Digitalisation and technological advancements have continued to transform the insurance and reinsurance sectors. As part of this, the industry has looked to find new ways to exploit the huge volumes of data it obtains to improve decision-making, risk mitigation and its overall offer to clients.

The use of Big Data coupled with technologies such as AI and the Internet of Things (IoT) provides the South African insurance sector with immense opportunities. These technologies allow insurers to access previously untapped information from a vast amount of sources and harness it to provide them with a greater understanding of risks. As a result, insurance firms are far more able to tailor and personalise policies to the bespoke needs of their clients. However, with opportunities come serious challenges, which the sector must look to address in order to fully exploit the data it collects.

Using advanced technologies to maximise the amount of Big Data that insurance businesses can analyse has left the sector more open to cyber-attacks. South Africa is among the top countries in Africa facing significant cyber threats, with the country experiencing an average of 1,450 weekly attacks per organisation, marking a 4% year on year increase. In recent times, there has been a rise in the use of AI in cyber-attacks in South Africa. As a result, 58% of security leaders expect a different set of cyber risks in the upcoming five years, with 46% putting AI and machine learning as the top themes in the most significant cyber risks, according to the 2023 Global Chief Information Security Officer Survey.

Moreover, last year South Africa was put on the grey list by the Financial Action Task Force of countries that needed to do more to improve their ability to fight financial crime. Against this backdrop, the likelihood of South African insurers facing breaches has increased. With insurers continuing to handle more and more data, whether that be personal health records or financial information, the legal, financial and reputational consequences of a cyber-attack are likely to be even more severe.

This is coupled with growing regulation on data protection laws, including the Protection of Personal Information Act (POPIA), placing stringent requirements on the collection, use and storage of personal data in South Africa. Requirements include obtaining specific consent from clients before collecting or processing information and to limiting data collection to what is necessary for the purpose of providing the service. Non-compliance with POPIA can result in serious penalties, with fines of up to ZAR 10 million or imprisonment of up to 10 years.

Lastly, whilst using AI to access and analyse data to enhance decision-making will certainly benefit the insurance sector, this needs to be combined with in-house talent to build and maintain AI-driven systems. Without the right expertise among its employees, insurers will struggle to effectively implement AI into its processes which evaluate data such as risk modelling.

It is clear that the South African insurance sector is continuing to propel itself to a more data-driven future, and Big Data analytics will be at the heart of the sector’s transformation. Businesses that do not adapt to this are likely to get left behind. However, given the challenges that come with this, South African insurance firms must take a measured approach. This includes investing in robust cybersecurity measures and data governance policies that comply with complex legal standards. Examples include implementing tools to track and manage customer consent or setting up portals where clients can access and manage their personal data. Combining this with a pro-active AI policy, for example investing in training programmes or partnerships with universities to implement a pipeline of AI specialists in the long run, will be essential. Data and analytics offer a huge opportunity for the insurance and reinsurance sectors, but the winners will be those that best address the significant challenges that these bring.

You can read the original article on the FA News website