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The way of the future

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Source: Asia Insurance Review | Apr 2019

InsurTech start-ups have begun to make their mark on the industry as it continues to evolve into something new and fascinating. We speak to several start-ups and experts to find out what is coming in the InsurTech space in 2019.
By Ahmad Zaki
The InsurTech boom continues its pace in 2019, with insurers spending more than $1.59bn in 63 deals in Q4 2018 alone. Compared to the same period in 2017, that is a 24% increase in deal count, with an 155% increase in funding.
Developments such as open banking, greater regulatory clarity and support, maturation of AI and blockchain, InsurTech and FinTech efforts seem more fruitful than ever.
However, due to the high entry barriers in insurance, the majority of InsurTechs today are what have become known as enablers. These are companies that are providing tech solutions to incumbents to optimise one or more parts of the insurance value chain, such as claims processing, fraud detection or customer on-boarding. 
The second largest category is intermediaries. “While at the beginning we saw mainly aggregators in this segment, we now have a growing number of companies offering unique and innovative products without owning the underwriting part. In a legal sense they are intermediaries but have (co-)designed their own products, services and branding and partner with one or more insurers for the underwriting,” said Accelerating Insurance founder Ms Theresa Blissing.
The smallest group of InsurTechs are licenced insurance companies. Complying with the strict insurance regulation and capital requirements makes it difficult for start-ups to enter the insurance space. However, a trend that is emerging is that disruptive InsurTechs start as an intermediary and turn into a licenced insurer at a later stage. 
In stage one, the InsurTech gains industry knowledge and experience by developing products together with an insurance partner. The InsurTech takes its time to build a client base and develop a consumer brand. In stage two, the InsurTech transforms the business into a licenced insurer. “This strategy is less risky and gives the InsurTech time to build knowledge, a customer base and scale up which increases chances to attract the needed investment,” said Ms Blissing.
The year ahead for InsurTech
This year is still about building the foundation for the future of insurance. Intermediaries are still at stage one, building knowledge and a client base in order potentially to transform into a licenced insurer. In terms of enablers, a lot of AI companies are offering solutions to incumbents to innovate internally around customer service, claims management and underwriting. “We also see companies focusing on collecting data to be able to build better products and services in the future,” said Ms Blissing. 
Apart from that, ecosystems and platforms are a big trend. With the rise of powerful platforms like GoJek and GRAB, the insurance industry tries to understand what role it can play in this multibillion-dollar game. But only the most innovative and agile companies will be able to succeed. Partnering with fast-paced tech companies is not a task that comes easy to the traditional insurance industry.
However, for some insurers, they had little choice but to take that risk. MyDoc CEO Dr Snehal Patel pointed out that the exploding cost of healthcare was leading to a rapid increase in premiums, which was making both corporate and personal clients unhappy. This forced them to turn to non-traditional means to reduce costs, and therefore reduce premiums, which meant partnering with start-ups such as MyDoc.
“Our aim is to provide the right care at the right time for everyone. The primary drivers for expensive healthcare are that people are consuming expensive healthcare and medication when it is not necessary. By ensuring that we send consumers down the right care pathway, we can bring costs down for all parties involved,” he said.
Targeted solutions for targeted problems
When asked about his advice to future start-ups embarking into the InsurTech space, Dr Patel said that they have to be very clear on the problem they are solving for. “There are some solutions that are applicable in the US but not in Asia, because the problems are not as clear. Start-ups must ask themselves the question: What exactly are we looking to solve?”
This has been common wisdom for start-ups for several years now, once the realisation of the cumbersome giant that is the insurance industry set in. Over the past three to four years, various start-ups have emerged, partnering with insurers, delivering solutions for motor accidents, healthcare, fraud prevention, claims processing and more. The past year has seen even more specific solutions, focused on diabetes, facial recognition and customer data protection.
So, what’s next, then?
Ms Blissing believes that InsurTechs can help design innovative products and services for the digital consumer. “Due to digitisation, our world is changing rapidly with new risks emerging. A still highly-underestimated risk is cyber security, both in the corporate world as well as for individuals. Data is the new oil, a highly valuable asset and it needs protection.”
While companies are at least aware of cyber crime being a potential risk, she said, consumers are mostly ignorant or uncaring of it. “As a professional, imagine someone is hijacking your email and social media accounts and destroying your reputation and career by sending fake messages to clients and business partners. Everyone has to start taking this risk seriously and for insurers this is an opportunity to develop new markets,” she said.
However, many insurers are failing to design products for cyber crime as they are not able to measure the risks and develop pricing. Start-ups can help insurers with insight, knowledge and tools such as security protocols and develop services around risk testing and cyber crime prevention.
“In general, InsurTechs have the ability to bring new technologies and a different mind-set to incumbents,” she said. “Insurers often do not have the resources, knowhow and mentality to develop cutting edge new technologies or develop innovative products and services for the digital age. InsurTechs will help inject the much-needed innovation culture into insurers.”
In Asia, where insurance is still relatively young in terms of penetration and maturity, insurers and InsurTechs have a huge opportunity, said Dr Patel. “Specifically, in how they can partner with the policyholder, be it corporate or consumer, to provide the right type of service with the right type of product. The explosion of insurance in Asia is happening at the same time as technology is becoming the backbone of the many service providers and partnerships that insurers are working with. The time is now.”
Serving the underserved
In the current emerging market of Southeast Asia, insurance companies focus their products and services on the middle-high segments, as they are currently the segment that has been proven to purchase insurance. However, this leaves the middle-low market segment still unserved. This happens due to high cost of insurance and makes insurance companies shy away from targeting the mass market.
