CEO Inga Beale delivers the key note at the African Insurance Organisation (AIO) conference and general assembly on 7 May 2018.
Good morning. I really am delighted to be here in Accra, my first ever visit to Ghana. Thank you very much to the AIO for the honour to be invited to address you all this morning and for the wonderful welcome and hospitality from our hosts in Ghana.
Today I’m going to talk to you about the protection gap as mentioned by the minister earlier and the importance of harnessing technology to increase access to insurance – and particularly here in Africa as the economies in the continent continue to grow and diversify.
But first, I think it is worth giving you a little background on Lloyd’s – I know that most of you have heard of us as the Lloyd’s brand is generally well known globally, but we are no ordinary insurance company.
In fact, we are not a company at all!
Lloyd’s is the world’s specialist insurance and reinsurance market. We have a truly global reach, operating in more than 200 countries and territories worldwide. For almost 330 years we have been enabling human progress; Lloyd’s syndicates insured the first cars; the first planes; and the first satellites. We pioneered business interruption, D&O, and earthquake insurance. Today we are leading the world on new risks like cyber or the sharing economy.
The world’s largest insurance companies set up syndicates at Lloyd’s in order to write specialist insurance for the world’s largest companies. Today we are home to nearly 60 insurance businesses and between them they manage more than 80 syndicates and underwrite over 40 billion US dollars of premium nearly all of which is general insurance. We have very little life business.
Sometimes syndicates compete; sometimes they collaborate. And much of Lloyd's business works by subscription, where more than one syndicate takes a share of the same risk. This allows Lloyd’s to lead the world in covering large and complex risks.
And we are still predominantly a brokered market. Lloyd’s has no sales force as such and has outsourced distribution to brokers, who have been critical to Lloyd’s development over the centuries, bringing risks from all over the world to our market.
We also have another source of distribution where syndicates delegate underwriting authority to managing general agents (MGAs) or MGUs – coverholders as we call them at Lloyd’s. This is a very important part of our distribution arm as this is when we partner with local agents or brokers and delegate underwriting authority on the ground. Their close proximity to their customers and understanding of their customers’ risk maps is ideal for them to then access the expertise of the Lloyd’s market and deliver it locally.
The clustering of broking and underwriting expertise is what gives Lloyd’s our unique edge. For those of you who haven’t, please make sure you take a moment when you’re next in London to visit us and see the Underwriting Room – four floors of bustling activity where brokers and underwriters conduct thousands of face-to-face transactions every day. It is this interaction that over hundreds of years has helped forge our reputation for innovation.
In the corporate centre of Lloyd’s, we are guardians of a special feature of the Lloyd’s market – a central mutual fund.
Syndicates have to make a contribution each year to the central fund which is there to pay out if one of the syndicates doesn’t have enough capital to fulfil their policyholder liabilities.
This mutual aspect of the market makes Lloyd’s totally unique and the only such market in the world.
So that is a very brief overview of who we are, and how we work. And while I’ve quoted a lot of figures – our role is about something much more important than profits.
We have an incredibly important purpose. We as an insurance sector change the lives of millions for the better; protecting and strengthening global resilience in the face of rising uncertainty and rapidly evolving, complex risks. This can be said of every one of us in this auditorium today.
And as a market, Lloyd’s has earned the trust of its policyholders over more than three centuries, through world wars and revolutions through to some of the world’s most destructive disasters and greatest innovations. We are renowned for our ability to absorb risks from all around the world, providing innovative solutions to some of the biggest, newest risks out there.
And we are committed to Africa, having recently opened our office in Casablanca Finance City as Morocco positions itself as a bridge to francophone North West Africa.
In addition to this Lloyd’s has licences in Malawi, Mauritius, Namibia, South Africa and Zimbabwe and we transact reinsurance from almost every market in the continent. This provides us with an opportunity for greater partnership.
We believe that Africa is a rapidly developing growth region for insurance and reinsurance.
With 54 countries and a total population of about 1.2 billion, Africa has a strong demographic profile and a wealth of natural resources and its infrastructure and commerce are growing rapidly. This presents huge opportunities for our sector.
As Africa begins to realise its economic potential, its growth is increasingly at risk from natural and manmade threats and, of course, significant economic and geopolitical disruption.
And while there is increasing urbanisation around the world generally, Africa is seeing some of the most dramatic development.
