What was once considered a surprising alliance when it comes to insurance companies and tech firms such as Tencent, Baidu and Google has become common place as a new distribution ecosystem is taking shape via third-party digital platforms. And the race is on to secure the most eligible partners.
Various components of the insurance value chain have evolved and will continue to do so amidst advances in technology, but arguably the biggest area where change is taking place is in distribution.
InsurTech trends may prove instructive in this, as much of the InsurTech innovation to date is revolving around distribution – particularly in general insurance. (see Figure 1)
No doubt conventional channels are still going strong in large parts of Asia, but insurance companies are increasingly exploring alternative channels as reflected in partnerships with non-insurance entities. There are numerous recent examples such as the tie-up of Aviva and Tencent, Allianz and Baidu, Allianz CPIC and Alibaba Health, China Pacific and Baidu, as well as AXA and Facebook Messenger among others.
Similarly, online service providers have also been proactively seeking out insurance partners. Even as Google shut down “Google Compare” last year – its online aggregation service that compares pricing of various insurance products – the tech giant remains vested in insurance.
According to CB Insights, Google was involved in at least six separate partnerships and investments in InsurTech in the last two years – three in health insurance, on top of partnerships with Liberty Mutual and American Family Insurance. Its most recent venture is of course with New York-licensed online home-contents insurer Lemonade.
Meanwhile, Asian tech giants have also been actively securing their stake in the insurance space. Two years ago, Alibaba’s financial arm Ant Financial took a 60% share in Cathay Insurance (China) as the two companies sought to develop online insurance propositions, while Tencent and Alibaba have not shied away from setting up their own digital insurers in recent years.
Seeking partnerships outside the industry
A recent KPMG survey report on M&A strategies show that seeking alliances is high on the agenda of insurers as a catalyst to enhance or transform their distribution or even operation models. All of its survey respondents comprising 200 global insurance executives, 33% of which are from Asia-Pacific, said they would likely enter into at least one partnership or alliance agreement this year.
Such a trend is most evident in China, where the popularity of e-commerce platforms present one such opportunity for insurers.
Ms Joan Wong, Partner and Asia Pacific Lead of Insurance Deal Advisory, KPMG China, said: “China already boasts a fairly mature partnership ecosystem between national banks and insurers. As a result, many of the partnerships now being forged in China will be focused on acquisitions in alternative and aligned segments in the FinTech and e-commerce space.”
The report added that rather than jumping at opportunistic deals — insurers are starting to think more strategically about the rationale behind the deals they make. It is not about pursuing scale, but in seeking partners that allows them to deliver on longer-term strategies.
Engaging customers on preferred channels
Looking into the future, a broad strategy of any digitally-attuned insurer has to be in engaging consumers on their various preferred platforms, said Mr Christopher Townsend, President Metlife Asia.
“They want to trade on a platform of their choice that they trust and they know are a gatekeeper of quality products or services…so we need to build partnerships to reach customers on the platforms of their choice, not our choice,” he said.
And third-party digital platforms like WeChat and online retailers Jingdong as well as Taobao, Alibaba’s eBay-like online retail platform, are examples of alternative channels which are inhabiting the changing distribution ecosystem.
According to a report issued by the Insurance Association of China, the total premium income for insurance sold online reached CNY143 billion (US$20.8 billion) during the first half of 2016, 1.75 times the amount in the same period in 2015. Its proportion of the total industry premium has also risen to 5.2%, with the online personal insurance market in particular developing rapidly.
High engagement & trust
Insurance has traditionally been a “low-touch” business and leveraging on external digital platforms affords insurance providers the chance to be a part of a highly-engaged environment.
“Just to give you an idea of the power of Tencent, 716,000 e-red packets recently changed hands on its platform in the first second of Chinese New Year, 12.2 billion in the first 24 hours and 42 billion in first week. Now that’s engagement,” said Mr Chris Wei, Global Chairman of Aviva Digital, whose company joined forces with Hillhouse Capital and Tencent Holdings in January this year to develop a digital insurer in Hong Kong.
The fact that consumers are highly engaged on these platforms invariably mean there is a high level of comfort and trust that they have for such online service providers
Previous surveys have shown that as many as two-thirds of insurance customers say they would consider purchasing insurance products from organisations other than insurers, including 23% who would consider buying from online service providers such as Google and Amazon.
Aggregators
Another digital platform where insurers are starting to show greater affinity for are online aggregators.
A survey report of over 400 insurance executives in Asia Pacific, Europe, North America and Latin America conducted by global consulting firm, Accenture, showed 26% and 21% of its respondents respectively believe that consumers would visit aggregators to search for information or finalise a sale by 2018.
As a result, a growing number of insurers are adopting strategies for engagement. Fifty-one percent are considering low-cost product sets specifically for aggregators, either as part of their main brand offering or under a sub-brand.
Building up your attractiveness to potential partners
Partnerships, especially with third-party digital platforms, are going to become even more important to insurers’ long-term innovation and growth prospects.
“To be seen as a desirable partner, insurance carriers need to enhance their credentials: improve their digital capabilities, optimise their architecture for cross-sector integration, and develop their partnering skills to secure a favourable role in their ecosystem of choice,” said Accenture in its report.
It added: “Large carriers with strong brands and wide product ranges have a built-in advantage, as they are able to offer more to the group. Those with strong capabilities relating to customer-centricity, customer data management and contact centres will also be welcomed.”
Defining your role in the new ecosystem
The New York-listed consulting firm also brought up four pertinent questions as insurers seek to define their role in the new distribution ecosystem.
- Whose brand will own the customer experience?
- How broad or narrow will the offer be – will it be just indemnification, will it include protection, or will it be something even broader?
- Who will have access to the customer data and insights that can be derived from the customer experience?
- What are the competitive dynamics? Will there be a single insurer in the consideration set or more than one?
It is these questions and more that insurers will have to start finding answers to in order to proactively define their position in the new ecosystems and cooperation models. A