Tag Archives: aia

Focusing Innovation on Real Impact

In 2006, years before Lemonade started to disrupt the insurance industry and the terms “fintech” and “insurtech” became known at large, Daisuke Iwase co-founded the first digital life insurance company Lifenet in Japan. Lifenet has been disrupting the Japanese life insurance sector right from the start by providing direct distribution of life insurance products via the internet – something that many still say is impossible to do. We’re therefore excited that Daisuke Iwase, a real pioneer in digital innovation, sat down with us to share his secrets on how he uses his experience in his current role as group chief digital officer at AIA Group.

AIA Group is 100% focused on the Asia-Pacific with a presence in 18 markets, and headquarters in Hong Kong. The portfolio includes over 33 million individual policies and over 16 million group scheme members. AIA has an outstanding track record of growth. It is the largest life insurer in the world in terms of market capitalization. There is a major commitment to digital innovation, especially in transformative business models.

Summer 2006, many years before people even thought fintech and insurtech could disrupt the digital landscape and the overall industry, you decided to start a digital life insurance company. Can you share how this came about?

Daisuke: “Let me start by describing the industry landscape at that point. Many complex products, lack of transparency, mistrust, distrust in life insurers, consumers looking for more simple, transparent and convenient solutions. At the time, we had most industry colleagues telling us it was impossible; no one would buy life insurance digitally. Regulators wouldn’t give a license to two random individuals. But then, May 2008, we launched Lifenet with a capital of more than $120 million and with a license awarded to a new independent company. This was the first license awarded since 1936!”

Impressive! Basically, you were insurtech 1.0, operating in a time before unicorns or the rise of fintech and insurtech …

Daisuke: “In hindsight, we were a little bit ahead of time, yes. Fast forward three, four years to March 2012, we were still small but growing rapidly. We basically tried to build something that made total sense, but faced many challenges. We went public on the Tokyo Stock Exchange, raising additional capital. We also persuaded Swiss Re to come on board to become our lead investor. And a little later, in 2015, KDDI, Japan’s second largest telco, became the largest shareholder of Lifenet. So it has been a journey, but a very interesting journey.”

See also: New Efficiencies in Life Insurance  

Lifenet celebrated its 10th anniversary summer of 2018. Many say the company not only stands out because of its business model, but also because of its corporate culture. About 65% of the staff comes from other industries. Can you share a bit about this exciting period at Lifenet and being the first challenger in a huge, matured market?

Daisuke: “At that time, Japan was the second-largest life insurance market in the world with over $400 billion in premium written every year. We came with a very simple solution: term and supplemental health insurance that was sold online with transparency, empowering the consumers, saving cost and giving the cost back to the consumers. We had successes, challenges and setbacks. I must say I am really proud of what we have achieved at Lifenet. I think we inspired many other challengers that shared the belief that incumbents could change the way they engage with their customers, the way they design their products, the way they engage with the millennials. But we did not yet disrupt the market.”

Nevertheless, you had
a significant impact on the Japanese life insurance industry and probably also beyond Japan. What lessons did you learn?

Daisuke: “Let me share three lessons. First, consumers do not necessarily behave in an economically rational manner. Makes sense if you think about it. When was the last time you made a purchase solely based on economics? So, there is a lot more than just delivering value to the customers. Second, having the best products does not necessarily make you the one with the largest market share. History has shown that many times the companies with the best products do not necessarily win, but companies with the strongest distribution do prevail.

Third, my humble experience reminds me of a case I read during my time at business school. It was on channel distribution strategy in marketing, and it said, ‘You can eliminate the intermediaries, but you cannot totally eliminate the functions they are serving.’ So, while we believe that by going direct to customers we can create significant value, there are many reasons that insurance agents have existed for a long, long time in history, and there are multiple functions that they serve that cannot be totally eliminated; they have to be replicated in different forms. That’s why technology is a tool to either help you sell life insurance in a more productive manner or help consumers buy life insurance more efficiently. But, during this time, from 2008 to 2018, most consumers did not wake up in the morning yearning to buy life insurance more efficiently.”

Technology, at the end of the day, is a means to an end. So, then in late 2017, Keng Hooi, CEO of AIA Group, approached you and offered you another challenge.

Daisuke: “Yes, and I shared these views with my current CEO now at AIA. AIA, given its strong distribution presence, should focus on enabling and empowering the distribution force through the power of technology. Not much later, as Lifenet celebrated its 10th anniversary in the summer of 2018, I made my transition from an entrepreneur to lead the digital and innovation initiative for the largest Pan Asian life insurer.”

In Europe, most people know AIA through the Tottenham Hotspur sponsorship. Can you tell a bit more about the company?

