How insurers should think about digital in distribution

By Mr Sumit Popli, partner in McKinsey’s Jakarta office

Digital technologies are becoming critical to the future success of the insurance industry, changing in particular how insurers learn about and engage with their customers. For insurers to benefit from this trend, they need to understand how digitisation will impact their distribution channels, and how they can successfully harness it to grow their businesses.

Bancassurance has grown rapidly in Asia as a distribution channel over the last 10 years. The core driver of this growth has been the trust which the customer has in their bank, and the relationship they have with their banker.

Digitisation is changing this, however, with customers placing more and more trust in their personal devices. In fact, our research suggests that anywhere between 50-90% of banking transactions are already happening digitally, depending on the market.

There is also a lot more data and computing power available for insurers to take advantage of. Leveraging data and analytics allows banks and insurers to understand customers more deeply, and build upon this information to target consumers better. For example, banks and insurance companies can now use data and analytics to find out when a customer is experiencing a significant event, such as childbirth or marriage. In insurance, the best time to start a conversation is at moments like these.

Recently, a lot of new entrants have also recognised this trend and started to go after the opportunity it presents. They’re chasing customers and getting a lot of traction, so incumbent banks and insurers need to respond and not rely solely on the old way of doing things.

After understanding the impact of digitisation on bancassurance, it’s important to consider next what it means for agents. For example, in mature Asian markets, agents have moved from the mind-set where they equate digital insurance or digitisation with competition. Now they have started to realise that digitisation is actually a core enabler of their business.

The impact of digitisation

Digitisation can have three main impacts on agents and insurers. Firstly, a high level of service and end-to-end user experience for customers is easier to attain through the use of digital systems, resulting in higher levels of customer satisfaction. Next, better productivity for agents and better economics for insurers can result in improved performance for both. Finally, digitisation can also become a recruitment proposition, with more and more agents now choosing to join insurance carriers with good digitisation support.

Despite the undeniable impact that digitisation is having, digital distribution in the insurance industry does not mean the human aspect will go away, or that face-to-face interactions will disappear. Rather, the digitisation of distribution can be a massive growth driver for the industry.

To achieve this, what’s needed is a seamless, end-to-end customer proposition – one that’s not just focused on sales. This places extra importance on the remaining level of human interaction, helping to promote growth and skills in this area. It also enhances the need for digital customer engagement, which becomes the first interaction point with customers.

Digitisation will promote a commercial model which drives collaboration between channels, both digital and face-to-face. It will also need experts within distribution teams who can help promote and drive the growth that it promises.

Across Asia, digitisation is changing the way the insurance industry operates, and will soon become vital to insurers’ continued growth and survival. Harnessing the trend will not only help insurers drive growth in their businesses, but also to keep them relevant in today’s changing world.

UN report affirms urgent need for disaster planning in Indonesia

By Amir Sadiq

Indonesia incurs more than $20bn in average annual disaster-related losses, according to a recent report released by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).

UNESCAP’s Asia Pacific Disaster Report 2019, which highlighted the different types of disasters and the economic losses they cause, revealed that annualised economic losses for the region more than quadrupled to $675bn when ‘slow-onset disasters’ are added to the overall risk landscape.

A slow-onset disaster is defined as one that does not emerge from a single distinct event, but emerges gradually over time and often based on a confluence of different events. The report pointed out that ‘slow-onset disasters’ account for nearly two thirds of disaster losses in the region.

Indonesia, alongside a few other countries, sits along the Pacific Ring of Fire where tectonic plate movements are responsible for generating about 90% of the world’s earthquakes. Taking into account all forms of disasters and hazards, Indonesia’s average annual losses are exceeded only by China, India, and Japan.

Urgency to develop disaster resilience

The report placed a lot of focus on the importance of disaster mitigation. UN under-secretary-general and ESCAP executive secretary Armida Alisjahbana said, “The report gives empirical evidence of how disasters impact health, employment, and education of the most vulnerable populations leading to a vicious downward cycle.

“However, this is not inevitable. The government can break this vicious cycle by investing to outpace disaster risk and this report shows that the investments will inevitably be large, although it would still be far smaller than the damage and losses from unmitigated disasters.”

She hoped that the report would be able to illuminate and critically inform efforts to demonstrate the scale, and mitigate the effects of disaster resilience.

Mitigating Indonesia’s risk

In response to the report, The Jakarta Post quoted Indonesia’s National Development Planning Minister Bambang Brodjonegoro who said, “Disaster mitigation can no longer be an ad hoc program for the regions. It must be systematic and seriously planned.”

