Cedric Stephens | Rising to the occasion

ADVISORY COLUMN: INSURANCE HELPLINE

Kumar Mehta writes about innovation for the American business magazine Forbes. He founded an Innovation Think Tank and is a bestselling author.

His PhD dissertation was about the diffusion of innovations. He applied his research and knowledge on the subject at Microsoft for 14 years and throughout his tenure as an entrepreneur and CEO.

Mehta serves as a Senior Research Fellow at the Center for the Digital Future at the University of Southern California. He consults with organisations around the world on innovation, disruption and preparing for an uncertain future.

In ‘Why coronavirus will stimulate innovation’ he wrote: “Pandemics catalyse innovation and accelerate change by providing an environment for launching and testing new ideas. Today's Coronavirus is already changing cultural and business norms shaking to the core of what we have taken for granted for decades and centuries. The simple act of a handshake is increasingly becoming a relic, even as we surgically wash our hands a dozen times a day”.

After the outbreak of SARS – Severe Acute Respiratory Syndrome – in November 2002 in China, there was a silver lining.

“It accelerated Internet penetration and provided a launch pad for companies like Alibaba and JD.com to take advantage of shifting consumer habits and build two of the largest and most influential companies in China and the world,” Mehta wrote.

These actions advanced the development of e-commerce.

Mehta’s review of the nexus between pandemics and innovation begins with the Great Plague or Black Death in Europe in the 14th Century. The examples of innovations that he cited in the magazine article, provide important lessons for our banking and insurance sectors especially now as the country tries to mitigate the risks posed by the coronavirus.

The CEO of one local financial group recently announced the rolling out of a bundle of measures that the company said were designed to guide customers through these challenging times and “make accessing financial services as easy as possible”.

The initiatives include the temporary waiver of fees, moratorium on loans, extra loan facilities and the like. They are welcome.

However, while it is still early days, none of them, singly or collectively, have the spark that will fuel the ground-breaking changes in the financial sector that are linked to the past pandemics that Dr Mehta wrote about.

Banks, insurance companies and other local entities are not innovators. On May 15, 2017, The Gleaner reported Therese Turner-Jones, IDB general manager in charge of six Caribbean countries. as saying “firms in Jamaica are not particularly efficient. They are as inefficient as Government. They are not innovating, and they are not using research and development” and that “innovation is a word that you barely hear”.

I do not recall seeing any statements from the Private Sector Organisation of Jamaica, The Jamaica Bankers Association or the Insurance Association of Jamaica that contradicted that opinion.

A.M. Best Company is the world’s first credit rating agency. It began in 1899 and grew to become the largest credit rating agency in the world. It specialises in the insurance industry. The company’s mission is “to strengthen the overall financial condition and operating performance of the insurance industry in support of economic growth through its credit ratings and information services”. It recently began to include innovation assessment scores in its company ratings.

“Only one per cent of rated property/casualty (general) insurers merit scores high enough to categorise them as innovation leaders,” it said in a recent report. Put simply, most insurance companies – globally and locally – have failed the innovation test.

None of the insurance companies that trade locally – with one exception – meet A.M. Best’s basic rating criteria. Even if one met the standards, it would not qualify for the rating company’s elite one per cent group with respect to innovation.

The coronavirus has sparked innovation in the delivery of local medical services – telemedicine. Doctors after signing up can meet patients remotely, diagnose certain illnesses, write prescriptions, send them to pharmacies and receive payment electronically without exposing themselves to COVID-19.

One doctor that I know told me that this will be the future of medicine in Jamaica. I haven’t seen any evidence that banks and insurers are radically altering their business models to make things easier and more convenient for consumers, their employees and themselves during this time of crisis.

Fifty per cent of the Jamaican population do not trust financial institutions. The source of this information is the government’s National Financial Inclusion Council.

The council has been working on the development and implementation of the financial inclusion strategy. One of its goals is “to create the conditions in which Jamaicans, particularly those who were previously underserved by the domestic financial system, are able to save safely and build up resilience against financial shocks, and firms are able to invest, grow and generate greater levels of wealth”.

The January 28, 2020 earthquake of 7.7 Magnitude and the ongoing threats posed to the country by the coronavirus are two examples – spaced months apart – that have the capacity to or are creating ‘financial shocks’.

Is it too early to ask where are the banking and insurance innovations? Will the banking and insurance equivalents of Bob Marley, Usain Bolt and Shelly-Ann Fraser Pryce reveal themselves?

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com