The application of digital technology is becoming global.
In the last few years, the pace of technological change has accelerated. In particular, internet and social media penetration have grown significantly, and an increasing share of online activity is executed via mobile phones.
It’s not just in the advanced economies that people are using the internet more and owning more high-tech gadgets: the rest of the world is catching up.
However, sales via intermediaries continue to dominate insurance distribution.
Despite the proliferation of digital technology and consumers’ growing comfort levels with e-commerce, traditional intermediaries still dominate distribution globally, at least in terms of point of sale. Agents, brokers and other intermediaries such as banks account for a relatively stable share of around 60-70% of premiums in most insurance markets (see next graph). Their role in the sale of life insurance remains especially important, probably reflecting the more complex nature of many of these products and the value prospective policyholders attach to intermediaries advice.
Even if digital is not yet the mainstream channel to sell, there is a key and growing role that digital plays in the customer journey – from raising & validating need, search, enquiry to quote. Insurers need to be optimally prepared for a multi-touch point approach, develop robust digital onboarding including underwriting, and adapt accordingly their products and services(for more detail – see 2015 Swiss RE report Spotlight on distribution in Asia
Direct online sales for selected insurance lines are growing rapidly in some market and particularly in China.
A 2016 survey of senior insurance executives indicated that 94% expect distribution to be the area where digital technologies have the greatest impact over the next five years. Direct online sales, whereby consumers select and purchase insurance via the internet, are indeed growing rapidly in some markets (see next graph). In particular, sales of standardized products such as motor and household insurance have increasingly migrated online. The UK is the standout example and other countries are following suit. Online purchases of motor insurance in China more than tripled between 2013 and 2015, and account for over 10% of the domestic market. And in the US, direct-to-consumer auto insurers that sell mainly online or by telephone have progressively gained market share.
Even traditional life insurance products such as term-life policies are increasingly sold online in particular in China.
Growth is prompted in some cases by supportive changes in regulation.
Regulatory changes are catalyzing some of these shifts. The China Insurance Regulatory Commission has urged insurers to go online, stressing that both traditional and online insurers should explore technology to reach more customers. It has also removed geographic restrictions on sales of certain life and property insurance products, allowing insurers to sell such products through their own digital sales channels.
Similarly, the Insurance Regulatory and Development Authority of India issued guidelines in 2016 requiring all insurance policies in the country to be available in digital format. Since 2015, the Monetary Authority of Singapore has allowed insurers to offer direct-purchase insurance products online without advice. And more recently the Malaysian regulator has mandated insurers to provide online/direct insurance offerings.
Overall, online insurance penetration nonetheless remains low in many countries.
Yet, online sales of insurance actually remain relatively small in many countries,both compared with other distribution channels and e-commerce penetration in other sectors. In the EU, for example, e-commerce sales by non-financial firms amounted to 16% of aggregate turnover in 2015 (up from 12% in 2008) and for some activities, such as booking accommodation, the share of internet sales is over 25%. This compares with an average share of direct online insurance of probably less than 5%.
However in China, the average share of direct online insurance close to 10% is more or less at part with the e-commerce sales by non-financial firms amounted to 12.1% of aggregate turnover in 2015(source: China Bureau of statistics).
e-commerce penetration differs across countries reflecting various socio-economic,institutional and cultural factors.
Aside from technological developments that influence the availability and effectiveness of digital purchase channels, e-commerce penetration likely reflects a variety of socio-economic, institutional and cultural factors. The importance of these influences is difficult to evaluate, not least because customer preferences and insurer’s motives are not directly observable. However, proxy indicators provide a clue as to how far differences in insurance e-commerce are linked to intrinsic characteristics of a country’s inhabitants.
Analysis suggests a tendency favoring online insurance purchase in countries where people are highly individualistic, are less bound by social norms and hierarchies and are more comfortable with uncertainty and ambiguity.
As internet capacity increases and as more insurers offer online services, insurance e-commerce will grow.
Ultimately, as the geographical reach, reliability and capacity of the internet increases, online insurance solutions will become more viable. Likewise, as insurers themselves become more experienced with digital technology, they will be able to offer customers a more complete online purchase experience. This is especially likely if technological innovations facilitate usage-based insurance, models we see emerging in China, where consumers need to review, organize and purchase insurance for particular activities at specific times.
To support this growth, our teams at Swiss Re are helping insurers to better leverage the digital opportunity across Asia, and in China in particular, bringing insights and solutions on digital underwriting, risk management and digital behavior economics.
This piece is an edited extract from the Swiss Re Institute Sigma Report – World insurance in 2016: the China growth engine steams ahead