With GDP rates in SE Asia exceeding 6.3% per annum, with premium growth for life, accident and other policies higher than 13% last year in the region and with insurance penetration rates of 5% or less, we seem to be looking at a slow, fat rabbit.
But we don't seem to be able to shoot it. Why?
See also: Innovation — or Just Innovative Thinking?
While numerous global and regional insurance carriers have created venture capital funds, insurtech incubators and grand initiatives, the carriers' fundamental view of the world has not changed. Consider the following: In 2016, there were approximately 75 deals in private tech investment by reinsurers and insurers, up from three deals in 2013. On the face of it, this is encouraging. However, of the total tech deals completed in 2016, more than 72% involved U.S.-based startups and only 12% involved ones in Asia. In other words, the fastest-growing markets of the world received only a fraction of the total tech investments from the insurance industry, which is not exactly transformational.
You can't shoot even a slow, fat rabbit if you don't aim at it.
If we assume an average of a $2 million for each of those private deals, this equates to $150 million in total capital commitments. Let’s be generous. If the average deal size was $10 million, the total industry commitment would have been $750 million, or less than .02% of the industry's $4.5 trillion in annual premium.
Can you imagine a private equity firm like Blackrock investing only two-hundredths of a percentage point of its assets in products and ventures for the future? Neither can I.
In all fairness, it is not easy to disrupt the status quo in insurance. After all, for well over a century, insurance was a game the house almost always won. Other than catastrophic events (hurricanes, tsunamis, floods, etc. — many of which are co-insured by local and federal governments), insurance has been a safe bet if, of course, you are the house.
In the face of change, many insurers have recently undertaken initiatives to break the mold. MetLife recently created LumenLab in Singapore, where a 7,800-square-foot facility is an incubator for innovative startups from outside the insurance industry. But with MetLife's earning declining more than 19% from 2015 to 2016, is it enough? Aviva, a British multinational with more than 33 million customers across 16 countries, recently launched an initiative to encourage entrepreneurs to develop disruptive solutions. The mission statement reads: “Our mission is to connect with extraordinary talent, uncover breakthrough innovations and give those breakthrough innovations the opportunity to thrive.” That's very passionate, but what is the end game?
See also: Insurers Are Catching the Innovation Wave
True innovation, transformation and disruption are cultural issues, and must be cultivated and encouraged from the top. Most insurance CEOs do not engage in high-altitude mountain climbing, scuba diving or any other extreme sport, nor do they hang out at the Google campus. Most importantly, they do not spend a lot of time in Bangkok or Shanghai. But they should, because that is where the new markets are forming.
There are, of course, exceptions to the rule. The first is Axa, which has created Axa Ventures, a true, well-funded venture capital subsidiary with a mission to invest in disruptive ventures that can actually get to market. The fund is led by Minh Tran, who has a successful history in venture capital and disruption. The second and less obvious group is Munich Re, based in Germany, which has launched numerous digital and venture initiatives. Germany has become a center for insurtech, and, while Munich Re’s efforts are, in my opinion, still not completely coordinated, it is clearly making a company-wide effort.
If insurance carriers want to lead the pack, they must embrace models similar to the one Axa has created, and they must make a corporate commitment to transformational change — especially in emerging markets. Disruption does not happen overnight, but it does happen. And, in a legacy industry ripe for change, it will happen sooner rather than later.
The question is whether it will be led from the inside or whether the industry will be dragged kicking and screaming into the future from the outside.