Digitalisation is changing the way insurers operate and interact with customers worldwide. It is also mixing up the market, with new digital players entering the scene. The potential of InsurTechs is especially pronounced across the Asia Pacific region – so says Munich Re’s Tobias Farny.
The scenario is all too familiar: Agile disrupters offer a new customer experience, grab market share and ultimately drive out incumbents. Think of the impact of online retail on bricks-and-mortar shops, iTunes on music CD sales or more broadly, the digital landscape in Asia – with super apps like WeChat changing how we interact with the world around us; with financial services being no exception to disruption.
InsurTech is more than hype: It is hitting the insurance industry hard and fast, changing the way we and – most importantly – our customers think about insurance. Does it mean traditional insurance is headed for extinction? The answer is an emphatic no. What it does mean is that we need to adapt – fast.
Making business more efficient
InsurTech solutions typically aim to optimise business processes in terms of on-boarding new customers, underwriting efficiency or fostering ongoing customer engagement, for instance, by offering personalised insurance options. But beyond the improved customer experience, these solutions also open new opportunities to provide services that are relevant and customised to the customer’s needs. But despite the high level of activity in the InsurTech space, implementation remains limited. In most cases, the focus is on improving existing processes or offering alternative solutions to insureds.
At Munich Re, we are convinced that it is only a matter of time before large-scale integration of new technologies in the non-life sector takes place. And we are committed to supporting and actively shaping the process in the Asia-Pacific region – a market with huge potential. Munich Re expects it to be the fastest-growing market for insurance worldwide, with non-life seeing a compound annual growth rate (CAGR) exceeding 9% between 2016 and 2025. And Asia Pacific insurance markets, characterised by tech-savvy rising middle classes accustomed to mobile-first digital customer experiences, are predestined to welcome InsurTech products.
In China, Munich Re opened its first innovation lab in Beijing in 2015, and in 2018, launched its dedicated insurance innovation unit Si Tao to work with Plug and Play – a global start-up accelerator, and established an insurance innovation market leading position. In addition, we maintain Munich Re Digital Partners, a global venture with a strong presence in South and Southeast Asia aimed at partnering with (digital) disruptors.
We believe the impact of InsurTechs will revolutionise our industry, but we are equally convinced that the future of insurance will be built on cooperation and partnerships between experienced companies and digital newcomers. To illustrate why Munich Re takes this view on digital disruption, let’s look at the strengths and weaknesses of the different business models as well as the tasks ahead.
Barriers to be overcome
To embrace the paradigm shift fully and fulfil the expectations of digital natives, insurers need to overcome challenges in three main areas. Established insurers and InsurTechs alike must first realistically assess digital business cases. This means taking a good look at the strengths and weaknesses of traditional and disruptive business models. For example, consider that most well-established insurers have built up significant blocks of in-force, long-term business. Even if conservative valuation bases (relative to best-estimate claims costs) are used to project future revenue streams, as these in-force books mature, ongoing profitability is almost guaranteed. In contrast, InsurTechs are generally untested. Estimating their future profitability is extremely difficult.
The second task is critically to evaluate the available data and how a given insurer utilises them. Here, the insurance industry can learn from data-driven digital enterprises. Traditionally, insurers have used their data primarily to ensure compliance with risk management guidelines in underwriting and determine whether to offer an insured standard or substandard rates.
Yet even old-school, paper-based application forms and underwriting exams capture at least 150 data fields. With the help of predictive analytics experts and technologies, these could be a source of very rich data and deep insights into customer behaviours, needs and wishes.
In other words, by systematically treating data as an asset and using all means at our disposal to leverage it, we can offer an enhanced customer journey, develop individually customised products and attract new business. Migrating legacy data into digital databases may be costly, but the investment is well worthwhile.
The task does not end with a given insurer’s own data. To gain a holistic view of customers, we can and must also draw on third-party data platforms. Only then will we be in a position to fully understand the risk to be covered and design appealing processes to engage the (potential) policyholder.
The third point is that the insurance industry needs to look at distribution channels. Some insurers may be offering online sales, yet most still rely on the same face-to-face approach that has been employed for decades. That method means new products have to appeal to the sales force, be easy to explain and contain as little potential for customisation as possible. This leaves little room for individually customised, customer insights-driven solutions – especially solutions that attract the fast-growing, digitally literate, mobile-first consumer base that characterises the Asia-Pacific region.
To sum up, delivering future-proof insurance products and customer experiences demands a complete rethinking of product development and sales practices. The more the insurance industry can do to encourage activities in the InsurTech space and partner with digital players, the better. Ultimately, the transformation will be at least as much about mindset as about technology. A
Mr Tobias Farny is chief executive, Asia Pacific, Greater China, Australia, New Zealand, Munich Re.