The Future is Made of Different Stuff

The impact of technology, more than any other sector, affects the financial sector tremendously.

Previous business trends and achievements, one may argue, are dinosaurs in light of the current emerging markets. This is mainly because of the ever changing needs and wants of mankind, or because customers have endless intentions with no absolute model that shapes their behaviour over many years.

Today is the time of digital technology; a golden era of communication that has enabled mankind to share and access information from compartmentalised space and time. Technology avails the opportunity to be more productive within a very tiny space, within an incredible time span and through efficient material resource.

“The future is made of the same staff as the present,” remains the saying of traditionalists, who love their status-quo and believe in the homogenous pattern of the natural course of action.

We may come in contact with people who regularly use the words “no difference”, “we faced the same challenge 10 years before”, “when I was chairman of this/that office, I solved the same problem that you are encountering now”. These, despite the changing times, keep persisting in everyday life situations, as well as in business environments.

An opportunity rarely repeats itself, especially in the financial sector, as the very nature of the business is highly intertwined with time, value for money and the associated risks emanating out of technology.

I may argue that, in our financial sector, no typical banker or insurer proactively engages with high-tech items or scientific tools to mitigate the emerging risk of technology, on one side, and capitalising values from the optimum use of technology, on the other.

Studies indicated that a national risk map would help financial companies to develop mitigating factors and weighted average cost of capital. This would significantly change the return on investment from their investment portfolios.

Whatever risk a nation faces is measurable using technology that investors determine a minimum risk free rate of return – i.e. bank interest income or the cost of transfer of the risk paid to insurer inform of premium. But we don’t have a national risk map from which we can deduce risks.

In the financial sector, insurers and bankers have the ultimate responsibility to fill the gap of knowledge with this regard and scratch the match of change, rather than being preoccupied with competing with each other for mere automation. Let us not miss the opportunity technology has endowed us with.

This notion of change has to be holistic. For instance, bankers and insurers in our country should be proactive in developing a model of sovereign disaster risk financing and insuring. Mega risks fundamentally affect the entire society and their institutions. The society at large bears the cost of institutions. Society always pays back in the form of branding institutes and image formation. The first insurer or banker with a new package of products for disasters will remain an eternal choice of that society. Companies also extend support to their community in the form of corporate social responsibility.

The question is which technology should we introduce? At what amount of return should we accept the risk? What kind of disaster recovery plan and mitigating factors should we have?

In my view, insurers and bankers who have the technology that clearly measures the risk and return of the venture and brings about the product, sovereign disaster risk financing and insurance, aims to increase the financial response capacity of national and subnational governments to secure cost-effective access to adequate funding for emergency response, reconstruction and recovery. This policy area encompasses mobilisation, allocation and disbursement of funds following disasters. It also includes the integration of liabilities from other sources, such as government-supported agricultural insurance, property catastrophe risk insurance and social protection.

Private Banks and insurers, by pooling their resources jointly with international financial institutes, can create packages and demonstrate the product to optimise their profitability.

There is also a different kind of package – disaster-linked social protection – which aims to protect the livelihoods of the poorest and most vulnerable by enabling social protection mechanisms to rapidly increase assistance to affected households immediately following – or on the early signs of slow onset – disasters. Disaster-linked social protection seeks to promote new forms of administering humanitarian aid more effectively, without the long delays often encountered in the current system, as a core component of a country’s development, rather than as an uncertain emergency measure.

Bankers will get the chance of being first to throw micro-financing of such livelihoods, which coins their social responsibility as well as a better return of employing resources. Insurers should not lose this opportunity as the need is arising.

We have seen the establishment of a new re-insurance share company, which will come among the first in the discipline of disaster recovery programmes, and sovereign risk financing and insurance. This company is created from established members of Ethiopia’s financial industry.

What prevents us from being proactive is our anti-technology syndrome, which lacks any hint on each and every risk taking process individually, as a company and nationwide. Technology destroys the barbed wire of disasters and risks, though it creates risks too. Ignoring technology in business activities of the twenty-first century would not lead to bankruptcy – it is as if being outdated, even before the start of business as a human activity. The future is not made up of the same stuff as the present.


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