He added that his ministry would use the report as guidance for the national plan for disaster mitigation.

Indonesia has experienced an increase in the number of disasters over the last few years. Disasters resulted in losses of IDR7tn ($494.25m) in 2016 and IDR4.7tn in 2017, 0.08% and 0.05% of the GDP of the respective years.

Mr Brodjonegoro also said that the earthquake and tsunami in Palu and Donggala in Central Sulawesi province in September 2018 that killed more than 4,300 people had been a wakeup call for the nation.

Cooperation will be essential

The scale of disasters within the Asia-Pacific region usually extends across national boundaries. As such, the UNESCAP report recommends that different countries work together to make sure the region is adequately prepared to handle disaster-related issues.

Ms Alisjahbana highlighted “the importance of regional cooperation both to monitor the evolution of disasters and to work together across the risk landscape to mitigate the impacts and build cross border resilience.”

“For example, partnership between ESCAP and ASEAN is mobilising member states towards the development of an ASEAN strategy on drought resilience to reduce the impacts of drought, protect the poorest communities and foster harmonious societies,” she said.

In addition, the report said that governments must implement risk-informed policies and investments supported by emerging technologies to empower the most vulnerable populations across the risk landscape.

Indonesia’s InsurTechs aim to make a difference

A low insurance penetration rate, lack of awareness on insurance and a growing digital economy have given more impetus for InsurTechs to succeed in Indonesia. We spoke to PasarPolis, Quola and Bindcover – InsurTechs which are at different stages of development – to learn about their vision for success in insurance.

By Ranamita Chakraborty

Currently, only 1.7% of around 265m Indonesians are said to have some form of insurance according to the Indonesian Insurance Council. The low figure is attributed mainly to a lack of awareness regarding the benefits of insurance.

This is where InsurTechs step in as they tackle the task of driving insurance penetration through technology, exemplified by the successes of well-known e-commerce and ride-hailing giants.
“We believe that in every basket of product in the digital economy, insurance will be part of it. It is predicted that 3% of the digital economy will comprise InsurTechs,” said PasarPolis CEO Cleosent Randing.

According to him, the Indonesian digital economy is worth $27bn and is projected to reach $100bn by 2025.

Innovation at its core

Looking to tackle common risks faced by locals, InsurTechs in Indonesia have come up with an interesting array of innovative products. For instance, PasarPolis and Qoala both offer flight delay insurance products as the nation’s capital Jakarta is the most delay-prone major airport globally, according to flight data sources.

Typically, 70% of the InsurTech’s flight delay claims payments is disbursed within three minutes – unlike traditional claims which can take approximately two weeks’ to be processed.

Fellow industry player Qoala also provides customised insurance products covering hotel quality checks, e-commerce logistics, cancelled movie tickets and phone screen damages – all sold through a wide network of insurance partners.

“There are many instances where customers purchase insurance as an afterthought or secondary purchase while shopping on e-commerce platforms. At the end of the day, this will lead to more awareness on insurance and overall will drive people to make insurance a part of their lives in the future. That is the most important thing that is required for the insurance industry to move forward,” said Qoala founder and CEO Harshet Lunani.

Meanwhile, Bindcover aims to develop a new type of underwriting methodology with its ‘Crowd Underwriting’ product, which will enable commercial insurance brokers or even direct insurance customers to market their ‘risks’ on Bindcover for (re)insurance companies to bid and underwrite part or all of the risks. With this, Bindcover seeks to be the “Lloyds market in the digital world”, said its CEO Victor Roy.

Paving the road ahead for InsurTechs

Most InsurTechs in Indonesia are web aggregators comparing prices of insurance, but not really adding anything as regulators set the tariff for property and motor vehicle Insurance. However, some of them do product slicing such as turning travel insurance into travel delay insurance and moveable insurance into screen protector insurance, said Mr Roy.

He believes that Indonesia will have more innovative products to come in the near future.

Commenting on the progress of insurtech, he said, “By the end of 2019, for example, most e-commerce platforms, online travel agencies, ride-hailing companies would have all done one or two insurance products. That is the sort of baseline on which to build on for 2020 and 2021 because this year, everyone is experimenting, just dipping their toes in. You will also see other industries emerging in this space who have never done insurance before.

As usual, the larger players influence the market and then the smaller players react and those are vital if the entire market behaviour were to change,”

At the same time, he sees that major technology companies in the country are starting to adopt and sell insurance as an add-on product for their customers, and this is where InsurTech firms can leverage on the opportunities.