The future of robo-advisors in the South-African insurance industry: Is the South African regulatory framework ready?

• Jurisdiction: South Africa
• DOI: https://doi.org/10.47348/SAMLJ/v32/i2a1
• Pages: 175-204
• Author: Huneberg, S.
• Date: 06 April 2021
• Published date: 06 April 2021

(2020) 32 SA Merc LJ 175

© Juta and Company (Pty) Ltd

adopting robo-advisors in the f‌inancial industry in order to cut costs and

improve eff‌icacy for consumers.

2

Artif‌icial Intelligence (AI), generally,

plays an increasing role in the f‌inancial services industry.

3

The insurance

industry is no stranger to incorporating the benef‌its of AI technology

into their products.

4

One way in which insurers are utilising AI in their

products is through the use of big data in better analysing risks and

premiums of policyholders to enhance the customer experience in

procuring various types of insurance products.

5

Robo-advisors appear to be the next big driving force in the f‌inancial

services industry.

6

These automated f‌inancial product advisors are

emerging in the industry and help consumers make better investment,

banking, and insurance decisions. South African insurance companies,

such as Naked Insurance

7

and Pineapple Insurance,

8

already utilise these

technologies. It is only a matter of time before robo-advisors become

standard in the insurance industry.

9

Already, customers can procure

through robo-advising. See Baker & Dellaert, ‘Regulating Robo-Advice Across the Financial

Services Industry’ (2018) 103(2) Iowa LR 713 at 730.

2

In the United States, companies, as mentioned, above use robo-advisors in the f‌inancial

industry.

3

Ji, ‘Are Robots Good Fiduciaries: Regulating Robo-Advisors Under the Investment

Advisers Act of 1940’ (2017) 117(6) Columbia LR 1543.

4

Thouvenin, Suter, George & Weber, ‘Big Data in the Insurance Industry’ (2019) 10(2)

Journal of Intellectual Property, Information Technology and Electronic Commerce Law 209.

Currently in South Africa, ‘chatbots’ are a common feature of many of the big insurers’ web

sites - they offer customers on-demand service and advice. Examples include Discovery and

Naked Insurance. A ‘chatbot’ is a computer program that simulates and processes human

conversation, which allows humans to interact with digital devices as if they were communi-

cating with a real person. See Oracle.com/za/solutions/chatbots/what-is-a-chatbot/, accessed

on 31 July 2020.

5

For example, Yalu Finance is a proudly South African company aimed at providing

Credit Life Insurance Plans to customers. The company is underwritten by Old Mutual

Alternative Risk Transfer and use a technology-based platform to market their products. They

are viewed as a disruptor in the industry and allow customers an online platform to take out

their products in less than f‌ive minutes (see https://www.yalu.co.za, accessed on 31 July 2020;

see also Thouvenin, Suter, George & Weber, (2019) 10(2) Journal of Intellectual Property,

Information Technology and Electronic Commerce Law 209 at 210). Big data are ‘very large

collections of observations, particularly those that also include very large of variables and

associated statistical techniques for using these ultra-large datasets to make predictions or

forecasts’ (see Siegelman, ‘Information & Equilibrium in Insurance Markets with Big Data’

(2014) 21(1) Connecticut Insurance LJ 317 at 318).

6

The banking and investment industries globally introduced robo-advisory services in

2010. Currently, these platforms hold trillions of dollars in investments (Baker & Dellaert,

(2018) 103(2) Iowa LR 713 at 728). For a South African perspective, note companies like Yalu

Finance, Naked Insurance, and Pineapple Insurance — we see a number of up-and-coming

companies using digital platforms and AI to market their products.

7

Underwritten by Hollard Insurance.

8

The f‌irst peer-to-peer online insurance platform in South Africa.

9

Internationally, companies like Lemonade Insurance are revolutionising insurance

products.

https://doi.org/10.47348/SAMLJ/v32/i2a1

(2020) 32 SA MERC LJ

176

© Juta and Company (Pty) Ltd