Connectivity – BRI and GBA

by Paul McNamara

The one common theme running through both the Belt and Road Initiative (BRI) and the Greater Bay Area (GBA) was connectivity, according to Hong Kong Insurance Authority (IA) CEO Clement Cheung, during yesterday’s keynote at the opening session of the 29th Pacific Insurance Conference.

This connectivity was making it easier for the movement of both capital and goods. “Hong Kong is ideally placed for both BRI and GBA,” Mr Cheung said. “We are here and we are ready to take advantage of both set of opportunities. Watch this space.”

Hong Kong at the centre of things

Mr Cheung went on to touch on the fact that, with a combined population of 4.5bn people, Asia is the engine for growth in many lines of business and particularly for insurance.

“When exploring Asia,” Mr Cheung said, “you need to find a base camp that has a convenient location, where you can get a talent pool with the right knowledge and skills, where you have an independent judiciary and simple and low taxes.”

The only location that ticked all of these boxes is Hong Kong, said Mr Cheung.

He then went on to outline some of the significant achievement of the IA in its short two-year existence. These included successfully migrating to a direct statutory regulatory regime, allowing the public to check instantly online the regulatory status of intermediaries. “We have achieved a couple of very interesting breakthroughs,” Mr Cheung said, which included the introduction of an InsurTech sandbox and the approval of a second virtual insurer in the non-life sector.

“These two changes represent a big step that we feel will provide an incentive to elevate professionalism of incumbents in the industry and to make sure that customers are treated fairly.”

Looking to the future

Next Mr Cheung pointed to future developments including the introduction of a risk-based capital framework that is in the final stage of testing. He went on to talk about the legal provision in place to cater for special purpose vehicles for the issuance of insurance-linked securities, further legislation to encourage the growth of captives and grants and tax concessions to encourage the development of the marine insurance sector.

The predecessor of IA managed to implement one piece of legislation in a decade, said Mr Cheung, and IA was aiming to implement four in a year – giving some sense of the depth of activity in Hong Kong today.

“Hong Kong is a very mature market,” said Mr Cheung, with impressive penetration and density, “but we still have a huge protection gap and structural imbalances in the market. For cultural reasons the life sector is still dominated by long-term savings and investment-linked products. This poses some concentration issues – and makes for a system that may not respond well in stressful conditions.”

Need for more products

Here Mr Cheung was alluding to the rapidly ageing population in Hong Kong and encouraged insurers to help. “We need to expand the product mix,” he said.

Mr Cheung summed up the role of the IA when he said, “We do supervision, we do regulation and we do facilitation. I will not be light touch, but I will be right touch.”

The 29th Pacific Insurance Conference continues today in the Grand Hyatt hotel in Hong Kong.

Future ready business

By Paul McNamara

(L-R): Mark Wales, Alicia Menendez, Russell Higginbotham, Hugh Terry, Biswa Misra

The second plenary session of Monday’s PIC had the snappy title of ‘future ready business’ and featured Swiss Re CEO reinsurance Asia Russell Higginbotham as its moderator and panellists including HSBC Insurance (Asia) chief underwriting officer Alicia Menendez, AIA Group chief technology and operations officer Biswa Misra, Galileo Platforms CEO Mark Wales and The Digital Insurer founder Hugh Terry.

The first focus of the discussion was on the future of underwriting and Ms Menendez said that “underwriting will definitely change in the future. We are currently sitting in the eye of a storm. We are learning how to underwrite using different data sets and data points,” she said.

Big changes afoot

Mr Misra concurred and said, “We are on the cusp of something.” He was unsure if machines in the future will learn cognition but said, “Every generation brings in new technologies and this creates new sets of opportunities.”

Is blockchain the answer, asked Mr Higginbotham? “It is part of the answer,” said Mr Wales but stressed that, “Creating a more event-driven form of insurance is what’s important. Where blockchain will help is in reducing the errors that creep into transactions in the insurance industry.”

Nor, it seems, are InsurTechs likely to be an answer by themselves. “I wouldn’t say there are any standout players amongst InsurTechs at the moment – but there are trends emerging,” said Mr Terry.

