A question was asked the other day: how can Takaful integrate so well with technology that we are not even aware that we are using the technology. This is taken from the movie Ex Machina, where the plot of the movie was the development of machines so lifelike that they can pass the Turing test and people would not even be aware they are interacting with a machine. Allow me to answer this with not so much what Takaful is doing now but where we can go over the next five years.
When society is completely linked and cross border trade and settlement of assets not a concern, Takaful is affected in its ability to manage risks of participants. For instance as Muslims we go on Hajj and Umrah. If something happens while there we likely have Takaful coverage, but this coverage might not necessarily be immediate, meaning we might need to fill in some forms when we get back home and eventually get reimbursed for our losses. The reality though is that going on Hajj and Umrah is a once in a lifetime type experience, so we want to be reimbursed immediately with minimum trouble so we can go back to enjoying our trip.
Taking this one step further though, imagine if we can purchase Takaful coverage from anywhere in the world. Thus a small Takaful operator from say Maldives can offer their products to Muslims in Tanzania, Bosnia or anywhere else. This would allow Takaful operators in small markets to gain critical size as well as diversify their risks. This will also allow greater pooling and risk sharing which will undoubtedly lower costs. For instance, imagine Takaful coverage for agricultural risks. A product can be developed for Cambodia but this type of product is a challenge for actuaries to develop as the risks are not independent (if there is a drought or hood it would affect many participants at the same time). However, if we can pool together risks from Cambodia and Kenya then we have diversified our risks. From a participant point of view this would allow participants from areas with no Takaful operators to get the coverage they need. A major challenge with the above scenario (beyond getting regulators to adapt) is the lack of trust: lack of trust of Takaful operators to participants claiming and lack of trust of participants to Takaful. Takaful is not banking, people will line up to give Islamic banks money as you will help them grow their savings and make their lives easier through credit cards and online services. People generally do not trust Takaful operators nor understand that our role is in managing risks more than savings. From the publics point of view, we love to take their money and refuse claims. When we do pay claims it is after filling in 10 different forms and significant delays. Less savvy participants will simply give up! There is an online insurer in the US, called Lemonade, with a design very similar to Takaful. They pay claims into the bank account of the participant three seconds after a claim form is uploaded.
When we talk about innovation in Takaful it is two-fold: distribution and administration. Our distribution is still very expensive, whether bancassurance or agency driven. Agents demand high commissions for selling Takaful. This is a reality as no one wants to talk about risks and risk management. Society is simply not yet at the point where we understand the risks we are taking and how Takaful can be our partners to a better life. Agents face significant challenges in selling Takaful, and even when they make sales, the percentage of participants who do not continue paying contributions is shocking (we have clients where over 60% of participants do not pay their second contribution). Thus, agents need to be paid well. Bancassurance has tended to focus on simpler products but even here there are significant costs involved in getting these deals with the banks. The innovation in distribution will come from online distribution and purchasing temporary coverage as needed. This has started already, for instance we purchase travel Takaful on the same websites we use to purchase our hight tickets. As we understand risk management better, this will grow exponentially. For instance, now virtually every event has an online presence, even if just a Facebook page. Over time, the risks with each type of event will be shown in this same online page, with relevant temporary Takaful coverage being offered. One thing we like to say is that agents will handle complex risk management cases, whereas simple cases can be handled online. BUT if there is AI to handle complex risk management cases and the public develops trust in this AI (or cannot even tell they are using AI), then we can make Takaful products much more affordable. These AI sales techniques have the potential for breakthroughs in customer centric sales. Unlike banking, it is not straightforward to understand the needs of the customer (not just what product gives the agent the highest commissions) and what can be afforded. Surely AI can do a far superior job, perhaps with agents fine tuning the AI or teaming up with AI to finish sales. Imagine a world where AI reports to the agent after scoping out the exact details of what is needed and can be afforded. The agent can then provide the human touch.
From an administration point of view, there is underwriting technology where you take a selfie and it can learn a lot about you. Simple and easy underwriting. No need for intrusive exams and whatnot. Takaful is synonymous with fairness (or we like to think we are). We are more and more using predictive analytics and machine learning to increase fairness. For instance, which gives better motor claims experience, red or blue cars? This can also extend to motor insurance under a pay as your drive basis rather than yearly coverage and the use of wearables to further increase fairness and health management. AXA uses telematics in its FlexiDrive product which provides its policyholders with a 20% discount if they are considered good drivers. This shapes good behavior. AIA as well has its Vitality plan which uses an app to reward healthy behavior. Imagine using machine learning to understand which participants are most at risk for say cancer and implementing treatment very early to minimize claims payments. This creates a win-win situation. I can see a world where your own personal AI assistant can diagnose and detect the risks you are taking and interact with Takaful operators’ AI to see the most cost efficient means to manage those risks.
Blockchain is not being used in Takaful to our knowledge. One of the main reasons in applying blockchain technology in insurance is to reduce friction in customer experience and complexity (lower administration cost). This can be achieved by automation where if a certain situation is fulfilled, then the next step is automatically executed, meaning customer/policyholder does not have to do anything for a claim. When a customer is eligible for a claim, payout will be made automatically. This automation can be done by using smart contract. The above discussions on trust and cross border sales of Takaful will all need Blockchain and smart contracts to truly succeed. An example of conventional insurance use is Fizzy (smart contract) by AXA. Fizzy is an automated parametric insurance platform for delayed hights. It uses a smart contract to record information on customers’ purchased hight delay insurance. If a hight delays for two or more hours, the smart contract triggers the mechanism for payment upon receipt of hight confirmation by the policyholder and Fizzy automatically pays the customer. Thus, the participant will have immediate access to funds and can book a hotel or other arrangements as needed, turning an unfortunate event into something much more manageable. Other examples of smart contracts and Blockchain in conventional insurance include cargo insurance. Thinking again to Takaful, transparency is the hallmark of Takaful, Blockchain and smart contracts will increase that.