According to the UN, by 2035 half of the continent’s population will be urban, compared to just one third in 1990. And by 2050 Africa will have 1.2 billion urban residents . This means that high value assets are more concentrated and interconnected, and this will only increase as Africa continues to rapidly urbanise. While this is making the continent’s economies more efficient, it also makes them more vulnerable to catastrophic shocks.
Our study – the Lloyd’s City Risk Index – carried out by Lloyds’s and Cambridge University – brought this to life.
The study analysed the economic impact of 18 threats on 301 of the world’s largest cities – and found that nearly 154 billion US dollars of projected GDP could be at risk in Africa over the next ten years from a series of natural catastrophes and manmade risks.
It revealed the extent of the impact these threats could have on some of the main engines of African growth. Cairo could have 25 billion US dollars at risk and Lagos 16 billion US dollars.
Remarkably, manmade risks such as market crash, terrorism, and pandemic accounted for most of this potential loss.
These risks are exacerbated by low insurance penetration in many of the countries across the continent as mentioned in the opening session this morning.
Lloyd’s research shows that a 1% rise in insurance penetration translates into a 13% reduction in uninsured losses, a 22% reduction in the taxpayers’ contribution following a major disaster, and increased investment equivalent to of 2% of national GDP.
To illustrate the impact of the protection gap I think it is help to now give you some real world examples.
In April 2016 Ecuador was struck by a devastating earthquake. It left the government footing an estimated 3.3 billion US dollars bill and to fund it they have had to raise taxes, sell assets and issue new bonds – all slowing the country’s economic growth.
In contrast, over half of New Zealand's 30 billion US dollars of economic losses in 2010 and 2011, following the destructive earthquakes in Christchurch, were picked up by international insurers. This meant the country’s economy avoided suffering any material setback.
Today, nearly 90 per cent of economic losses caused by natural disasters in low-income nations remain uninsured. And the World Bank estimates 26m people are pushed into poverty annually, due to the impact of droughts, flooding and powerful storms.
And this is where the insurance sector must step in – we must work together to solve it.
New risk financing instruments, like catastrophe bonds and insurance linked securities (ILS), can transform how we finance and support recovery after disasters by providing a means for the capital markets to take on this risk without investing directly in insurers.
When a series of hurricanes devastated the Caribbean last year, these new instruments proved their worth. The Caribbean Catastrophe Risk Insurance Facility (CCRIF), the first multi-country risk pool in the world, paid 19.3 million US dollars to Dominica within 14 days of hurricane Maria striking the island.
An example a little closer to home is the African Risk Capacity (ARC) – the continent’s first natural disaster insurance pool. Pooling risk across the continent is a critical step in reducing the cost of disasters for countries affected, and also decreasing reliance on foreign aid.
But even more importantly is diversifying risk globally. This means that when disaster does strike, the financial support comes into the country from foreign sources.
Recently the UK Government has taken a number of bold steps – including establishing a Centre of Global Disaster Protection in London and updating regulations to make it easier for UK reinsurers to provide these types of solutions alongside traditional reinsurance.
At Lloyd’s we have launched a Disaster Risk Facility – a pool of 445 million US dollars of capacity, along with the market’s expertise, specifically to provide reinsurance in developing economies.
Beyond that, we must look at how we can harness technology to increase access across Africa. And this is a particularly exciting opportunity for us all to not just talk about, but to actually drive forward progress on.
Because digitalisation is transforming African economies and supporting financial inclusion, including access to insurance. And mobile technology is the driving force behind it.
Back in the 1980s, many developed countries were undergoing a major shift from analogue to digital technology. While Africa has been relatively late to the scene, the continent has essentially leapfrogged desktop computers and landlines and gone straight to embracing mobile technologies.
The International Telecommunication Union (ITU), the United Nations agency for information and communication technologies, report that over 80% of Africans own a mobile phone. And Africa remains the fastest-growing mobile phone market in the world, and is on track to have 725 million smartphone users by 2020, according to a 2016 report by the Global System for Mobile Communications Association or GSMA—a trade body representing the interests of mobile operators worldwide .
According to GSMA, mobile services accounted for 8.2% of sub-Saharan Africa’s GDP in 2017, largely due to their ability to stimulate financial development.
And Africa’s farming industry is leading the charge.
