The Nigerian insurance industry is gradually transforming, propelled by a wave of modernisation that is fuelled by digital and technology-based infrastructure. Many Nigerian insurance companies now have mobile applications that allow customers to access their policy information, make premium payments, and file claims. They also use digital underwriting platforms, leverage these digital channels to market their products, engage with customers and provide personalised services. While this has immense prospects, ranging from improved customer service, increased efficiency, accurate underwriting, reduced costs, and new business models, there are numerous legal implications that cannot be glossed over.
The article examines the impact and challenges of modern digital infrastructure in the insurance industry. It also analyses the legal implications of digital infrastructure adoption.
Assessing the impact and Prospects of Modern Digital and Technology-Driven Infrastructure in the Insurance Industry
Digitalisation in a quiet conservative industry such as insurance in Nigeria has brought about significant improvements to the industry.
1. Streamlining administrative processes: Digitalisation has streamlined many of the industry’s administrative processes, reducing the time and resources needed to complete tasks such as underwriting, claims processing, policy management, and payments. This has resulted in faster turnaround times and improved customer service. For example, in 2022, AXA Mansard Innovation Exchange Program was launched for this specific reason.
2. Increased accessibility: The use of digital platforms and mobile technology has made insurance products and services more accessible to consumers, particularly those in remote or underserved areas. They can now purchase policies, file claims and communicate with insurance providers, regardless of their location.
3. Innovation: Digitalisation has spurred innovation in the insurance industry by enabling the development of new products and services that better meet the needs of consumers. For instance, the AXA AutoGenuis and Tsaron use telematics systems to provide usage-based insurance.
4. Improved Risk Assessment: Insurers can leverage big data and machine learning algorithms to analyse vast amounts of information and identify risks more accurately, enabling them to make better decisions and offer more personalised policies.
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Overall, the Automation of processes and the use of artificial intelligence can help insurers streamline operations and reduce manual errors, thereby improving efficiency.
Legal challenges of Modern Digital and Technology-Driven Infrastructure in the Insurance Industry
The adoption of modern digital infrastructure has brought significant improvements to the Nigerian industry.
However, these benefits are not without new legal consequences relating to:
1. Data Privacy and Security: Insurance companies deal with sensitive personal and financial data, and the use of digital and technology-driven infrastructure requires robust data privacy and security measures. This is more critical when one considers that data breaches have been described as a major reputational and legal nightmare for corporations. In fact, it is not news that companies without adequate data management procedures will most likely be caught up in the web of regulatory problems and ultimately be left behind as customers (notwithstanding their willingness to share their details on social media). Insurance companies must always seek the expertise of legal practitioners, as this will help them comply with the Nigerian Data Protection Regulation (NDPR), the Global Data Protection Regulation (GDPR), and other regulatory requirements. They must ensure that they obtain appropriate consent, use the data only for legitimate purposes, implement appropriate security measures to protect the data from unauthorised access and breaches and ensure that third-party service providers comply with the regulations as well.
2. Legacy System Integration: The integration of modern digital and technology-driven infrastructure with existing legacy systems can be challenging, especially for larger insurers with complex systems. It requires significant investment and planning to ensure that the systems can work together seamlessly, and data can be shared effectively.
3. Cost and Resource Constraints: Implementing modern digital and technology-driven infrastructure can require significant investment in technology, talent, and training. This can be challenging for smaller insurers with limited resources, and it may take time for them to realize the benefits of their investment.
4. Regulatory Compliance: The insurance industry is heavily regulated, and the use of digital and technology-driven infrastructure requires compliance with various laws and regulations. An example is the National Insurance Commission (NAICOM) Act, which requires insurers to obtain approval before deploying any technology-driven infrastructure, such as mobile applications, online platforms, and artificial intelligence (AI) systems. This is in addition to the regulations applicable to e-commerce. As such, insurers must ensure that their systems and processes meet these requirements and that they remain compliant as regulations evolve. Most importantly, the expertise of legal practitioners should be sought in this regard.
5. Customer adoption, satisfaction, and protection: While digital and technology-driven infrastructure can improve the customer experience, it can also be a challenge to get customers to adopt new technologies and platforms. There are also issues relating to consumer protection, such as the accuracy of information provided on websites and the transparency of terms and conditions. Insurance companies must ensure that they provide clear and accurate information to customers and comply with consumer protection regulations, such as the Federal Competition and Consumer Protection Act, of 2018. They must also prioritise intuitive and seamless user experience, making it easy for customers to access necessary services.
6. Cybersecurity: The use of digital and technology-driven infrastructure in the insurance industry increases the risk of cyber-attacks and consequently liability for system failures, errors, and omissions. Though Nigerian law does not have specific cybersecurity regulations for the insurance industry, the Cybercrimes (Prohibition, Prevention, etc.) Act 2015 criminalizes various forms of cybercrime, such as hacking, identity theft, and phishing. Hence, insurance companies must implement appropriate cybersecurity measures to protect their infrastructure and customer data, such as firewalls, encryption, and intrusion detection systems. Failure to do so can result in financial losses, reputational damage, and regulatory sanctions.
7. Human Resource Challenges: The switch from traditional marketing methods that heavily relied on intermediaries to technology-based digital marketing requires a skilled workforce with expertise in data analytics, cybersecurity, and industry-specific regulatory compliance. Asides from the cost implication, it may result in the disengagement of certain employees which in turn opens the floodgate of litigation in the event that such is not appropriately managed. It is therefore advised that employers should retain specialist counsel in labour law early before any disengagement. As such, they are armed with sound legal advice on issues of compliance with the relevant laws, the method of calculating severance payments, how to appropriately communicate with employees and other intermediaries, and how to avoid legal issues of unfair dismissals amongst others.
8. Contract formation, execution, and due diligence: Since contracts by insurance companies can now be executed electronically, issues regarding the enforceability of electronic records particularly in cases of fraud or cybercrime are inevitable. As a result, insurance companies must ensure to comply with legal requirements for electronic contracts including that electronic signatures must be unique and capable of identifying the signatory. Matters of identification/verification of customers must also be cautiously dealt with through appropriate KYC checks and other fraud prevention mechanisms.
Conclusion
In conclusion, despite the varying challenges, the adoption of modern digital and technology-driven infrastructure has significant potential for the Nigerian insurance industry. For insurers to remain competitive, and successfully provide their customers with the best insurance products and services while ensuring optimal operation with no regulatory hitches, it behooves insurance companies to seek the advice and support of experienced legal professionals. This will enable them to seamlessly navigate the complex legal landscape and ensure compliance with regulatory requirements.
Amala Umeike is a Partner at Stren & Blan Partners and supervises the Firm’s Financial Services Sector. Adenike Oguntoye is an Associate in the Tax, Real Estate and Industrial Relations Practice Group of the Firm, while Stanley Chuka-Umeora is an Associate in the Firm’s Financial Services Sector.
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Stren & Blan Partners is a full-service commercial Law Firm that provides legal services to diverse local and international Clientele. The Business Counsel is a weekly column by Stren & Blan Partners dedicated to providing thought leadership insight on business and legal matters.
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