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How to Help Microinsurance Spread

Microinsurance is an industry that keeps building momentum. Changes in the global economy have created an emerging middle class that has been underserved by traditional insurance models — and microinsurance offers a needed solution.

For people in developing countries, who in many cases live on just a few dollars a day, traditional insurance is too costly. Constrained finances and limited awareness act as a significant deterrent for purchasing traditional, risk-mitigating insurance products. However, when loss events like those stemming from Hurricane Maria or workplace injury occur, insurance is necessary to rebuild communities and individual lives. Considering that nearly 6.5 billion residents live in emerging and developing countries like Ghana, the Philippines and Vietnam, the scale of this opportunity exceeds virtually any other single opportunity in mature insurance markets.

Much of the (re)insurance market’s recent attention has centered on global natural-catastrophe losses, which have exceeded $500 billion since 2017. Many communities around the world were dramatically affected by these losses, forcing prominent insurers to understand the best way to serve those communities.

Why Micro Makes Sense

The increased buying power within these developing communities confirms there’s an opportunity for microinsurance to grow. A World Bank study found that, from 1985 to 2017, Vietnam’s per-capita GDP jumped by nearly 10 times from $230 to $2,343. Such gains encourage significant interest and investment specifically focused on microinsurance product development.

Allianz, for example, has doubled down on its commitment to the field by joining forces with FPT Group to build insurance products for Vietnam and purchasing micro insurer BIMA for $290 million. In addition, LeapFrog raised $400 million for microinsurance product development and distribution, proof that sophisticated parties believe in the value of microinsurance products.

For new markets where skepticism toward high-premium private products exists, microinsurance offers a low-cost option to mitigate risk and grow trust with corporate insurance brands. However, when viewed in the aggregate, there remains a mismatch between high-growth areas in terms of population and income — Latin America and the Caribbean, Asia and Oceania and Africa — and insurance penetration in these areas, which currently sits at only 7%.

See also: Microinsurance: A Huge Opportunity  

The challenge for investors and the insurers they support is simple: educating communities, developing relevant products and establishing trust in these products; all of which is typically expended before the first premium dollar is collected. The challenge is exaggerated by the high-volume, low-margin nature of individual products, which, in some communities, carry average microinsurance product annual premium of $14.

While the economics of microinsurance will continue to challenge penetration and premium capture, insurers can overcome significant hurdles related to education and distribution by presenting simplified and relevant products to prospective insurance customers, and developing and executing a distribution strategy through a multidisciplinary team.

How Insurers Can Solve the Microinsurance Quandary

Insurers can position themselves for success in the microinsurance market through a couple of different approaches.

Chief among those is to streamline their services. Microinsurance is a product of its time. Technology allows all kinds of consumer services to provide hyperpersonalized care, which means insurers need to offer products that are as simple and relevant as possible.

To accomplish this goal, insurers must keep the end user in mind during all phases of product creation. Companies need to understand what customers need, how they prioritize those needs, and where their gaps in coverage lie. By identifying these factors, insurers can offer products that clearly spell out the relevant advantages to customers. This clarity can help engage customers and increase the odds that consumers will purchase the coverage.

Customers don’t want to pay for coverages they don’t need. Insurers, therefore, must seize any opportunity to create granular products that are simple and affordable. Not only does this approach provide more useful products to buyers, but it also helps insurers limit how much information they must collect during underwriting.

Additionally, insurers should build cross-functional teams internally to assist with distribution. Getting the right insurance product to the right customer at the right moment takes a coordinated team of experts. Those who distribute these products need to understand the environments in which they sell and have a stake in the profitability of the product.

See also: Microinsurance and Insurtech  

These distribution partners must also learn to describe to consumers the differences among products. It is not enough to sell: Distributors must be educators who teach customers that insurance can be as trusted as the local brands they know and rely on. To do that, the distributors and the people they serve must be supported through association with charitable and regulatory organizations.

Finally, technology must be leveraged to effectively monitor and mobilize the distribution force and insureds alike. To that end, software developers must build and test features on the basis of real customer feedback and adapt quickly to optimize the products. When the back-end team gives distributors a product that people want, distributors can sell a product that brings clear and tangible benefit to the developing world.

