Life insurance against non-life segment taking much interest
The insurance market in Pakistan is poised for rapid growth as the economy expands and diversifies, leading to greater demand for insurance products and higher rates of affordability among the enormous potential consumer market. However, structural challenges will continue to hamper the market from reaching its full potential. Poverty rates are high, as are informal employment rates, and this lessens demand for retirement and other life products. The non-life sector remains heavily reliant upon basic lines and in a fragmented and disjointed marketplace there is downwards pressure on pricing and limited profit margins. Moving forward the market would benefit from foreign expertise and investment, though Pakistan remains a challenging operating environment which could deter interested multinationals. Pakistan insurance sector relatively small against it peers but it is fast changing in the last five years and the industry particularly the life insurance sector has shown tremendous growth.
The Securities and Exchange Commission of Pakistan (SECP) is reportedly conducting a review of the country’s regulatory framework for the insurance industry. A number of roundtable discussions are taking place covering issues such as micro insurance, takaful and retakaful and the regulation of foreign insurance companies. Distribution channels are also gradually improving. These measures support the forecasts for rapid growth in the life insurance sector, with premiums forecast to grow by 11.6% (in local currency terms) in 2016-17. Growth will be slower in the smaller non-life sector, though still positive at 6.8% over 2016-17.
Life insurance is the largest segment in the Pakistani insurance industry. The Pakistani life insurance segment is highly concentrated, with the three leading companies accounting for 90.8% of the segment’s total gross written premium. Life insurance is distributed through various channels of which the agencies channel accounted for the highest share.
With Pakistan being a Muslim-dominated country and conventional insurance products being incompatible with Shariah law, there is a large-scale risk associated with conventional products. Growing fraud and crime act as one of the biggest challenges for Pakistani life insurers operating in the country.
The low penetration reveals the segment has positive growth potential, and insurers are targeting customers by offering various traditional life insurance products such as individual term-life, individual whole life and group life and pension products.
Globally most insurers seem to be left behind by the rapid changes in customer expectations. The insurance cover has become progressively commoditized and choice over its purchase is almost determined by price, as many customers fail to recognize its value.
Megatrends are also redesigning the competitive market for insurance companies and the market in which they operate. Insurers need to look into at how to keep pace with the sweeping social, technological, economic, environmental and political developments ahead.
Digital holds the key to customer connection; digital innovation can help insurers to engage more closely with customers and it can open up untapped commercial opportunities. Digital is the term we use to describe the leading edge collection of “SMAC” (Social, Mobile, Analytics and Cloud) developments in customer expectations, behavior and interaction which are rapidly changing the rules of business.
Social: Customers are increasingly using social media to find out about insurance products and how others rate the services.
Mobiles and sensors: They offer insurers a regular source of information into how customers go about their daily lives, which would enable insurers to price risk more effectively.
Analytics: Using the wealth of data created through social, mobile sensor channels offer huge opportunities sharper customer profiling and pricing of risk.
Cloud computing: Frees insurers from the constraints of on-premise IT and allows them to move to a more flexible technology platform. Cloud enables insurers to innovate and try out new services and solutions for customers with much shorter lead times.
Digital innovation has been the facilitator for the customer revolution; nevertheless it can also offer the opportunity to develop sharper customer engagement, vision and understanding needed to meet more challenging demands. Whereas most insurers are still primarily focused on e-commerce, the leaders are evolving deeper, more personal and extensive relationships by using their digital competencies to gain greater information about their customers. The competitive gains consist of being able to move away from simply contending on price while more effectively governing risks and matching the capability being offered by the contestants targeting their segments.
Though technology is going to be an important part of insurers’ ability to capture and analyze new sources of customer data and develop deeper relationship. Yet the real difference is how well this information is turned into perceptions and show willingness to lead the innovation in the open market. What this demands is as much a cultural leap as a technological shift. This includes comfort with Big Data decision making and the ability to bring creations to market with much greater speed and flexibility than today.
Customers have access to more information than ever before and at the same time customers want insurers to propose them the simplicity and approachability. They have become accustomed to in other sectors. They want quotes and prices when they want via the platform they choose, access to help when they need it and to interact only when renewing or making a claim. Where customers are looking at value rather than just price, they want policies tailored to their requirements and to be paying only for what they need.
What insurers know about their customers is still very much focused to an individual product view of risk, understanding the individual risk rather than the customer and their needs. There is need for more developed profiling techniques which will enable closer tailored interactions, products and services to customers’ exacting needs.
What underlies these developments is an important shift from the insurer being a reactive claims’ payer to a proactive risk manager. By helping customers to understand and mitigate their risks more effectively, the true value and difference of insurers’ risk management expertise would become more tangible and they would be in a better position to increase their prices and returns.