New perceptions and opportunities in Insurtech: insights from ITC Asia 2022
Insurtech Connect Asia 2022 is the first physical conference I attended in over two years and I was shocked by the excitement of finally being able to meet in person and the energy of Insurtech in the room. In the past six months, Southeast Asian Insurtechs including Qoala (S$65M), Fuse (S$25M) and Igloo (S$19M) have raised significant rounds, while media outlets from Tech in Asia and e27 to DealStreetAsia have been covering the rising industry. As the pandemic drove interest in insurance products, startups have been innovating in response. Through conversations at ITC Asia 2022, I was able to gather some trends, which I’ll detail further.
Why is attention to Insurtech growing?
As more consumers are getting comfortable with using fintech tools in their day-to-day transactions, it’s little surprise that insurance would emerge as the next innovation play. When asked what’s driving this, platforms, customers, and investors gave different answers:
- Value proposition: Insurance is no longer seen as an additional revenue stream for platforms to upsell, but complements the value chain and helps them stand out against ever-growing competition. Think of two e-commerce platforms that offer the same product. Previously they competed on logistic costs, delivery speed, or payment methods; now they can add insurance protection to make the product offering more attractive, whether it’s covering against damage to electronic devices or an allergic reaction to makeup.
- Increased awareness: the pandemic has driven awareness for insurance, as people rethink their health and financial plans. Demand for policies covering critical illnesses, property (as people worked from home more) and pets (as people adopted pandemic puppies) has risen in Singapore. Policies with lower premiums or shorter terms, or more flexible structures like MSIG or NTUC Income’s pay-as-you-drive policies are also increasing in popularity.
- Exit landscape: a maturing ecosystem with robust M&A appetite is attracting more growth stage investors to Southeast Asia. The IPO plan of FWD (which has been unfortunately delayed due to the current market conditions) and rumors of Singlife going public also draw people’s attention into Insurtech investments.
How the market for Insurtech has shifted
Changes in the market environment have shifted the direction of development for Insurtech, both from product and value chain perspectives. While speaking with industry experts and startup founders during ITC, I identified the following trends:
From product to experience
I last claimed on my insurance in 2021, as I had a wisdom tooth removed. It took three weeks for payment to clear. If this is the wait time in digitally-driven Singapore, it’s little surprise that claims in paper-based Southeast Asian countries can take three to six months to process.
Through recent developments such as embedded insurance (insurance bundled with other products or services at the point of sale), we can purchase insurance within seconds on Grab or Shopee, but the claims process has been largely unchanged. Customers’ expectation has changed drastically thanks to the hassle-free, week-long claim process of AppleCare, so Insurtechs need to think about how to make the post-purchase experience delightful for the customers by embedding the whole experience, not only product and distribution.
Everybody wants to own the customers
Customer attention is particularly scarce in the insurance industry since people don’t regularly shop around. From incumbents to insurtechs, insurers to brokers, everybody wants to own the customers and build a long-term relationship. Even reinsurers, who are used to sitting back as a risk carrier, are stepping up with value-added services and active customer acquisition (suchas Munich Re’s partnership with Zensung and ERGO on green auto insurance)
The key is to choose the right customer segment. For embedded insurance, this could be the younger generation who spend more time on digital platforms. For auto and property insurance, this could be people who are just entering the workforce or planning a family. For life and health insurance, the customer base can span much broader. By targeting the right customer base, educating customers, and building contextual experiences via emotional connections, Insurtechs can develop better customer relationships.
Insurtechs cannot thrive without partnerships with incumbents, and incumbents are becoming more and more practical about the way they partner with Insurtechs. Gone are the days when large insurers would run innovation theaters and spend millions of dollars trying out new technologies. AXA’s failed attempt at revolutionizing travel insurance with blockchain marked a turning point, as insurers are now more cautious in their assessments of how new technologies can achieve clear business impact”
What insurers want is simple: access to distribution, new products, and cost reductions. If you’re an embedded insurance enabler, what platforms you’re plugged in with that can serve as immediate distribution platforms to the insurers. If you are creating new products with the insurers, how much time can you save on product development. If you’re building a process automation tool, think about the pricing vs actual cost savings for the insurers.
Biggest growth areas for Insurtech in the future
Based on the insights I gained at ITC 2022, and my own experience working with insurers on their corporate innovation journey in the past two years, I believe the following areas will represent the greatest growth opportunities in Insurtech over the next 3 years:
Digital agents and agent tools
While advances in embedded insurance help attract a new type of customers via digital platforms, traditional agent-and-broker-based distribution still commands for 80%, if not higher, of any insurance company’s revenue. While platforms like Grab successfully sell embedded insurance within their ecosystem, such as micro-transit policies, they haven’t been able to scale up to higher value products, like auto or life insurance. It’s difficult to upsell a completely different use case to the same customer base.
Due to the trust-based nature of insurance, agents can leverage the human touch to reach their audience and sell more complex and high-value products. Digital agents, which combine human touch and online presence, became a popular way for customers to engage with insurance agents during the pandemic, with Asian countries leading the way in adoption. Digital agents also cut operation costs with less travel needed to hold meetings, and lowered distribution costs for insurers, while maintaining the same level of customer satisfaction.
Technology enablers are easier to scale because they don’t require a license. This is particularly important in Southeast Asia due to the fragmented market landscape, where each market might have limited market size. Technology enablers that can help solve the following challenges are the most in demand:
- Faster product development and time-to-market. A typical insurance product takes more than six months to develop. Being able to create and configure new products faster than competitors gives Insurtechs an edge in winning partners and acquiring new clients. Improvements could include platforms that enable cross-functional team collaboration (as product development requires efforts from tech, product, data and marketing teams), help collect and analyze customer insights, or offer proprietary data which can be used for underwriting, which is usually one of the most time-consuming processes.
- Automated claim processing and payout. Speed and accuracy in claim management are key for customer retention. The claim experience should be seamlessly embedded into the customer journey. For complex products such as auto and property, claim management should also include inspection and estimation, such as estimating auto damages and payout based on images.
- Policy administration. Often overlooked, policy admin is in fact a big pain point and a legacy issue for many large insurers, resulting in multiple overlapping internal systems and reducible costs. An end-to-end policy admin system should offer key modules such as quotes, policies, commissions, claims, and reporting management, while being configurable to adjust to different demands and technology requirements.
There’s always a trade-off between customization and scalability, and startups should find a balance in between. A technology enabler that offers fully customized solutions becomes a solution provider, which is not VC backable.
Southeast Asia has the highest mobile usage rate globally, which produces massive data about each customer’s social, financial and health conditions. Using customers’ digital footprint unlocks massive opportunities in:
- Product personalization: For example, AI propensity scoring model can help target where the customers are. It could be a standalone platform or be integrated with agent tools to facilitate product selection and quotations. One example is Near’s location data that helps insurance companies identify customer segments and risk profiles for customer acquisition.
- Underwriting and pricing: startups in the US already have leveraged alternative data such as social media and wearable devices to provide preventive healthcare plans or underwrite risk. In Southeast Asia where electronic medical record (EMR) data are usually not available, data collected via mobile phones such as vital signs can be extremely valuable for health underwriting, and reducing premiums.
Growing attention, shifts in market development, and customer demand have created vast growth opportunities for Insurtechs, powered by new technologies. Next, I’ll dive into what some of these solutions are beginning to look like in markets such as China and India, and what Southeast Asia can learn from them.
I look forward to seeing how this sector evolves, and I hope to speak with ambitious entrepreneurs solving these pain points for the 600 million+ uninsured population in Southeast Asia!