The rise of the digital economy: Estimating the impact of the new entrants on the insurance industry transformation

With the venue of the digital and the all online, retail consumer wants not only to access anything, everywhere at any time, but also reaches everything anywhere every time. The customer wishes to acquire customised products & personalised services promoted through mobile, tablet or computer. The world has 3.7 billion internet users and nearly 5 billion mobiles users (Kemp S., 2017). With 7 billion people, the mobile penetration hit 66% in early 2017 (Kemp S., 2017). Asia is an example of such culture change. If the overall internet penetration remains below the average with 46% (Asia Marketing Research, Internet Usage, Population Statistics and Facebook Information, 2017) explained by the huge population size and the density, customers once technology acquired become the most digital savvy. Countries like Hong Kong, Singapore or Japan reaches nearly 100% penetration (Asia Marketing Research, Internet Usage, Population Statistics and Facebook Information,2017) for internet access. Asia Pacific has also the highest growth rate when it comes to usage. It accounted for more than 70% of the total growth of the world digital usage (internet and mobile) in 2015 (Waring J., 2017). Consequently, Asia became in 2016 the home to more than half the world internet and mobile users.


Their culture and maturity made them very early adopters of the connectivity opportunities. While European purchasing habits evolved for the past 40 years in line with the deployment of different technologies – phone, TVs, CDs, MP3, Internet & Mobile, Asia consumerism went from nothing to highly digital in less than 5 years. Singapore the mobile penetration rate hit 150% in 2012 and since then remains (Data.gov.sg, 2017).  According to the Strait Times, Singaporean spend more than 12h00 daily on digital related gadget (video games, TV, Internet, Social media, mobile phone…) (Yangchen, L., 2017). They spend 4h00 on internet per day and 2h30 on their mobile phone (Hootsuite, 2017). Singapore has also a 99% connectivity coverage that makes the third country in the world with the highest connectivity after North and South Korea (Hootsuite, 2017).


The digital world, a new far west for consumerists, opens a new era where every business must learn how to cope in order not to disappear. In the insurance industry where only price matters, risk assessment is an obsession and customer process efficiency is a key focus, the digital transformation unlike in other industry remains a low priority. The industry is also heavily regulated and historically formatted which does not help to foster the actors to innovate. The revolution of internet has broken the barriers to entry of investment, development and deployment. It has affected all industries so far, and it is only a matter of time that it reaches insurance.


Insurers are aware that there is no choice but to go ahead and digitalize their industry to respond to the new customer paradigm (McQuivey J., 2013). Some historical players choose to go for dramatic changes. Other remain slow and face the critical consequences. The conservatism and the defensive approaches these insurers take to respond to the digital needs make things worse to their situation (Carney E., 2017). Space must be taken. It opens doors to new entrants. Smaller, faster and less regulated, they are developing solutions in line with customer expectations. These start-ups are more agile and can conquer the market with less investment than the historical players. Some could think that they could have a serious impact on the industry transformation, including bringing down the current market leaders. Yet they are also less experienced and immature. Many try to conquer, few succeed. Financially fragile or missing the required technicity for quick customer adoptions, most of these startups are not able to scale up and truly make a difference (Coe E., Finn P., Oatman J.,2015). Consequently, if some can harm the traditional insurers, we could ask if the industry is ready to face something similar than what happened in other industries – hospitality, transport…- where start-ups participated in changing the paradigm drastically?


