Is Insurance in Asia Ready for Digital Transformation?

Stark Group is a collection of startup companies founded in January 2015 by Matthias de Ferrieres, formerly General Insurance Chief Marketing Officer and Head of Digital for French insurance giant AXA in Asia.

The group was formed with the purpose of accelerating the pace of digital transformation of insurance in Asia, with focus in Singapore, Thailand, and Indonesia. Insurance carriers are generally known as followers, not drivers, of innovation.

The group consists of three startups designed to disrupt the insurance industry within their specific domains, and a fourth is on the way. Stark Group consists of a team of 14 experts, from actuaries to insurers, designers, coders and IT people based in Asia and in Europe.

Q.   Matthias, your stated objective is to enable the digital transformation of the insurance industry. But is the insurance industry ready?

A.   The giants of the insurance industry recently came to understand that innovation is necessary if they are to differentiate themselves, and this innovation can be externally driven. These carriers aren’t nimble, yet they recognize the need for change. These changes can be initiated and driven by collaborating with/acquiring startups. Sadly, the many other carriers still maintain the 1990s mindset, where projects cost millions and many don’t succeed.

From a regulatory standpoint, innovation is highly challenging with local regulations, capital requirements, distribution capabilities, and customer maturity. This is particularly salient in India, Thailand, Malaysia, and Indonesia, with China possibly being the most severe.

However, consumers are ready from a digital perspective. Nearly everyone is mobile, downloading applications and purchasing on their phones. In Singapore, Thailand, Indonesia, and Malaysia, Wi-Fi is everywhere. It’s not something you ask for, or search out in a café. It is everywhere and free. That is not the case in Europe. I was in Zurich a few weeks ago, where I was required to request for a Wi-Fi password which was functional for merely 45 minutes before I had to pay. Mobile penetration and usage here is far above what it is in Europe.

Q.   Can you provide some more background on your markets?

A.   Let me give you some context. I mentioned customer maturity earlier. The consumer in Asia is less interested in buying protection for life or for assets due to many reasons, including cultural ones. The regulator does not make it mandatory for you to purchase insurance, or they are just embarking to do so. For example, in Indonesia, auto insurance is not a must and within Singapore public insurance is compulsory but not private insurance. Health insurance is also not required in many Asian countries.

But this is changing slowly. The growth within insurance in Asia is being driven by changing attitudes tied to rising GDP.

This is merely the beginning. This will be a tremendous market. And it will be online.

Q.   How is insurance currently distributed in these markets?

A.   Mainly through agents. 75% of the agents are individuals. Agents are allowed to have three to four principals officially. Behind the scenes, it is common to have seven or eight because they use their wives, cousins, and parents to do the underwriting. Such a distribution model is aging.

I believe we can rejuvenate the insurance industry with better technology. You can enable a new generation of agents with mobile tools and focus on bringing traffic to the web application for them. They are then not limited to prospects they can walk or drive to. On the flip side, consumers are equipped with a better experience. It is a win-win situation.

Q.   Are agents receptive to this idea?

A.   We are in the midst of testing that. The carriers are extremely excited. In Singapore, we are officially launching this in July.

Q.   Do carriers need to create new products specifically for digital distribution?

A.   We are insuring the same thing, not reinventing the wheel. However, digitalizing the product in some ways makes it a new product because you are reimagining the customer journey. The offer and way you present the features can be different. So yes, you are re-engineering the product for digital distribution.

The biggest problem facing the industry is the domination by functional departments such as actuarial, legal and risk that neglect customer centricity. We end up focusing on providing insurance based on price rather than value perception.

Let me give you an example. We did a pilot in Indonesia where we asked many questions on one web application in order to get to a better price and on another we asked no questions but charged a higher price. At the end of the day, what happened? Consumers were willing to pay 25% more for the same product if we weren’t asking so many questions.

Q.   What about your loss ratio?

A.   Ah! The famous loss ratio! It dropped by 5 points. Why? Because while the average claim cost jumped by 17%, I was able to charge more by 25%. To make things better, as the value perception on the purchase was better, we were able to sell more. We were collecting higher premiums and we were making more money, despite higher average claims.

