Gravity shifting towards insurtechs
Custom-tailored policies. On-demand coverage. Fractionalized premiums. Underwriting in a matter of seconds. All these done on a smartphone. The insurtechs behind these innovations have shaken up the insurance industry, and the reaction of an incumbent has been to heavily invest in or acquire an up-and-coming insurtech to boost its technological capabilities. Insurtech deals with an incumbent or its strategic venture arm jumped from 3% in 2014 to 14% in 2016. With this approach incumbents continue to dominate ownership of the customer relationship, as with AXA’s acquisition of Maestro Health last year closing digital gaps in their customer channels. While M&A activity of incumbents will not slow down, the next few years will see the industry’s center of gravity shifting towards insurtechs, as more economic pricing strategies, convenient platform services, and technological developments will enable more scalability on the part of insurtechs vis-a-vis traditional insurers.
This comes with the evolution of the insurtech value proposition from disruptive technological solution to user-focused value provider. Traditional insurers will have to deal not only with the positioning of these startups but also transforming within to remain competitive long-term. For consumers, the shift will see less “push” strategies for them to use products and services and more environments and communities that will cater to their needs.
Evolution of insurance platforms
This shift is evident in both hemispheres. In the West, while investment has slowed down since 2016’s record $12.3B, startups running on the heels of recent funding rounds are evolving their business models to scale across insurance options, beyond home markets, and along the value chain. Online insurance marketplace LendingTree acquired QuoteWizard and ValuePenguin last year in an effort to scale their portfolio. While aggregators are consolidating options through acquisitions, direct-to-consumer providers are entering more markets, like car insurance platform Root Insurance’s target of 12 new states in the first half of 2019, fueled by successive Series C and D rounds last year. More insurtechs are going beyond specific verticals and into end-to-end solutions. Berlin-based WeFox raised $125M in Series B funding to power One, their all-in-one ecosystem for insurers, brokers, and consumers in Europe.
In the East, China is an emerging powerhouse, seeing 20-fold growth in insurtechs, from $1.6B in 2013 to $26.5B in 2017. The mass adoption of ecommerce and social media platforms paved the way for this growth, opening up the floodgates for insurtechs and online insurance services to reach many uninsured and first-time buyers. It comes as to no surprise then that the country’s tech giants are leading the way, like Tencent with Zhongan, the first insurtech unicorn from Asia, and Alibaba with Taobao insurance. A key factor that allowed China’s insurtech industry to grow rapidly vis-a-vis the West is the absence of legacy systems with investments in AI technologies, allowing insurtechs to take off unencumbered by pre-existing infrastructure.
With insurtechs in the West growing across multiple fronts and those in China maturing locally, the industry’s compass is pointing towards Southeast Asia as a hotbed for the next generation of insurtechs, and the stars are aligning. Low-insured populations — around 3.4% of GDP vs 6.8% global average last year — as those in the Philippines (1.9%), Cambodia (0.3%), and Vietnam (1.7%), along with high ecommerce and social penetration in the region present an opportunity like China did. Unlike China however, cost and infrastructure constraints are higher, which will drive innovation as regional players race to capture these markets precisely to develop solutions for these challenges. They will not be alone as China insurtechs (as with many of their peers across industries) like Ping-an and Zhongan, following heavy injections from Softbank, are moving into the region, posing not only competition but collaboration as well. Finally, countries in the region like Malaysia, Singapore, Indonesia, and Thailand have been developing sandboxes for insurtechs to grow in recent years, allowing startups to test out new business models in looser regulatory environments.
The Big Pull
There is clearly a shift in the value of insurance, and the industry compass is pointing towards insurtechs as the North Star. Insurtechs should lead the way, especially in Southeast Asia, where the environment is perfect (challenging enough) for growth. What will it take for insurtechs and even insurers to be competitive in SEA? The key is to evolve beyond existing business models and cross-pollinate with other sectors, capitalizing on the “pull” effect towards more convenient, usable, and cost-efficient insurance platforms that will attract users, partners, and investors in SEA. This strategy involves three steps: setting up a distribution platform, developing more personalized value propositions across segments, and leveraging on platform and industry linkages to deliver more value to consumers.
Setup: Platform entry
When it comes to scaling in insurtech, becoming an accessible distribution platform is key. Considering the region’s high ecommerce and social media usage and community-oriented cultures, distribution has a strong case as a value chain gateway for a SEA insurtech. Globally this has been the case as well. Creating a platform through distribution goes beyond aggregating policy options, providers, and brokers, and this is where differentiation happens. For India and Singapore-based Symbo, going beyond means streamlining services from search to reinsurance; for India-based Acko, it is digitizing end-to-end for transportation-related use cases, like transport-intensive platform services. Regardless of the approach, upscaling distribution capabilities involves creating a community, and this may require the help of integrating existing platforms, like WeChat in the case of Shuidihuzhu, or tapping into familiar models, like Lifepal’s B2B services for SMEs and crowdfunding for retail consumers. Once enough scale has been reached, the next step is to work on consolidation of use cases and verticals, as PingAn did with its One Account. The end goal is to create a low-cost, highly scalable environment where the consumer’s insurance needs can be facilitated.
Proposition: Aligning platform with shifting value of insurance
As the nature of insurance shifts from aggregation/evaluation to prevention, insurance is evolving to become a lifestyle product — usage-based and on-demand. When the product has evolved in terms of delivery (a matter of seconds), channel (online), and nature (flexible, cost-efficient), product-market fit becomes less definitive and more exploratory. With personalization as an approach to PMF, unit costs can be reduced and more economic pricing introduced. Beyond cost and pricing, however, what personalization really brings to the table are value propositions that have an even stronger pull for consumers. The first step to personalization is leveraging data to understand PMF. Key to this is having an efficient feedback loop that ensures fast time-to-market. Aside from product testing and scaling, data can also be a core part of the business, like data-based eligibility comparisons for financial product matching. With data in the bag, the next step is to align user experience and redefine distribution models with the platform’s PMF. The alignment can range from incorporating familiar platform features (eg reviews, booking) to coming up with new interactions to ensure consumers realize the value being offered by the platform.
Growth: Leveraging linkages to scale platform value
Even with the internal gears in motion, the role insurance plays for consumers does not happen in a vacuum — insurance is part of an ecosystem. Leveraging ecosystem linkages scales value (especially data) across niches and creates more touchpoints for consumers. These linkages can happen between insurtechs and other platforms, incumbents, and financial institutions. The proposed rollout of customized insurance products and fractionalized premiums on the Grab app under the Grab-Zhongan JV illustrates the benefits of cross-platform linkages through unbundling, upselling and cross-selling policies. Product segmentation makes insurance more approachable while generating multiple revenue streams spread over time. Aside from platforms, linkages can also be formed with incumbents by speeding up their digital transformation with end-to-end digitization services, which means having to secure the necessary licenses to roll-out these out in specific markets. Finally, working with banks and financial institutions rather than disrupting them has been key to the success of insurtechs (and fintechs in general) in the region.
Advice for entrepreneur: pull consumers in vs pushing products/services
- Build a platform that focuses on community and accessibility (cannot be purely claims management or aggregators)
- Address underlying values of insurance for consumer (personalization, usage-based insurance).
- Leverage linkages in ecosystem (partnerships, upselling/cross-selling, end-to-end digitization).
Disclosure: This article was co-authored by Joolin Chuah and Paulo Joquiňo.