Microinsurance will continue to grow as the needs of the global population continue to evolve. Everyone in the insurance industry, from distributors to developers, is responsible for overseeing the growth of this new niche. Only by collaborating to offer a relevant product will insurers successfully earn their share of this new and burgeoning market.

Insurtech Ecosystem Emerging in Asia

Building on T.J. Geelen’s blog post about the thriving fintech ecosystems in Asia, I’d like to share with you some insights relating to the emerging insurtech ecosystem in the region. Although insurtech in Asia is in its infancy, since 2015 we’ve seen a surge of interest. By the way, I’m a big believer that Asia has a real potential to power the next wave of global insurance innovation.

Four flavors of insurtech

First, let’s revisit the definition of insurtech to make sure we are all on the same page. Essentially, there will be three major camps of insurtech: one that enhances existing insurance structures, another one that aims to disrupt by providing alternative digital risk transfer mechanisms and the third type coming from existing insurance firms attempting to defend their existing market positions. The first and third types broadly can be broken into the following sub-types:

  • Product sales/distribution (aggregators, online portals, apps)
  • Risk management (IoT, healthtech, blockchain)
  • Fraud detection/prevention (big data, machine learning)
  • Claims management (big data, machine learning, vendor network management solutions)
  • Service management (chatbots)
  • Investment management (portfolio optimization, asset/liability matching)

The second type attempts to drive an end-to-end structural innovation, either removing part of the structure or fully digitizing it.

Why Asia for insurtech

Asia is attractive from both an insurer and an insurtech perspective due to the size of its significantly underinsured population. The region has traditionally seen a large part of the risks self-insured through family and community networks. As the region experiences rapid growth in the affluence of its population, together with an aging population, the risk exposure is becoming even more apparent, and the need for alternative risk transfer mechanisms, including insurance, increases. Insurtech, alongside traditional insurance, can help.

Further, there are near-perfect locations for the launch of a program. Singapore, for one, allows for sandboxed experimentation, regulatory support and advanced tech infrastructure. Limitations of traditional insurance distribution channels and the rapid increase of 4G mobile penetration mean that insurers are also highly interested in exploring innovative partnerships that help them connect with potential customers.

See also: Matching Game for InsurTech, Insurers

Insurtech in Asia

Asia is a very diverse region and has a mix of developed and emerging countries. So far, the major push for insurtech has come from China, India, and Singapore, while Japan, Korea and emerging Vietnam, Cambodia, Taiwan, Philippines, Thailand, Indonesia, Malaysia and Burma have lagged. (While Australia and New Zealand are geographically close and are very well integrated in the Asian region, the markets are much more ”Westernized” and hence are less applicable to this blog post.)

There’s China, and then there’s everyone else when it comes to insurtech. The first full stack (end-to-end) innovator, Zhong An, is valued at a massive $8 billion and raised $931 million. It accounts for more than a third of the global insurtech funding in 2015. It is also worth mentioning TongJuBao (peer-to-peer) insurer and FWD (Asia’s second-richest family’s insurance venture, which is re-positioning itself from traditional insurer to an agile digital insurance competitor).

India, another vibrant insurance market, has seen its insurtech innovation focus mostly on distribution. Not surprisingly, two of the major aggregators come from India: Policy Bazaar and CoverFox have seen healthy level of customer take-up as well as sources of funding. CoverFox has recently expanded its service proposition, now assisting customers with their insurance claims.

Being based in Singapore, I have a particularly detailed view of the insurtech landscape in Southeast Asia. So far, I have gathered the following mapping of Asia insurtech startups as they fit within the insurance value stack. There’s a mix of very-early-stage as well as more mature Series A and listed ventures. The list keeps growing.

Please feel free to comment and reach out if you come across any additional startups that I’ve missed out in the list below, and I’ll update it.

Area:

Distribution

Actual Losses

Operating Insurance Co.

