Insurtech Summit 2021: 'SECP encourages industry players to create data bank of insurance policies'

ISLAMABAD: Chairman SECP Aamir Khan said Friday that the SECP has encouraged industry players to create a data bank of insurance policies and the Central Depository Company (CDC)'s data bank has now more than three million policies.

In his keynote address at the "Insurtech Summit 2021" held virtually on Friday, he said that it would be very practical if the Nadra's death register can also be linked with the insurance repository of the CDC for easy and transparent administration of Life Insurance Claims.

During virtual interaction with the insurance industry, the chairman SECP said that the SECP committed to creating an enabling environment for promoting innovation, and endeavours to adopt a proportionate regulatory approach.

It is a challenge to do so, while recognising both the risks arising from the use of digital technology and capacity constraints for entities that are experimenting.

The financial soundness and sustainability of an entity is extremely critical to avoid potential consumer protection challenges.

The issues around consumer protection in case of digital financial services are not diluted, instead, have become more multifaceted.

Hence, a more prudent and proactive approach in terms of data security, cyber security and business conduct is needed.

Some issues that need to be considered include: First, ensuring standardised product suitability standards where robo-advisors or automated distribution mechanism are involved.

Second, transparent digital consent mechanisms in case of digital distribution.

Third, standardised and industry-level complaint handling systems, and finally, creating awareness and education about insurance products and their benefits.

Such issues need to be managed at the industry level, ideally by taking a standardised approach through an industry-based self-regulatory organisation, he said.

Market practitioners may have divergent opinions on this, but in my view the regulator does not need to be micromanaging, when the industry is mature enough to be entrusted with taking collective and responsible measures jointly.

This is particularly true for evolving business solutions and practices where disproportionate regulation can inhibit growth.

If the industry does not step up to this challenge, the risk of over-regulation will always be there.

The SECP has always been at the forefront of promoting Fintech developments and a conducive environment, for market participants to innovate.

In this regard, the SECP has already given directives for the phased implementation of IFRS 17 wherein, the insurance companies will be compelled to shift towards Insurtech based distribution models with enhanced disclosures complementing our overall regulatory approach.

He said that the SECP has also enabled supervised experimentation in the form of Regulatory Sandbox, where innovators are allowed to test their solutions in controlled environment for limited time-periods. This resulted in evidence-based learning for all concerned.

The SECP has also allowed E-Signatures, formulated Digital Insurance repository, and introduced regulatory framework for registration of digital-only insurers and dedicated micro-insurers with relaxed paid up capital and solvency levels.

However, it is critical to strike a good balance from both prudential and conduct perspectives, especially when the situation is evolving fast as in case of digital innovation.

Given the nascency of our market, our approach should be the development of simple and transparent products.

These products should be priced according to risks, and sold through cost-efficient channels using the highest ethical standards, complete disclosures and with an eye on important social development needs, the SECP chairman said. Accordingly, regulatory focus will evolve.

However, client value, product suitability and consumer protection will always remain at the heart of our regulatory approach towards insurance.

He said that according to the Swiss Re World Insurance study 2019, Pakistan ranks 79th for Insurance Penetration.

Of this, Life insurance accounts for 70 percent, while non-life insurance contributes 30 percent.

Additionally, Pakistan ranks 86th out of 88 countries in terms of Per Capita Insurance Density Premium. This low contribution is due to lack of awareness, a low savings rate, inflation, and other religious and cultural factors.

Insurance companies, while focusing on healthy competition, need to convince their clients to suitably enhance the sums insured, and impress upon them the benefits of non-traditional covers.

The confluence of insurance products and tech applications are the very focus of today's summit.

Given the conducive legal and regulatory environment, high tele-density and internet penetration, a widely spread electronic payments infrastructure, and large adult population, there is a massive potential for the market to grow.

In fact, this market has the potential to be a hotbed for Fintech and Insurtech development, but for that to happen, the domestic market players have to embark on a journey towards Insurtech in a meaningful way.

So far, in Pakistan technology has mainly been used in insurance distribution.

The field is wide open - the potential to develop innovative products, AI based underwriting, digital policy servicing and automated claims processing are areas, which have not been explored fully, as yet.

Globally, consumers are able to benefit from personalised products adapted to their specific and evolving needs.

The innovative tech-based products such as pay-as-you-go, telematics, usage-based insurance, and on-demand insurance have transformed the customer experience and expectations altogether.

In the United States, Lemonade, an insurance company has set a world record for the speed and ease of paying a claim: "3 seconds and zero paperwork". Lemonade routinely pays insurance claims in under three minutes, he maintained.

All of this is driven by the greater availability of data and an improved capacity for processing it, which also enables the development of increasingly efficient underwriting and claims management processes.

In many countries, some insurance companies have found efficiencies in operating on entirely digital basis.

Copyright Business Recorder, 2021