Over the past two weeks, I moderated and presented at the 2021 InsureTech Connect Asia and Finovate Asia conferences. The hive of activities has provided me opportunities to listen from numerous distinguished speakers, panels, and witnessed demos from solution providers across the region.
Key recurring themes discussed were around creating good customer experience through the delivery of an omnichannel distribution strategy and the usage of data. Mobile delivery and financial inclusion through embedded insurance was top of mind as well, along with the integration of the insurance ecosystem and data. This can be achieved through the collaboration and partnership of insurtech and insurer.
There is a stronger push for insurers to go digital and insurtechs can bridge the gap through API delivery, and support insurer in modern technologies such as cyber security protection, blockchain for data protection, and data analytics and AI. Insurtech can also play a role in the process control by providing a centralized platform to connect insurers with intermediaries, building faster processes and reduce inefficiencies. Agents are also a key enabler in the insurance value chain and should be augmented with digital technology to serve customers better.
Digital versus Traditional Insurers – Towards the Hybrid Model
Digital technology and innovation are key themes for insurance advancement, but it also raised the discussion of the digital insurer versus the traditional insurer. Agents or financial advisers have wide reach of distribution and are credible for customers, especially for more complex life products. Agents can even make up for lower sales from digital insurance channels. Digital insurers must provide the same level of service as agents in the field, to establish the digital trust for customers.
Therefore, the sweet spot is to offer online services for customers alongside traditional services. This promotes brand value and service quality with digital capabilities for self-purchase. Modern technologies such as AI-based claims and digital payment functions can improve overall process and lower risk and operational costs. Increased financial and digital literacy, availability of information and digital products can allow people to self-serve well, but an agent is still required for advisory. Total self-service can cause stress to customers and technology such as chatbot can be programmed to pick up empathetic cues of distress and direct customers to a live agent. Agents can step in for advisory and education along the digital journey of customers.
Digital products can be simple on the front-end but there is also a need for clear and concise documents after-sales. In today’s climate, digital will be the format for product information and comparison. Customers will look towards coverage services and price, over simple product push from brands. However, the trust in established brands and agents are still relevant, and referral-based selling are still important to tapped on existing customers’ community. Customers can accept simple and cheap on-demand products but when it comes to complex product like life policies, an incumbent with an agent salesforce will benefit.
Ecosystem and Partnership
Insurers’ partnership with banks, healthcare, data providers, and insurtechs must collaborate and find alignment to alleviate traditional insurer’s systemic issues and aide in legacy system modernization efforts. This leads to ecosystems and in recent discussions, it is expanding the insurance universe to include interaction with digital players and to have hybrid experiences (online and offline) such as embedded insurance.
Data will fuel ecosystem development and modular functions will attach to insurance core system to offer technology in mobile, KYC, data-driven underwriting, and compliance reporting. Modular architecture and development, like Lego blocks, are a good way to start, alongside the choice of a suitable use case and talent/partner selection to develop or plug in to the ecosystem. The acquisition of traditional insurer’s customer base will also provide the data for digital insurers to compete with the incumbents.
The traditional insurance value chain can be re-imagined as well. For instance, claims can be the core part of customer experience and not at the end. Claims can be connected to payment gateways for a seamless process, and to have this process visualize on the digital front-end for customers’ visibility. Technology can also provide more distribution channels, which can be offered through an omnichannel strategy. This will improve the overall customer experience and to put the customer at the heart of product design.
I presented a sample ecosystem concept with data innovation at Finovate Asia (with a refreshed reference from this report) and agreed that the realization of the integrated ecosystem is still in its early stages with room for exploration. Collaboration in the form of partnerships and joint ventures will contribute to the development of the ecosystem, with iteration and learning at the core of building the right outcome for customers.
A popular discussion was on embedded insurance, which is quoted as being the future of insurtech and for financial inclusion activities. Due to Asia’s diverse landscape and culture, and a demographic comfortable with technology, there are opportunities for financial inclusion initiatives to serve the uninsured or under insured population. Embedded insurance is the seamless service for a customer’s digital lifestyle, delivering an omnichannel strategy through an invisible and hassle-free distribution method. Products will not be over-sold but promoted at the right time or point of purchase. Embedded insurance will be aligned to the core product and the design should be simple, to prevent the purchase of wrong coverage.
