Insurance Braces for the Digital Age

White Papers | November, 2017

By Steve Stine

When was the last time you spoke to your insurance agent? Chances are, someone was either calling to sell you a policy you didn't need or to inform you that your claim had been rejected. No wonder the insurance industry has an image problem. 

Asia-Pacific Insurance Sector Growth Prospects

If ever a sector existed that needed help from digital transformation, insurance is it! With so much customer data flowing through its networks, you’d think insurers would be among the first to grasp the possibilities of this data goldmine. Think about it. Who else knows more about your home, your car, your health, and your finances than your insurance agent?

Like the mythical dragon who sleeps on a mountain of gold, insurers have spent decades collecting customer insights only to find themselves hoarding data and doing little or nothing with it. The day may be dawning, however, and insurance may be among the last sectors to fall prey to the encroachment of digital disruption.

In short order, new competitors armed with big data analytics and greater transparency, are challenging big brand incumbents. As might be expected, the responses are mixed. In some instances, big name insurers are banking on their market reach, sales channels and brand awareness to see them through. In other instances, insurers are beginning to innovate, bringing to bear the wealth of customer data accumulated over years of service to better tailor products to individual policyholder needs. “The days of selling a policy, hibernating for 12 months, then adding 10% to the price of renewal are over,” said one regional sales head for a major European insurance firm. “Customers are asking for more, and we have to deliver,” he said.

Nowhere is this more apparent than throughout the markets of Asia-Pacific, where millions of consumers each year enter the ranks of middleclass with promise of greater spending power. Insurers smell the opportunity, but for many customers, insurance products are losing ground. From sales to customer service, the insurance industry is woefully ill equipped when it comes to understanding, profiling and tailoring services to customer wants and needs. And still, there’s growth in sight.

According to Swiss Re, a global wholesale provider of reinsurance, non-life and life premiums in Asia are set to increase by 5% and 6%, respectively1. In Emerging Asia2 –made up of China, India, Indonesia, Malaysia, Philippines, Thailand and Vietnam – growth rates are likely to exceed 8% per annum, outperforming worldwide growth by more than 2.6 times.3 In terms of market share, Asia now represents 30% of global insurance premiums, up from 20% just 10 years ago.

Insurance Brace for New Consumer Demands

Until now, growth has been driven largely by:

  • Government incentives to encourage greater insurance coverage

  • Rising awareness of risk exposure among consumers and businesses

  • Greater accessibility and affordability of basic insurance products, and

  • Organic growth stemming from pent-up demand

For many insurers, it’s been a simple sales and service process. But the days of passive growth may be coming to an end. In addition to the fact that consumers are ever more discerning, the region’s diversity, varying regulatory systems, and intermittent volatility, will require new levels of market intelligence and sales sophistication. Growth, say experts, won’t come without serious commitment to technology-driven data analysis and subsequent product innovation. 

To understand where the industry is going, it may be helpful to know how it got here in the first place. In many parts of Asia, insurers have been prime beneficiaries of government support. For decades, the public sector bore the burden of providing their citizens with healthcare, life, accident and housing guarantees. To offset this growing public burden, governments encouraged, and in some cases incentivized, private insurance purchase and ownership. Now, in many corners of the region, this cycle is tapping out. Going forward, insurers must invest to understand at a granular level policyholder profiles, insurance claim patterns and histories, and customer life-cycle management, if they have any hope of building profitability.

Ironically, while much of the data required has been available to big insurers for years, if not for decades, very little has been done to mine that data to tailor products and mitigate risk. Insurers have relied largely on networks of resellers who keep the end user and the primary insurer at arms’ length. In a world where “data is king” there’s growing concern that failure to connect with a policyholder could result in new levels of rampant “policy hopping,” where price becomes the essential differentiator.

figure 1.pngAccording to Capgemini and Efma's World Insurance Report 2016, less than 50% of Gen Y (15-to 34-year-olds) respondents in both developing (34.8%) and developed Asia-Pacific countries (33.2%) are happy with their experience while communication with their insurers directly over digital channels (see Figure 1.) In other words, the proclivity to using traditional intermediary channels is giving way to direct communication with insurance carriers. 

