How InsurTech Is Shaping The APAC Insurance Market
InsurTech is becoming one of the most exciting emerging insurance sub sectors, especially for investors. In Q1 2021, global investments in InsurTech achieved a new high of $2.55bn. While many industries have suffered in the last year due to the pandemic, InsurTech has seemingly thrived and actually helped to accelerate developments in the sector.
In APAC, there are now over 300 private InsurTech firms. While China and India attract over three-quarters of these InsurTech investment initiatives in the region and are home to over half of these firms, the whole region is becoming a dynamic ecosystem for which InsurTech is the catalyst.
In this interview, we delve deep into Covid’s impact on the industry and market and what the future looks like for the APAC insurance sector:
MG: APAC encompasses vast geography and extremely diverse markets in terms of economy, business and maturity of the insurance sector, even without going into the substantial differences in society and culture of the different countries, making it very difficult to generalise about.
At one end of the spectrum, we have some very mature markets, such as Japan. At the other end, there are relatively untapped frontier markets, such as Myanmar and Laos.
Is it useful even to try to generalise about the region in any meaningful way?
TB: It is very difficult to generalise. Even if we try to compare between the mature markets, we find significant differences, such as between Japan and Singapore. Japan is very mature but also very conservative. I don’t see much going on in InsurTech in Japan itself.
Interestingly though, Japanese insurers are actively engaging partners and acquisitions by turning to players in the US, such as Slice Insurance and Tractable, and not to Asian-born start-ups.
MG: Yes, and MS&AD group took equity in Hippo in the US, who have just IPOd
TB: If we look at Singapore, there is a lot of InsurTech start-up activity. Of course, the Singapore market is very small, so they have to look to the larger southeast Asian markets to roll their offers out, such as in Malaysia, Thailand and Indonesia.
Then, we look at China, a completely different animal and very much different from anywhere else in the world! So, it really is very difficult to generalise, yes.
MG: Yes, and this, of course, is one of the key challenges for multinational insurers – getting the strategic balance right across the region: deciding where products, distribution channels, business models, everything really, can and should be universally applied, but also understanding which activities require local adaptation, and managing that adaptation to minimise risk.
This is a very complex set of interrelated strategic issues and not easy at all to get right at all.
So, putting you on the spot, which of the multinational players are getting these strategic equations right in Asia Pac?
TB: There are some who have not, obviously, and there have been exits, unfortunately, Manulife being one, after struggling to get the distribution right.
MG: And Aviva
TB: On the other hand, AIA, as the most prominent life player in most markets in the region, are now aiming at a universally applicable solution through their mobile app, IposS.
A player that I find very interesting is FWD-Bolttech. They have a very consistent approach across the region to using mobile, which I feel is the right strategy, as mobile is the most powerful tech platform to use to reach out to consumers. This strategy also works well in the developing markets with lower-income populations, and they are actively seeking out partners to do this with.
MG: These are exciting times for insurance in APAC. And perhaps Covid is further accelerating that trend. With changing needs, wants and resultant behaviors of consumers, with their refocus on risk generally and the emergent interest in protection products plus, at the same time, a more willingness to transact generally online, insurance may become more of a need than a want, with all the implications this has for distribution channels. Having said that, as we know, there will always be a need for a human interjection at some point in the customer journey, it’s more a question of understanding when and how that is done, so back to the universal vs local application challenge again.
What does seem universally clear though, is that it is more paramount than ever now for insurers to refocus on better understanding end customers and how tech can help engage with them, and this often requires bringing in new capability to do that.
TB: Yes, Covid has definitely impacted the way to look at the digital experience of different segments of the population.
Pre-Covid, younger generations were already transacting online and beginning to show interest in insurance products. Now, even the older generation are more active online, using shopping and food delivery services, for example. So now we are seeing the multi-generational adoption of online purchasing universally across the region.
The new levels of convenience and transparency will also create new expectations when it comes to claims.
Customers can track down to the minute when a GRAB taxi is arriving and check their Lazada order in real-time. When we look at the insurance industry and claims management, on the other hand, we still find a highly inconvenient black box.
Clients often have no transparency over the timeline, status, or the following steps when filing a claim. By leveraging technologies including OCR, blockchain and applying a mobile-first approach, insurers can significantly improve the claims experience if they wish.
MG: Many industries have struggled with the pandemic and the human cost has been truly awful; it seems that it’s actually advanced the insurance industry in some respects.
TB: One upside to Covid has been that people understand the importance of health insurance, and the market for related products has, in many cases, become a pull instead of a push market.
New segments of populations, including lower-income and younger people, are now keen to purchase health covers. But in many cases, new coverage innovations are needed. Young people might not want, or have the economic means, to purchase expensive full coverage health insurance. What is needed are small, bite-size policies that focus on the major risks those segments face at an affordable price.
Those policies should not only cover traditional doctor’s appointments but telemedicine offerings as well. In rural areas and, of course, during a pandemic, people might not have easy access to doctors. Offering telemedicine to those groups can make health care both more accessible and more affordable at the same time.
MG: Yes, the partnerships required between pharma, healthcare providers and insurers required to make this happen would be genuinely deserving of the ’ecosystem’ definition, in that they directly sustain life.
This brings us to InsurTech and regulators. Do you think we are seeing progression on the part of regulators to becoming perhaps more responsive to these changing needs of consumers, which I think should be the mission of all regulators, and businesses generally, for that matter?
