Three Reasons Why Asia Will Be The Hottest InsurTech Market
By George Kesselman for Forbes
If I could charge a dollar every time someone asked me this year, “George, what’s the latest and ‘hottest’ InsurTech [Insurance Technology] startup in Asia?” I would have probably saved enough to buy the much anticipated upcoming MacBook Pro!
It should not come as a total surprise, since the excitement along with investments in banking FinTech has largely plateaued in 2016, while the understated little brother InsurTech entered the limelight, making ripples globally.
A quick scan of Google Trends – keyword searches of “Insurtech in Singapore” over the last two years shows the rapid surge of interest which only occurred since the mid of 2016.
The news of large investments, made into InsurTech startups in the U.S. and Europe, have quickly disseminated into Asia. As a result, Singapore and Hong Kong – the two largest Asian financial and insurance hubs – are experiencing a tidal wave of excitement and interest in InsurTech from investors, while another wave of worried interest comes from the long time incumbents of the insurance industry.
Here’s why I am convinced that Asia will become the hottest market for insurance startups :
Reason 1: Most attractive region for insurance and high willingness to invest
Asia is an extremely attractive region for insurance, due to a combination of its sheer size and rapid growth in the ranks of its middle class. At 4.4 billion people, Asia is by far the most populous region in the world (next up is Africa at 1.2 billion, followed by Europe at 738 million, Latin America at 641 million, and finally Northern America at a relatively tiny 360 million). By 2030, a massive 64% of the global middle class is projected to be in Asia, up from 40% currently (according to Brookings Institution).
Recognizing the immense opportunity, global insurers have been investing aggressively in Asia, especially after China, India and South Asia experienced a rapid economic rise since early 2000s. To give you a sense of the scale of insurers’ investments in Asia: in 2015, Manulife paid $1.2 billion to DBS Bank for the rights to distribute its insurance products through bank branches in Singapore, Hong Kong, China and Indonesia. AIA Group paid $800 million to Citibank in Asia and UK insurer Prudential paid $1.25 billion to Standard Chartered.
While the InsurTech wave may have started in the U.S. or Europe, Asia will be the region to experience explosive growth due to the magnitude of investment available and scale of population.
Reason 2: Legacy insurance distribution models do not work in Asia
A high portion of Asian consumers and businesses are currently not insured, unable to afford traditional insurance and at the same time, are highly geographically dispersed. This makes it extremely challenging to quickly increase penetration through typical insurance distribution which largely relies on intermediated sales through insurance agents, bank branches or direct marketing call centers. Also, these distribution models are costly, difficult to scale rapidly and are prone to mis-selling (due to the conflicts of interest that are inherent in the intermediated sales).
InsurTech startups are solving problems of traditional insurance distribution through the application of emerging digital technologies, which help remove various inefficiencies and eliminate reliance on legacy models.
Asia will be the place where the impact of these distribution innovations is truly felt; especially when large population segments that were previously unable to have access to insurance are of all a sudden able to get access to insurance products that are mass customized to their specific needs and worries.
Reason 3: Rapidly increasing penetration of smartphones and mobile data
Sixty two percent of the Asia Pacific population are subscribed to a mobile service in 2015 with a forecasted rise of 600 million new subscribers to come on board by 2020. (Source: GSM Study 2016)
The ability to connect and transact online is key. Consumers in the biggest Asia Pacific countries – China, India, Japan, Singapore, South Korea and Australia – spent an estimated $594 billion in online shopping in 2015. What’s more incredible is that both India and China were expected to continue rapid growth in online purchases increasing 53% and 28% on annual basis respectively during 2014-2017. (Source: PayPal and Ipsos Report)
This rapid increase in connectivity and regional leapfrogging into the online community is an enabler and removes the key hurdle in making Asia the dominant market for InsurTech.
In the pursuit to validate my outlook, I have recently spoken to a number of insurance and reinsurance leaders in Singapore and Hong Kong to uncover a substantial shift in their thinking when it comes to insurance startups.
Two years ago, startups were the last thing on their radars. Most of the companies were convinced that the high barriers of strict regulations, high capital requirements and tight customer ownership will make the industry virtually untouchable by startups.
Reassuringly, realization has began to dawn on the industry executives that insurance organizations will soon face an upcoming storm of InsurTech startups – which will upset the long held status quo in the industry by removing major frictions across the value chain.
After their unsuccessful attempts to spur innovation within the organization through in-house labs, most insurance leaders are now expressing their keen interest and readiness to work with InsurTech startups. When you combine this collaboration-ready mindset of insurance leaders together with the reasons why I am convinced that Asia will become the hottest market for insurance startups – it becomes lucidly clear that Asia will indeed, be at the epicentre of the global insurance revolution.
First appeared at Forbes