The Customer Experience Shake-Up

From a customer engagement perspective, this satisfaction gap should be a major point of concern. If left unchecked, the door will most certainly be left open to industry newcomers who understand the importance of putting policyholder first. As case in point, findings from the IDC APEJ C-Suite Barometer Survey 2016, indicate that Asia-Pacific respondents overwhelmingly view “customer engagement and experience” as the #1 business priority, as shown in Figure 2. 

figure 2.png

Some insurers are waking up to this new reality, developing customer portals and mobile applications designed to improve customer response times and drive new levels of customer self-service. The endgame is to improve access to information through multiple platforms, develop policy support services, and create new levels of operational efficiency. 

While insurance companies traditionally have been big buyers of technology solutions, there’s growing evidence and concern that investment has bolstered legacy systems as opposed to seeding digital solutions that bring customer experience, data analytics and operational efficiency to the fore.  

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There’s an inevitability to the fact that as customers grow increasingly comfortable using the mobile device for all kinds of transactions – from ecommerce to iBanking – the insurance sectors failure to keep pace with these expectations will lead to defections and open the door to new entrants. Digital channels are no longer solely a source of product comparison and information. Today, customers eagerly use digital platforms to research and purchase all types of products and services (see Figure 3). Although most insurance sales still rely on active agent networks and bancassurance partners, online sales are on the rise, and particularly (and perhaps surprisingly) in less developed markets in Asia, where transparency and the ability to generate real-time pricing is a luxury and a relief. 

All Hail the Disruptors

This change is driven by a young, tech-savvy customer base, that threatens to challenge the traditional insurance sales model. This is not to suggest that the roles of agents, brokers, and other intermediaries are now obsolete. But it does suggest that demand for digital channels is on the rise. Ultimately, digital channels work as a complement to intermediary-based distribution channels. When required, the latter provides customized financial advice and face-to-face physical interactions for complex purchasing decisions.

The advantages for developing digital sales channels are clear. Besides tapping into the lucrative tech savvy customer segment, insurers also focus penetration on other untapped consumer segments. Beyond these benefits, digital sales channels provide a platform for multiple transactions and communication between policyholders and insurance carriers, building new levels of trust and customer loyalty.

Some analysts suggest that the key to digital sales channel success rests with the level of simplicity that insurers can deliver in the online purchase cycle. Specifically, insurers need to provide straightforward product descriptions, minimize the need to contact an intermediary, and install easy-to-use application forms and submissions.

Meanwhile, new entrants, are taking advantage of lower barriers to entry and aggressively developing proprietary technology platforms that attract consumers by offering an alternative to traditional risk-based pricing as well as a hassle-free purchasing process. These new generation insurtech companies allow consumers to independently choose simple, personalized, and cost-effective products directly, while providing a digital communication platform, considered a more attractive medium for support services throughout the risk coverage cycle. Some key insurtech companies in the region using digital platforms to offer a differentiated experience include:

Zhong An Online4 launched in 2013 as the first online insurer in China, with online-only insurance products and claim services. The group launched with property insurance, and has since grown its portfolio of products to include mid-range medical insurance that now boasts 310,000 policyholders, and counting. The company has also branched into specialized insurance services, offering coverage for everything from flight delays to injuries sustained at sporting events. Bypassing the traditional agent distribution channel model, this purely digital insurer has effectively tapped into the new digital ecosystem to acquire and service a new breed of policyholder.

Trov5, launched in 2016 for the Australian market, has a similar business model to that of Zhong An. The company started by providing on-demand insurance available only through its mobile phone app. Trov caters to customers interested to insure mainly high-priced electronics items for specific and defined periods of time. The company has expanded from Australia to the U.K. in partnership with Suncorp and AXA, respectively. It also plans to launch services in the U.S. and Japan in the next one to two years.

Insurers Generate New Insights with Big Data and IoT

FWD Insurance6 in Singapore launched its operations in 2016. The company offers a suite of insurance products, including automobile, travel, personal accident, and maid insurance. The differentiator, they say, is in the quality of the customer experience and simplification of the purchasing process; first, by eliminating the need for middlemen or agents, and second, by reducing the time to purchase. After filling out the simple Website-based application forms, prospective customers receive SMS confirmation, followed by email delivery of digital policy documents. No paper work required.

