Insurance/Insurtech Trends in APAC!
Last week, we stopped off in Asia-Pacific to explore Insurance and Insurtech trends in the world's most populous, highest-growth region. Today, we continue our stay, offering you the second half of our dedicated Regional Profile on Asia-Pacific. In Part I, we reviewed our general statistics for the region, which we gathered for our Global Trend Map (download the full thing here), and identified several qualitative themes (of which we explored the first two):
- The high-growth, high-competition dynamic inherent in the Asia-Pacific insurance market
- The new calling for customer-centricity and the related question of disruption
- Using data and analytics to create more customer-centric products, such as personalised, on-demand insurance
- APAC distribution landscape, and what insurers are doing to scale their products
- How to successfully manage back-office digital transformation
Here we present Part II of our Profile on Asia-Pacific, in which we explore Themes 3-4 in discussion with our three in-region influencers:
- Steve Tunstall, CEO at Singapore-based Insurtech start-up Inzsure
- João Neiva, Head of Innovation, IT and Business Change at Zurich Topas Life in Indonesia
- David Piesse, Chairman of IIS Ambassadors and Ambassador Asia Pacific at the International Insurance Society (IIS), based in Hong Kong
You can access the full Asia-Pacific Profile whenever you like, with Themes 1-5 explored in order, by downloading the full Trend Map report here (which is totally free of charge)... We hope you enjoy reading!
Get your full copy of the Trend Map - featuring all of seven of our dedicated Regional Profiles - here!
3) Towards Slick, Personalised, On-Demand Insurance
If they are to prevail in the face of market disruption, insurers must woo consumers with a fundamentally new kind of customer-centric insurance product: easy-to-use, personalised and on-demand. Let us review the progress currently being made in this direction by insurers in Asia-Pacific.
João Neiva, speaking from his experience as Head of Innovation, IT and Business Change at Zurich Topas Life, gives some background on how his Indonesian team are updating products and services to reflect their understanding of today’s customer. To start with, he warns against customer-centricity for its own sake, noting that it is easy to make a vice out of a virtue.
‘Sometimes, from the perspective of a customer, we get carried away with providing self-service functionalities because the trends show that everyone now has a mobile phone, or more than one, so let's go crazy and make sure that the customer can go through the whole process pretty much on their own,’ says Neiva. ‘However, I think sometimes we don't ask the customers and we just assume that they want it.’
He counsels a healthy degree of pragmatism when trying to understand the customer’s most pressing needs – at least as far as personal-lines insurance is concerned. For most people, insurance is simply not top-of-mind, and customers consequently are more likely to value a convenient, simple experience from their insurer than a high-spec, over-engineered one (buying insurance is not like buying a games console).
‘Customers want simple documentation. They want plain, understandable wording, visual if necessary, they want real-time quotes and purchase for a product, preferably by mobile,’ Neiva points out.
For Neiva, providing clarity to customers regardless of which channel they have come through, for example on the status of their policy, may be more important to them than the absolute speed of issuance:
‘On the New Business side, customers want transparency about the next steps, they want a clear view of what to expect. They want to know when their policy will be issued or if they need medical tests. So what does that mean? Does it mean that the policy needs to be issued in one day, instantly, less than 2 hours? Is issuing a policy in 20 minutes really relevant? I think that, from an operations perspective, sometimes we get carried away with shortening the processes when that may not actually be what customers are wanting.’
New Business is a good example of where process overhaul can make a major difference to customer experience – and one that is genuinely felt and appreciated by the customer. But customer experience is not exclusively about ease of use; another easy win for insurers chasing the customer-centricity grail resides in the product itself, namely by making it more flexible and personal, in line with the multitude of other ‘on demand’ services that today’s consumers are coming to expect as the norm.
We see the same trend towards Usage-Based Insurance (UBI) in Asia-Pacific as we see elsewhere in the world, and this relies (as elsewhere) on making innovative use out of customer data and analytics so that prices reflect individuals’ actual behaviour over policy spans of their choice.
‘We've got a lot of data, we know a lot about customers, we know about their health, we know about their income, we know about their lifestyle and we do little with that data,’ comments Neiva. 'So we're starting with some proofs of concept in those areas as well.’
Out of the three main regions we assessed in our Trend Map (Europe, North America and Asia-Pacific), it was Asia-Pacific that led on Analytics as a priority area (along with North America), reflecting the growing importance of this technology class in the region (see our post on Insurer Priorities).
