As insurtech companies grow in influence, they are revolutionising and reinvigorating the legacy insurance industry.
With the use of advanced technologies such as blockchain, AI, chatbots, big data and other digital tools, insurtech is systematically making insurance more accessible to more people than ever before.
These innovative companies are streamlining many traditional insurance functions and creating new product offerings that appeal to younger, digitally savvy underbanked consumers and micro-business owners.
One example of insurtech streamlining services is their use of robo-call channels to stay connected with customers and sign them up for new insurance policies, leading to an impressive conversion ratio of more than one per cent.
From my experience of working with them in Southeast Asia, it is clear that insurance products will continue to be offered not only in offline retail stores but also through a customer’s journey on mobile apps and websites.
This focus on hyper-personalisation, which offers contextual micro-insurance products with low coverage periods and low premiums, is key to the sector’s future success.
In 2020, insurtech in Southeast Asia registered growth of more than three times in gross-written premiums in 2020 compared with 2019. I expect to see in the near future more investment in the InsurTech sector, such as the recent investment in bolttech.
There will also be a surge in the creation of joint ventures and long-term strategic partnerships between insurance companies and digital platforms, such as the tie-up between Tiki and AIA in Vietnam, while there will be an accelerated expansion of US and China-based insurance companies in the region in 2022 and beyond.
The business models of insurtech will evolve based on the insurance coverage and the regulatory framework in different countries.
Broadly, these will include aggregator platforms that connect the insured with insurance companies, as well as the introduction of broker licences that leverage offline and online distribution channels and a model of underwriting based on digital substrates and the rewriting of insurance policies.
Who does what in the new insurance model?
It will be incumbent in the months ahead for insurtech and legacy insurers to sort out their roles and responsibilities to better serve the industry as a whole. Insurtech companies, for instance, are partnering with other digital companies such as lending and payment platforms.
The latter are transaction driven with a high level of customer engagement and large customer networks.
The partnerships help leverage strong distribution and marketing channels with innovative, bite-sized insurance products. The focus on innovation in distribution models will be key in low insurance coverage countries such as Indonesia, Vietnam and the Philippines.
As they evolve, these platforms will leverage behavioural and transactional data to create more personalized forms of insurance.
For their part, the legacy insurers are more skilled in underwriting risks, have more experience with the regulations and possess strong balance sheets, which enable them to better address unpredictable events and disasters.
At the same time, they will push for risk-based pricing for micro-insurance and auto insurance products as the losses will be calculated for each identified customer segment level.
What’s ahead for the insurance industry
The partnerships will not be without challenges. Insurtechs should focus on launching specific products for different customer segments as the approach of legacy insurers of one product fit-for-all segments is not sustainable.
Margins in countries such as India and Indonesia will be low, but protection and health products will still have margins as high as 50 per cent.
Indeed, throughout the Asia-Pacific, roughly 90 per cent of consumers who own auto, home, health and life insurance policies “are open to the idea of an ecosystem of services”, according to a 2019 report titled Making the Most of Asia’s Insurance Boom by global management consultant Bain & Company.
Both insurtechs and legacy companies alike must be mindful of the existing regulatory framework and, in particular, raise a flag over data protection considerations.
To deal with such concerns, a number of jurisdictions have set up so-called regulatory sandboxes. The Monetary Authority of Singapore, for instance, defines its sandbox as a place that “enables financial institutions and fintech players to experiment with innovative financial products or services in a live environment but within a well-defined space and duration”.
The State Bank of Vietnam, the country’s financial regulator, also plans to open a regulatory sandbox for fintechs in 2021.
The regulatory framework in India and Southeast Asia will eventually recognise the convergence of business models of different categories of players in the insurance industry.
For instance, online aggregators offering insurance products from other insurance companies will likely get a broker license and open offline retail stores to provide experience centers for customers to help resolve their queries or service requests.
To participate in the growth of the insurance sector beyond tier 1 cities in Asia, insurtech and insurance companies will need to contribute to the development of an ecosystem to provide diverse product suites that are relevant for underbanked and unbanked consumers and micro-businesses.
They will also have to innovate in the distribution of their insurance products.
The existing broker community of legacy insurers may transition as influencers that could see customers approach them for micro-insurance products. However, they will continue to sell complex insurance products in the near future.
While engagement with customers will increasingly be through digital channels, the acquisition of high-value customers is likely to continue as face-to-face interactions for the next five years.
Despite the expected growing pains and regulatory hurdles to overcome, the convergence of insurtech companies and legacy insurance firms means that millions of previously excluded people will finally have access to simpler, more personalised and affordable coverage options.
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