Data as the Foundation
Digital insurer and technology providers have the benefit of acquiring data to improve services. Increased data points will provide better perspective into customer’s journey and improve product development. Open and new data points can also improve underwriting risks, but it must be curated together with the right AI/ML and analytics techniques to solve the right problem. Data integration with risk models will take time to find correlation and patterns with risk model’s context.
Data is the foundation to create a single view of customer and to build customer centric products. Data output can be the checkpoint and offer visibility into the value chain process. Data capture can come from the insurer’s internal data source (from the human resource, medical and clinical records, lab results, and apps) and this can form an initial data map of customers. Internal data capture can also uncover unused data which can be processed or discarded if it does not value-add the underwriting model. There is also a need to digitalize old unstructured records that are still in physical copies. The opportunity for insurers to tapped on existing internal data store is huge and this could be a way to kickstart the ecosystem development. This leads to using new data for parametric insurance analysis and triggers, which is a contrast to indemnity insurance.
Once that is established, this can be extended to banks and healthcare providers for an all-in-one data store for targeted product and platform development. For instance, diabetic blood sugar reading can be utilized for premium reduction if the patient/policyholder is found to be keeping the diabetes under-control. Open health data can also provide additional insights into health status of policyholders, leading to better insurance outcome.
The understanding of regulatory measures will help identify channels where there is flexibility to provide innovative products. Fostering collaboration with regulators can also help in launching new initiatives, such as regulator’s-controlled sandbox. However, it is mention that regulations in Southeast Asia can create barriers to innovation and product innovation is a driver in this region, with microinsurance as an example. Regulations can be revise if it is not suitable for the current market’s expectations, such as approval cycles, which can be shorten for certain products.
Modern approaches such as a data-driven AI model would scale better if there are regulator guidance to ensure that data is used in a proper and compliant way. Regulators can provide data governance framework that are in-line with the industry’s standards and to ensure customers’ data are well-protected. Usage on new data such as IoT may pose concerns as well, and there is a need to conduct data gap analysis between new and old data for regulatory reporting and usage. Suggestions for SLA on open data and API delivery may help in data usage governance.
From an investment standpoint, pure digital insurers face less headwind regarding regulations as compared to the incumbent. There are also more insurers than investment funds for insurtechs to flourish in the Southeast Asia region. An agent-dependent market also makes it more lucrative to sell rather than be focused on innovation development. Innovation can occur in insurers’ innovation labs and incubators but having an investment arm will produce more realistic results in product development and deployment. Deploying a product over a proof-of-concept provide more benefits as it will provide actual data for analysis and feedback from live test.
Incumbents business units may not be well-placed to work with early stage insurtechs and a proper investment can help in providing the right support. The other approach is to partner with matured startups with good investment records and proven business models. But collaboration with insurtechs can improve the insurance value chain inefficiencies. For instance, insurtechs can offer innovation in underwriting and fraud management, to supplement regulation’s requirements and contribute to good customer engagement on the front-end.
Insurance must move away from the impression of being slow in process and complex, to an industry that is digitally savvy, simple in execution and service. The incumbent brands and their intermediaries such as agents still have a role to play and can augment self-service on-demand experiences for the human element. Focus should be on a fluid value chain, which not only considers customer acquisition but on lowering claims using technology such as predictive analytics. Collaboration between insurtechs, insurers, regulators, and external domains such as banking and finance will help develop the next generation of insurance and serve the next customer demographic. Siloed operation of innovation and business units should be combined for better use case selection. As described over the conferences, insurtechs are the tip of the iceberg and incumbents are the mass underneath. Transformation can only occur when both sides understand each other value and collaborate for the greater benefit of the customer.
To learn more, please pick any publication you like (list of recent reports here) and we can discuss over video calls, walking through any reports/blogs, exhibits, provide additional insights or perspectives. Email me at firstname.lastname@example.org.
Below are related reports/blogs to this blog:
Insurtech in Asia Series: Greater China and Southeast Asia
Health and Insurance: Health Informatics, Internet of Things, and Integrated Electronic Health Records
Integrated Insurance Ecosystem: The Next Generation Insurer
Data as the Foundation for Insurance User Experience