Also, in line with our global trends, we generally find investment in analytics increasing in Asia-Pacific, and analytics-related services are also highly sought after among the third-party service types we have assessed on (see our earlier instalment on Services, Investments and Job Roles). Additionally, a majority of our respondents in the region reported that they were coordinating their analytics strategies across their organisations, and we also found a reasonable incidence of formal data-governance strategies.
"Advanced analytical modelling is seen as the new currency for predicting customer needs and delivering insights to build really innovative insurance products and adapt processes where they are broken... while at the same driving heighted transparency where required."
Sabine VanderLinden, Managing Director at Startupbootcamp
In our post on analytics, we noted a potential lag in external data usage in APAC, and our broader research tells us that the culture of third-party data aggregators is less well-established here than in the West, with (re)insurers basing their models primarily on data they've collected themselves, or on publicly available data.
The Internet of Things (IoT) is a core component of any long-term UBI strategy. Half of respondents in Asia-Pacific report having an IoT strategy, in line with our other key regions, and this was a priority area on which the region led (see Insurer Priorities).
eMarketer recently estimated that 70% of people in Hong Kong are smartphone users ...
Smartphone penetration in many parts of Asia-Pacific is excellent, with eMarketer recently estimating, as an example of this, that 70% of people in Hong Kong are smartphone users. This is already acting – and will continue to act – as a major enabler of IoT solutions, especially in health, where the smartphone can act as a hub for one or more m-health devices, and which was, as we recall from our earlier post on Product Development, the insurance line driving the greatest level of product innovation in Asia-Pacific.
"The Internet of Vehicles (IoV) and Connected Cars is a market that’s growing tremendously fast in China. Many analysts have highlighted this trend. Baidu is investing in the Autonomous Car and wants to connect all the customer knowledge it has to exploit this new business model and generate new revenue streams. In my opinion, it’s strongly linked to insurance companies’ need to generate new, not totally insurance-related revenues. It may mean losing their orthodoxy but ultimately satisfies their customers and CFOs."
Marco Buccigrossi, formerly Business Development Director at Mapfre
Even though Internet of Things was a priority on which Asia-Pacific led (compared to our other regions), and even though IoT-related services were a sought-after category of third-party services in the region, it is Europe that our stats on implementation put ahead of the curve (see our Internet of Things post). However, our key regions were set to be very much aligned within 12-24 months.
There are certainly some infrastructure issues when we consider Asia-Pacific as a whole; Neiva for one notes the continuing importance of offline data-gathering in wide areas of Indonesia. For certain IoT use cases as well, the cost of connected devices may be prohibitive. A modest majority of respondents in Asia-Pacific believed that IoT will impact claims departments, in which there exists a strong focus on claims loss mitigation.
The second phase for insurers who have created more personalised, flexible products – after gathering sufficient customer data – is to move on to recommendations and bundling. This way, the investment in personalising for an individual customer, which is of course more expensive than having one-size-fits-all policies, can pay off handsomely in upsell opportunities.
"Insurance firms hold a lot of data today which can be referred to as a coal mine. But very few insurers have been successful in mining and turning this data into a gold mine. My view is insurers are in a learning process today, but the culture of 'fail fast' needs further adoption."
Ash Shah, Regional CIO and Chief of Staff Property and Casualty at AXA Asia
In our section on Product Development, we found that around half of APAC insurers are indeed bundling products based on customer-lifestyle analytics, in line with our other key regions. This goes to show that even if your primary focus is on breaking into new markets and segments, there is no reason not to maximise the lifetime value of each new customer in the process.
The more intimate insurer-insured relationship that we see emerging is not just positive in the sense that policyholders can receive some form of rebate or benefit-in-kind for their good behaviour. As an extension of this, insurers can actively incentivise customers towards lower-risk actions. We see this particularly in Health and Auto insurance (which are the two insurance lines driving the most innovation at present in Asia-Pacific).
As the information exchange between the insurer and the insured improves and becomes more regular, in a virtuous circle of trust rewarded, insurers are coming into possession of more and more customer data. Holding all of this, however, comes with a number of unwelcome consequences.
The first that springs to mind is the impact of regulation, with customer-privacy laws causing insurers a considerable headache. While the emergence of Regtech should take some of the sting – and the cost – out of complying with regulation, customer privacy is not the only aspect on which insurers need to be careful: they also need to secure all their data against the spectre of cyber-attack.
Compromised data means compromised insurance models – regardless of the sophistication of the modelling – and this has the potential, like an algal bloom, to irrevocably contaminate the early-stage data lakes being created in the region. HK-based David Piesse, Chairman of IIS Ambassadors and Ambassador Asia Pacific at the International Insurance Society (IIS), is keen to impress how data breaches should be every bit as high up on insurers’ priority lists as issues around customer privacy.
