This article first appeared in Personal Wealth, The Edge Malaysia Weekly on May 1, 2017 - May 7, 2017
The insurance industry, which has mainly used agents and banks to distribute its products for more than a century, is set to change in the next five years. The growing adoption of insurance technology (insurtech) will not only result in greater transparency for the industry but also better customer experience and more innovative products.
The growth of insurtech, a subsector of financial technology (fintech), has been made possible with the digital revolution. Start-ups are using the advancements in technology to change how consumers learn about and buy insurance.
Some players are establishing new insurance companies with radical and transparent pricing models so that consumers will have more options. Some have set up aggregator and comparison platforms to help consumers search for the best insurance plans while others have come out with educational websites that help consumers better understand what they are signing up for.
With insurtech, existing and prospective policyholders will benefit from the commoditisation of insurance products. Better claims and payout experience as well as rewards for healthy behaviours are some of the things policyholders can look forward to.
“I think policyholders will benefit from the transparency. The insurance industry has been quite opaque and insurtech will bring transparency to the table, which in turn will bring down the cost of general insurance products such as travel, home and personal accident,” says Val Yap, founder and CEO of Singapore-based PolicyPal.
“The technology will help commoditise products and make product comparison easier. It will also ensure a seamless customer experience through mobile or internet applications. Insurers will need to be competitive in terms of their services to retain clients.”
Robin Lee, chief experience officer at Inzsure Pte Ltd, says insurtech will help expose the bad apples in the insurance industry, such as those that do not pay claims on time, forcing them to change their game. “With insurtech, the commoditisation of consumer insurance products will be drastic as every player will be on aggregator sites and their pricing will no longer be a secret. Thus, service will become the main differentiator for insurers.”
He also believes that consumers are looking for more customisable products, so innovative products may be developed to meet their needs.
Some of the established insurers view insurtech as a means of improving their processes. According to Kamaludin Ahmad, CEO of Maybank Ageas Holdings Bhd, the parent of Etiqa Insurance Bhd and Etiqa Takaful Bhd, insurtech is seen as giving the industry a facelift rather than a complete makeover.
“I believe the incumbent-and-start-up relationship is a symbiotic one, where it is essential for us to have them for their agility and technology and in return, they need us for our network and financial strength. As a result, we can expect a rise in usage-based insurance products and dynamic premium adjustments,” he says.
“By adopting smart contracts through the distributed ledger technology, claims could be paid immediately as insurance agreements are self-executed. These are some of the things we are considering.”
Kamaludin dismisses criticism that the insurance industry has not been innovative enough or has been slow to embrace technology. “Yes, the insurance industry is more than a century old and most people think it is boring. Complex insurance plans and agreements are some of the things that have existed,” he says.
“As for technology and innovation, we are always open to it. In fact, our online car insurance renewal platform, MotorTakaful.com, has been around for more than 10 years and has grown by leaps and bounds. Last year, it recorded RM115 million in sales.”
Maybank Ageas Holdings is currently incorporating digitalisation into the core of its insurance and takaful businesses. Kamaludin says it is also in talks with a few start-ups on telematics and risk profiling.
“At this stage, we cannot reveal much as negotiations are ongoing. The partnerships are targeted at specific products and distribution channels. Our move towards a stronger digital presence is part of our efforts to enhance our customers’ experience during their journey with us, and technology enables us to do so.
“For example, with the Internet of Things, we will be able to collect a large amount of data. This, in turn, will act as additional data points for our actuaries to better price our customers, based on their actual individual risk profiles. In some cases, it may result in lower premiums for our customers. In other cases, it is about making things easier for them.”
He observes that there has already been a change in consumer attitude and expectations with the emergence of insurtech. He believes this will continue over the next few years.
“Consumers and businesses will be very receptive to easier and faster ways of doing things, which presents us with the opportunity to drive the change that consumers seek. In short, there will be more needs-based insurance products, competitive pricing and faster claims payout, which will ultimately benefit consumers,” says Kamaludin.
According to a report on the insurtech revolution in Asia by law firm Baker & McKenzie last October, Malaysia’s insurance industry will be disrupted by technology at key pressure points across the value chain. “In respect of product distribution, online aggregators that assist customers with comparisons of insurance coverage may displace traditional distribution channels, which are primarily manpower-focused (that is, through insurance agents and distributors),” says the report.
“With such information easily accessible through a ‘one-click solution’, there will be greater competition between insurers to leverage technology to modify their traditional processes and allow for a shorter time for the issuance of insurance policies while ensuring compliance with underwriting risks measures.”