Daisuke: “AIA is the largest independent publicly listed pan-Asian life insurance group – with a presence in 18 markets around the Asia-Pacific region. We were rooted in Shanghai a century ago in 1919.  We completed the reorganization driven by AIG’s liquidity crisis in 2008, leading to the positioning of the company for a public listing.  As of June 2019, AIA was valued at $120 billion, becoming the largest life insurer in terms of market capitalization.”

So, here you are, making the transition from a start-up to this huge company. What drove you to make this transition?

Daisuke: “The reason is exactly the size and the potential impact that I can have through the AIA platform. Through AIA, I can touch the lives of our 30 million customers across 18 markets. Needless to say, I am very excited about the opportunity. I truly believe that we are at a very interesting time, when the fundamental nature of a life insurer is significantly changing from a payer to a lifetime partner, supporting the health and the life of our policyholders. But I also believe that the life insurance industry will not be disrupted in the foreseeable future because of one reason; it is the low purchase frequency of the product. The power of digital is at its best when it involves something that is of very frequent purchase like an Amazon product or travel, etc. With the way life products are designed to date, this is not the case.”

What should be the way forward then, in your view?

Daisuke: “We can add much value by going digitally but with somehow limited impact. What we can do is change the nature of the engagement. The engagement takes place when we pay you when you’re sick or you are diseased and thus becoming a more engaging partner of your healthy life. The opportunity for digital to have more impact will be larger. Just looking at the fundamentals, Asia’s middle class will continue to grow. This middle class will make up the majority of the new rising middle class who, as they increase their fluency, would seek protection coverage for their loved ones. AIA’s competitive advantage lies in our extremely robust and competitive distribution force through highly disciplined management of agency and through the new partnerships that we are pursuing with our bank or telco partners and other non-traditional partners as well as our focus on health and wellness.”

Can you share a bit about the strategy to make this happen? 

Daisuke: We’ve identified four strategic areas that we would like to focus on as part of this innovation initiative. First is distribution digitalization. Second is customer engagement and ecosystem. Third is proposition enhancement, primarily around health tech. And fourth is artificial intelligence and data analytics. We’re looking for companies that are willing to build a base in Asia to properly support us, offer robust technology and solutions and partner with other countries in our 18 markets to realize the vision that I’ve shared with you right now.”

Scaling insurtech innovations with the incumbentsorganization seems difficult. Having been at the other side of the table, I’d say your experience as an entrepreneur means that you probably approach things differently compared with a traditional large insurance company …

Daisuke: “I’m not interested in doing innovation for the sake of innovation. I only want to focus on things that have real impact, and by impact we mean something that moves the needle for our $120 billion market capitalization. I’ve noticed that innovation cannot happen in an isolated lab or isolated group office.  It has to be embedded into the strategic priorities, it has to be driven by the markets, the countries that are running their businesses day to day. We need to have a clear budget to support that. We need to have close alignment with our internal technology team to assess and build real businesses, and of course there needs to be a change in the culture and the mindset, which so often hinders innovation and challenging new initiatives.”

See also: What Is Really Disrupting Insurance?  

How do you tackle this from your current role as the executive who is responsible for digital, data and innovation?

Daisuke: “As I mentioned earlier, I think there’s a lot that we can do to make our distribution partners, our agents, our banks, our telco partners sell life insurance more productively to enrich our customer experience and to enable our employees, our colleagues to operate much more efficiently. Previous to my arrival, AIA had already embarked on many digital initiatives. For instance, last year we led a strategic investment of $500 million, as an investor group collectively, in WeDoctor, an online healthcare solutions platform, providing seamless online and offline healthcare services as well as integration of general practitioner and specialist doctors in China. WeDoctor has 27 million monthly active users on its platform, and through this strategic alliance we believe that we can deliver a new value proposition for our customers and access the broad customer base that WeDoctor has and many more digital initiatives we have pursued.”

How do you think the future of life insurance will look?

Daisuke: “I think of many things that may change in the future, but then my 10 of years experience running Lifenet made me humble about how slow or how little consumer behavior actually changes. What will not change is the fundamental nature of the life insurance product, a financial solution to offer protection for families in the future. But we are listening to many changes that are happening around us, that affect the way consumers behave, the expectations consumer have, and the role that life and non-life insurers may play. I hope that you can feel the energy from Asia. The opportunities ahead are serious commitments to driving our growth further through technology and innovation.”

What Insurers Need to Know About Bitcoin

A bitcoin (lowercase b), as a currency, has several flaws that will continue to limit its ability to replace money, as we know it. There are millions of words published on the subject, so I’ll leave it to the reader to assess arguments on both sides. However, Bitcoin (upper case B) as a protocol for the transfer of value is an extremely important innovation that the insurance industry would be wise not to ignore.

