Commentary

By Jacqueline Jayne, Security Awareness Advocate, KnowBe4 APAC

In recent years, Asian insurers have increasingly turned to data and analytics tools to drive growth and improve operational efficiency. Many have invested in starting up analytics teams or setting up insurtech partnerships to launch pilots. To date, some of the most popular use cases revolve around increasing new business by suggesting the next product to buy, improving claim-fraud detection, and increasing the straight-through processing rate of new life insurance policies.

When cities and countries across the world finally come out of lockdown, the society that emerges will be fundamentally different. Post COVID-19, people will continue to increase interacting with friends, family, businesses and governments via digital channels. For insurers, this new approach poses a significant transformation challenge and opportunity. Challenge because the industry is encumbered with numerous legacy systems that are hard to update and a distribution model that still relies mainly on face-to-face interactions and a product push model. Opportunity because this a time when customers seek advice and solutions from their insurers and are open to engage in new ways; also because some of the resistance to new ways of working and engaging has just been taken out by the new normal in a (post) COVID-19 world.

A banking revolution is sweeping across Asia as increasing numbers of countries introduce new regulatory frameworks for digital banking. Malaysia is next: Bank Negara Malaysia (BNM), the central bank, is currently seeking industry comments on a proposed framework for digital-bank licence applications.

Delivering a step-change in value.

How long did it take to sell 240,000 insurance policies online in 2017? Most insurance leaders across Asia guess “at least a few weeks.” The reality is that, in the age of digital, it only took a second. The record was set on Alibaba Tmall.com website on 11 November 2017 by Zhong An, Chinese digital-first insurer and the most successful global insurtech so far. The pace of Zhong An growth has given the much-needed wake-up call for the insurance industry.

The use of robots to drive tangible business benefits is very much a reality today. According to Transparency Market Research, the global IT-enabled robotic process automation (RPA) market is expected to reach $5 billion by 2020. RPA is just the beginning; cognitive capabilities that enable machines to perform tasks reserved for human intelligence are now being leveraged with robotics. Robotics and cognitive automation (R&CA) is expected to foster greater collaboration between humans and machine by both automating repetitive tasks and enhancing the quality of jobs.

Life insurance companies are under pressure. Their traditional business model is stagnating. Since 2014, premiums for U.S. life insurers have fallen at an average annual rate of 4%, the industry’s return on equity has been flat, and persistently low interest rates continue to depress returns.

One of the key findings of PwC’s 21st Global CEO Survey is that whilst insurance continues to be one of the most disrupted sectors in the global economy and insurance CEOs are extremely concerned about the pace of technology change and cyber threats, surprisingly, they are also optimistic about their organisation’s revenue growth in the next three years.

A major US automaker was involved in three of the biggest product liability payouts of all time, the latest having been in February 2014, based on faulty ignition switches that could shut off vehicle engines during driving, disable power steering and brakes, and prevent airbags from inflating. Other large claims have been made against cigarette manufacturers for causing cancer; and medical equipment makers for leaky silicone breast implants. Whilst most of the largest product liability episodes involve public companies, and are filed in the US, claims can happen almost anywhere. In October 2017, a private US medical supply and healthcare company was hit with a product liability problem involving its disposable contact lenses shipped to Japan, Taiwan and Hong Kong, necessitating the recall of more than 31,000 boxes.

Asia is vast geographically, comprises more than 15 major jurisdictions and possesses extreme diversity in terms of the ethnicity of its population, its cultures and the varying stages of economic, social and technological development in each country, making it one of the most varied markets globally. Therefore, there are many different risks and challenges posed by the increased opportunities created by innovative and technological advances, not least in the insurance industry. A prime example of such growth is the emergence of insurtech in the Asian market.

Asian insurers are riding several positive trends, like the region’s growing middle class and their increasing demand for insurance. Over the past five years, Asian consumers contributed more than half of the global growth in life insurance premiums. Capital markets have certainly noticed: Insurance players with a significant Asian presence have an average price-to-earnings (P/E) ratio close to 20—compared to a P/E of 10 to 15 for those that don’t, according to Bloomberg. But insurance companies also face challenges. Government bond rates have fallen from more than 10% in the 1980s to 2% or less in many Asian countries, shrinking investment returns.

The diverse insurance market in Asia-Pacific sees plenty of growth opportunities and challenges pertaining to distribution and regulation. Insurers are increasingly aware of the importance of customer centricity, product and service innovation, as well as alternative business models to drive growth.

Retail insurers in Asia Pacific and around the world have a problem: their customers don’t love them, don’t appreciate them, and don’t stay with them. Because customers don’t discern much difference between insurers, companies end up competing largely on price, and that can lead to a downward spiral of cost-cutting, profit erosion, and customer churn. In a word, commoditisation.

Keeping pace with changing demographics, changing customer expectations, as well as technological advances are some of the major challenges that insurers face, and is likely to continue to be a major concern in the next 2-3 years. The recent 2017 Insurance Banana Skins survey launched by CSFI and PwC looked at the top risks that the insurers are facing. In Singapore, the top 3 risks to the insurers are all interconnected: change management, technology, and quality of management. Here’s the reason why:

Despite significant investments made insurance innovation labs have largely failed to deliver impact beyond positive initial PR stories. Why is that the case and how can it be fixed? Recent years has seen insurance industry leaders globally waking up to reality that the dream of industry being insulated from the digital revolution sweeping across many other industries was just that, a dream. With a heavy baggage of legacy IT systems and rigid corporate cultures, incumbents found themselves in a tough situation. What’s the best way to prepare for upcoming disruption without meantime hurting your existing business. Innovation labs appeared, at least initially, like a perfect answer. In-house innovation that brings the right ingredients to allow for a safe digital experimentation without causing disruption to the existing businesses. The expectation was that innovation labs would become a quasi-startups that would allow insurers to build digital and innovation capabilities to safeguard against the coming digital disruption.