Evolution of the insurance industry occurs in a different spaces and multiple way; The winner of transformation will be someone that not only respond but also surpasses customer expectation (Ernst & Young, 2017 Asia-Pacific insurance outlook, 2017). In Asia, Singapore leads the way, by welcoming investor and start-ups that are willing to try, test and learn. Excluding industry enablers, incubators and accelerators, Singapore’s Insurance innovators that succeed in entering accurately the market came from nothing to around 30 in 2017 (Ernst & Young, 2017 Asia-Pacific insurance outlook, 2017). Insurtech firms typically choose Singapore as their headquarters in view of the political, economical stability as well as the effort of the government in making the environment a welcoming and nurturing one for the new entrants (Pennington J. 2017). In 2016, it invested a lot in adapting the infrastructure and open a new insurtech hub. It was supported by the central bank, MAS that is determined in promoting a culture of innovation in the financial sector. Since then, we observe the deployment of what is called digital garages, innovation labs and another disruptive village supported and funded by big insurance corporation. Aviva, AXA, Metlife, NTUC Income to name a few, raced to communicate on the digitally enabled insurance services development capabilities. The trend is picking up speed, as Singapore’s insurance economy matures. In 2017, Singapore Life, a local Life insurance designed itself as an Insurtech startup and raised a record SGD70M to start operation. They obtained the first direct and digital life license in Singapore and offers the full range of product that serves life spectrum. They positioned themselves as innovative and disruptive, and the first one to be fully digitally automated. Singapore is nowhere near the saturation point and aside from funding milestones, new insurance concepts start to pop (Kesselman G. 2016). A first Peer-to-peer insurance firm called BandBoo designed and launched an unemployment insurance and retrenchment benefits in May 2017. Singapore-based Nanyang Technological University developed in partner with the historical insurer MSIG a cyber risk insurance market using block chain and data analytics. Yet Singapore and Asia remains far from where the other more developed country stand. The rise of insurtech and the data it generates creates new possibilities. In the US, customers can send selfie to insurance companies for assessment and coverage proposal (Goldstein S. 2017). The innovation is at the very beginning. In Singapore, there are still massive protection gaps that prove that the insurance ecosystem and innovation as a long way to go (Goldstein S. 2017). While the money is pouring as overseas investors are attracted by the easy regulations of Singapore and the facility the country can offer, it seems that the real market have difficulties to change and leverage on innovation (Pennington J. 2017).

For decades, the insurance was sold through traditional approach. Singapore favorite distribution channel remain tied agencies like what giants Great Eastern, AIA and Prudential can offer (Chan J., 2017). Today, it is still the convention to purchase your insurance needs from an agent or a recommended advisor or friend. The insurance business is still transacted mainly through paper and intermediary. Only 4% of the business is digitally driven (Chan J., 2017). From a macro economic stand point, Singapore’s general insurance industry has been troubled with a slow growth since 2015 (Tan L., 2017). Total gross premiums fell below the 1.1% increase in 2015 and increased marginally by 0.6% to SGD 3.7 billion in 2016. Underwriting result fell 17% year on year. 2017 is expected to be the worse year with a declined of the overall GWP collected (Tan L., 2017). The insurance industry shrinks and has difficulties to attract new clients, retain current one. The Life insurance industry is also in turmoil, but not for the same reasons. Growth is there but the distribution is witnessing a major crisis (William A., 2017). Tied intermediary business still represent 53% of the new life insurance business in the first semester of 2017. It is followed by bank, financial representatives, and lastly direct sales channels. Some expect that the traditional distribution of insurance will change as Insurtech players kick in to offer more customer oriented product. The traditional distribution arm called for digitalization support and is frustrated by the lack of transformation of their principles (William A., 2017). 

Early 2017, 300 over Great Eastern agent switch to a newly established AIA Financial Advisers companies. With close to 10% of GE agents switching company due to low retribution and lack of appropriate tools to do the business properly, the regulators, such as Life Insurance Association Singapore (LIA), call for a reaction. It asks all the historical players to be more proactive and forward-thinking not to leave consumers & their agents with little changes or progress in a necessary industry Huang C. (2016, December). It also pressures the providers to improve and speed up their adoption of digitalization tools unless they are ready to lose their traditional market dominance in Singapore.


While the thought leaders, the media and the experts are anticipating a massive transformation into the industry, the real business does not seem to follow. On one side, we have products that remain poor if not basics, there are a distribution that stays traditional and intermediated like it is for the past 50 years. The business is not growing as fast as it could, the penetration of insurance remains weak, the interest of customer to get more and better product is inexistent. One the other side, we are flooded by corporate messages, consultant beliefs, insurtech conferences, communication from experts on the imminent venue of a great transformation (Pennington J., 2017).
The insurance industry does not leverage on the tentative made by some players to transform the market. The Airbnb or the Uber of the insurance might be coming according to the insurtech ecosystem (Chan J., 2017) but it does not seem to be expected by customers at the first place. The objective of the study is to demonstrate that the digitalization of the industry through new entrants does not have a fundamental impact on how the insurance itself, how it is purchased or acquired. The industry remains complex, misunderstood and feared by customers; insurance products are technical, regulated and specifics to risk ; The value perception and the willingness to pay is too low to make the market an attractive place for traditional disruption. New entrants may suggest new ways of selling insurance products. They may try to simplify the purchasing cycle and customer journey; customer will not get better coverage or more insurance into their portfolio. People may buy few bags or pair of shoes, they may have few cars, and feel rewarded when they purchase a new mobile iphone. They respond to a neutral necessity or a compulsory requirement when they buy an insurance product.