It adds that self-driving and pay-as-you-go rentals may affect traditional insurance underwriting models based on a single or paper ownership structure. “Risk determination for underwriting models may also shift towards the use of personalised statistical data through telematics. We expect insurance companies to vary their business models in the future, whereby they may choose to partner or acquire non-insurance technology players to incorporate business models that are more data intensive (and less manpower and capital intensive) and platform/infrastructure based. This could result in greater access to more innovative product offerings, with better value for end customers.”
Syed Ahmad Fuqaha Syed Agil, CEO of Pixelated Sdn Bhd (also known as Katsana Advanced Telematics), says insurance companies have been simply marketing companies in the past 30 years because there has been no incentive for them to innovate. However, insurtech coupled with the liberalisation of the insurance industry and support from Bank Negara Malaysia will allow them to start innovating. This is how insurtech will be a game changer for the industry.
Cross-industry technologies such as healthtech and automotive telematics are expected to transform the insurance landscape as well. Tons of data from healthtech and automotive telematics could help insurers with useful analytics. From there, premiums may be lowered and insurers need not suffer losses from a huge amount of claims each year.
“I believe insurtech and healthtech will disrupt the insurance and healthcare industries and be game changers for the industries. Consumers will be able to enjoy improved user experience and a fair pricing model,” says Datuk Chevy Beh, founder of BookDoc.
“Healthcare is a very serious matter as it involves people’s lives. For example, if people are only searching for doctors online without any guide, they may fall victim to false or fraudulent claims, which may cause harm to their health. BookDoc helps prevent this by verifying the qualifications of each doctor listed on the platform, making sure that the interests of users are well protected.”
Beh says healthtech not only provides an extra layer of protection and enhances the user experience for consumers but also takes services a step further by providing relevant information. The sector has a lot of potential, he adds.
Syed Ahmad Fuqaha says data analytics from telematics will help insurers develop a fair pricing model, where good driving behaviour is rewarded with lower premiums while reckless driving will be punished with relatively higher premiums. “We choose to empower consumers instead of the insurers. Our users take charge of their own data. If their driving scores are great, they may want to submit them to the insurers to enjoy lower premiums. Otherwise, they can choose to keep the data to themselves so they won’t be penalised by the insurers. I think this will be helpful to consumers.”
Beh says BookDoc has launched its rewards programme, which motivates users to be healthy. He hopes that the programme, which is free for all BookDoc users, will help relieve the burden of the healthcare and insurance industry.
“We are working with many parties on multiple things. We are hoping to work with the insurance and healthcare industries to bring down the premiums of healthy users, digitalise hospital archive systems to streamline them and speed up the claims payout process,” he says.
Making slow but steady strides
According to an article published by the Wharton School of the University of Pennsylvania in March, insurtech start-ups are already making their mark on the US insurance industry. For instance, Lemonade Insurance Agency LLC offers low-cost homeowners and renters insurance, with unused funds benefiting charities, while Friendsurance does peer-to-peer insurance that gives cashback bonuses to policyholders who do not file claims.
Metromile offers car insurance where the premiums are based on the mileage and Ladder uses data analytics to enhance the underwriting process for term life insurance products.
“Despite the emergence of such start-ups nipping at the insurance industry, incumbents have been slow to respond. After a slow beginning, the insurance industry is starting to look outwards and build relationships with fast-moving insurtech start-ups to accelerate their own digital transformation efforts,” says the article.
As more companies adopt insurtech in this part of the world, the question is whether the distribution of products will completely shift from agents to online channels and whether consumers will enjoy lower premiums.
Inzsure’s Lee says insurtech still has some way to go before it can be a game changer for the industry because not every player is on the same page. He thinks slightly lower premiums are possible, but low prices do not necessarily mean good products and consumers need to ensure that they are buying the right insurance plan.
“Insurtech in Asia is pretty much a 2016 phenomenon that still has a long way to go. A past performance indicator would be fintech — it happened in 2014 and look at where it is now. I believe we will see more prominent changes with insurtech in the next three years. It has a bigger market than fintech,” says Lee.
Syed Ahmad Fuqaha says consumers can expect more innovative products, such as auto insurance based on the number of kilometres driven. However, he is quick to dismiss the possibility that insurtech players will completely replace the established ones. He has seen start-ups come together to start insurance companies, but there has not been a success story in the region yet.
“It is similar to fintech players saying they want to replace the banks — it just does not make business sense. You are trying to beat people that have been analysing risk for the entirety of their existence. Instead of trying to shoulder the risks alone, I feel that collaboration is the right thing to do,” says Syed Ahmad Fuqaha.
PolicyPal’s Yap says she often gets questions such as “Why don’t you be really disruptive?” and “Why don’t you try to change the whole business model?” But her answer is that it is very difficult to overhaul an established industry such as insurance.
She says changing the game completely is only possible if the start-ups get strong funding and firm backing and operate in a mature environment such as the US. “In Asia, where the insurance penetration rate is relatively low and many consumers have a sense of loyalty to big names, it will be very challenging to persuade them to buy from a start-up simply because they do not have confidence in new players.”
