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COVID-19: WHAT THE INSURANCE INDUSTRY NEEDS TO DO NOW

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INSURANCE

Sarah Kocianski is Head of Research at 11:FS

 

As the COVID-19 crisis develops many of the more traditional firms in the insurance industry are doing what they can to bolster their businesses in the face of serious, immediate threat.

In most cases that means withdrawing policies from the market while calculating the likely value of unexpected and unprecedented pay-outs. Focus on these activities means there has been focus on little else, including looking at how they can help customers with the current situation.

For better or worse this will be a shock to the industry that forces significant change.

In the short term, many individuals who previously took little to no interest in any form of insurance that wasn’t mandatory will start to reassess what insurance is and what it’s for. Businesses will take a closer look at their coverage and have questions for their brokers that the latter are ill equipped to answer.

The insurance industry will be forced to respond to these short-term concerns, but also to react and to ensure that in the longer term it’s better prepared to survive such events which are unlikely to decrease in volume and severity.

 

What should the insurance industry do now?

  • Speed up rethinking products and services offered

Customers will seek policies that protect them from risks associated with global pandemics and climate change. Large insurance broker Marsh has offered infectious disease cover via a product called PathogenRX since 2018. Until now take up was limited as the product was viewed as expensive given the risk. Demand is now spiking, and the company estimates that it could be worth as much as $1.5 billion in premium income a year. That will likely spur the rest of the industry into developing similar products. Indeed, Munich Re is working to encourage insurance businesses into doing just that.

  • Accept that older products will increasingly be seen as no longer fit for purpose

The race to the bottom in terms of price has resulted in many business policies, particularly those for SMEs, that simply offer inadequate coverage. The pandemic will speed up the understanding of this situation among many buyers, even while their understanding of the need for insurance grows. Insurers should be self-aware enough to realise that and act accordingly.

  • Rethink business models and core principles

COVID-19 is having a huge impact on the global economy which is unlikely to recover quickly. At the most basic level, that will mean insurers need to think about how they make money — which, arguably, they should have been doing since 2008. It’s also possible that regulators will consider introducing new rules on capital reserves as a result of COVID-19, which will further accelerate the need for a rethink.

  • Focus on the human who is buying the product

Whether that is an individual, an SME owner or an employee at a large firm. Individuals, SME owners and sometimes even corporate insurance buyers struggle to understand under what circumstances a policy will actually pay out. That’s due to contracts and terms and conditions that are almost always long, in too small a font and use jargon that the average lay person doesn’t understand. This is a relatively simple thing to fix and would go a long way to helping insurers rehabilitate their reputations with customers.

  • Reassess how risk is calculated

To do all of the above insurance companies will need to take a long hard look at how they define and measure risk. While each type of insurance business, and indeed each individual firm, will have its own interpretation, at an industry-wide level changes will need to happen. That means more data, that are increasingly widely available, should be taken into account when modelling risk. That could, and should, include factors such as climate change.

 

How can insurtech help?

There are many insurtechs that can help insurance companies wanting to build resilience to future pandemics, including parametric insurance providers that use new and alternative sources of data, and insurtechs that help companies better access, understand and use either data they already have or new sources of data. One company already helping firms better understand data is behold.ai which has developed an algorithm to speed up the detection of COVID-19.

There are even some insurtechs whose sole purpose is to help the insurance industry (and others) produce better risk models for epidemics and pandemics. Metabiota is one — it has a giant database covering historic and emerging outbreaks that it uses to create models which apply social, political and environmental data to epidemiological data. Those models are then used to underwrite cover that both protects customers and makes business sense for the insurers.

Policies based on Metabiota and similar firms’ models are being seriously tested for the first time amid the current outbreak. Next, there should be a great deal of analysis done on how successful they are for both the insurer and the customer, as well as the wider data that are generated from COVID-19. That should offer greater insight into whether it’s realistic to expect the development of viable policies to cover pandemics.

 

Conclusion

More such businesses will appear in the next year or so. What must be hoped is that at a combination of these insurtechs, and the current situation will accelerate the reassessment of the fundamentals of insurance by the industry as a whole.

The consequence of that reassessment will be positive change that results in products and services that offer greater protection for individuals and businesses alike in the future.