What if AI goes wrong?

Mr Misra addressed the issue of what happens when machines go rogue and pointed to the three stages of AI – supervised learning, reinforced learning and unsupervised learning. “You can’t really teach a machine ethics,” he said, “and if you read somewhere that you can, then it’s just marketing.”

A question from the floor posited that insurance is inherently biased since the wealthy are better educated and therefore more aware of the risks of bad lifestyle choices. Isn’t there a tendency for technology to exacerbate this gap?

“We’re finding the opposite,” said Mr Wales. “The cost base of running a new system is often lower and so the premiums are lower, therefore it’s easier to sell more insurance to more people.”

Too many agents

Is the dominance of the agency channel holding back the growth and development of insurance in Asia? Mr Misra said that the level of insurance penetration was tied more to economic and social development than to agency numbers. “The biggest chunk of our investment in distribution is about making sure that agents have scenarios and circumstances to be able to talk clients through the buying process so that we can help to close the protection gap,” he said.

Mr Wales cautioned that “large agency forces make CEOs complacent,” while Ms Menendez indicated that the real challenge for insurance was in making sure that distribution was truly omnichannel and not overly reliant on agents. Mr Terry added the caveat that omnichannel distribution was indeed important, but its development was being hampered by the lack of ‘omni-architecture’ to make such distribution possible.

Bridging the insurance gap

By Paul McNamara

(L-R): Tony Gallagher, Carol Hui, Edward Moncreiffe, Lawrence Tsui, Carmony Wong

Guy Carpenter CEO, Asia Pacific Tony Gallagher was in the driving seat for the third plenary session of the day that focused on ‘bridging the insurance gap’.

The panel included expert insights from HSBC Life Hong Kong CEO Edward Moncreiffe, Insurance Authority executive director Carol Hui, RGA head of Hong Kong and high net worth markets Carmony Wong and Swiss Re chief pricing officer life and health Lawrence Tsui.

Mr Gallagher tried to get the panellists to focus on specific protection gaps that they could identify in their own markets – but the responses he got gave some sense of how tricky identifying such gaps can be.

Changing times, changing products

“As customers evolve, we need to evolve with them,” said Mr Moncreiffe. “This is how we will close the protection gap. We need to let our customers articulate their needs so that we can build solutions to meet their needs and then deliver them.”

But Mr Moncreiffe stressed that this had to be a collaborative effort between insurers, reinsurers and regulators. “It’s a collective effort,” he said. “The challenge is to make the gap as small as possible and as short-term as possible.”

Ms Hui was quite blunt when she said, “There is a huge mortality protection gap. We have been helping to develop new products. We need to do more work on educating the public about insurance and the IA is using social media, amongst other initiatives, to do this.”

Mr Tsui said, “There are some gaps. We really struggle with products to cover ageing needs – partly because of the lack of data.” He was alluding to the fact that many life products may have a term of 40 years or more and there is simply no data available at present to help with the pricing of such products in a way that is fair to the customer as well as society.”

Ms Wong took up the baton and said, “We try to help customers understand critical illness (CI).”

Product wars

Is there a product war going on at present? “Not a war,” said Mr Moncreiffe. “But there is often a strategy of trying to improve on a competitor’s product – and I am not sure that is really focused on meeting the customer’s needs. There is more work we need to do there. Many products have been created that have suspect value.” Here he was alluding to CI products that cover illnesses that are extremely rare or where cover is offered for only a seemingly random proportion of the cost of treatment.

Mr Lawrence chipped in to explain why many CI products in the market were copycats: “Because then we don’t need to explain them to the customer or to the sales force,” he said.

Changing marketplace

This naturally led the discussion into the area of the financial literacy of customers. Is this a role that should be led by the regulator, asked Mr Gallagher? “We have set out different guidelines on disclosures for consumers, insurers, reinsurers, intermediaries and reinsurers to make sure that the customer is treated fairly and is given adequate information upon which to make decisions,” said Ms Hui.

The final question was whether the sorts of products available today are keeping pace with the developing trends in society – particularly the ageing populations of Asia. “People are saving for the short- and medium-term – not for the long-term,” said Mr Moncreiffe. “On long-term care there is a definite mismatch between supply and demand.”