Value:

20%

55% Losses + 5% Fraud

20%

Role:

Aggregators

Leads Generation

Customer Transactions

Improving risks

Fraud detection

Rewarding healthy

Risk assessment

Loss adjustment

Operational/Service Efficiency

Start-ups: Policy Bazaar (Aggregator)

CoverFox (Aggregator)

Health/House-front

Latize (Fraud) JustMove (Health)

Uhoo (Health IoT)

Harti (Health)

WaveCell (Comms platform)

Fixir (Finding repair garage)

MyDoc (Health claims)

Stash.ph (Health claims)

GoBear.sg (Aggregator)

Cxa (Employee benefits)

PolicyPal (Policy mgm.)

UEX (Group policies)

Zhong An (General Insurance) CH

TongJuBao (Peer to Peer Insurance) CH

DirectAsia (Direct General Insurance) SG

FWD (General / Life Insurance) HK

Singapore Life (Upcoming Life Insurance Startup) SG

 

Corporate insurtech

Singapore, with its advanced infrastructure and innovation-supportive financial services regulator (MAS), has secured a leadership position for Asia’s corporate insurance innovation as reflected by the high concentration of insurance innovation centers. Eight of 10 Asian insurance innovation centers are based in Singapore. The innovation centers are powerful corporate change catalysts and typically include elements of awareness building and cultural transformation.

Firm Innovation Center Country Focus Status
Aviva Digital Garage Singapore Digital Transformation Active
Manulife Loft Singapore Digital Transformation Active
MetLife LumenLab Singapore New business models Active
Allianz Digital Labs Singapore Digital Transformation Active
AXA Data Innovation Lab Singapore Big data Active
AIA Edge Singapore HealthTech Active
Munich Re Innovation Lab China General Insurance Launched Q1 2016
Swiss Re

India IoT, AI, Big data Planned July 2016
IAG

Singapore

Rumored 2016
NTUC

Singapore

Rumored 2016

 

In summary, Asia is a region to watch when it comes to insurtech. Whether it be the home-grown insurance innovation from China and India, corporate innovation from Singapore or innovation concepts imported from elsewhere and deployed in Asia, the region is likely to deliver a vibrant insurtech ecosystem during the course of the next two to three years. And when the dust and excitement settles down five years down the road, we’ll have a fundamentally stronger set of competitors.

Wanting to accelerate insurance innovation, we’ve created InsurtechAsia, an action-oriented community of insurance practitioners, entrepreneurs and industry stakeholders across Asia. We are aiming to attract the best minds to tackle the challenges and opportunities in insurance, connect entrepreneurs with the best enablers, validate concepts and help business scale rapidly.

See also: New Insurance Models: The View From Asia  

A dedicated and company-agnostic insurtech accelerator, such as Startupbootcamp InsurTech, which was launched in London in late 2015, would go a long way to spur further insurance innovation here in Asia. We eagerly await the day when Startupbootcamp InsurTech will come to Singapore.

Are you passionate about making a change to the insurance industry? If so, join us at www.insurtechasia.com and follow this great team of like-minded people on Twitter: @insurtechasia.

Waves of Change in Rapid-Growth Markets

Global expansion into new markets represents a powerful opportunity — especially as economic performance languishes in much of the developed world. As a result, insurance executives must regularly evaluate and refresh their strategies to identify which international markets are most likely to offer the best prospects.

As regional markets around the world become more connected and complex, however, understanding how best to optimize the balance between opportunities and risks in individual countries remains a significant challenge. Even in a world linked closer together by macroeconomic trends, mobile phones and the Internet, regulatory and cultural differences persist, and even nations that share a common border may diverge markedly when it comes to future risk.

To help executives better understand the rebalancing now taking place across the insurance landscape in rapid-growth markets, we will highlight growth opportunities in specific countries around the globe.

While once-flourishing BRIC economies Brazil and India are now expanding at a slower pace, the U.S. is rebounding, and the U.K. and the Eurozone are at last rising from their doldrums. At the same time, a cluster of emerging markets, such as Malaysia, Indonesia, Mexico and Turkey, are making regulatory changes that could produce significant opportunities.

These shifts are causing insurance executives to reassess their strategies to determine which rapid-growth markets (RGMs) represent the most attractive investment options. To help navigate this rapidly evolving landscape, EY has created a matrix that analyzes the risks and opportunities for insurance firms across 21 RGMs. Our study identifies the following RGMs as particularly attractive for insurance investment:

Turkey offers a greater level of opportunity than any other RGM in the study but also poses substantial risks. An economic downturn cannot be ruled out. While political turmoil has cooled in recent months, tensions could return. In addition, markets for some lines of coverage are relatively mature.

