Not too late to wear the technology gown is the insurance sector. The rise of insurtech has invigorated interest in the insurance industry globally, and is becoming a significant subject for digitisation in many financial systems.
Simply having a web presence or increased online facilitation wouldn’t cut it. What makes a company insurtech is the used of some AI algorithm or big data for example for analysing the risk profiles or increasing personalised offerings etc.
While many argue that the technological sophistication is too far for an insurance sector that it has extremely low penetration and still considered in nascent stages, IFC has presented an interesting side to the argument: How Insurtech can close the protection gap in the emerging markets, where protection gap is simply underinsurance, or the difference between insured losses and uninsured losses.
In a recent note, IFC highlights that insurtech can significantly close the protection gap for emerging economies where GDP growth and insurance growth go hand in hand. And the key segments it highlights for emerging markets for the insurtech opportunity are the life insurance segment, health care and natural disaster cover.
Pakistan fits rightly in this category with insurance penetration of less than one percent, needing a comprehensive healthcare system or disaster cover where people either pay out of pocket or do not have the capacity to pay all. A large population and increasing internet and smartphone penetration can make a good case for insurtech. Micro-insurance is a niche that can particularly benefit from insurance technology as this market still lagging behind due to its accessibility challenge for conventional financial service providers in the country, and the logistics challenge for the customers in remote areas
However, it is going to take some doing to captilise on this opportunity. While the country fares relatively well when it comes to biometric identification and mobile and internet access, three key prerequisites for smooth sailing into insurtech include digital payment mechanisms, regulatory framework for insurtech models and policies, and increasing financial literacy. At the same time, the traditional challenge of ‘trust building’ will also need to be addressed simultaneously as technology add another element to the mistrust that the industry faces.