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The Seven Steps the Insurance Industry in the ASEAN Region Can Take to Navigate Disruption

The current period of digital disruption is rightly described  as a revolution- the Fourth Industrial Revolution – because of the scale  and intensity of change.  In the first instance , this change is destructive  to existing structural constants , whether business  or wider societal  organizations , and requires deliberate leadership response.

Several industries have already been disrupted beyond recognition, including how we book our flights and hotels, and how we access “content” – music, video and news.

Even the nightlife business in the UK has been dramatically affected  by dating apps. Banking as adjacent industry to insurance , has had a headstart  with fintech and can offer some lessons.  The traditional insurance companies, the incumbents, are buffeted by at least three forces :

  • Change in customer behaviour and expectations brought on by technology.
  • Regulations that require greater capital and more regulatory reporting
  • A challenging macro investing context and a dearth of long – term investable assets

The ASEAN life insurance industry manages assests of $438 billion . This will increase substantially as premiums grow in the years to come.   However, it is estimated  to distribute only 2% of these assets to infrastructure.  If the community commit to increase the share  of assets allocated to infractrucuture, this will make a significant contribution to the ASEAN infrastructure financing gap

Below are seven steps that incumbent insurers can adopt, in order to respond to and harness  the forces of the Fourth Industrial Revolution

  1. New Reality

The first steps is to acknowledge  the dramatically changed context. Previously, growth  used to be about increasing market share. Companies pursued  the same methods to target  the same set of competitors in the same market. That kind of linear approach doesn’t work any more.  We need to look at the entire value chain, from product development  to marketing, distribution ,  claim management and  feedback loop back to product development.

We need to embrace and assess the current lines of  attack, , and appreciate the fact that we could come under attack, . We cannot afford to be blinkered by the belief  that traditional barriers to entry  ( a high capital base or a long standing brand name )  will continue to protect against competition.

Thankfully for ASEAN, the existing market is underserved and under covered. Insurance take up is still  a small part of a growing middle class, so the avenue of top line growth  are nowhere near being exhausted

ASEAN also  provides opportunities on the investment side. Both  authors have served on the World Economic Forum’s Global  Future Council on Long –Term Investing Infrastructure and Development.

Infrastructure needs in ASEAN’s  real economy should  create  avenue of returns for the region’s life insurance companies.

The ASEAN Insurance Council ( AIC )  , a regional platform for the insurance industry, has issued a major  call to action to insurers to help accelerate  infrastructure investment.

Following the call, leading insurance companies Warna Artha Life, AIA, Allianz Life and Taspen  signed    strategic agreement to invest $ 224 million  in an Indonesian state controlled toll road operator, Jasa Marga, through PT Mandiri Manajemen Investasi .

The call was made in conjunction with the IMF World Bank Group ( WBG ) 2018 Annual Meeting in Bali , where AIC had  a speaker of a discussion about infrastructure financing’

So relatively speaking , ASEAN  has room to grow old lines  of business more efficiently by using new IT productivity tools  and by digitizing existing process . But that’s just  a first order and short term response. A durable response must recognize  that the fourth industrial revolutions is much more than digital efficiency. The second order response requires a fundamental revamp of the value offering  and redesign of the ecosystem.

  1. New Focus

 The reality also requires  a new focus on the customer at the center of our activities. Our design process should revolve around the customer journey,  the customer environment and the customer experience . Over recent years, the custiomer’s daily life has changed,. In Shenzhen for example,  you buy fruit from roadside sellers by zapping on QR codes. Contactless payment is used there for virtually  everything, even for donating to buskers.

We used to think that a banking app compete with the customer’s experience  of waiting into a bank branch.  That was not the right comparison ; the app has to compete  for convenience and look and feel with other unrelated apps that the customer is already toggling on her phone. Many of these apps allow facial recognition or “one click” action. Motor insurance claims have to be processed instantaneously using image and video recognition.  For too long, regulations have helped established banks  ignore “ customer convenience” , as switching bank accounts was extremely onernous.  Now pro innovation regulations ( such as the sandbox program  in Singapore ) are helping start ups compete with customers services as a key design feature.