Modelling new products based on hard data from customers’ demands would seem to be a logical first step in closing the protection gap further.

Worrying about everything

By Paul McNamara

There is no need to guess what insurance CEOs worry most about – thanks to an insightful survey undertaken by The Institutes – and presented yesterday to the delegates of PIC by The Institutes president and CEO Peter Miller.

Cyber security, economic development, healthcare, regulation and digitising customer relationships are the issues of greatest concern to global insurance executives.

The survey asked C-suite executives what were the biggest concerns in insurance around the world. The findings were then broken down into five categories: Economic, political and legal, operational, technological and social and environmental concerns.

Economic concerns

Economic development and low-investment yields were the top two economic concerns, with 52% and 41% of respondents respectively viewing them as great concerns. Recession and inflationary environment followed at 25% and 17% respectively.

Mr Miller said that there was regional variation with more APAC respondents than NA respondents concerned about economic development (63% vs 40%) and low investment yields (49% vs 32%).

He also pointed out that while The Institutes had expected economic development to be of relatively greater concern, it was “probably reflective of a long period of economic expansion”.

Meanwhile, the concerns of low investment yield were linked to ongoing concerns surrounding the current state of interest rates.

Political and legal concerns

Regulation (53%) unsurprisingly remained the largest political and legal concern, weighing more on APAC (68%) than NA (39%). Political instability (46%) was also a greater concern in APAC (54%) than NA (34%).

Concerns about taxation (24%) were relatively low and were attributed to competition among tax authorities while low concerns about terrorism (19%) may have been due to increased successes against terrorist organisations around the world.

Operational business concerns

In terms of operational business, cyber security (72%) was at the top of the concerns list and was the one major concern that registered higher in North America than in APAC (77% vs 69%). This may have been due to developing APAC markets where digital penetration is still relatively low and cyber risks are not well understood.

Innovation (56%) was the second greatest operational business concern and Mr Miller said, “I think we all recognise the need to innovate and the various ways to do that. There’s a lot of discussion about innovation and how you go about doing it.”

Technology-related concerns

Digitising customer relationship (57%) and updating legacy systems (52%) stood head and shoulders above other tech-related concerns such as autonomous vehicles (20%), applying blockchain effectively (18%), cryptocurrency risk (15%) and applying drone technology.

“Executives are clearly concerned about digitisation of the customer relationship, I’m sure from a cost point of view, as well as service point of view,” said Mr Miller. “Not surprising perhaps, but I did not expect it to be as high as updating legacy systems.”

He said that this was possibly due to early adopters who have upgraded their systems and processes.

Social and environmental concerns

Healthcare (65%) was the greatest social and environmental concern and Mr Miller said that comments from the respondents hinted at a lack of confidence in government-led efforts to resolve these problems.

An important finding of the survey was that ageing and changing demographics (52%) were growing concerns among the respondents. The fact that natural disasters (44%) and climate change (44%) were not close to the greatest concern was rather surprising considering 2017 and 2018 registered the highest and fourth highest CAT losses on record.

Who dares wins

By Ridwan Abbas

(L-R): Mark Saunders, Lilian Ng, Alain Neemeh, Anil Wadhwani, Huynh Thanh Phong

Having an organisational culture that encourages people to put forward innovative ideas and solutions is essential for life insurers to thrive in the digital economy. Given the risk-averse culture of the industry, insurers needs to be proactive in challenging the status quo in order to meet changing customer expectations, said panellists at the CEO forum yesterday.

“We need to be bolder in taking informed risks and have that learning agility, otherwise we won’t progress as an industry,” said Prudential Corporation Asia chief executive, insurance Lilian Ng.

The ability to ‘fail fast’ is also an important trait, according to FWD group CEO Huynh Thanh Phong.

“The key for me is fast execution, being nimble and having the ability to test and learn quickly. We must not beat people up when they try and fail. It is ok to fail and our KPIs also needs to reward that,” he said.

To balance the point, RGA COO Alain Neemah said that insurance leaders should also be guided by their instincts when it comes to taking risks.