U for Life7in Malaysia claims to be the first online regional insurance provider to offer simple, cost-effective, and easy-to-buy life insurance products underwritten by Tokio Marine Life Insurance Bhd. In an interesting twist, the company has leveraged its extended pharmaceutical distribution network to provide an offline vehicle for its e-policy sales.

Tonjubao8 in China has taken its lead from U.S.-based online insurer, Lemonade, and Germany’s Friendsurance, both pioneers in the peer-to-peer insurance space. In this model, risks are shared by forming small community groups, and policy payouts are made by pooling premiums.

Technology-led solutions are not only limited to improving the customer sales experience, but if properly deployed, can streamline back-office processes, cut costs, allow real-time management of claims, sharpen policy servicing, and most importantly will improve pricing and risk management. Through a maze of connected devices, sensors, wearables, and Internet of Things (IoT) applications, fintech companies are working to shift from a 

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traditional “risk pricing” to a “dynamic pricing” model. Indeed, some fintech companies, rather than going head-to-head with traditional insurers, are choosing to partner with them instead, offering up “white label” digital platform and analytics solutions as an adjunct to an insurance company’s traditional sales and policyholder service model. According to IDC’s Worldwide Internet of Things 2016–2020 Forecast: Regional Market Opportunity by Use Cases report, this new generation of fintech company is tapping into the existing and anticipated growth of connected devices and IoT applications. 

Auto Insurance: Motoring to New Heights

Data generated and transmitted via these new devices and networks offers a treasure-trove of insights that might help guide insurers in the dynamic development and pricing of new products and services. For instance, clinical care monitoring and data delivery solutions are growing at a compound annual growth rate (CAGR) of 22%. Similarly, insurance telematics (vehicle-based telematics) are hot commodities, growing at an astounding 38% CAGR (see Figure 4).

In order to bring some of these innovations to light, the following section presents examples of how a range of insurers and/or fintech companies are deploying technology and collecting and synthesizing data in order to deliver more sophisticated insurance products.

In 2013, Australia’s QBE, in partnership with NIA, launched Insurance Box motor insurance as a way of rewarding drivers with top safety records. By applying telematics, the company began collecting and analyzing data on individual driving behaviors and then applying the findings to reward good drivers and punish bad ones. By creating data-driven risk profiles for all policyholders, the company hopes to better manage its risk portfolio and price products and services according to driving records and behavior.9

Thailand’s Bangkok Insurance10, in collaboration with Scope Technologies, adopted telematics in 2015 in order to cut down on losses incurred from young drivers as well as commercial fleet vehicles.

Also in Thailand, Claim Di introduced a mobile-based app that facilitates all communication and claims between drivers and their insurance companies, thereby allowing car owners to make instant claims through mobile phones. The app reduces the need, and therefore the associated cost, of engaging with agents.

NTUC Income in Singapore11works with Raxel Telematics, which provides the former with customer behavioral analysis and risk assessments for usage-based insurance policies. 

Also in Singapore, AXA SG has partnered with Grab, a ride-hailing platform to launch usage-based commercial motor insurance for private-hire car drivers. And Liberty Insurance, working with Cambridge Mobile Telematics, has launched a “DriveWell” campaign to track and promote safe driving habits.

Underpinned by increased connectivity, high penetration of smartphones, and de-tarification of motor premiums in countries such as Malaysia, insurance telematics is expected to move from proof-of-concept to enterprise-wide deployment. With data-driven proof, other insurers are sure to follow.

Healthcare Insurance: Tailoring Policies and Lowering Premiums

Healthcare costs are a growing concern for governments throughout Asia. In 2016 alone, the cost of healthcare in Asia rose by an average 11.5%.12Analysts are predicting ever steeper rises over the course of the next decade, driven – in large part - by shifting disease patterns and rising drug and medical care costs. [For more on Asia’s healthcare challenge, see our recent paper, entitled, Digital Remedies for the Consumerization of Healthcare (Oct 2017)].

The inevitable result will be higher healthcare utilization rates (a.k.a “doctor visits”) in search of medical care and treatment13. Higher utilization will naturally result in unwanted increases in healthcare insurance premiums. This, in turn, will likely affect employer-sponsored health insurance plans, pushing many organizations to reduce medical benefits to control costs.

