Impact of Technology on the Asian Insurance Industry from a Millennial's View Point
 

Technology such as the Internet of Things (IoT) are changing the development of most industries in the world, including the insurance industry. The InsurTech revolution has and continues to establish itself in Asia.

However, due to the diversity in maturity and the disparity of the economic development within the Asia region the application of InsurTech can vary significantly.

Present Technology Development

• Artificial Intelligence (AI): AI-powered, customer-service chatbots are better equipped to meet the expectations of younger customers for a real-time touchpoint and customized assistance, while largely improving the efficiency of policy distribution, underwriting and pricing. For damage estimation, AI collaborates with drone technology to accurately record and estimate the actual loss and damage in the hard-to-reach areas, especially after serious natural disasters.
• Internet of Things: Based on the Internet, the IoT extends the clients to different objects, and exchanges and communicates information. At this time IoT is not as widely applied as AI or Big Data, but potentially it will be the mainstream InsurTech in the future. The typical example of IoT is IoV (Internet of Vehicles). Insurers can collect individual data to design personalized products and make flexible pricing based on the real-time data recorded in onboard devices.
• Big Data & Cloud Computing: Big Data enables mass data storage and cross-border data integration as well as analysis. It enables insurers to generate future trends from those realtime data. Combined with cloud computing, rapid growth of mass products and user data can 2 be carried and the application platform can be upgraded in lower cost. This is a relatively mature technology applied in Asian insurance industry now. It helps insurers to find target clients and generate innovative products based on the analysis of customer’s needs and accurate computations make the claim process fairer. In addition, it provides data monitoring to manage and minimize risks.
• Blockchain: Blockchain is like a distributed ledger technology, its basic function is to efficiently manage huge database. In today’s insurance industry, blockchain also will be the general trend. Now, many companies use blockchain to make policy underwriting more accurate, because real-time data can be stored in a node that can be tracked, which can reflect the actual intention of certain insured. This automated model in blockchain is referred to as smart contract, providing huge convenience for both insurers and clients in underwriting, pricing and settlement.

Mature Markets

Even though Singapore and Hong Kong are mature markets for the insurance industry, InsurTech is still considered as a relatively new phenomenon when compared to other areas of financial services. At present, insurers are collaborating with technology companies or FinTech startups to develop innovative insurance solutions following the recent market trends. The use of InsurTech in mature markets mainly focus on claims automation and service digitization, including technologies like e-claims, cloud computing, Blockchain, online sales, chatbots, AI, mobile devices, etc.

Developing Markets

Compared to emerging markets, developing and mature markets have a common feature that insurance industry and technology have respectively developed to a certain degree, meaning the impact of technology in those two markets is obviously deeper and more extensive. Therefore, technology is supposed to bring about significant opportunities but noteworthy risks as well. Basically, there are four kinds of opportunities generated by InsurTech:

• Opportunities
  • Enterprise Transformation: For example, Zhong-An, a Chinese leading InsurTech startup has moved away from “one-size fit all” products and instead offers different short-maturity online policies that are closely related to real life scenarios.
  • Data Sharing: More extensive resources can be used to accurately calculated the heterogeneity of insured. AI and cloud computing technology that can deal with huge amounts of complex structure data and Blockchain technology will play a unique role in cross-industry data sharing with its unique information security and irrevocable advantages.
  • Risk Management: Technology itself is stimulating the variability of risks, which will potentially lead to new risk scenarios that are far beyond the coverage of traditional insurance. As such, the insurance industry may no longer be a pure supplier of insurance products, but an integrator of scenario-based risk management and services.
  • Reshaping insurance value chain: Technology is reshaping the entire industry value chain through enabling more innovative products, dynamic pricing and timely claim.

Emerging Markets

For countries that are recognized as emerging markets, their insurance sector outcome is difficult to predict because technology has only been applied to one or two products. So, it is still too early to predict the transformation of insurance industry within emerging markets.

Future Development of the Insurance Industry in Asia Pacific

Technology Developments That Would Enhance the Insurance Industry

“The insurance industry is well-known for its conservative nature, but that’s a characteristic that’s now having to evolve as the industry faces the digital age”. (by James Maudslay).

