The insurance industry has more challenges now than at any time in the last decade, writes Jérôme Pezé, CEO and founder of Tinubu Square.


The insurance industry is navigating the peaks and troughs of fluctuating global economic markets and significant changes in customer demand for bespoke insurance products and services. On top of this, it is under pressure to embrace massive digital transformation, made all the more testing due to the inordinate number of legacy practices, processes and technologies still firmly embedded across the sector. Legacy infrastructure alone is so out of date and cumbersome that it is not just slowing progress, it is in danger of bringing it to a grinding halt.

Digital transformation may sound challenging to achieve, but most other industries have already done it, or their strategies are firmly in place and the end goal is in sight. Some didn’t even need to transform since a digital approach was embedded from the start. The message for financial services, however, is stark. Transformation is necessary, and it is the most conservative, not the most expansive investment decision that any company in our sector can take right now.


Change to become more customer-centric

Against a backdrop of change in the risk landscape, greater governance and more transparent insurance products are in demand. Since reinsurance capacity is changing, reinsurers are looking for proven and sustainable insurance models that have already undergone digital transformation to lower costs and improve customer satisfaction.

Standard trade credit insurance products are no longer always fit for purpose because the needs of organisations as they expand, particularly internationally, are complex and ever changing. Newer entrants to the market, and some established insurance companies, are now using technology that is helping them to deliver a digital response to these changing demands. This includes interfaces and tools that engage organisations as ‘customers’, not just as ‘users’, and which allow them to analyse data to extract highly valuable and detailed business intelligence. Most importantly, customer experience and levels of satisfaction can be more easily assessed and addressed.

By using these solutions, insurers are able to put in place best practice policies and improved governance, which, in turn finds favour amongst reinsurers. Instead of providing only off-the-shelf products, they can offer tailor-made solutions as part of a more customer-centric strategy, which is helping them to boost policy growth. This is important after years of soft pricing and a slow-down in credit insurance growth. If insurers can be seen to be reactive, transparent and flexible with the products they are offering, companies are more likely to engage them to secure the right policy to suit their specific needs and their appetite for risk at that time.

These changes are taking place in the context of digital transformation. Not all insurers are at the same stage, indeed some have not even begun. But for those that are already in the process, there is a clear understanding that technology is underpinning a revolution in the services that they offer and how they offer them with the customer front and centre of the proposition. This is a real departure from the previous approach to customer relations, and emulates the seamless, personalised experience offered by the digital giants Amazon, Google and Apple. It is incumbent on insurers to deliver a fast response with services based on high quality data, rigorous research and real-time analytics.

The fact is, however, that the introduction of new platforms and solutions clashes with the continued use of outdated legacy systems, processes and practices that the industry has come to rely on.


Receivables financing must get sharper

Nowhere is this more apparent than in the receivables finance divisions of banks and finance companies, which are particularly vulnerable to the impact of legacy systems. Globally they manage multiple customers, who themselves have multiple customers, and as a result they operate multiple credit insurance policies from different companies. To function efficiently, they must optimise their credit risk programmes, but these can be hampered by old technology that is unable to deliver timely and accurate information relating to collection and invoicing.

Then there is the issue of regulations. Banks offering receivables financing arrangements are obliged to comply with Basel III, and whilst this aims to ensure the solvency of lenders, it also carries with it higher capital requirements and new rules on managing liquidity. A considerable amount of the organisation’s regulatory capital must now be allocated, at least notionally, to every loan or finance arrangement made. As a result, receivables financing companies must be much sharper, not just in terms of governance, but also in finding ways to identify risk, to introduce accurate controls and to aggregate their credit exposure across the ledger. To do this they want greater collaboration with credit insurers so that credit insurance is wrapped around the transaction. How is this possible if the technology they are running is unresponsive or unfit for purpose?

Historically there was a wariness from trade credit insurers to take on the risks passed from banks and financial institutions, and reluctance from banks to go down that road, but in recent years developments have been made which have produced a rapprochement, a new understanding between the two sectors. Now credit insurance is more acceptable to banks for credit risk mitigation. Banks need support from credit insurers and should not be dependent on just one to maintain and grow their businesses, and if they are able to show that technology is in place to support credit risk management, this helps to oil the wheels of the deal.

Credit insurers are fully aware that where receivables financing divisions are already using technology solutions, they can quickly assess a client’s financial performance and make informed credit risk decisions, and this makes the relationship between the two much stronger. But there are many other benefits, including greater visibility across portfolios, the opportunity to make pre-sales processes more reliable and support for rapid decision making which leads to better customer experiences too. Technology solutions reduce the cost of take-on and compliance because they are able to provide a bridge between receivable finance companies and divisions and trade credit insurers in private, public and government export credit agencies.


Stop vacillating to keep up with change

For the most part, the financial services industry recognises that change is not just inevitable, but beneficial too. There will be some cases where larger, more established players are playing catch-up with more nimble newcomers, but these diminish with the daily evidence of improved portfolio management, dedicated policy development, detailed risk assessments and better customer service.

To keep up, there is an urgent and fundamental need to embed solutions that are dedicated to supporting processes and working more closely with technology partners whose solutions have been created, tested and refined to suit the needs of insurers, receivables finance providers and customers too. A holistic approach to fully embracing digital transformation, and not just paying lip-service to it, may still seem daunting, but avoiding or delaying it will result in organisations suffering under the continued weight of heavy-duty, old-fashioned practices. Digital transformation is the key that will unlock the door to a new way of doing business across the industry and ultimately to greater long-term success.