‘Asia Pacific is only starting to look at regulations for data breach as opposed to data privacy laws, which have been around for some time,’ he expands. ‘Digitisation is leapfrogging in Asia and so are industrial parks with smart devices and machine learning running the processing. Because of global supply-chain issues, this makes the need to mitigate and protect data integrity an urgency even without regulation where best-practice risk management must be implemented.’
One issue (as with the similar problem of fraud) is the time it takes for breaches and compromise to be discovered and addressed:
‘The time from compromise to discovery in Asia is now on average 580 days according to statistics,’ says Piesse. ‘Therefore, we must assume compromise of data across time, as there have been no notification laws and hence no catalyst to mitigate. This is why there is concern in Asia-Pacific.’
Let us return briefly to the question of regulation, as it is often the regulator that stipulates what constitutes a legitimate use of customer data, as well as how that data is to be secured.
Asia-Pacific comprises a host of different regulatory regimes across all its constituent markets (there is no such thing as an APAC regulator), so it is difficult to talk in general terms about regulation in the region. Suffice to say, we can regard as exemplary the regulatory environments in Singapore and Hong Kong, which are proactively driving Insurtech and Fintech innovation forwards, for example through the creation of regulatory sandboxes.
"Forward-thinking regulators can have an enormous positive impact on market development. Take the Monetary Authority of Singapore (MAS) for example, which launched a Regulatory Fintech Sandbox back in June 2016 – this is a great way to encourage Financial Institutions (FIs) and Fintechs alike to openly pursue innovation without being put off by the fear of regulatory noncompliance."
Marsha Irving, Head of Innovation / Commercial Director at Insurance Nexus
In Asia-Pacific, we found a marginally lower level of historical impediment through regulation than in our other key regions (see our Regulation post), although all our regions were aligned in their belief that regulation was greater cause for concern this year than last. The smaller regulatory impediment compared to North America and Europe is perhaps a consequence of APAC being made up (in the main) of large national markets, with neither the centralisation of the EU nor the federalisation of the 50-State USA.
Get our full APAC Profile here, along with our Regional Profiles for Europe, North America, LatAm, the Middle East, Africa and Central Asia here!
4. Getting Smart About Distribution
In the previous sub-sections, we have given due attention to the customer-centric battle cry echoing across the APAC insurance landscape. However, understanding the modern consumer and creating products and services to meet their needs is only half the problem.
Customers want on-demand; customers want personalisation; customers want to receive products and services via the channel(s) of their choice – but not at any additional cost, as insurers’ brethren in the retail and logistics industry have already found out to their dismay.
This makes it imperative for insurers to reduce unit cost however they can, and this has multiple aspects to it. On the one hand, insurers can control the cost of the back-end systems and the processes supporting the new customer covenant, and this certainly forces them to prioritise what is really required. On the other, they can seek to reduce front-end costs, namely distribution. All of this reduces the amount that needs to be added back onto customer premiums and allows insurers to offer more competitive pricing.
Operating these two prongs in unison – back-end and front-end efficiencies – will ensure that insurers’ products are competitive in their middle-class markets, where new entrants are constantly trying their charms upon a fickle audience, as well as opening up the myriad uninsured for business and thereby enabling vast scale to be reached. We will look at what insurers in Asia-Pacific are doing from a systems-and-processes point of view in the next section; here, we focus on what they are doing to reduce the cost of distribution.
Firstly, let’s take stock of the distribution situation in the region. Anecdotally, we know the market to be highly intermediated, with agencies and banks playing particularly significant roles. However, our Distribution stats showed the direct-to-customer channel to be highly available (with over three quarters of insurer respondents affirming its existence).
"We know already what you want, we can deliver unbiased search. It all comes down to predictive analytics. If, for example, the customer has an iPhone 7, comes to GoBear through a certain channel and travels regularly to Hong Kong, we know based on your profile that there are only going to be three insurance companies you are interested in."
Andre Hesselink, CEO of GoBear
This is totally in keeping with our characterisation of Asia-Pacific as a highly disrupted market. Our position throughout this report has been that customer disruption ultimately stems from distribution disruption, in the sense that it is new (digital) channels that have expanded consumers’ horizons to the new world of products, services and customer service that they now demand as the bare minimum. With consumers moving over to digital, insurers have no alternative but to make themselves available via this channel as well.
