When disaster strikes, lack of insurance protection can make it difficult to for populations to recover and rebuild and can hamper long-term economic growth and development. In recent years, global insurers have been seeking creative and innovative solutions to address this global “protection gap".
Reaching new customers in emerging markets has traditionally been challenging, where transaction costs are high and knowledge of insurance may be limited. Now, a combination of new technologies and business models is unlocking new routes to growth.
The ongoing movement of populations from low to middle income and the so-called “digital revolution” driving incremental costs down, combined with growing awareness among governments of the national interest benefits of protecting emergent middle classes, provide a strong macroeconomic case for market building. But they also raise some challenges.
Introducing so-called inclusive insurance for customers with low or unstable incomes has, in many cases, required a fundamental rethink from insurers about how to “go to market".
Many of these potential new customers may be unaware risk-transfer products exist, so insurers have had to identify and leverage networks already trusted by and serving them: for example, mobile network operators (MNOs), retail stores and agricultural co-operatives.
In many cases, leveraging these networks has been made possible by establishing formal partnerships with specialist, local insurance players.
In fact, from five carriers known to be active in this market in 2007, there are now around 60 global carriers involved in developing inclusive insurance that are experimenting to differing degrees with new partnerships and new business models, often underpinned by technology.
Trust is an essential factor when companies are establishing new markets, but building it requires time and investment. Insurers are harnessing insurtech to help build trust by maintaining a high level of contact with customers while keeping costs down. So-called frictionless encounters provide advice and guidance and can support product understanding, assisting financial literacy and helping to build a sense of connection and value.
In Indonesia, Allianz has been applying automated telephone messages using a fictional character called Ms Ali to automate post-sales calls and educate customers about their product. Similarly, chatbots can carry out direct conversations and provide a useful and cost-effective way of fostering client engagement.
Another area where insurtech is making a contribution is in the transaction space. Collecting premiums and paying claims remains a challenge because transaction costs are still high in largely cash-driven markets. Many insurers are tackling this in partnership with MNOs that can process claims via digital payment channels or mobile wallets. Insurers can leverage the good reputation MNOs have built in these markets by reliably topping up credit, making payments from bank accounts or transferring cash back to family members in rural locations.
Similarly, in markets where national registration and identification systems are not readily available, digital technologies can assist with client on-boarding and claims validation. Using a smartphone, a customer can establish their identity by making particular facial expressions to camera or reading out some on-screen text.
Looking to the future, artificial intelligence (AI) may assist in further helping to reduce administration, processing time and costs.
Lower distribution and operational costs support scalability, drive faster service and ultimately enable more affordable and accessible products.
The World Economic Forum’s research suggests the use of blockchain will increase significantly in the next decade, as banks, insurers and tech firms see technology as a way to speed up settlements and cut costs. Already some are using it in an inclusive insurance context.
Another area where technology is underpinning penetration of new markets is loss verification. The high cost of verifying losses on large numbers of small rural landholdings would make traditional insurance unviable, but examples abound of carriers today adopting new sources of data via technology such as satellite or drones for risk assessment and loss adjusting.
Many of the insurtech innovations now in play have the potential to change the landscape of inclusive insurance provision in emerging markets. But this combination of new products, new customers, new partnerships and new distribution channels will inevitably raise legal and regulatory considerations.
It is vital any new market entrants or capital providers understand in detail the markets in which they will be operating in and innovate to suit emerging consumers. It can take time for legislators and supervisory authorities to adapt to innovative offerings and enshrine suitable product standards, licensing and capital requirements in national law or regulation. In the meantime, there can be regulatory/supervisory overlap, an over-engineering of requirements and uncertainty.
To help ensure uncertainty does not stifle innovation, we believe concerted co-ordination is needed between insurers, their partners and regulators to find an acceptable balance between consumer protection and supportive regulation.
But law and regulation must also innovate for inclusive insurance to fully take hold in emerging economies. In our view, three critical success factors will help support that innovation: a positive regulatory approach, information sharing across jurisdictions; and greater encouragement of public-private partnerships.
These will be essential to ensure that the industry can harness the real power of insurtech to close the protection gap and enable resilient risk management in the developing as well as the developed world.
The article first appeared in Insurance Day.Click here to download our Inclusive Insurance Report