TB: Yes, regulatory practices do differ according to market maturity and appetite for innovation. One thing they do all have in common, and which they also have in common with insurance companies themselves, is that they too are traditionally conservative. Regulators are not necessarily very innovative when it comes to tech. They are often found playing catch up, even in the relatively mature market of Singapore, for example.
However, regulators generally have seen the importance of tech. This is similar to what we have seen with some of the insurance carriers themselves.
A while back, when insurance players still thought they could respond to tech from within, we saw some insurers try to adopt the persona of a start-up. CEOs, for example, suddenly turning up to work in jeans and t-shirts, but without really understanding how to integrate innovative tech into their operations.
Likewise, it has also taken regulators a while to realise that it is a steep learning curve. Many have developed sandboxes to work with start-ups but may not fully understand the full impact of tech.
One particular area of concern for me, coming from my research into big data, is its usage.
Obviously, data helps insurance in many ways, such as helping develop new products, diabetes products, for example. But we need to be careful how it is used. There is a very fine line between using it to provide better products and services without slipping into, for example, discriminatory practices. At the end of the day, this will be down to regulators to make sure it is leveraged without being abused.
We have also seen some quite specific examples during lockdown of necessity leading to the adoption of practices that may be risky in terms of data leakage. Agents, for example, have been using their personal social media apps to sell insurance products, including sending identity documents via LINE messenger, which is highly insecure.
A lot of regulations were designed with face-to-face sales in mind. For example, in the Philippines, you can only sell to people in the country with a wet signature to prove that the person was present at the agent’s office. This has now led to people sharing their live location data to prove that someone is in the country. While all those quick win solutions have surely been creative and effective as short-term fixes, we now need to find secure and integrated processes to enable virtual sales
MG: I guess one of the issues for all regulators is that, by definition, they must always be playing catch up to some degree. Innovation needs to have actually been implemented before they can fully see what all the emerging risks are. A problem for them, though, is the speed at which innovation is now coming about.
This means that the Legal and Compliance head role at companies in emerging markets is a mission-critical role in ways that may differ somewhat from those required of the same role in more mature regulatory contexts.
Being able to navigate between group regulatory and, in some cases, head office legal requirements on the one hand and local ‘market practices’ on the other, for example, requires significant experience and guile. Furthermore, the relationship management ability, including knowing who the key decision-makers are in regulators and beyond, and how they think, as well as a deep understanding of the business itself, especially when rolling out innovations, are key. People with these competencies are very much in demand across the region.
Compliance is one of the reasons I often hear for MNCs' reluctance to invest in emerging markets and, indeed, one of the reasons they pull out, often wrongly, I believe. I would suggest that it is one of a number of risks that come with the territory and is manageable.
In fact, by getting the right person(s) in to lead the Legal and Compliance function, and by following a few quite straightforward sensible practices, I would suggest that not only should regulatory compliance be seen as a manageable risk, it can also be a source of competitive advantage.
TB: I still hear complaints about regulators in some markets; for example, it taking two years to get approval for a new product. One hopes that regulators will align themselves with the interests of the consumer.
From one perspective, whatever the industry, disruptors will likely have to work hard to persuade regulators and legislators to accept their new offer, but they should see it as an essential part of the game.
Uber and Grab, for example, know that they have to fight on this front in every market they enter in the world, obviously, but the bottom line is consumers, in Bangkok, for example, want them there.
So although consumers perhaps do not have such strong sentiments toward insurers as they do toward the likes of Grab, InsurTechs are still the poster child of many regulators. So, if these players have a strong customer value proposition, they should be able to leverage that, though we also must not forget the importance that people relationships always play too.
MG: Right. At the risk of transgressing into the political sphere, I feel it worth observing that I think it makes a difference when there is clear accountability. If you are operating in a market where there is political accountability to the population as a whole, which is not necessarily the case in some of the markets we are talking about, one would hope that a regulator would themselves have accountability to that same general population as consumers.
What’s more, there is political power to be had in championing consumer needs. So this is where business and political interests merge, and both the governments of the home countries of MNC insurers, plus the insurers themselves, have a role to play in pushing for representative government in the countries where they do business.
One final question, then, about InsurTech and where it goes from here.
Most, if not all, western markets have gone the aggregator route, not just disrupting channels but, in some markets, leading to the complete disappearance of some traditional distribution channels. For example, people now purchase motor and home insurance almost exclusively online now in places such as the UK.
TB: That’s a difficult one. One economic and cultural consideration is that, in Asia, labour is comparatively cheap, and so services generally are still quite human-dependent. People are used to having things done for them, so there still seems a reluctance to transact online when someone can take care of it for you personally.
MG: So we haven’t seen any market across the whole of APAC where an aggregator has come in and completely turned it on its head by going direct to consumer and thus completely sidelining intermediaries, as we have seen in other markets?
TB: No, and where they have come in, often we find there is still a human intervention required, most often through a call centre. Policy Bazaar in India, which have been very successful, still rely on a call centre. Furthermore, their business is configured very differently to aggregators in western countries, as they offer their tech services to insurers and intermediaries, so they are much more than just an aggregator.
Interestingly though, they were hoping to corner up to 25% of the market due to Covid, which has not happened, so consumers are not changing as quickly as expected, and the human touch is still needed.
So I guess the lesson is that InsurTechs looking to come into the APAC region, with a great piece of tech that insurers can utilise, should not expect to easily replicate the business model and they shouldn’t expect for it to fly here without some quite serious local adaptation.