According to Pasarpolis founder and CEO Cleosent Randing, incumbents have only been using technology and the internet as a distribution channel. “They have yet to utilise the online space beyond marketing purposes fully,” he said.
With the growth of internet- and technology-based businesses (such as e-commerce), brings with it the growth in customer adoption rates of such businesses. Mr Randing believes that insurers who adopt the use of such methods can reduce their overheads and therefore create more affordable and simpler products and reach a mass market, one that is comfortable and willing to purchase products online.
InsurTechs, he said, also have the opportunity to tap into this market, as they are more familiar with technology and the Internet and will have an easier time creating solutions.
Overcoming the regulatory hurdle
The consensus on regulators amongst start-ups is that they are, generally, more open-minded on how technology can improve the lives and propositions of their users. Some are looking actively to replicate the success Singapore’s financial regulator, the Monetary Authority of Singapore, has had with its regulatory sandbox.
“Mostly, they are concerned with the customer’s safety and the need to strike a balance between innovation and consumer safety,” said Dr Patel.
Being open-minded should not be confused with being knowledgeable. Many regulators, especially in developing countries in Asia, do not fully grasp the impact of new technologies and product innovation, said Ms Blissing. “That is one of the reasons why product approval often takes too long which is a major entry barrier for start-ups that are used to operate at fast speed.”
Regulators must invest in new talent, train internal staff and optimise their product approval process. The objective of a regulator is to protect consumers. The reality, however, is that they are mainly protecting incumbents and their traditional business models by preventing true innovation from happening that will lead to better products and services for consumers, she said.
In many countries, regulations still require that consumers give physical evidence in order to claim. “This method, which is a very traditional insurance business activity, is not aligned with the spirit of InsurTech,” said Mr Randing. It creates additional paperwork and administrative costs and causes significant delays in claims processing. “For certain products, however, regulators have begun to loosen some requirements related to this, which will create room for InsurTechs to grow.”
A culture of innovation
There are many attributes about the insurance industry that truly prevents it from adopting technology and innovation as the way of the future – their risk-averse nature, their legacy systems, their lack of knowledge. Some of that has been changed and been improved, mainly through start-ups coming up with innovative solutions.
And while insurers have slowly begun to adopt this mindset and culture of innovation that has allowed technology giants to become so successful and cutting-edge, is their rate of change matching the rate at which technology improves?
“This is the dilemma faced by existing conventional insurers,” said Mr Randing. “Adopting new technologies and systems will create additional costs for them. Some even want to leave their existing business behind and make a complete turnaround to InsurTech, which is not a wise decision.”
“Many insurers are not able to design strategies to overcome this challenge partly due to management lacking experience how to foster change and enable innovation,” said Ms Blissing.
An elegant solution is venture building, which not only enables innovation and adoption of new technologies outside the toxic environment of the incumbent, but also trains internal staff on how to act and think as a start-up by teaming them up with entrepreneurs and tech people. Therefore, venture building is not only enabling the fast adoption of new technologies but also helps to transform the mindset and culture of the incumbent through shared projects. A 
InsurTech and cyber insurance 
Willis Towers Watson’s latest quarterly InsurTech brief also touched on the ability InsurTechs have in helping insurers solve the thorny issue of cyber cover. Willis Re global head of cyber Mark Synnott said,
“Cyber risk is based primarily on the vulnerability of digital systems to outside interference or penetration. Therefore, strong cyber security is key, and there are a range of cyber security firms that offer advice and protection to mitigate this risk. Some of these security firms also provide data and security ratings to help insurers assess exposure and price risk and a number of insurers have incorporated this data into pricing models as they formalize the underwriting process.
Some InsurTechs have developed their own underwriting models that incorporate a range of components including outside penetration testing, inside security assessment, and downtime and other damage variables to assist insurers in underwriting and pricing individual risks. A number of MGAs have also been established to take advantage of this technology or create their own models to underwrite cyber risk on behalf of third-party capital. Some of the third-party models have been extended to cover accumulation exposure and brokers too have got in on the individual risk and accumulation modelling act with their own models.
KPMG’s predictions for FinTech in 2019  
  1. Consolidation: In 2019 we will see increasing levels of consolidation in mature areas such as payments and lending, as well as emerging areas like blockchain – as startups look to scale and fuel international growth.
  2. Bigger deals: Deal sizes are expected to continue to grow in 2019, as investors focus on later stage FinTechs with a proven track record in an effort to reduce risk.
  3. Global expansion: Challenger banks will continue to grow their service offerings and expand across international borders.
  4. Open banking: Regulations around open banking – in Europe and elsewhere – will prove to be a boon for technology giants and startups alike as they increasingly play a role in financial services.
  5. Blockchain: There will be a dramatic increase in levels of investment in companies dedicated to building specific products and solutions based on blockchain technology.
  6. InsurTech accelerates: Asia will see substantial growth in InsurTech investment, in part by US- and Europe-based traditional insurers looking to use Asia to test alternative insurance offerings.
  7. RegTech rises: Investments in RegTech will accelerate in 2019, as startups focus on helping incumbent financial institutions reduce costs associated with complying with increasingly stringent regulations.
  8. Financial institutions: Corporate investment will remain strong, with an expected increase in partnerships in particular due to open banking and also for investments to continue to form a core part of M&A strategies for incumbents.
  9. Collaboration in Asia: Collaboration between FinTechs and banks in Asia is expected to continue to grow, particularly in areas like KYC, AML and digital identity management – including facial recognition and voice recognition.
  10. Digital banking: Traditional banks and corporates will increasingly expand into digital banking, introducing nimble, standalone digital banks that operate independently and do not rely on their existing legacy systems
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