The growing prominence of local insurance technology (insurtech) start-ups is leading to more collaboration with traditional, larger insurance firms.
This is according to Dominique Collett, head of AlphaCode, a club for fintech entrepreneurs powered by Rand Merchant Investment.
According to Collett, the disruptive nature of insurtech start-ups, along with the growing number of new innovative products, is making it increasingly difficult for the staid local insurance industry to ignore the smaller firms.
"The existing insurance industry will not stay static and insurers are jumping on the digitisation bandwagon. Insurtech has gained momentum over the last two years in SA. Insurtech was initially seen as a major threat by insurance companies, but now they are taking a far more proactive approach to seize opportunities in this space and are starting to collaborate with start-ups." she says.
"Exciting new models are now transforming a sober industry characterised by opaqueness and outdated systems. The increasing number of millennials entering the market also comes with a set of very different expectations."
Avi Naidoo, CEO of Fo-Sho, a local insurtech start-up that offers peer-to-peer short-term insurance, disagrees, saying large local insurance firms are still reluctant to embrace insurtech.
"The insurance industry is dominated by several large players, who see the threat insurtech poses, but they have the albatross around their neck of the old culture, old systems and the obligation of results (among many other things).
"They can see the tide is changing, but they are unable to jettison everything that has been built up over their existence and cannibalise itself in order to move to the new paradigm. So they tinker on the fringes of their business, working with insurtechs, hoping that something will stick."
Naidoo adds that in his experience, progress is often slow at such companies as they lack incentive to shift from their tried and tested business models.
Another fintech founder, Alex Thomson of Naked Insurance, says although the large insurance groups are all investing in insurtech initiatives, it is at arm's length. "Their challenge is how to innovate in their core products, which often make money in ways that conflict with the insurtech trends towards transparency and instant customer control.
"The low-hanging fruit is in software robotics and other backend automation. We [start-ups] can contribute immensely to the sector through much-needed innovation, broadening access to insurance by reducing costs through automation and leveraging new sources of data and constantly pursuing ways of improving customer outcomes."
The experience, however, has been different for Root Insurance CEO Louw Hopley, who says larger firms are adapting to technological advancement. Hopley explains that the start-up is working with risk transfer solutions provider Guardrisk on development of an Insurance-as-a-service platform that connects innovators to insurance licences and key insurance capabilities.
"It is important that as start-ups, we help transform insurance industry training and educate software developers so we can package the most important complexities around developing and launching compliant insurance products behind an easy-to-use API."
Collett concludes that the playing field is ripe for disruption, although challenges need to be addressed. "Some of the key challenges in the local market include the small number of economically active people; a much smaller pool than in the US and the UK. How we make these products accessible to this key audience will be insurtech's biggest challenge."
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