Confronted with this scenario, employers will increasingly opt for short-term plans, undermining the longer-term benefits to employees. There is hope, however, and it comes in the form of data analytics. While privacy issues prevail, the promise of data analytics could allow for more refined and tailored healthcare insurance solutions for employees who would have vastly different healthcare needs and coverage requirements. If synthesized properly, data insights can also serve as the foundation to host prevention programs and health awareness campaigns designed to inform healthier choices, improve managed care, and – in theory - lower insurance costs.

ConneXionsAsia (CXA) is among the first in Asia to leverage data for the benefit of employers and their employees. CXA works by connecting employees with employers, insurers, brokers, wellness providers, and other stakeholders. In this model, for a fixed amount per employee, CXA provides a corporate client with a comprehensive employee health insurance and wellness package. It comes with added benefits such as free check-ups and lifestyle advice. Under this arrangement, the employee receives personalized insurance coverage, a healthcare scorecard, medical advice, and a roadmap to a healthier life.

The employer benefits as well. By empowering employees to tend to their health and receive rewards in return, corporations not only see the results of a healthier workforce, but also stand to benefit from reduced premiums. Instead of purchasing blanket coverage for its employees, employers are now able to give their employees the freedom to select healthcare coverage best suited to their personal or family needs. Its customization made possible through big data analytics.

In the healthcare insurance space, CXA is yet another example of a disrupter. Now it’s up to incumbents to decide on how to participate in the digital revolution.

Rethinking Insurance Means Rethinking Talent

At the end of the day, pressure on business margins and profitability will continue to drive the adoption of digital solutions.  The growth of big data and analytics, mobility and cloud-based solutions, and interconnectivity holds promise of lowering costs, increasing 

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profitability, sharpening the competitive edge, and inciting customer loyalty (see Figure 5).

At the heart of this revolution is the collection, scrubbing, organizing and synthesizing of customer data. By profiling, and ultimately predicting policyholder behavior, whether it be driving habits or visits to the doctor, insurers stand to benefit both in terms of risk management and customer loyalty. Both of which – in these days – are in short supply.

The insurance industry is keenly aware of the importance of digital transformation as a means of driving efficiencies and enhancing product and service offerings. The issue is less one of technology and more one of leadership. Investment in this relatively new field of big data and predictive analytics is holding some insurance organizations back. In an industry where the cost to serve is rising and profit margins are falling, it’s not an easy decision to invest millions – if not tens of millions – of dollars in digital solutions with no guaranteed rate of return.

As such, company leaders must be a force for positive change. And while it is the CIO/CTO who is most commonly tasked with new technology purchasing decisions (see Figure 6), it is the CEO in collaboration with the CMO and CFO, who must assess the business benefits and associated risks. Indeed, building out these capabilities has as much to do with people as it does with technology. Introducing new categories of leadership to an organization accustomed to more traditional sales and support infrastructures can be challenging. Identifying the right caliber of CIO/CTO is a good starting point.

Insurance Sector CIO/CTO in Transition

Walk into the back office of almost any insurer in Asia today and witness row upon row of administrative staff tasked with data input and paper-based policyholder management. It’s a workforce conundrum and not one easily replaced by super computers loaded with artificial intelligence. Technology upgrades will necessarily require enterprise-wide change management. For any leader, it’s a daunting task and one fraught with risk.

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In the meantime, the drumbeat of innovation continues. Legions of fintech start-ups, unburdened by legacy systems and processes, are building new business models from the ground up with IT systems and digital talent to match.

