Library: BCG – Digital Partnerships, unlocking a $10bn opportunity in insurance
July 2021 featured report:
The rapid growth of the south east Asian economy is creating opportunities across all sectors. Insurance is no different, with partnerships between digital companies and insurance incumbents helping to drive transformation in this market.
The BCG report says that over the next decade, there are up to US$10 billion of new insurance premiums available, but change is required.
This report looks at the depth of the opportunity, and how these partnerships must be structured if they are to be successful.
Turned on, tuned in and not dropping out
The digital economy has expanded greatly over the past 10 years. Digital penetration differs amongst regions, but there is generally increased connectivity, which is driving growth.
The US and China are leading the way, but Southeast Asia is booming. The GDP for this region has already exceeded US$3 trillion and the 650 million population is rapidly expanding.
Almost two thirds (63%) of that population (400 million) are internet users and digital penetration is only going to grow considerably.
Whats more important for the insurance market is that more than 90% of those digital users use their smart devices to connect to the internet.
Brave new world
This is a rapidly changing landscape and it is estimated that the total insurance premiums across the six largest southeast Asian markets is US$106 billion today. There are differing levels of insurance penetration in each market (see exhibit one), but the focus on digital will transform the way insurance is distributed.
It will necessarily shift towards direct to consumer away from traditional models that rely on agents, brokers and bancassurers towards partnerships with digital companies.
These new partnerships seem to be beneficial for all parties involved. Customers receive tailored products that are native to their existing platforms, digital companies benefit from additional revenue streams and the insurance companies gain access to distribution the likes of which they could never have dreamed of.
With particular interest in southeast Asia for digital innovation across e-payments, insurance, finance and delivery services. The report estimates that general and life insurance premiums in Southeast Asia will grow by US$140 billion and US$60 billion respectively by 2030. The slice that could be up for grabs between digital companies and insurers could be worth as much as US$10 billion.
Finding the right structure
The partnership itself is important the report highlights the need to strike the right balance between architecture, commercial arrangements, key performance indicators, and the sharing of operational roles.
For example, models are likely to fall somewhere between a standard distribution arrangement, a collaborative partnership structure and a joint or even a new venture.
Commission is the most common model used today, and this is influenced – or even limited – by the regulatory environment (see exhibit two).
The arrangement needs to be flexible enough to satisfy both parties and so may be covered by fixed fees or net prices. This is likely to be evolve as these partnerships become more established.
Key performance indicators is a good example of where communication could break down and so they must be aligned, says the report. Traditional insurers measure things like gross premium, number of customers and policy numbers. Digital businesses place the customer at the centre of everything they do and so they tend to focus on revenue, cost of acquisition, and customer lifetime value.
These must be aligned if both parties are to understand how each half of the partnership is performing.
Other areas it is important for both parties to align strategically. The product types available through digital partnerships will be simpler, non-advised life products, such as travel, personal accident, event cancellation, COVID, term life and critical illness. As these relationships mature, the report expects that selection to expand with the addition of more modular, short term products, dynamic pricing, and greater use of data analysis. Big data will not only broaden the appeal of products by tailoring them to customers, but increase access as creating lower cost products becomes simpler.
The omni channel will be an important part of this future and will require a seamless user experience if prospects are to be converted into customers.
Product development must also change. In the past, it could take a dozen or more product launches to find a winning formula. Insurers must embrace a new pace of change that builds minimum viable products more rapidly and with more frequent cycles. They must also become more comfortable trialling one product against another.
Keeping an eye on the prize
This all relies on a modern IT infrastructure where data is not only generated, but collated and analysed. Incumbents that wish to deal with digital partners are going to have to invest in modern architecture, APIs and automation. And all the while they must keep their eye on regulation, which is hard wired into the DNA of traditional insurance.
Incumbents will have to lead their digital partners on this journey, as it will take some time for regulators to become fully comfortable with the new, more rapid and consumer led insurance market.
There are huge opportunities for insurance companies to build partnerships with digital businesses. They will have to give up some control and rely on another’s skills. But partnerships are an essential part of the transformation process for insurers who have their eyes on this $10 billion prize.
For more, see the full report.
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