Let me tell you the story of Ghana’s own Kwami Williams who was studying at MIT to become a rocket scientist. He took a trip to his home country of Ghana with some of his classmates, and ended up establishing MoringaConnect which empowers farmers with the tools to reach a global market for high value crops. The business specialises in processing moringa trees and exporting the resulting tea and cosmetic oils, supporting more than 2,300 farming families here in Ghana who grow the tress. And without mobile technology, communicating with that number of farmers would have been almost impossible.
Then there is Trotro Tractor – launched in 2016, the company connects farmers with tractor owners in Ghana through mobile phone codes. Farmers dial a code to request the use of a tractor, which they can then pay for with mobile money.
Across Africa, mobile technology is fuelling innovation and supporting economic growth. Farmers use them to check market prices before selling to middlemen, and market traders can accept payments in mobile money. A study by academics from MIT, found that simply by gaining access to M-Pesa, Kenya’s mobile-money service, 2% of Kenyan households were lifted out of poverty between 2008 and 2014.
So when it comes to insurance, we as a sector have an enormous opportunity to tap into Africa’s mobile economy, and make some significant progress on increasing access to insurance products and closing the protection gap.
Pioneering insurance products for new risks is something that the Lloyd’s market has done for 330 years – and we will see more of that sort of innovation as the world’s needs change in response to the rapidly evolving risk landscape.
Just as it is for Africa’s economic development, technology is one of the biggest areas of opportunities for the global insurance sector. My own prediction is that during the next five years we will see a fundamental shift in the use of technology – everything from advanced data analytics, to artificial intelligence, to digital and mobile platforms and real-time risk pricing.
All of those will not only transform the way we do business, but will also transform our relationship with our customers.
But perhaps most importantly – InsurTech could be a game-changer when it comes to access and provide insurance products across harder to reach markets
Insurance companies are heavily investing in InsurTechs, with 2017 insurer and reinsurer investment breaking records. In total there was 2.5 billion US dollars raised in InsurTech funding last year – a 36% increase on 2016 and the second highest yearly total on record.
New competitors are looking at how they can use digital mobile technology to cut costs, improve customer service and sell direct without the need for brokers. Others are looking at web-based brokerages, which can be faster and cheaper than established networks. All are using data to improve risk-assessment and customer service.
Artificial intelligence (AI) and the internet of things (IoT) now account for almost half of total investment in InsurTech start-ups globally, according to new research from Accenture . And last year there were 120 private technology investments made by reinsurers – the highest number recorded for any year to date . We shouldn’t be afraid of looking at other parts of the world for inspiration. The world’s first InsurTech IPO happened in Hong Kong, late last year raising 1.5 billion US dollars – the biggest financial technology offering in the Hong Kong market's history!
It was [Z]Jhoong An Online Property & Casualty Insurance – China’s first truly digital insurance company that sells all its products online along with handling claims. And behind it sits China’s internet and insurance titans – Ping An, Tencent and Alibaba, who joined forces in 2013 to launch [Z]Jhoong An. In its first year it underwrote 630 million insurance policies and serviced 150 million clients. Just think if we could create something like that for African markets!
The reality is that we have never had so much data available to us. In a digital world its value will continue to increase. For those that are able to efficiently and effectively collect it, order it, and use it. We need to very quickly get our heads around big data. Our products, our processes and our decision-making should be driven by it.
At Lloyd’s we are piloting initiatives to help the market innovate using technology. Our plans include a new Innovation Lab, which will enable new concepts and ideas to be tested in a fast-track, fast-fail environment with the support and active involvement of the Lloyd’s market.
To facilitate the market’s access to new ideas and new technology, we will provide space in the Lloyd’s building in London, giving access to the Lloyd’s market to start-ups, and potentially investing capital in businesses which can improve the competitiveness of the market.
There will be a number of ideas in development, designed to harness technology to reduce costs, and make the market more attractive and easier to do business with. This is evidence that we are not simply sitting around waiting for solutions to find us!
At Lloyd’s we are very used to partnering and working together to collaborate to provide solutions.
If we all work together we can ensure we are providing what people, businesses and economies need right across Africa.
Lloyd’s will work in partnership with you, sharing our expertise and experience, so you can grab hold of the business growth opportunity across the continent. This means further growth for your insurance businesses, a larger reinsurance and insurance market for Lloyd’s and, ultimately, a more resilient and prosperous Africa.
Thank you very much for listening.