The insurance industry and its framework have been present and functioning for hundreds if not thousands of years. Historically, insurance was developed in Babylon as bottomry contracts as early as 4000–3000 BCE. Bottomry was also employed by the Hindus in 600 BCE and was widely accepted in ancient Greece as early as the 4th century BCE.
Insurance Technology in Southeast Asia
According to economic and industry reports the roll-out of insurance products in Southeast Asia is still in its infancy. Indonesia, the largest market in terms of population, regrettably has only 1.7% Indonesians insured out of 265 million, as reported by The Jakarta Post. Thailand, as the second-largest market of the ASEAN economic community, still has quite low insurance penetration relative to its size: in 2016, the industry continued to be only 5.5% of GDP. The General Insurance Association of Malaysia aims to grow it’s population’s coverage; as of 2018 it was less than 2%. In the Philippines, the penetration rate was 1.76% in 2018, and therefore, below-average, as reported by BusinessWorld. Given these low penetration rates and the startup ecosystem, it’s clear that venture capitalists have a high-impact opportunity in this low-maturity industry.
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The immense potential for growth
The potential for growth in Southeast Asia is high: According to the innovation matrix, we can categorise InsurTech as a disruptive innovation, extending known solutions to new or different problems.
Not only are auto and health insurance companies fusing with tech giants worldwide, but there is a major opportunity for startups in developing countries to profit from this seismic shift in the industry. Though geographical clustering of InsurTech startups amidst established centres of finance and technology hubs are prevalent, there should be no discounting the ability of these strongholds to penetrate and apply “know-how” to the rest of the region.
InsurTech startups have the potential to capitalise on lower-income segments by providing more than just accessibility. A notable example is Malaysian startup PolicyStreet founded by Yen Ming Lee in 2016. It has one specific goal: applying new technologies “to make insurance simpler” by offering only what’s really necessary so lower costs can be guaranteed while not overwhelming their customers with information. “Our vision is to get everyone ‘adequately’ protected without worrying about rigid policies and confusing fine print at all stages of their lives for things that are most important to them.”
Another notable example is the Philippine-based firm, Saphron, who is targeting the lower-income segments by helping CARD MRI’s insurance agents and their clients. “The strategic partnership will see Saphron marrying AI and neuro-linguistic programming (NLP) technologies with CPMI’s products, which is aimed at making microinsurance accessible to the bottom of the pyramid,” said Lorenzo Chan, CEO of Saphron. The outcome is Saphron’s platform NANAI which allows agents “to enrol clients, monitor policies, and initiate claims in short time and at lesser costs.”
In Indonesia, PasarPolis is another firm easing the process substantially, aiming to reach customers with flexibility through client-centric products and smooth-transaction processes. Policyholders can process their claims via email and, in some cases, payments are credited directly to their bank accounts. PasarPolis partners with various technology firms to create an InsurTech solution. Working with Go-Jek, for example, health and accident coverage is provided for its drivers, while in another partnership with budget airline Citilink, they offer travel insurance for passengers with delayed flights.
Customers are the most important factor when it comes to the growth of insurance penetration in Southeast Asia; the industry has all it takes to notably expand its consumer base and create a boom for insurance. The digitalisation of processes has many advantages for customers, especially in developing countries and lower-income segments.
While InsurTech companies’ potential to reach a broadly untouched population using innovation and accessibility is enormous, there are fundamental weaknesses to be found. Insurance in Southeast Asia meets resistance in the average person’s psyche, and therefore, ease-of-use does not instantly translate to adoption or success. The Indonesian Insurance Council explains that the low number of insured individuals is due to a general lack of awareness, especially in the younger generations. The association’s chairman suggests a better pricing policy to suit the needs of consumers in lower-income segments. The same principle applies to the Philippine market, where the urban populations and higher-income classes are well covered when it comes to insurance premiums. Meanwhile, lower-income segments in more rural areas are mostly excluded from living a life with “guarantees” of financial stability after an insurable event, because of location, resources, and other shortcomings in the current insurance models.
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Public policy in developing Southeast Asian countries have yet to catch up to the West where insurance is a matter of personal legal obligation. In developing countries it is not viewed as an essential part of life. As enticing as the market is, the low single-digit penetration in developing countries may not necessarily translate to exponential uptake, even with technological advancements, ease-of-access, or even education.
Game-changer or not?
Maximising efficiencies of current technologies to streamline a traditional industry is a phenomenon that has been witnessed and replicated in many industries throughout the world: telephone banking in the UK in the ’80s, micro financing in India early 2000s, and the global boom in digital currency we’ve seen in the past few years.
So InsurTech might not be a game-changer at present, but it is a natural progression in the digitalisation of services. Southeast Asia, with it growing population, booming economy, and mass adoption of all-things technical, promises to be a hot-bed of opportunity for InsurTech startups, so watch this space!