“Life insurance is a long-term business and you don’t always have the chance to ‘fail fast’, sometimes the tail risk makes it difficult to realise failures early on. In my personal experience, I think it is also important to listen to that inner voice if your gut says it is the wrong thing to do.”

Opportunities aplenty

Manulife Asia CEO Anil Wadhwani, who was a career banker before moving to insurance two years ago, said the life insurance industry has vast opportunities for growth compared to much of the banking sector. Hence, there was no need scramble for market share or grow at the cost of competitors.

However, he urged insurers to emulate banks when it comes to digitalisation and customer engagement.

“We are behind the banks when it comes to owning the customer relationship, there are few triggers in insurance for consumers to engage with you. Banks do a more scientific job to create engagement opportunities and so we can certainly do much more to engage.”

When asked to evaluate the biggest impact that technology would have in changing insurance, he said the rules around data privacy are crucial and insurers need to handle the issue in a transparent way with all their stakeholders.

He also added that increased automation in the industry means that insurers need to start re-skilling their workforce – citing the social impact of AI and data analytics.

Doing right by customers

Being focused on the needs of customers was highlighted several times during the discussion, and when asked how success is defined for insurers Mr Phong said, “It is how we ensure that the customer buys the right product for his or her needs and that they value their purchase. Insurance is often something that people buy and forget about, but for them to appreciate insurance we need to engage with customers much more regularly.”

Mr Wadhwani said, “We need to infuse the culture of net promoter scores and be obsessed with what the needs of customers are. It is about creating that unique experience that allows customers to move from passive to promoters.”

In terms of customer engagement and loyalty, the insurance industry would do well to learn and collaborate with tech giants for their experience in creating ecosystems, said Ms Ng.

“If we can make our name in those ecosystems, that would be a success for us,” she said.

The panel ended with a call to action for the industry, with Mr Neemah reminding the industry of the presence of structural drivers of growth in Asia’s life insurance segment.

“There are huge opportunities for everyone here. Irrational competition can only ruin the market,” he said.

Mr Phong meanwhile said that insurers should be aware of the buying behaviour of the next generation of customers and to be ready for it now.

The discussion was moderated by AIA’s chief strategy and corporate development officer
Mark Saunders.

Doing good with data

By Ridwan Abbas

The granularity of data presents a big opportunity for insurers to understand the risk profile of insureds better, although micro-segmenting of customers may inadvertently lead to financial exclusion, said Swiss Re CEO reinsurance Asia Russell Higginbotham.

“You need to be careful how you use micro segmentation in making insurance cheaper for some, but way too expensive for others. It may lead to a path of financial exclusion. We need to use data to do good.

“If we can do that, it will make insurance products more affordable rather than having a smaller number paying higher premiums on average,” he said.

Mr Higginbotham added that the positive aspects of data from an insurance perspective included expanding the number of people that insurers can offer coverage to - and also simplifying the insurance-buying process. He provided examples of how data can engender trust and provide convenience for customers such as with predictive underwriting – something particularly relevant when trying to appeal to younger consumers.

He also stressed the importance of providing a great buying experience – since buying insurance does not come naturally to consumers.

“There should be complete alignment between insurer and policyholder because they both ultimately want the same things, like staying safe and keeping healthy for instance.”

Mutually creating value

By Ridwan Abbas

(L-R): Bernhard Kotanko, Robert Burr, Richard Vargo, Alan Lau, John Spence

Insurers should have the courage to go beyond traditional channels and derive value from new partnerships and ecosystems.

In the discussion on successful ecosystem strategies, panellists waded into the hot topic of partnerships and how to make them work. Swiss Re Life Capital CEO Robert Burr said that having an alignment of interests between parties is critical, and that successes and failures are equally shared. He added that it should ultimately be a three-way alignment, including consumers, and aligned to their needs.

DBS managing director of bancassurance Richard Vargo brought up the element of trust that needs to be present for any successful relationship. DBS has exclusive bancassurance deals with Manulife on the life side and Chubb on non-life.