Therefore people are not motivated exclusively by price but also by convenience. Value is subjective. If people are willing to pay more, let them pay. It should be the main focus of insurers rather as opposed to a price war.

Q.   Tell me more about Stark Group.

A.   We are a group of four start ups: Stark Lab, a web agency that designs and deploys insurance products to sell online. Stark Plug, a retargeting and tracking platform for insurance. Stark Dot, a B2B software that helps non-licensed insurance promoters invite prospects to purchase products. And, Your-insurer.com launching in July will be a platform dedicated to individual agents willing to sell online in Hong Kong, India, Indonesia, Malaysia, Singapore, and Thailand at http://your-insurer.com/. We target about 75% – 80% of the market that can be underwritten directly online by intermediaries such as individual agents, brokers, e-partners and banks. Other than AXA that is bullish on digital and Direct Asia that is a direct insurer, the traditional insurance carriers – AIG, Tokyo Marine, NTUC – focus on B2B only. These traditional carriers are observing but are not ready to take the plunge.

Q.   What are the top technology priorities for carriers in your markets?

A.   The biggest concern of the insurance carriers is the legacy systems. They know they ought to innovate, but the legacy system proves to be a very big concern as it carries their history and their business. They are looking at the cloud conceptually but are not adopting it yet.

Q.   Are agents, and the carriers who rely on them for distribution, concerned about technology enabling direct distribution and the possibility of disintermediation?

A.   They have just started to understand that going online doesn’t equate to going direct, thus there are opportunities to launch online concepts, to sell, renew, manage customers via a digital platform.

Q.   What role is mobile going to play in insurance in this region?

A.   It will be huge. Think of the role that health monitoring though your mobile device – be it a phone, a watch – will play in pricing health insurance. Think about telematics empowerment: pay your insurance as and how you drive, get insured according to your location, habits, spending patterns. Mobile is the best witness on how we live and what we live. It can respond to the underwriting necessity by providing immediate and true risk assessment.

Q.   Should carriers be worried about firms like Google and Facebook – better liked by consumers and much stronger with data? Are they a threat?

A.   Only on the distribution side. Google doesn’t want to be regulated as an insurance carrier. Can they be better at getting the right offer in front of the right guy at the right time? And take a fee for that? Certainly. Do they want to do claims management? I don’t think so.

But companies that are better at marketing and technology will unbundle the insurance carriers. If they aren’t careful, insurance carriers will end up being risk carriers and that’s it.

Q.   Is there an opportunity to start a de novo insurance carrier specifically targeting Asian markets? No legacy systems, no legacy thinking, starting completely from scratch?

A.   The capital intensity will be the biggest hurdle. It would be possible with enough capital, but I believe the opportunity is in distributing the insurance product differently. We should let legacy carriers worry about the capital requirements. So yes, there is an opportunity to come in and disrupt the industry but by making the approach different from capital structure to organization strategy.

Q.   Is there one approach to innovation that you would recommend insurance carriers generally take? Some are starting innovation labs, some are making venture investment, and some are hiring chief innovation officers.

A.   All of this remains extremely communications focused. It allows them to say to the board or to the shareholders that they are serious about innovating and moving toward digitizing their profession. But do they to walk the talk and invest more in resources and start to believe in their own people?

I cannot deny that they are moving forward and changing. They test new ways of working and slowly adapt their standards. They work with innovative startups and technology youngsters to develop micro solutions. But it is still too slow; they should accelerate their transformation. For instance, the industry must accept that the key to success is accessing the technology rather than possessing it. It has to understand that innovation comes from open source and tech sharing rather than IP (Intellectual Property) protection and control. Lastly, it should discern that innovation is first and foremost transforming the existing to make it not only better, but different and up to date. To make it simpler, they should stop investing in massive IT programs and pick light and agile development, as it is now a norm. A trial and error approach should replace long-lasting strategic thinking and systematic industrialization that define this capital-intensive industry business model.

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