It is second nature for most senior executives in banks and insurance companies to look at their sources of revenue and apply a diversification strategy to hedge against the underlying risk for certain industries and sectors, and that’s great. But only a few actively change their sources of revenue and exposure to various sectors regularly to cope with market changes. Companies that barely change their sources of revenue are called ponds, rivers are companies that change their revenue sources moderately, and finally rapids, companies that frequently change their exposure.
Bankers and underwriters operate across several industries, sectors and offer products both to individuals and businesses. It is therefore important to understand the level exposure across various industries, before it is too late…or is it too late?
An insurance executive puts it bluntly:
“Corporate clients are incapacitated by the pandemic and lost their earnings. Now many are defaulting, others are asking for premium holidays. We are trying to save the company from total collapse, and we are completely overhauling our business model and strategy.”
While there are many causes for this crippling situation. This insurance company was living the high life, sales were soaring a few months ago. The company grew its revenues without looking into exposure.
And this is not the only case, a quick look at the 2018 Kenyan Insurance Regulatory Authority annual report, reveals a substantial exposure of some underwriters to specific classes of risk. Take for instance two major underwriters that I won’t name here, both underwriters realised respectively 24.2% and 23% of their revenues from aviation insurance and solely hold considerable market share in this class. In 2020, these sources of revenue were probably hit by the pandemic lockdown and suffer a decrease.
It is therefore important to get a clear sense of market dynamics and carefully listen to market signals: headwinds and tailwinds. Headwinds are bad for business, just like the name suggests, they are obstacles that withhold an entire sector from growing. Tailwinds are opportunities that have the potential to change market dynamics and redistribute revenues.
So what are some of the headwinds and tailwinds that we are facing in 2020?
Traditional distribution is facing major challenges, whereas digital distribution is uninterrupted. Seek to do business with tech enabled businesses rather than brick and mortars.
The hospitality and aviation sectors will continue to face headwinds for the rest of the year, as the pandemic continues.
Home is slowly becoming the workplace, companies should not be worried about their staff falling in the stairs, as much as they should worry about the threat of cyberattacks.
Education is facing major headwinds, as universities and schools are shut down. Online education is growing, and education institutions are facing new digital threats
Purchasing power is dwindling and mobility is reduced, individuals and businesses want shorter term and more flexible insurance that suits their new lifestyle.
At Lami Technologies, we enable banks and insurance companies to plug into the digital space and play like a pro. Lami is one single point of entry to an entire digital insurance ecosystem connected to various service providers and data sources.
Lami’s vision is to democratise insurance, and partner with forward thinking institutions to drive digital transformation forward.