In the case of Manulife, DBS’ relationship goes beyond the area of life insurance distribution and the parties have collaborated on REITs and other property investments. “Our relationship intertwines and I think that helps us a lot to overcome obstacles which are bound to appear from time to time,” he said.

Generali regional head for Asia John Spence, meanwhile, believes that having the right financial incentives when targets are met is crucial in a partnership. Generali has a partnership with India’s retail giant – Future Group – which sees it provide insurance solutions to consumers in the country.

WeSure CEO Alan Lau added that even the biggest of companies cannot do everything by themselves, which is why working with others is inevitable. WeSure is the FinTech subsidiary of China’s Tencent, which owns the ubiquitous app WeChat.

“Even for Tencent, it is not a good idea to DIY everything, so we need to work with others including insurance carriers. And I would say that insurers should have the courage to go out and develop partnerships.”

The discussion was moderated by McKinsey senior partner Bernhard Kotanko.

Distribution needs to adjust to the times

By Generali regional head of client and distribution, Asia Marco Bovolini

The real power of distribution is twofold: Providing goods or service to the targeted clients and collecting feedback from these clients. If properly managed, this ‘priceless link’ can generate a virtuous circle where the goods or services provided can be improved and tailored to match customers’ inputs perfectly.

This virtuous circle is particularly relevant in the insurance industry, where the word ‘people’ assumes even greater importance. Insurance is a people business and one that has undergone a continuous evolution and diversification in terms of distribution channels across the years. From a very specialised sector focused on agents and brokers, it has been diversified towards a broader distribution spectrum.

All change ahead

Some of the changes worth highlighting include: The entrance of new players – such as banks and aggregators, and the direct sales channel, where insurers reach out directly to their clients and prospects.

These trends have different impacts for life and non-life business, as well as for those focused on the retail and corporate sectors. Nevertheless, all insurers are united by the ultimate target of playing a bigger role in a crucial part of their business model: interacting with the customers.

Clients’ needs change and so do the way companies relate to them. The power of distribution lies in having the capability to capture the needs of customers and prospects as early as possible and customise the service to these users’ preferences.

Using technology as a predictor

Big data analysis and AI can go even further in predicting these needs and, in doing so, provide an unparalleled edge to distribution when dealing with clients. This level of understanding is paramount to building the customer intimacy and empathy which triggers the buying process: We are all clients ourselves and we all know the satisfaction of receiving the product or service we were looking for, at exactly the moment we wanted it.

We are entering the era of ‘insurance on demand’, where the client will be offered insurance cover customised to their personal profile, accessible in real time, whenever and wherever they need it.
Everything has a price, and these incredible new opportunities will also bring new competitors among distribution players and, most importantly, will require existing players to embrace these new trends with an open mind. They must avoid simply protecting their current business model, and instead look for ways in which technology can improve it.

Tailored risk management

Some customers seem increasingly to prefer one-stop shop solutions, whereby they can access everything they need through one distribution channel. So far, this preference has typically applied to more standardised insurance products, which tend to be commoditised. In this case, technology can improve the degree of customisation available for certain products, further simplifying the buying experience for customers and making it more convenient and efficient.

Other clients prefer to deal with specialised distribution channels, where providers have a deeper knowledge of developing bespoke coverage and a higher level of expertise in risk management. For these players, using the abundance of data created by technology is pivotal to successfully delivering insurance solutions that are perfectly adapted to the – most of the time, unique – business models and needs of their clients.

In both cases, technology is increasing the amount of data available, enabling distributors to know the customer better and, at the same time, simplifying the sales processes. In this environment, insurers, agents, brokers, banks, IFAs, aggregators, etc. need to refocus their business models to the stages that can add the greatest value.

An example of this refocusing would be developing their advisory skills more and having the capability to interact with clients across multiple channels to achieve the same goal: Namely to enhance the level of service delivered to the client, who will then recognise the important role played by distribution in choosing the most suitable product to address their needs.

From push to pull

To stay ahead in this changing landscape, those working in distribution will have to transition to become more focused on being product advisers and educators, rather than pure sellers. We will have to move from a pure ‘push’ sales model to more of a ‘pull’ sales process, in which the client will raise a request and the distribution player will be able to address it promptly with a tailored product that is available immediately – thanks to the deeper knowledge of the client that is available through data.