Availability is not of course the same as volume, and wider evidence on the APAC market indeed points to this still being a relatively insignificant channel volume-wise, compared for example to bancassurance and other face-toface channels. Recent research from Swiss Re and LIMRA indicated that the direct channel does not exceed 10% of total business in any Asia-Pacific national market apart from China, for which we already drew attention to the meteoric rise of the online player Zhong An in Part I of this Regional Profile.
The lesser volume of the direct channel within the region as a whole is reflected in the relatively low aggregator impact we measured for Asia-Pacific in our Distribution post (compared to our other key regions), bearing in mind that aggregators predominantly operate through digital channels.
Recent research from Swiss Re and LIMRA indicated that the direct channel does not exceed 10% of total business in any Asia-Pacific national market apart from China ...
As increased availability of digital channels reflects changing consumer behaviour patterns more generally, we expect these to bulk out over the coming years. For the time being though, the lion’s share of insurance business in the region still happens via traditional brokered channels.
These broker channels are highly fragmented, incorporating agencies and banks of all shapes and sizes, each one with a different working culture, a different sales ethos and often different technological constraints. This does not just make it more difficult to offer prospective customers a consistent experience across multiple channels, it is also unconducive to the rapid scale that insurers want to achieve with their new-age policies.
Indonesia is a case in point, with in excess of a quarter of a billion people spread over nearly 1,000 permanently inhabited islands. Neiva, working out of Jakarta, depicts the situation in the following terms:
‘We've got 6,000 distributors spread all over the place. Indonesia is not known for its technology or its network infrastructure, so there's a big challenge there in terms of connectivity. So whenever we bring digital solutions, the challenge is that it needs to be online and offline.’
It’s clear that insurers in Asia-Pacific are trying to break the shackles of this legacy distribution landscape; indeed, Distribution Diversification was a priority area that Asia-Pacific led on by comparison with our other regions (see Insurer Priorities). Given the high mobile penetration in the region as a whole, the direct-to-customer channel certainly makes a lot of sense in that it allows people to access insurance via a device they already possess. As this is not just widely available but also effectively free of charge, we expect it to be particularly useful for the distribution of micro-insurance products in the region.
While the direct-to-customer channel will certainly become more significant as time goes on, it is not the only answer for insurers seeking to access the huge new market segments on offer in Asia-Pacific as well as to keep the trust of fickle existing customers.
Affinity partnerships, whereby insurers piggyback on other brands already established in consumers’ lives, are a path insurers continue to explore. This is a trend the world over (we explore it also in our Regional Profiles on LatAm and Africa) but we have reason to believe that it will be particularly pronounced in Asia-Pacific.
‘We're looking into partnerships with companies from different sectors: how we can plug in, bringing the insurance dimension and being the insurance carrier while the partner does all the front-end customer-facing stuff,’ explains Neiva. ‘And as I like to call it, we're just a third-party API.’
He goes on to give an example of what this ‘API culture’ might mean for insurers:
‘If we want to tap into Uber customers, we’ll be another API into the Uber app,’elaborates Neiva. ‘We’re not the front end, we’re not the market-facing bit. And the second thing is: we can be the market-facing bit but live with 3rd-party APIs from other companies. That’s how I see it’s going to move: more from these partnerships between insurance companies and others, not only banks but other companies too, that will add to the customer base.’
It goes without saying that the affiliate channel can also exist without APIs. It can be of enormous help to an insurer to use the scale of a large retailer or telco in the same way as they have used, and continue to use, their traditional banks and brokers. As an example of this, in 2016 we saw BIMA, a leading provider of mobile microinsurance (MMI), partner with mobile network operator Digicel in order to access their subscribers in Papua New Guinea and Fiji.
"It’s hard for intermediaries. This middle man is only useful if they can provide a great customer experience. Lots of companies are trying to build those platforms but often only replicating the online model they have offline instead of rethinking it. Additionally, the big risk is that the market and the customer are going faster and faster and companies are left behind."
Marco Buccigrossi, formerly Business Development Director at Mapfre
We conclude our Regional Profile for Asia-Pacific with our next post, looking at our final theme: how insurers in the region are successfully managing back-office digital transformation.
Stay tuned for our dedicated profiles on LatAm, the Middle East, Africa and Central Asia and be sure sure to check out our earlier ones on Europe and North America — and if you don't want to wait, you can access all the Regional Profiles (along with our dedicated sections on Global Trends and Technology Developments) as part of the full Trend Map report.
For any inquiries relating to the Insurance Nexus Global Trend Map, this on-going content series or next year's edition, please contact:
Alexander Cherry, Head of Research & Content at Insurance Nexus (firstname.lastname@example.org)