This article looks at the issue from the point of view where the insurance industry meets the engineering profession; this combination could be where some of the most important and valuable new opportunities arise.

The Block Chain Protocol (BCP)

The Block Chain Protocol is a brilliant innovation that cannot be un-invented – it is here to stay, and it will appear in many forms long after it sheds its association with so-called crypto-currencies. Bitcoin was designed to solve an age-old problem: the possibility of spending multiple times a promissory note such as currency. In the case of virtual currency, the problem is especially acute because a currency created on a computer can be easily copied by a computer.

The BCP can be compared to a train leaving the station. When the train arrives, the door opens and everyone piles in. After a predetermined amount of time, the doors close. While the doors are closed – and only while the doors are closed – the people write contracts for each other to agree upon. When the doors open, everyone piles out, but the contracts stay. Soon after, the doors close forever.

After the doors close, absolutely no changes can be made, ever. Any changes must be renegotiated as part of a new “block” in a continuing “chain” of transactions. This prevents someone from printing “money”, i.e., issuing the same contract to many recipients.

Today, this function is performed by a legal system, brokers and intermediaries such as banks and credit agencies – it is easy to see how these institutions would be concerned that an upstart technology that is fully decentralized with no CEO or corporate structure could literally exterminate their brokerage fees. (While I used a mechanical analogy of door and trains, the BCP operates using time stamps and cryptography to manage identities, ownership, vetting, etc.)

The big deal with bitcoin as a currency is that the value of a contract can be cast in time. The “crypto-currency” simply represents that value outside of the block for that exchange inside of the block.

Many people, including the media, get hung up on the idea of currency because that is something that obviously concerns everyone in the age of impending financial doom. However, one must not be fooled by hype nor remain complacent and hope the bitcoin issue it will go away. The BPC is here to stay, and there are thousands of them in existence, not just bitcoin.

Yes, this means threats to the status quo, but there are also great opportunities for those who learn how to use smart contracts to transmit value without institutional friction. The part that the insurance industry should be concerned with is the ability to transmit contracts.

When contracts are executed on a block chain and locked cryptographically, these are called “smart contracts.” The seminal work on smart contracts was written by Nick Szabo and introduced in this 1997 primer: The Idea of Smart Contracts. The remainder of this article will focus on one very important type of smart contract: the adjudicated smart contract partnering the insurance industry and the engineering profession.

The Oracle

Adjudicated contracts are contracts involving three parties: the insurer, the insured and the adjudicator. The insurance adjuster should immediately come to mind, but the work of the adjudicator is much more flexible.

In an insurance claim, there is often a forensic investigation involved. In many cases, the investigation may reveal failures of design, quality, defects and workmanship and moral hazard. When a payout is warranted, claim money is drawn for reconstruction and remediation per a contract.

The insurance industry depends on actuarial statistics and forensics to manage these risks. What if forensics could be performed and actuarial data compiled before the failure occurs?

Adjudication can be integrated directly into the performance contracts as the project is designed and built. Licensed professional engineers can “flip the switch” that releases funding or seal coverage for specific perils as they oversee the design/build contracts during design, construction and service life of a property. This would allow insurance companies the ability to price risk and adjust exposure pools with extreme accuracy.

Assurance by Design

In other words, it is possible to develop Block Chain Smart Contracts. My firm is doing this for the engineering, construction and property management industries. The concept is to codify current standard contract templates, such as AIA contracts, into a series of smart contracts on a cryptographic block chain. Contractual events will correspond to payment milestones underwritten by bank and insurance institutions. As each milestone is reached, the professional engineer will verify the proof of work and flip the switch that released the contract to the next insurable component.

The Insurance Industry Is Threatened

Today, many insurance companies are not too concerned with construction risk as long as it is priced correctly. What the insurance industry may not realize is that if too many good properties are subsidizing too many bad properties, private parties with good properties will use these adjudicated contracts to self-insure. For example, if a 250-unit, high-rise condo spends $4 million on a new potable water system and the insurance premiums are not discounted accordingly, the condo could now easily form its own risk-sharing pool with communities known to have new water systems.

With Block Chain Protocol technology and readily available data, almost anyone can now form an insurance pool.

The challenge then for the insurance industry is to use new technologies to build more and better insurance products using the legacy tools that they are built on and rapidly adopting new technological solutions that are now available to them.

The Block Chain Protocol may be one of the most important innovations of the digital age. Pretty much anyone with the job title of “broker” should be seriously concerned.

History provides countless examples of companies and industries that failed to adapt to new changes. For this reason, insurance should take the Block Chain Protocol very seriously. The technology is simple by design and only requires some creative adjustment and strategic partnerships to assimilate into the business plan.

Nobody will do it for us. We need to do it ourselves.