model of how an insurance company operates, grows and succeeds. The winning insurer of the future will be multi-channel but highly customer centered, digital but personal, innovative but risk management-committed.
In much the same way, emerging markets should be a fertile ground for technology innovation in insurance. This will be particularly relevant if, as many expect, commercial insurers begin investing in microfinance to establish a durable foothold in emerging markets – with “the notion in mind that today’s poor customers will be tomorrow’s wealthier ones. But for now, providing low-cost high-value insurance policies without a simultaneous focus on process poses significant challenges. This concern affects development of the entire proposition: product design, sales, premium collection and claims settlement. Most importantly, insurers must respond quickly, consistently, and effectively, even in remote areas, to claims.
Once a claim has occurred, timely payments are crucial, since the goal is to keep people out of poverty and in most cases, especially catastrophes, they require immediate help. Fast claim settlement is important not only for affected customers, but also for the success of the whole of the insurance programs. This comes from the fact that to your customer, you talk about something that has worked well in the past. If people see a claim being settled and money being paid, they are convinced by the product.
In all these, we should bear in mind that Insurance is designed for specific events during specific time periods, and knowing the customer is critical to designing and implementing sustainable, valuable solutions. New reliable data sources allow insurers to find the patterns necessary for product design and also for claims adjusting.
KENNETH OBONGO OBALLA.
ZEP-RE (PTA RENSURANCE COMPANY).