 

Sarah Kocianski is Head of Research at 11:FS, unearthing fascinating insights on diverse subjects throughout the finance and tech industries. She has a wealth of experience in fintech firms large and small, and previously led Business Insider’s fintech briefing, Business Insider Intelligence. Sarah is a lynchpin of 11:FS’ podcasts, co-hosting Fintech Insider and Insurtech Insider, and is a regular contributor to Forbes.

 

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From compliance to the metaverse: Investment trends to look out for during the year ahead

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By Rami Cassis, Founder and CEO of Parabellum Investments

 

In the investment world, the old saying, knowledge is power, has never been more pertinent. As any investor will testify, it is essential to retain an in-depth, and up to date, understanding of news, predictions and trends that specifically relates to his or her specific area of interest.

This is particularly true for investors in the financial sector.

We all know just how quickly the sector can change beyond recognition. The demands of consumers are forever changing, new technology is always waiting in the wings to re-write the financial status quo and the next big digital company is constantly looking to increase its market share. There is always a new trend to look out for.

As we move into a brand-new year and prepare to face the opportunities – and challenges – that doubtless lie ahead, these are some of the trends that are likely to develop during the next 12 months.

 

Personal banking conversations

In its Tech Trends 2021: A financial services perspective Deloitte states that today’s pioneering companies are using advanced digital technologies, virtualized data, and cobots to transform supply chain cost centres into customer-focused, value-driving networks, based around a personal experience.

The concept of personal banking provides a perfect example of how the financial services sector has evolved to deliver digital personal banking.

Before the digital banking revolution, personal banking involved a visit to a high street branch to sit down with a personal banker in the flesh. This personal banker would be the customer-facing, end point of a complex supply-chain, involving training centres, degree courses, carbon-emitting journeys into work – the list goes on.

Compare this to the current version of personal banking. Digital financial services firms such as Monzo have revolutionised banking thanks to sophisticated analytics and a personalised interface. The big banks are now catching up, offering their own versions of ‘modern’ banking insights for the everyday user, and furnishing them with the latest online, smartphone-powered gadgets to enable them to manage their money 24/7, wherever they might be in the world.

However, even this is now becoming somewhat stale, with many financial services providers still seeing personalization simply in terms of personalized messages. Instead, the next chapter will involve smart banks understanding that good personalization requires personalized conversations, not just messages.

Enterprise software is one of the specific investment interests of Parabellum Investments. One of our portfolio companies is ieDigital, a specialist UK financial technology provider. The team from ieDigital and Parabellum Investments analyses the latest developments in business technology regularly.

We understand the importance of pushing digital boundaries. Indeed, one eye should constantly be scanning the horizon to identify the digital tools that the customers of tomorrow will expect. The interpretation of digital transformation is specific to each organisation and translating technology into practical business outcomes requires the focused specialism the combined IE Digital & Parabellum Investments team is qualified to deliver.

We understand – and see daily – the pressure that banks are coming under to deliver an ever more personal service, and see the ability to deliver these personal conversations is one of the trends to watch during the next 12 months.

 

The metaverse

The word ‘metaverse’, is defined in the Oxford English Dictionary as a “virtual-reality space in which users can interact with a computer-generated environment and other users”.

When Facebook changed its name to Meta in 2021 it may have come as a surprise to many of the platform’s users, but it was a major moment in the company’s history. It signalled Mark Zuckerberg’s ambitions for his business; to be the leader in the development of the metaverse.

Indeed, the future of the metaverse is looking sophisticated and bright. With giants like Facebook and Microsoft introducing metaverse elements into the fabric of their business models, it’s a concept that cannot be ignored, and one which is likely to expand rapidly throughout the next 12 months.

Returning to the financial services sector as an example, in a blog post titled Metaverse, the end of banking digital transformation?, CoinYuppie speculates that the metaverse will change banking in a number of ways including:

  • Identify verification. In the metaverse, identity verification will be performed via VR glasses and Metaverse sensor devices which contain a security chip.
  • Real-time creation of financial products. In the meta universe, virtual product managers use gestures to drag and drop the entire process of digital product manufacturing.
  • Games and attractions become a source of bank traffic. You can open branches on Mount Everest, in the Tarim Basin, on the Kunlun Mountains, or in Jiuzhaigou. The bank will combine these magnificent landmarks to fully personalize its branches and display its products.

