Interview: AXA Lab’s Frank Desvignes and AXA Next’s Erica Li

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Frank Desvignes is the Founder and CEO of AXA Lab Asia and Erica Li is a Digital Business Analyst at AXA Next, together they considered the following questions about developments within China’s digital insurance sector.

Q.1 What is your view of the insurance market in China as it currently is and into the next 3-5 years?

China had USD$447 billion Gross Written Premium in 2017 and the industry is growing by 27.5% yoy. Most importantly, the internet insurance penetration rate is still very low at 5%. Given these growth rates and the scale that exists in China, it’s inevitable that China will become the biggest insurance market in the world. However, although the future is full of opportunities, insurers and startups with digital ambitions will need to navigate an increasingly restrictive regulatory environment and increasing competition for marketshare in an industry that is viewed as offering a commodity product.

Q.2 Which will have a bigger impact on the insurance industry, blockchain or AI?

Blockchain and AI have the most innovative potential to completely redesign the value chain of insurance, replacing existing business models, and creating new opportunities. However, the impact of blockchain and Artificial Intelligence are different. AI essentially improves productivity for insurers by the automation in the claims process, assessing damages, and communicating with customers via A.I based bots.

Advanced algorithms based on petabytes of data can also be used to identify likely fraudulent claims and highlight them for further investigation and action by humans if necessary.

Facial recognition can be used to scan a customer’s face to identify them in a few seconds, and could also certify and timestamp face-to-face meetings for customer on-boarding and Know Your Customer (KYC) processes.

AI and algorithms could be leveraged to create sophisticate pricing and underwriting while managing risk by having a more complete picture of customers and their environment from a variety of data sources. Insurance companies can better evaluate and manage risk to create new solutions and services that serve their clients best.

Blockchain is enabling the insurance industry to lower distribution cost by creating a decentralised infrastructure in an open marketplace where insurance demand and service can be matched automatically without intermediaries. Each participant can independently validate information without a centralised authority.

On another level, we can relate to the maturity curve when comparing AI and blockchain. Specifically, the hype surrounding AI reached heady  heights in 2016, whereas blockchain only reached fever pitch last year. Although the business value derived from AI no doubt is higher than that of blockchain, we believe the latter will grow at a much faster rate.

It’s also important to remember that A.I and blockchain are not mutually exclusive technologies and can be integrated into a unified offering to deliver truly new models.

Q.3 The notion of an ecosystem seems especially relevant in China (Ping An Good Doctor or China Life retirement homes for example). Why do you think we don’t see the ‘ecosystem’ phenomenon in the West?

In China, the insurance industry is regulated upon operating licenses which has resulted in the market concentration of insurers.

Thanks to technology and the success of ecommerce, driving the high adoption of mobile payments in China, it is transforming how people manage their daily life, assets, and related insurance. We have seen many players bringing contextual insurance capacities into ecommerce platforms, building an ecosystem empowering customers, merchants, retailers, platforms, payments, shipment, and insurance solutions – all together in a seamless customer journey.

Having said that, to answer to your example about health, there are improvements needed in the Chinese healthcare system and that is why people seem ready to manage their health journey with their mobile, to consult doctors for diagnosis on their mobiles, booking doctor appointment in advance and claims reimbursement. At AXA, we partner with The CareVoice to ease the patient journey of our customers. We have also established a partnership with Hinounou, a healthcare startup that develops intelligent robots for the elderly.

For insurers, there is the opportunity to scale up on their services beyond insurance with startups, thereby extending their value proposition to areas including medical preventative services, health/wellness and usage based coverage in order to meet customers’ rapidly evolving needs.

Q.4 The CIRC is imposing strict regulations on the development of digital insurance in China. Do you think there’s a risk that CIRC could stifle innovation through too many rules and restrictions?

We see regulation as encouraging rather than stifling innovation. Regulation is important because it enables the Chinese insurance market to stay healthy and innovative. It is increasingly the way for insurers and InsurTech to differentiate their products and to contribute to every aspect of the insurance value chain (i.e. product, sales & distribution, underwriting, claims, payments, and customer services). In a collaborative manner, they can share their best practice methodologies while improving operating efficiency, and making it affordable for everyone.

Q.5 What can traditional insurers do to compete with InsurTech?

InsurTech represents more of an opportunity than a threat to legacy insurers. Instead of competing, traditional insurers should collaborate closely with InsurTechs to inform their own internal plans.

Additionally, consumers today value the brand of traditional insurers. Through partnership, the InsurTech will benefit from larger insurers’ brand value and trust. Integrating the technology offered by InsurTechs will help insurers to engage with customers, bringing down cost, and expanding insurability.

Finally, it’s crucial for digital insurers They have to learn how to attract and retain talent in the digital space, to improve its analytical capabilities, and to design a nimble organisational structure.

Q.6 How will the dual demographic trends of an ageing population and chronic diseases affect Chinese life and health insurers?

The structure of the Chinese population is changing. According to The World Bank, 10.1% of the population is over 65 years old now and this number is expected to reach 20% by 2035. On the other hand, young people with fewer or no siblings are often too time stretched to provide care to elderly people. As a result, an increasing number of elderly Chinese are now choosing to live alone. The long-term care system introduced last year by the Chinese government is still at an early stage. This graying population creates opportunities for insurers to address the dynamic needs of elderly people properly, from retirement plans to long-term care insurance coverage.