  1. New approach

Central to the digital response is data, both public and personal. There ‘s a lot that can be done with publicly available aggregated  data- data about the whether , for example,  or about crop performance or about the spending habits of anonymized cohorts of people. It can help us thin – slice the insurance offering. For example, you can now buy insurance for a trip just as you are about to take off.  It is valid for a specific location  for a specific duration, and as soon as the trip is over., the policy is over. Micro insurance is bite-sized pieces is now feasible in a way that it wasn’t so in the past.

In addition, there is a personal, private data. With appropriate consent and  the right ethical frame work,  personal data allows for extreme customization ( “ segmentation of one “)   and gamification  ( where certain behaviours are rewarded with discounts ) .

Data about driving patterns,  grocery shopping and exercise habit can be utilized to fine tune insurance premiums.

  1. New value

Data analytics should enable the creation  of genuine new value to the insured, so that it justifies margin paid to the insurer. This new values is created mostly in the form of reducing or preventing risk during the life of the insurance contract.  For example, the device in my car monitoring my driving pattern can make suggestions that improve  my driving style- for example, the speed at which I tend  to approach roundabouts. Value is created in risk avoidance, and there is no reason why  today’s insurer cannot  have a revenue line built around that. Value is also created in making insurance more inclusive.  Technology, coupled with alternative forms  of peer – to – peer or mutual insurance, could enable previously uninsurable  groups to gain coverage.

  1. New risks

New sources of insurance revenue could come from new risks that have opened up as a result of technology. The Internet of Things creates closely coupled complex system.  The demand for cybersecurity at various operating levels  will only grow in significance

  1. New competition

Today’s established players must anticipate competition from unexpected sources,  InsureTech start-ups aim to cherry-pick  business that are profitable, leaving aside pieces that large organizations  carry as loss leaders. One approach is to embrace  start –ups.  Recently, Aviva took  a majority stake in Neos, a “ smart technology “ provider that lets customer monitor  and protect their homes through connected devices – for example, by alerting them  at work if a tap at home is starting to leak.  Several banks host and sponsor fintech competitions, occasionally collaborating  with contestants

However, it is not just small upstarts that  pose  a competitive threat. Large tech  – driven marketplace such as Amazon or Alibaba provide aspects of payment and banking services.  As distributors of third party products or as a cloud based providers  of back office services, these platforms can claim informational advantage and directly provide online insurance.  Other players such  as car companies or manufacturers of sensors can also claim some informational advantage in the provision of insurance.

Platform based insurance can also have  a disruptive pricing model. “Mutual insurance “  product do not require any upfront  payment of premiums. Some value the entirety of their platforms  as a bundled ecosystem , in the same way that a club  offer discounted drink during happy hour in order to build  critical mass, insurance can be “thrown in”  as a loss –leader that enriches  the data in the network.

Insurance companies must look at every product line as an ecosystem. There is a healthcare ecosystem , as there is a real estate ecosystem and transport ecosystem.

The consumer look at healthcare as a process ranging online diagnoses to video consultation to digital prescriptions and delivery of medicine. Similarly, when it comes  to renting or buying property or a car,  the consumer look for end- to –end service. Increasingly,  insurance must be nested within that process,  not as stand alone product.

  1. New organizational culture

In a world of constant change, nobody has monopoly of ideas. Organizations, with large headcounts  has  a “ wisdom of the crowd” to tap on.  This should provide scale in organizational learning that is not available  to a small start up.  However, this advantage is only utilized  if the organization engages its people  in deliberate and non hierarchical manner, Without operating culture that promotes creativity and experimentation ,  organizations forgo speed and agility, which are the hallmark of success in the Fourth Industrial Revolution. Companies should also update their key performance indicators to reflect  aspect of the customer experience. Every case can be tracked  like a courier package and  every encounter can be rated as on TripAdvisor or Uber.

Finally, a key differentiator of. organizational culture  is its ability to execute  on change while maintaining successful  pre existing businesses.  At least for temporary period, it is important to manage initiatives around “running the firm” separately from those around” changing the firm” . The tone at the top, ideally from the CEO, and allocation of resources must support new ventures  and reinforce the direction of travel.

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