This shift also implies a change to the clients’ mind-set, in that they must recognise the value added by the distributor to the buying experience, and pay for the advice/education service received.

It could be argued that this shift is easier said than done. No change is ever easy to implement, but once it is done, it creates new opportunities which we may not have thought possible before. Making these changes is the only way we can ensure that distribution remains the real centre of power.

Do chatbots really work for insurance?

By Pand-ai co-founder and CEO Shin-Wee Chuang

In recent years, chatbots have graduated from being vanity projects in many insurers’ corporate innovation labs to real-world use ranging from customer service and consumer marketing to agent recruitment and frontline engagement.

Most of the insurance chatbots in this region today are text-based, instead of voice-activated. In Singapore, Tokio Marine launched the industry’s first AI-powered chatbot, TOMI, in January 2017. A few months later, this was followed by other insurance chatbots such as AskPru from Prudential, Jiffy Jane and RevoRetire from NTUC Income, Mae from MSIG and Sompony from Sompo.

In Malaysia, AIA launched AskSara for its agents in October 2017, the first insurance chatbot in the country. A year later, Allianz launched AIDA, the first consumer-facing chatbot in Malaysia promoting its Smart Home Cover home insurance product.

What can a chatbot do?

At its core, a chatbot is essentially a platform that matches user input, or questions, to a pre-defined database of intents to retrieve a response. A basic chatbot, even if AI-powered, usually fetches responses from a text-based database for users.

A more advanced chatbot, on the other hand, is usually infused with advanced software engineering and design strategies to perform more complex tasks. These would include user-specific enquiries like claim status and premium due date, transactional based interactions like claim submission and real-time report generation, and handover mechanisms such as live chat integration.

Do chatbots really work for insurance?

Insurance companies are early adopters of chatbots in Asia. This is perhaps because traditionally, the insurance sector has always been a business that requires considerable facetime between the customers and its agents.

 Chatbots act as a natural extension to the digital world while preserving the human touch through conversational AI. There is still much debate on whether chatbots really work for the insurance industry, partly due to a lack of consensus on what constitutes a successful chatbot implementation.

Some insurers insist on using ‘accuracy’ for measuring the success of a chatbot, while others fall back on business KPIs such as sales and revenue. The most enduring chatbots, however, are the ones that evolve and improve over time, such as TOMI from Tokio Marine Life Insurance Singapore (TMLS).

Case study: The evolution of TOMI

TOMI was born in January 2017 and went through two main evolutions alone in its first year of operation. It started as an automated help desk for TMLS’s agents, then was quickly extended to frontline engagement with both agents and financial advisers before surfacing as a public-facing chatbot in October 2017.

The first phase was exclusively for TOMI to interact with insurance agents. The number of users who interacted with TOMI was consistently at 98% in the first three months.

In October 2017, TOMI was officially launched to the public on Facebook Messenger. Within three months, it garnered more followers than its Facebook page had in three years, without any marketing support. Since then, TOMI has been used mainly as a test-bed for new ideas and innovations.

Leads generation is another area where TOMI has made a considerable impact. TOMI has achieved a 10X visitor-to-lead conversion rate compared to more traditional conversion channels or leads conversion through static websites.

TOMI also shows promise in customer services. Although not directly integrated with TMLS’ core systems yet, TOMI is able to cater to clients’ preferred choices and provide efficient customer service.

Using TOMI as a testbed for innovation and ideas is a strategy that has paid off for TMLS, although the biggest win for TOMI could come from improved user experience through personalisation.

The verdict

The AI/NLP technology used to power chatbots has yet to mature. However, it does not mean that chatbots cannot be useful commercially. Of course, for every successful chatbot, there are unsuccessful ones that did not make the cut, which is only to be expected because of Asia’s pioneering role in chatbot adoption.

TOMI’s successes demonstrate that chatbots can work for insurance. While still in the early stages of adoption, there is a lot of potential for chatbots to improve and change the insurance landscape in time to come.