​So the transformation and the digital innovation should serve the insurance another way. Most of the new entrants works on developing a new product, a new app that will simplify the purchasing experience, the after sales service, that cut the distributors from the insurance company. Yet the value in the insurance as we mentioned earlier is in the distribution – the licensed agent- that will be able to advise, promote, explain, support the prospect and onboard the leads accurately into the acquisition. The digital innovation can then satisfy differently the industry. Rather than helping in the insurance market grow, it can help in making it better, more popular, clearer. It can create trust and support better adoptions by the people.

References

Asia Marketing Research, Internet Usage, Population Statistics and Facebook Information (2017, September 08). Links to Asia - 35 Countries and Regions. Retrieved from http://www.internetworldstats.com/asia.html

Carney E. (2017, April 26). The Digital Insurance Imperative: Go Digital Or Go Bust.Retrieved from https://go.forrester.com/blogs/17-04-26-the_digital_insurance_imperative_go_digital_or_go_bust/

Chan J., (2017 October), Singapore insurers must innovate. Retrieved from https://www.aseantoday.com/2017/10/singapore-insurers-must-innovate/

Coe E., Finn P., Oatman J. (2015, September). The emerging story on new entrants to the individual health insurance exchanges. Retrieved from http://healthcare.mckinsey.com/emerging-story-new-entrants

Data.gov.sg (2017, August 28). Mobile Penetration Rate. Retrieved from https://data.gov.sg/dataset/mobile-penetration-rate

Goldstein S. (2017, November) How is Insurtech in Asia different from the US?Retrieved from https://dailyfintech.com/2017/11/09/asiainsurtech/amp/

Hootsuite (2017, January 24). Digital in 2017: Global Overview. Retrieved from https://wearesocial-net.s3.amazonaws.com/uk/wp-content/uploads/sites/2/2017/01/Slide034.png

Hootsuite (2017, January 24). Digital in 2017: Global Overview. Retrieved from https://wearesocial-net.s3.amazonaws.com/uk/wp-content/uploads/sites/2/2017/01/Slide087.png

Huang C. (2016, December). When bigger is better in life insurance Retrieved from http://www.businesstimes.com.sg/companies-markets/when-bigger-is-better-in-life-insurance-amended

Kesselman G. (2016, August). 6 Insurtech Startups From Asia to Watch Retrieved from http://fintechnews.sg/4755/insurtech/6-insurtech-startups-asia-watch/

Malatskey J., Zhao J., (2017, May). 2017 Asia-Pacific insurance outlook. Retrieved from http://www.ey.com/Publication/vwLUAssets/ey-2017-asia-pacific-insurance-outlook/$FILE/ey-2017-asia-pacific-insurance-outlook.pdf

McQuivey, J. (2013). Digital disruption: Unleashing the next wave of innovation. Forrester Research

Pennington J. (2017, September). How Insurtech is changing the ASEAN insurance economy. Retrieved from https://www.aseantoday.com/2017/09/the-insurtech-ecosystem-in-asean-an-untapped-resource/

Tan L., (2017, March). General insurance industry records marginal slowdown in 2016. Retrieved from http://www.straitstimes.com/business/general-insurance-industry-records-marginal-slowdown-in-2016

Waring J. (2017, January 23). Smartphone adoption in Asia tops 50%. Retrieved from https://www.mobileworldlive.com/asia/asia-news/smartphone-adoption-in-asia-tops-50/

William A., (2017, November). More taking up life insurance products. Retrieved from http://www.straitstimes.com/business/companies-markets/more-taking-up-life-insurance-products

Yangchen, L. (2017, April 3). People in Singapore spend over 12 hours on gadgets daily: Survey. Retrieved from http://www.straitstimes.com/singapore/12hr-42min-connected-for-hours