It is hard to see your own flaws, which is why the consultant is such an important figure in any successful business. In a thought leadership roundtable organised by Asia Insurance Review, consultants from three major firms gave their views on what the insurance industry has to do to navigate the future.
Change was the keyword of the day and the understanding that the insurance industry needs to reinvent itself to keep up with Asia’s changing society.
As the digital channel becomes not just prevalent but intertwined with the lives of potential policyholders, walking down the online avenue is the best way for insurers to move forward, said the three consultants.
On digital strategies
Most of the low-hanging fruit in digital innovation have already been plucked by insurers, with many having adopted digital distributions methods, AI and automation to varying degrees of success.
In terms of a digital strategy, Mr Simon Copley, Asia Pacific Insurance Leader at PwC, said: “Platforms work very well, but the platform owners get most of the money and data. It’s not usually feasible for an insurer to create their own platform to capitalise on this, as it is a very complicated process and there is a lot of competition in achieving the reach of established platforms.”
“Moving forward though, new business models are the growth area for insurers now,” he continued. “Finding out different ways to distribute, to market – moving away from the traditional model of insurance.”
New business models
“There are several pockets of growth, if we’re talking about new business models,” said Mr Michael van Vuuren, partner at KPMG. “One such model could be creating ultra-short-term products targeted at the younger market, as they are not usually the type for long-term planning.”
An example was provided with Trov, the InsurTech startup that found its first launch market in Australia, mainly due to a friendly regulatory atmosphere. The mobile insurance app is targeted at the younger Millennial and Generation Y segment, providing on-demand short-term insurance with just a few swipes.
On regulation
Unsurprisingly, the topic of regulation was brought up in short order, as the participants discussed whether regulators were a stumbling block or a helping hand for insurers wanting to innovate, especially in the online sphere. With the ever-changing nature of the Internet, regulators have a hard time keeping track of the blistering pace of developments, a problem even the technology companies in Silicon Valley face.
Participants pointed out that in Asia, there are several regulators that have shown to be open to helping innovation happen. “The Monetary Authority of Singapore (MAS) is doing especially well in getting the word out on how forward-thinking they are,” said Mr van Vuuren.
The table attributed this to regulators wanting to maintain the competitive edge Asian insurers have in the global insurance market, due to clever use of digital platforms, distribution and outreach being the competitive edge. And in this field, the MAS is setting an example for other regulators in the region.
Digitally savvy China
At the same time, it is impossible to mention innovation in Asia without looking at China, which is currently one of the brightest stars in the technology field.
A lot of the developments coming out of China are also due to their regulator, said Mr Jonathan Zhao, Managing Partner of Asia-Pacific Insurance Sector, EY. “It is unique because of how quickly they can update their regulations, which is because of how the country is set-up and governed.”
Data, data, data
And the potential for insurance to take full advantage of the digital sphere is great, as most digital marketing and sales is driven by data. While insurers, along with their bank partners, sit on top of an immense reservoir of actionable data, there are still some points of information that is needed before the industry can cross the finish line.
However, collecting this data should not be an issue for insurers, said Mr Copley. “People are generally willing to share their data, especially today. Even more so if they get something in return.”
The trick, it seems, is to give them something they want, and it is not necessarily insurance products. “The future of insurance products is services. People are used to services now, with technology giants providing many convenience and customer insight. Insurers must tap into this with services as well as products.”
Not enough communication
Mr Copley brought up another stumbling block to this solution, as designing specific products for customers would not be possible without proper communication.
“Insurers don’t really interact with customers frequently, so it’s hard to build trust and design products for them,” he said. However, the roundtable participants did note that many insurers have been making significant strides in improving the relationship between themselves and the customer.
Sharing economy and insurance
But the digital revolution has downsides for the insurance industry, especially with the growth of the sharing economy clashing with an unsustainable business model. “Eventually, everything will be shared, even insurance,” said Mr Zhao. “The problem is that it won’t make any money.”
It is noted that in a sharing economy, insured objects or property are shared amongst a group of people, hence the number of things insured drops, lowering the amount of premiums to be collected.
Already some insurers are adapting to the sharing economy by shifting the coverage to the people involved – the actual owners of the property (in case of Uber or AirBnB), as well as the people sharing the said property. But the popular opinion is that insurance still lags behind, as the younger generation increasingly hops on board the sharing train.
Standing against the tide of disruption
Much has been made of traditional services and business models that have been disrupted by technological innovations, with phrases like “Kodak moment” and “Uberisation” being thrown around frequently.