Against this backdrop, incumbent insurers have no choice but to rethink the use and application of new technologies. IT deployment has less to do today with cutting cost then it does in reinventing go-to-market solutions. As such, the role of the CIO/CTO is evolving in a number of new and challenging ways. Here are some, just to name a few:

  • Shifting from an “execution manager” to “transformation leader.” CIO/CTO leadership needs to think ahead of the curve. Taking incremental steps in deploying tried-and-tested technology has its short-term benefits, but the real game is being played out in the end-to-end deployment of digital solutions that leverage data for enhanced customer-based insights to back-end operational cost savings. In some cases, this will require a fundamental re-visioning of an insurer's IT infrastructure and support systems.
  • Becoming a proponent for enterprise-wide innovation. This is as much about culture change as it is technology design and deployment. Siloed roles must be replaced by solutioning “swat teams” capable of problem-solving then applying change on the fly. It's a tall order for organizations built on legacy systems and operating protocols.
  • Championing inter-departmental alignment and cooperation. Only when departments have a shared commitment to change can digital transformation occur. This is as much the responsibility of the CEO as it is the CIO/CTO. In the absence of overarching goals, it is easier for teams to fall back on disparate objectives. More often than not, this leads to duplication of effort, wasted resources, and low employee morale.
  • Developing and hiring talent geared for digital transformation. According to a 2016 survey conducted by KPMG and Harvey Nash, insurance company CIOs said that in these times of rapid transformation, they are more inclined to recruit from the outside (33%) than develop skills in-house (24%).14 While this is understandable to some degree, the ability to groom talent, develop skills, and retain key team members is an essential, and oftentimes underrated competency of next-generation CIOs.

Embracing disruption! While a safe pair of hands is all well and good in the world of insurance and its underpinning IT legacy systems, there is no place for conservatism in an industry now faced with imminent disruption. CIOs/CTOs must assume responsibility for evolving the business model and engaging proactively with all lines of business to design, test, and implement solutions to enhance customer experience and streamline operations. In short, insurance CIOs must be open to disruption and remain attuned to new technologies designed to facilitate the build-out of alternative business models.

Beyond the CIO/CTO, insurance companies must continue to challenge the sustainability of their current organizational structures and investigate ways and means to infuse their organizations with non-traditional talent, both in terms of technology skill-sets and in mindset. Difficult decisions will need to be made to trim headcount, deploy cost-saving technologies, and liberate mid-level leaders to make commercial and operational decisions on the fly. Speed and efficiency are the new determinants of success in a world laced with potential disrupters. At the end of the day, it is talent, not technology, that will win the day, and with this in mind, insurance sector CEOs should ask:

  • Does the company have substantial and forward-looking training and development programs to ensure a constant cycle of upskilling and cultural adaptation? 
  • Is the company investing in a talent blueprint, building bench strength and identifying job descriptions for an industry set to enter a period of massive disruption?
  • Is the company attuned to the need to promote and encourage innovation at all levels both internally and through vendor and partnership arrangements?
  • Has the organization fully embraced the fact that an intertwining of business innovation and technological solutions are tantamount to success, and only by breaking down organizational silos and encouraging collaboration will breakthroughs occur? 

1. http://www.swissre.com/media/news_releases/nr20170418_singapore_legal_entity.html
2.China, India, Indonesia, Malaysia, Philippines, Thailand and Vietnam, Swiss Re
3. http://www.swissre.com/media/news_releases/Sustained_insurance_sector_growth_in_2017_largely_based_on_demand_from_emerging_markets.html

4. http://www3.asiainsurancereview.com/News/View-NewsLetter-Article?id=38417&Type=eDaily, https://www.ft.com/content/bee51a52-accd-11e6-9cb3-bb8207902122http://www.marketwatch.com/story/alibaba-ping-an-tencent-okd-for-online-insurer-2013-02-20

5. https://www.trov.com/
6. https://www.fwd.com.sg/
7. http://www.thestar.com.my/business/business-news/2015/09/25/online-insurance-platform-u-for-life-registers-rm165m-in-sum-assured/
8. http://www.tongjubao.com/en
9. https://www.qbe.com.au/insurance-box
10. http://www.insurancebusinessmag.com/asia/news/breaking-news/its-high-time-asia-adopts-telematics-says-expert-64008.aspx
11. http://www.insurancebusinessmag.com/asia/news/breaking-news/its-high-time-asia-adopts-telematics-says-expert-64008.aspx
12. “Medical Trends Around The World 2016”, Mercer Marsh Benefits report
13. “Infographic: WHO says Asia's healthcare costs will rise starkly over next 10 years
14. “CIO Survey 2016, Insurance Sector Findings,” The Harvey Nash/ KPMG CIO Survey