Challenges for the insurance sector

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.

Insurtech concerns the use of technological innovations to identify and fill gaps in the insurance industry and drive forward savings and efficiencies by automating the labour intensive traditional insurance model (think distribution (agents) through to claims payments (loss adjusters and claims handlers)). Insurtech companies focus on disrupting and innovating the insurance market, exploring opportunities for development which the major players have, until recently, had little incentive to pursue.

Modernisation of the insurance industry
There are several examples of technology already altering traditional processes such as the introduction of health apps to generate data to calculate health insurance premiums or rebates; the integration of sales, premium collection and claim notification and settlement on one easily-accessible platform and the use of artificial intelligence to detect insurance fraud. Some companies already offer smart contracts which are essentially written in code and entered into and executed (including determination, calculation and payment of claims) without a human intermediary in lieu of traditional policies.

So whilst some technological developments in Asia, such as the recent emergence of price comparison websites long-used in Europe, may seem less ground-breaking than the use of blockchain to reduce costs and complexity and increase efficiency by improving the ability for multiple parties to share and update common information for example, it is nevertheless evident that the insurance market is evolving rapidly.

Though many would agree that a modernisation of the insurance industry is long overdue, the high levels of regulation and other legal restrictions are not particularly conducive to encouraging collaboration between start-ups and insurers, especially in circumstances where each party traditionally has a very different risk appetite. The strict regulation of the insurance industry, and regulation that does not contemplate or permit the automation of activities, is arguably in danger of stunting innovation. However, regulators are alive to this danger. The Monetary Authority of Singapore (MAS) has embarked on initiatives to promote Singapore as a financial technology hub; it introduced in 2016 Regulatory Sandbox Guidelines to provide innovative companies with more flexibility to experiment with new financial and technological products in an environment which ordinarily has a zero-tolerance policy towards failure. Companies can test their innovative financial products and services within a well-defined space and a limited duration. It is hoped that in doing so, the chance of products being adopted more widely without risking the stability and safety of the financial system is increased. The Sandbox has already been successful: PolicyPal, an app that utilises artificial intelligence to streamline the management of multiple insurance policies on one platform was the first direct insurer to graduate from the Sandbox and is now fully functional.

Aside from regulatory challenges, whilst technological innovation can result in accelerated performance and efficiency through greater connectivity and transacting, it also leads to increased risks and potential vulnerabilities. Despite investment in technological security being at an all-time high, companies remain vulnerable to countless risks including cyberattacks, hacking and remote control and given the devastating commercial consequences of such security breaches, prevention is the best solution. Consequently, the demand for cyber insurance has increased.

However, whether insurers are equipped to properly assess and underwrite these cyber risks, particularly given that the risks themselves are often unprecedented and constantly evolving, remains uncertain. Moreover, the lack of publicly available data on the scale and financial impact of attacks further increases the challenges of writing policies which are as yet, unstandardised. The Cyber Risk Management Project (CyRiM), a public-private partnership between the insurance industry, academia and the Singapore government has been established to help Singapore become an industry centre of excellence on cyber risk and develop the cyber risk insurance market. Most other jurisdictions have similar initiatives in place.

For Asia, the enduring challenge is one of diversity and incompatibility of regulatory regimes. The answer is not a one-size-fits-all solution, yet increased collaboration amongst regulators to facilitate sharing of research and rapid and efficient adoption of technologies could result in exponential benefits for all.