Technology has rapidly evolved influencing and changing the way people live, part of this digital transformation has reached the insurance industry and is possibly going to be an increasing influence for the next decade. Insurers have started to embrace emerging technologies such as Artificial intelligence, Internet of Things and Blockchain:

• AI - developments such as customer-service chatbots are better equipped to meet the expectations of younger customers for a real-time touchpoint and customized assistance and chat-bots will only get more powerful as voice recognition technology improves.
  • New York based insurer Lemonade employs a chat-bot, “A.I. Jim,” which was recently credited with paying out a claim in under three seconds – a process that usually takes far longer, even for straightforward claims.
  • The Chinese company Zhong-An has been established as a complete, online-only insurance carrier, which is heavily reliant on AI-driven agents to operate, as well as deliver an enhanced customer experience.
  • AI can also bring drone technology to a new level of utility for insurers already deploying drones to hard-to-reach disaster areas to record loss and damages.
• Internet of Things
  • Sensor-equipped devices like fitness wearables can measure a person’s activity, diet and vital signs. This can provide health insurance companies assess and predict health based on fact not assumptions, potentially offering lower risk for the insurer and lower premiums for the policy holder.
  • Telematics-based car insurance, in which insurance rates are influenced by a customer’s actual driving frequency and habits (reckless vs. safe), relies on IoT sensors to supply the data for the analytics to help determine “good driver” rates.
  • Smart home monitoring systems now allow homeowners to optimize security and lowering the risk of break-ins using IoT-powered devices such as doorbells, activate motion detectors and night vision cameras that allow the home owner to speak to whoever is at the door from anywhere in the world.
• Blockchain - transactions are time-stamped and currently resistant to tampering, increasing the reliability of the data and process. This means that:
  • Fraud is more easily detected, according to the Institute of International Finance approximately $60 billion of fraudulent claims are submitted annually in the U.S. and Europe alone.
  • Blockchain’s dependability and security could also enable new offerings like “smart contracts”, self-executing agreements that were largely theoretical before Blockchain. Life insurance smart contract could immediately release funds to a beneficiary upon the death of a policyholder through electronic checking of death certificates.
  • Technology is helping the insurance industry reduce risk through accurate and secure data from smart equipped devices.
  • Digital transformation will continue to be influential in management decisions and business models.

Potential Business Models for the Sector During the Next 5 Years

With the development of more risk management tools based on AI, Blockchain and IoT, technology will play an increasingly more important role in promoting the insurance sector evolution and integration across the industry.

In this evolution, insurers are expected to change their current position from “detecting and repairing” to “predicting and preventing”

Reshaping Insurance Value Chain

Potentially across the entire insurance value chain, there will be more functions that will be completed by computers and robots, dramatically improving industrial efficiency and user experience.

• Distribution
  • Channel diversification - insurance agents plus third-party and professional agency platforms, such as online aggregators, have influenced the reduction of channel costs and increased the customer reach.
  • Blockchain technology provides smart contract that enables insurers automatically issue policies and authorize payments through customers’ accounts. Smart contracts transform paper contracts into programmable code, helping automatically settle claims and calculate the responsibilities that parties should share.
• Product diversification
  • Scenario-based products are divided into micro coverage elements such as, phone battery insurance, flight delay insurance and online shopping return policy, so that consumers can customize to their individual needs, with the ability to instantaneously compare prices from various carriers for their individualized baskets of insurance products.
• Usage-based insurance (UBI)
  • Insurance transitions from a “purchase and annual renewal” model to a continuous cycle, as product offerings constantly adapt to an individual’s behavioral patterns. UBI becomes the norm as physical assets are shared across multiple parties, with a pay-by-mile or pay-by-ride model for car sharing and pay-by-stay insurance for home-sharing services, such as Airbnb.
• Underwriting and pricing
  • Manual underwriting will diminish for most of the personal and small business insurance products.
  • Pricing is more flexible and available in real time based on customer usage and dynamic data, so that customers are aware of how their behaviors can influence the premium rate, pricing and coverage.
• Claims
  • Most claim processes will be automated, largely reducing processing time.
  • Moreover, the time-stamped feature of blockchain enables insurance companies to record transactions permanently and ensure their security by strictly controlling access rights, supporting the identification of fraudulent clams.

The Development of Industrial Ecosystem

Further application and development of technology in the insurance industry has laid a foundation to establish an industrial ecological chain. In the future, insurance industry will be more open and integrated, becoming an important part of FinTech ecosystem. This also creates more opportunities for insurance companies to improve the degree of cross-industry cooperation. At least, two modes have existed now and probably will become mainstream in the future:

• One is the use of certain insurance services as a link, extending to provide most of the basic services in housing, food, utilities and transportation for customers.
• The other is the integration and extension of insurance upstream and downstream industrial chains. For example, with the continuous penetration of the Internet, the life insurance industry integrates derivative products through affiliated industries such as medicine, health, pension, and investment.

