Article Synopsis :
Life insurance has low penetration in the emerging market, but insurtech will be particularly significant in closing the ‘protection gap’.
Insurance penetration and economic growth go hand in hand, but those looking to seize the opportunities must be prepared to invest in the technology and new business models
This is happening, with $4.4 billion invested in insurtech in 2018, according to FT Partners, an investment banking business focused on the fintech sector. That is more than 35% up on the $3.2 billion investment the previous year.
This is a maturing market, as fewer, but bigger ticket deals are being struck in developed markets. That said, while North America remains biggest area for investment, there is more money coming from and flowing into Asia.
Penetration of insurance (measured by the ratio of premiums to GDP) is generally far lower than in developed economies. Insurance tends to flourish once GDP per capita is above the $5,000
For every 2% increase in GDP, the increase in insurance penetration is typically 1%. Economic growth is supported by insurance and more prosperous economies have more to protect, creating the demand.
Emerging markets have large protection gaps in both healthcare and natural disaster cover. More than half (58%) of natural disasters took place in emerging markets in 2018, but the coverage rate was only 26%
These economies also lack comprehensive healthcare systems. This means individuals face high out of pocket expenses to pay for private cover, or simply do without it.
Closing the protection gap requires the use of insurtech, but this relies upon an infrastructure of digital payments. Countries like Kenya and China have well established mobile banking and payments services, but this is not replicated everywhere else.
Insurance must also overcome issues of trust. Some individuals will have had bad experiences and making a purchase via a digital device may be a step too far for many. Insurtech can help here, too.
Customer service points ‘staffed’ by artificial intelligence through the use of chatbots using natural language may satisfy requests quickly and easily.
More flexible policies with shorter terms should be more attractive in emerging markets where a great deal of work is informal. These products may be more attractive to younger people, informal workers, and those engaged in the ‘gig economy’.
Digital technology is also being used to reduce fraud to settle claims faster and improve customer service, while at the same time reducing the cost for the insurer.
What needs to happen next?
The entry point for mature markets will typically be auto or property insurance. However, in emerging markets, it is more likely to be life insurance linked to a loan, or health insurance, particularly among lower-income individuals.
Some of the important enabling factors for insurtech to make a difference are:
- compulsory motor third-party liability insurance;
- financial literacy;
- biometric ID;
- access to mobile networks and WIFI
- payment mechanisms;
- digital signatures;
- regulation for different models.
Many of these are only now being introduced into developed markets. Yet there are few incumbents that can consider themselves strong in the digital realm.
Insurtech will allow new entrants to break through into new markets and insurers in developed and emerging markets will have to exploit it if they are to be successful in the future.
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Digital Insurer's CommentsThere is an opportunity for insurers to close the protection gap in emerging markets.
As these markets grow, so does the penetration of insurance presenting huge untapped demand for protection.
Investment in insurtech is key, but it is worth remembering that the ones who are successful will be those who manage to marry technology with new business models and a fresh attitude to dealing with punters. And that won’t always be those incumbents in developed markets, who trail the leaders in digitalisation.
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