Over the past few years, the entire insurance industry have been steeling themselves for an outside party to enter the market with an amazingly disruptive new business model that would put them all out of business – but that disruption has not yet arrived.
It has come to the point where the industry at large is attempting to pre-empt this outside interference and forcing a disruption from within, with a similar lack of success.
Noting that there are high levels of potential profit in insurance, Mr Copley said that is why it is so open to disruption. The profit margins in insurance are a tempting target for many, and the “flaws” with the traditional insurance business model are obvious. This has led to startups such as the aforementioned Trov trying a new business model, New York-based Lemonade trying to tap into the new sharing economy, and many others.
Yet, despite all of these startups, insurance is one of the few industries yet to be disrupted. “Disruptors are still trying to understand the value chain,” said Mr van Vuuren. “The entirety of the insurance value chain is vital to making insurance profitable, and some of these disruptors still don’t realise this. The implication is that partnerships and alliances will be key.”
It is that fact that has made insurance so difficult to disrupt, even by insurers themselves. It has however, led to many established insurers attempting to change their business models and operations, while manoeuvring carefully around their many decades of legacy. However, he also pointed out that “results of innovation are easier to see in general insurance, not so much in the life business to date”.
The man in charge
At the head of all of these developments in the insurance industry is the Asia CEO, a figure who has to face immense pressure on a daily basis. “They have to lead the company to meaningful change, manage up to 20 locations and face off disruptors,” said Mr Copley. It is thus not surprising that few Asia insurance CEO has lasted in the job for longer than eight years.
“The Asia insurance industry is one of the most challenging for CEOs; they’re facing an unprecedented amount of changes,” he added.
The shelf-life of an insurance CEO is often short when compared to other industries, which leads us back to the “unsustainable” business model that was discussed earlier. Insurers are getting bigger and bigger, growing at an almost unstoppable rate, and it is this very growth that is causing problems within the company.
“Growth hides a lot of problems,” said Mr van Vuuren. “And no one is in charge long enough to enact proper change within the company before they leave, and the next one comes along to repeat the cycle.”
“This isn’t a typical industry where you just let the business tick along like it always has and you have a 5% annual growth. This is you managing a huge business that has 20 or 30% growth rates. And you still have a legacy to maintain, while trying to disrupt the industry,” said Mr Copley. “It’s just not going to happen.”
But as to the question of “model CEOs”, Mr Copley looked at Daniel Schreiber of Lemonade and Jack Ma of Alibaba Group, as the future CEOs that will set the standard for the industry in years to come.
Are actuaries becoming obsolete?
Mr Zhao said: “I met Jack Ma and he told me that with the rise of machines, actuaries will no longer be needed. And that’s worrying for the profession, but not necessarily for the industry.”
There was a sentiment of agreement around the table, although the solution, as always, was to adjust and innovate. “There’s an element of getting actuaries to rethink what they do,” said Mr van Vuuren. “It’s always about the human capital and how to leverage on that.”
“Risk management now involves measuring behavioural data and social media; traditional actuaries don’t have those skills,” said Mr Copley. “That’s why data scientists are becoming more valuable for the industry.”
A lot of the issues insurers are encountering when adapting their manpower to changing times starts from this root cause. Getting new talent into the industry is an incredibly challenging prospect, given the poor reputation the industry has amongst the upcoming workforce.
“Eighty-seven percent of insurers are having problems hiring,” said Mr Copley. “Getting new talent for the insurance industry is really hard; banks have an easier time recruiting, despite their reputation amongst millennials.”
Rebranding the industry
Part of the solution, according to Mr van Vuuren, is to change the way the industry. As with many other big businesses that revolve around finance, insurance has a reputation for being overly profit-focussed. Combined with the fact that the insurance product itself is intangible, an insurer has a hard time convincing people of their good intentions.
“Firstly, very few insurers actively promote the extent to which they pay claims,” he said. “Proudly publicise these numbers and the good that insurance companies do to try better manage the reputation of the industry.”
Beyond that, Mr Copley also suggested changing the way the products are marketed. “Insurers have to sell life insurance to people. Life insurance shouldn’t be something that’s sold, it should be something that’s bought. They need to market new life insurance products and services in such a way that people want to buy insurance.”
The roundtable was held in Hong Kong recently and moderated by Asia Insurance Review Editor-in-Chief Mr Sivam Subramaniam. A