How can insurers close protection gaps through customer-focused innovation?

Insurers need to connect with people better; clarity is essential.

Asia is underinsured. According to a survey conducted by the Global Asia Insurance Partnership amongst consumers in 12 Asian markets, the health protection gap has risen 21% since 2017, to $258b; the mortality protection gap has risen even faster at 35%, to $132b.

That combined, $390b, doesn’t include sectors like longevity/retirement, property and casualty cyber risk and natural catastrophe risks. So the total insurance gap is much greater.

There is an emotional, deeply human aspect behind these numbers: When bad times hit tens of millions of people will not be financially prepared. This is certainly evident with the recent floods spreading throughout Southeast Asia after their heaviest rainfall in 300 years, arguably exposing one of the biggest protection gaps in Asia.

Insurance is there to cover a society’s back, to protect people and businesses in the most difficult moments. Yet at the moment the sector is leaving too many people without protection – which is a lose-lose for all.

Why the protection gap persists
There are three primary reasons for these protection gaps. First, there is affordability: 40% of respondents in advanced markets and 36% in emerging ones, including China and India, said insurance is too expensive.

Second, there is a lack of familiarity. Thirty-five percent of respondents in emerging markets said they didn’t buy insurance because they aren’t aware of it or don’t understand it; 26% in advanced markets said the same.

Moreover, many people don’t think they need insurance products such as long-term care, disability income, and cancer protection because their families will take care of them.  

Finally, there is a trust issue or, rather, the lack of it.  When the OECD surveyed consumers in Indonesia, Malaysia, Pakistan, the Philippines, and Sri Lanka about financial protection gaps for natural hazards and retirement savings, it found that many households don’t trust that insurance companies will provide enough protection at a fair price.  

Essentially, customers take a rational decision to rather self-insure and retain the risks themselves. For insurers, who essentially sell an intangible “promise” to protect, the challenge remains (a) how to foster understanding and better explain the value proposition in a personalised manner with a clear language rather than cryptic terms and conditions, (b) how to craft more flexible, modular offerings that better address needs, (c) how to establish trust through reliability, credibility and personal connection, and (d) how to lower cost given in average up to 50% of insurance premium (not the investment part) paid do not come back to customers as payback but rather are used for commissions and operational expenses.

Creating customer-centred insurance
To meet people where they are, insurers need to offer a greater diversity of products that are not only affordable, but that can be mixed and matched to meet customers’ requirements. Thanks to the rapid development of artificial intelligence (AI), including generative AI (gen AI), this is becoming possible in ways that were unimaginable just a few years ago.

Insurers have applied AI in single use-cases, but most still lack an end-to-end “rewiring” of journeys to create measurable impact at scale. McKinsey research indicates that an “AI flywheel” can achieve a step-change in performance addressing the main obstacles to better insurance protection at lower cost: We see significant upside from personalisation and activation of distribution that can unlock 10 points of additional growth.

We also see AI to enable expansion of risk pools in underwriting allowing wider penetration while lowering the cost of risk. And we see significant efficiency potential from driving end-to-end operational transformation which can lower admin expenses by up to 40%.

Technology drives scale; Human connection drives trust
Insurance companies that use AI well will be able to do more business, faster, and in a more personalised way, allowing them to reach more people. Even with all technology and AI, when it comes to building trust, humans must stay in the loop, and the human element remains paramount. Over 70% of customers want a face-to-face connection for the “moments that matter” while then staying in touch via mobile and AI chatbot in between.

In that spirit every insurer should live up to the promise that their customers come first. Empathy and personalisation, not distribution push for transactions and action based on algorithms alone, are what matter most. The goal is to create a strong, direct connection between the insurer and the customer.

Advanced analytics and AI are a means to that end, helping companies to have a comprehensive view of consumers, not only understanding their existing needs but anticipating what they will need down the line.

Insurers need to connect with people better. Clarity is essential. Terms and conditions should be written in plain language, not legal jargon, so that customers can readily understand what is and isn’t included.

Claims should be dealt with quickly on the basis of trust while being smart in identifying fraud, waste and abuse.

Insurance as a purpose-drive industry
The purpose of insurance is to cover our backs in the moments that matter, to give peace of mind and safety for us to pursue our promises in life.

By stepping up innovation to address understanding, affordability and trust, Asia’s insurers can live their purpose, and at the same time expand profitable growth.