Yap notes that Lemonade in the US is an example of a successful start-up offering its own insurance. She thinks it is a game changer because the company built it from scratch and is operating with a new business model.
However, she recognises the fact that Lemonade is only offering fast and low-cost renter and homeowner insurance, which are rather simple products. It is not in the territory of general and life insurance, which are more complicated and opaque.
“As for insurance agents, I think we will have a hybrid model of artificial intelligence chat box and insurance agents. Consumers can speak to the chat box about their needs. Questions that the chat box cannot answer will be directed to agents or financial advisers,” says Yap.
“I think for insurtech to be a game changer, we either need huge funding and strong confidence or an established insurer to abandon its business model and partner start-ups to do new things. If not, it will be very difficult to change the industry completely.”
Yap says Singapore’s insurance industry is definitely growing and more insurers are opening up. There have been nine innovation hubs set up by insurance companies on the island republic.
“I think that is a lot of innovation hubs and is a positive indication that insurers are open to innovations as well as collaborations with start-ups such as ourselves. But it may not be an immediate signal of ‘Let’s work together’ as they will have to agree internally that it is worth investing time and resources before they collaborate with us,” she says.
“I believe that insurers are opening up and testing out solutions offered by different breeds of start-ups. But I have yet to see any solid case. It is still a rather new segment as insurtech in Asia only started in the middle of last year.”
Insurtech has its own set of challenges. Lee says players need to be clear about whether they are insurance companies with a technology element or technology companies in the insurance business.
“There is huge difference between the two. You need to know what differentiates you from everyone else. For example, as a technology company in the insurance business, we can do everything with 2,000 employees. But an insurance company with a technology element may need up to 60,000 employees,” he points out.
Funding, however, is not an issue for PolicyPal as the company just raised an undisclosed sum in a seed funding round led by 500 Startups and angel investors in early March. “For us, the biggest challenge is that we want to be regulated because we want to be more than just an insurance comparison site. We want to provide needs analysis and education,” says Yap.
“Having said that, we need to work closely with the regulators, insurers and consumers. It is challenging because they can take as much time as they want to review something, but we may not have the luxury of waiting for their decision — we can’t sustain. So, we have be nimble to make sure we survive.”
Some of the tech players in Malaysia and Singapore
Here are a few start-ups providing insurance and health solutions in Malaysia and Singapore.
BookDoc is a mobile application that connects patients to medical professionals. The current healthcare system requires patients to make appointments in advance by contacting call centres that have a high dropped call rate and often put people on hold. This is a waste of time and energy and adds unnecessary pressure to patients.
With BookDoc, patients can make appointments online in a few minutes. They will select from a list of qualified doctors, know their availability and speciality, know how far the clinic or hospital is, and so on. The app will remind patients 24 hours and two hours prior to the appointment so that they do not miss it.
The company has already partnered other service providers, such as Google Maps, Waze, Grab, Uber, Tripadvisor and Agoda, to integrate information on directions, ride hailing, accommodation, restaurants and local attractions into the app. This will come in handy for its users.
2. Pixelated Sdn Bhd
The company offers telematics and data analytics solutions that could offer insights into driver behaviour. The data could help insurance companies decide how much it should charge individuals for their premiums.
It recently launched a mobile application called DriveMark, which tracks drivers using their mobile phone’s global positioning system and assigns scores for their driving behaviour, using indicators such as braking, speed and driving hours.
PolicyPal is a Singapore-based digital insurance application that has entered the Monetary Authority of Singapore’s regulatory sandbox phase. The app helps people better understand their coverage and manage their policies. It offers needs analysis powered by an artificial intelligence-based chat box named Kate.
Kate will gather information on the user’s existing coverage, explain the details in layman’s terms and if there is a shortfall, suggest the need to purchase a new plan. Questions that it is unable to handle, such as complex questions involving financial needs and personal issues, will be sent to the back-end channel to be answered by financial advisers.
PolicyPal is only offering third-party products from existing insurers on its platform, such as direct purchase life insurance, personal mobility insurance, travel insurance, personal accident insurance and mosquito insurance from NTUC Income (an insurance cooperative) and Etiqa Insurance Pte Ltd.
4. Inzsure Pte Ltd
Inzsure offers corporate insurance solutions via its platform powered by blockchain and ethereum, which are the technologies behind the bitcoin and ether cryptocurrencies.
The opaque commercial insurance landscape makes it hard to compare coverage and prices. By using Inzsure, companies can compare corporate insurance policies offered by 22 insurers on its platform. Once they have decided, they can select the plan that they want and a smart contract is activated, which will give the company coverage almost immediately. The company is expected to launch the platform in the third quarter of this year.
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