Opinion:South Africa and Botswana Digital Insurance (Disability and Life) - Comparisons and Contrasts

It is apparent that the life insurance segment has been accelerated into digital adoption overdrive typified by digital distribution, fluid-less underwriting, accelerated underwriting, non-contact onboarding, innovative pricing models, negative-health-events prevention digital strategies and hybrid advise model e-signature adoption, among other digital insurance functional adoptions. This discourse seeks to delineate and differentiate between two of Southern Africa’s most innovative insurance markets, South Africa and Botswana.

In the context of South Africa, innovative strategy in this context refers to a less capital-intensive but intuitive managed-healthcare-focused life insurance model that is digitally driven. South Africa introduced the Shared Value Insurance model and health-incentive driven Loyalty Rewards Programme, the concept of monthly premiums, taking premiums by debit order, and Dread Disease policies. The insurers with the highest number of registered patents and trademarks in Africa are South African and one South Africa insurer, in particular, is the inventor of heath data-driven wellness and Absenteeism and Incapacity Management (AIM) systems that integrate with a health-lifestyle and behavior modification platform hence arresting the incapacity-disability continuum. South Africa has generally led the region in life insurance product innovation and trends. Of note, COVID-19 vaccination is now part of the risk evaluation for one leading life insurer’s underwriting models.

Strategic innovation is deeply embedded in the DNA of Botswana’s leading life insurer. It is truly a strategic imperative that is one of their foundational core values and arguably one of the important factors behind their success. Strategic innovation has afforded them high-value brand equity - winning hearts, minds, and market share. It shows that innovation goes beyond technology and patented inventions. Rather, it is corporate culture – a commitment to social good and an emotive drive to better the lives of customers. Botswana’s number 1 life insurer has also strategically innovated around a broader value proposition that integrates insurance and wealth management integration, seamlessly cutting across non-bank financial services silos. Their north star is ‘protect, invest and grow' and the extensive product offering incorporates life risk policies, long-term investment policies, and income provision products. One remarkable metric is that Botswana insurance companies’ total assets amount to 29% of GDP – this is significantly higher than those of most African countries. 

The long-term insurance CEOs with the most innovation-related awards and accolades in Africa are from South Africa and Botswana. Innovation, both technologically and strategically, is significantly adopted in South Africa and Botswana in respective order. Innovation in the life segment seeks to reduce loss ratios by proactively and pre-emptively reducing the risk of medical disability and death. It becomes apparent that in order to achieve reduced morbidity and mortality rates, integrating the healthy lifestyle choices rewards point system with an ecosystem of services and products that are perceived as valuable to customers’ lifestyles is key.

On the technology side, the issue of handling, storage, and use of clinical Big-data presents a big barrier. The new environment that has reduced face-to-face engagement demands innovative ways of doing business without disrupting the core, without disintermediation of brokers and agents, and without infringing on customer rights. The rules and regulations governing long-term insurance products and life insurance entities in South Africa and Botswana allow for insurers to achieve this. The Protection of Personal Information (POPI) Act of South Africa and Electronic Communications and Transactions (ECT) Acts of both countries have risk-based regulatory frameworks. There are almost similar insurance data protection legislation, regulations, rules, policies, and procedures at the enforcement level. The fact that the Financial Advisory And Intermediary Services (FAIS) Act (Section 37) prescribes that insurers must refrain from using clients’ electronic signatures to sign documents on their behalf, 'even if clients have consented' suggests that there is over-regulation - not so in Botswana.

The Non-Banking Financial Institutions Regulatory Authority (NBFIRA) Act and the Data Protection Act of Botswana are each non-prescriptive regarding digital signing in long-term insurance services that use embedded identity checks to confirm e-signature integrity. While there is no specific enforceable undertaking regarding e-signature, algorithms, and Artificial Intelligence, the Botswana insurance regulator is on the progressive liberal side of the insurance innovation spectrum. NBFIRA has done well in striking the fragile balance between liberalism and deregulation; innovation and risk.

The insurtechs in South Africa are more capitalized and exposed to incubators and venture capital despite over-regulation. The hybrid advice model using e-signature is being explored by South Africa insurtechs in “safe space” sandboxes. These sandboxes have allowed for experimentation without regulatory approval but with rigorous due diligence. While the life insurance segment hybrid advice model may eventually be adopted in the market, a complete robo-advise model would not be feasible in the current regulatory environments in both South Africa and Botswana.

Healthcare distributed ledger and smart contracts, as well as robo-advise, are also not feasible in both life insurance markets. The adoption curve for these is too steep particularly in South Africa where the regulator is more onerous on life insurance advisors and intermediaries. The list of Financial Sector Conduct Authority (FSCA) and FAIS recognized qualifications for agents and brokers is more onerous. South Africa has more rigorous requirements regarding knowledge, experience, and skill than Botswana. In addition to 'Fit and Proper’ compliance, financial advisors and intermediaries in South Africa mostly hold a professional program qualification as the environment is more competitive.

The recent FAIS board of notices and webinars have been addressing the need to alleviate restrictions and controls on small FSPs brokers and agents. The failure rate of brokers and agents is typically higher in South Africa than in Botswana. This has led to the perceived exclusion of small, emerging, and transformational insurance businesses. Contrariwise, Botswana has a higher threshold for license suspension and withdrawal and has done better in terms of inclusion.

While both South Africa and Botswana regulators conduct due diligence on innovative platforms and products before allowing them to deploy to clients, South Africa is more stringent in its due diligence and compliance controls. Indeed, South African life insurers have insurtech solutions that have been proven to be successful and battle-tested but they lack the brand equity and social-economic objective that Botswana life insurers have.

Strategic innovation is no less important than technological innovation. It has resulted in Botswana being one of the most affordable life insurance in SADC ahead of South Africa. This is despite the South Africa long term insurance market having the buttress of higher healthcare financing per capita, a mature healthcare system (A National Health Insurance model is mooted), superior Hospital Cash Plan (HCP) product offering, advanced Absenteeism Incapacity Management systems, and resourceful medical aid schemes with the advantage of economies of scale. Apart from the gains of strategic innovation, Botswana life insurers charge comparatively lower for products as they have a younger demographic risk pool with a lower average age of insureds.

I am cautiously optimistic that new Southern African insurance market conduct conditions will further stimulate innovation. I have seen the insurance future, and it's digital!

By Liberty Nobula

Liberty is the author of two books: Disability Insurance Simplified: A short guide to disability insurance and the claim process (2016) and Artificial Intelligence in InsurTech: Disability and Life Insurance Innovation (2020)

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