Indonesia also offers an extremely strong economic growth picture — second only to China and Vietnam in our forecasts. However, it is challenging to obtain licenses, so acquisition is the main entry route.

China, despite a recent slowdown in growth rate, continues to boast extraordinary income growth that spurs auto and home ownership. In addition, an aging population will drive the development of the life and health markets. However, market entry remains difficult for foreign firms.

Malaysia offers an attractive mix of demographics and strong economic growth and has become a base for the development of takaful, sharia-compliant insurance.

Hong Kong (a special administrative region of China) ranks low for opportunity but presents less risk than any other market in our study. Hong Kong can also serve as a trade route into the rest of Asia.

The United Arab Emirates (UAE) has become the fastest-growing insurance market among the Gulf States, with a compound annual growth rate (CAGR) of 17% over the past six years. Regulatory changes may create greater opportunity for expansion of takaful products.

Our analysis does not merely focus on markets with the highest opportunity and lowest risk but provides a more nuanced picture of the shifting landscape. Depending on a firm’s appetite for risk, a second tier of RGMs also shows considerable promise:

Brazil remains an important opportunity, though slowing growth rates have revealed festering economic risks. Following a program of liberalization, Brazil is the most accessible of the BRICs for foreign insurance companies. Brazil’s key advantage is scale: Of the markets in our study, it has the third-largest forecast growth in insurance premiums in US dollar terms, following China and India. Moreover, record new car sales are propelling robust growth for automobile lines.

South Africa follows Brazil with the fourth-largest absolute growth in insurance premiums. In addition to scale, South Africa may be a good trade route into sub-Saharan Africa, as South African companies have been among the most successful in penetrating other African markets.

Vietnam has become one of the most exciting RGM opportunities. Its income growth and premium growth rates (when considered in percentage terms) place it among the top two markets we assessed. But investors face significant corruption and sovereign risks when entering Vietnam.

Mexico has undergone a program of extensive liberalization, opening its market to foreign insurers. On some measures, Mexico is the most open insurance market in our study. Yet the pace and unpredictability of regulatory change can be risky for investors.

India’s opportunity is impossible to ignore, given that it is second only to China in terms of absolute forecast growth in insurance premiums. Yet, the regulatory environment has proved extremely challenging for investors. In addition, a large current-account deficit and reliance on portfolio capital inflows elevate liquidity risks.

Our analysis suggests that while investment in RGMs will continue to be vital for global insurance firms, outsized returns will not come easily. Companies that carefully tailor products and develop market-entry strategies suited to particular economies and their cultures will see the greatest rewards.

Key factors influencing market selection

When investing in RGMs, insurance executives will want to carefully consider four important waves of change:

1. The speed of regulatory change.

Some RGMs, such as South Africa and Mexico, are moving quickly to adopt new insurance regulations and may surpass advanced economies in the stringency of their risk-based regulation or consumer-protection requirements.

2. Customer adoption of insurance products.

The rise of social media and the growing popularity of overseas educational experiences are among the forces breaking down traditional barriers to insurance penetration. Many markets where traditional cultures tended to limit adoption of insurance products, such as Vietnam and Saudi Arabia, are now experiencing rapid premium growth.

3. Government fiscal policy.

Offering tax incentives for insurance products can significantly affect how customers choose savings and pension services. At the same time, a lack of confidence in public pension and welfare schemes can encourage adoption of private insurance alternatives.

4. Government attitude.

In most RGMs, the government considers the insurance sector strategic. This is in part because of the crucial role insurance plays in facilitating savings, investment and entrepreneurship. Understanding the government’s goals for the sector’s long-term development is therefore crucial. Some governments will focus on the potential growth benefits of insurance development and seek as much foreign expertise as possible in developing the insurance sector. Others will wish to have the insurance market dominated by domestic companies over the long term.

Download the full report here: Waves of change: the shifting insurance landscape in rapid-growth markets