This is just the financial services sector. Just imagine the opportunities for other industries – and the tools that will be needed to deliver them.

People are likely to need virtual-reality headsets, for example, together with related components such as sensors, as virtual-reality technology becomes intrinsically linked with the metaverse world.

 

Compliance

Another key trend to look out for as we move into 2022 and beyond is how companies deal with their compliance issues.

In the wake of the global Covid pandemic, we are seeing a much-increased hybrid working model, with a large proportion of the workforce now based at home. This creates a logistical headache for compliance teams, who must now ensure that sensitive data and company secrets remain just that, despite a workforce now using multiple digital platforms, messaging systems, mobile phones and landlines.

Cloud-based archive systems that can capture multi modal communications are likely to become essential for companies to remain compliant.

 

Alternative currencies

Cryptocurrencies are likely to retain their position as one of the most talked about developments in the world of alternative currencies.

As an example, Bitcoin has risen nearly 70% since the start of 2021, driving the entire crypto market to a combined $2 trillion in value. However, heightened regulatory scrutiny and intense price fluctuations have somewhat dampened bitcoin’s prospects in recent months.

Despite this, we are likely to see banks increasingly looking at offering mainstream crypto services. We have already seen the start of this, with the first major crypto company going public with the debut of Coinbase in April, increased participation from Wall Street banks like Goldman Sachs, and the approval of the first U.S. exchange-traded fund linked to bitcoin.

 

Conclusion

We all know how quickly the financial sector changes. If you happen to be reading this just a few months after it was written, several of my points might now be in the mainstream – or they might be completely obsolete.

The fact is that unless an investor possesses superhuman powers, it is impossible to identify, with 100 per cent accuracy, what the next big investment trend is. All we can do is use our experience, insights, and up-to-date sector knowledge to predict what the next big trends are likely to be.

 

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How Crypto Traders Can Avoid Unexpected Expenses

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Have you been dabbling in cryptocurrency in 2021? Are you still relatively new to the world of crypto and feeling your way around? While crypto can prove to be quite lucrative, it can also spark a lot of unexpected expenses if you aren’t careful and don’t use the proper tips. We’ve got four essential ways tips crypto traders can use to avoid unexpected expenses moving forward, making sure your experience with crypto is as positive as possible.

 

Make Sure You’re Working with a Strategy

When you get into cryptocurrency, it’s wise to look at it as you would any other type of investment. This means you have a plan and a goal of what you want to achieve. You also need to ask yourself how much of a risk you are willing to take. The answer will be different for each person, so don’t feel pressured to keep up with others. In general, cryptocurrency trading is seen as a high-risk activity, so you need to accept that going into it.

 

Diversification Can Help Limit Expenses

Any financial investment expert will tell you that diversification is an excellent way to balance your options and hopefully prevent any massive losses – or unexpected expenses. You can use this approach with cryptocurrency and make sure you’re diversifying.

 

Understand the Tax Laws and How They Apply to Crypto Investments

Did you know that you may be subject to paying taxes on your crypto assets? It’s something that isn’t always discussed, nor do all investors realise that this is the case. Cryptocurrency tax UK can be confusing and not something you want to glaze over.

Because you may face some crypto tax issues, it’s worth it to work with a company like Hodge Bakshi, which is a group of chartered tax advisors and chartered accountants. They are well versed in how individuals are taxed, what the code says, asset pools, capital gains tax and more. They can guide you through the process so there is no chance of an unpleasant surprise.

 

Keep An Eye Open for Cryptocurrency Scams

Unfortunately, scams are now popping up all over the place and if you get caught up in one, it can end up costing you money. There are business and investment cryptocurrency scams to be on the watch for. A popular one is where you are told to get others involved, like a rewards programme. So, the more people you manage to recruit into the programme, the more money you will make. This should be a huge red flag; you don’t want to get involved in any of these.

Another popular scam is the promise to convert your bitcoin to cash, which can result in you losing your money. Remember the saying – if it’s too good to be true, then it probably is. In other words, be sceptical and don’t get pulled into anything.

While it’s impossible to anticipate every possible scenario, these tips can help you to avoid unexpected expenses or at least limit their negative effects.

 

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