Future Employment within the Insurance Sector

The future employment within the insurance industry will be exciting but also challenging. Insurers now need to address the challenge of attracting new talents and re-skilling existing employees to keep aligned with the transformation and development within the sector.

New Skills

Technology disruption comes with talent disruption and digital transformation of insurers which will shrink the size of the traditional insurance workforce, meanwhile, expand the industry into new areas where there is a crucial need for new talents skilled in STEM (science, technology, engineer and mathematics). Creativity and flexibility will be important criteria for future employment to navigate fast-changing policy framework and regulations. Soft skills, from problem-solving to communications, will be more needed than ever before to enable collaboration and deliver personalized customer services. As the industry is turning more customer-service oriented, the ability to interact with customers through real-time social/digital media is critical as well.

New Jobs

Technology advances like digital claims process, big data and AI will decrease the number of traditional insurance workers such as brokers and claims agents. They will also change the nature of existing jobs including underwriter, claims agent, product developer and ecosystem architect, which will require new or enhanced skills. Insurers will need employees who can deal with broader sets of data and work on different information devices to carry out complex risk assessments.

New Generation Employees

New generations, specifically, the ‘Millennials’, now comprise the largest percentage of the workforce in many Asian countries. However, traditional insurance companies have an image problem because of the conservative culture and the dull employee experience. Few Millennials are familiar with the insurance industry and less interested in choosing insurance as a career. Insurers need to form a corporate culture with flexibility, empowerment, development and mobility through new technology and innovative engagement to attract the attention of the Millennial.

New Talent Solutions

To attract a younger, more creative and technically savvy workforce, insurers must adopt a more proactive approach to talent acquisition, development, re-skilling and retention.

• First, insurers should transform the employee experience by adopting new technologies in innovative ways to achieve the simplification of work and the engagement of talents. They can apply digitalization to employees’ work process, allowing them to work virtually and remotely.
• Second, insurers should re-invent on-the-job learning by offering formal training programs or gamification and real-world, online simulations.
• Third, insurers should also re-shape the talent supply chain by establishing innovative educational collaborations like internships with schools or partnerships with technology start-ups. Moreover, HR will need to actively improve talent analytics capabilities, especially the ability to collect people data from social networks, to address complex business and talent needs.

All in all, technologies and innovations should be implemented into all aspects of employment from attracting, engaging to assessing talents. The future of human capital in the insurance industry is about offering a unique employee experience and making insurance jobs meaningful, interesting and challenging.

Vision for the Life Insurance industry in Asia over the next decade

With the development of technology and innovations mentioned, the insurance industry is going to be experiencing the most significant change during the next decade.

More International Competition

The dynamic economic growth within Asia is expected to continue for the next decade. Governments in Asia realize the potential of the insurance industry and the needs from people. They tend to regulate the industry and open up the markets in order to attract foreign direct investment. The regulations in the region become more integrated and flexible. Global insurance companies like AIA, Prudential, AXA will increase their ‘footprint’ in existing locations but also try to enter new countries within the region to reach new potential customers as the situations allow – such as Myanmar.

Team Up or Compete with the Tech Companies

Technology advances like big data, cloud computing, AI and genetic testing are mostly owned by technology giants such Alibaba and Tencent in East Asia. Traditional insurers will need to cooperate with them or other FinTech/InsurTech startups in order to get access to the latest technologies and apply them to insurance business. The collaboration will allow them to use technology in innovative ways. For example, insurance companies can sell life insurance through the medias of tech companies, like WeChat, AliPay or Taobao. These social apps can collect individual data from potential customers and customize personal life insurance policies. Insurers may also want to establish their own InsurTech labs or work with other InsurTech/FinTech startups to compete with technology companies in case they enter the market.

Acknowledgement

Summary of Study conducted for ZRG Partners by Student Team from Wenzhou Kean University

• Sifeng Zhu
• Junjie Zhang
• Yihan Huang
• Junjie Ma
• Kai Yuan

Under the guidance and direction of

• Dr. Kai Wang, Assistant Professor of Management, School of Management and Marketing, Kean University, USA
• Mr. David Greenfield, Managing Director & Global Insurance Practice Leader, ZRG Partners, Hong Kong