Balancing Incumbents and Innovators - the Role of Insuretech.

Our discussions with Insuretech experts across the Asia Pacific region have revealed a diversity of business models, with some striking commonalities.

A common and striking insight is the talent gap at large insurance companies – making it surprisingly difficult to deploy internal teams to build digital products. That in turn has consistently left a gap for savvy entrepreneurs to set up, and importantly, to work hand-in-hand with traditional insurers on distribution to a new audience.

Disruptive innovation like this has allowed companies to scale quickly, without taking on the costs and risks associated with complex insurance products. That said, there’s a limit to how much low-hanging fruit can be picked by simply building out the digital channels.

The Consumer Insurance Regional Play

It's not just the talent gap that’s driving incumbents into the arms of tech-enabled disruptors, but also the increasingly high costs of risk and compliance.

The new IFRS17 standard (governing recognition of insurance contracts from early 2023) has impacted the complexity of year-end reporting. The resulting need to capture and qualify information gets pushed right up through the organisational stack to sales teams, claims agents and other departments, imposing a new layer of costs. This ultimately either gets pushed to the customer, or is absorbed by the insurer, reducing profit margins and increasing the need for increased distribution.

Innovators are filling the gap, offering a simpler user experience – unencumbered by 30-year-old legacy tech stacks – that is tailormade to modern audiences. Take Qoala for instance, that has enabled and empowered the general public to become insurance agents, by providing them with the tools and platform to promote and sell consumer insurance products. The company has seen success in offering micro-insurance scale products, such as protecting against undelivered packages from eCommerce platforms, and broken mobile phones, or a delayed flight – which have a relatively higher chance of being claimed against. They believe it’s important for consumers to experience insurance for the first time by being able to make a claim – an idea that would give heart palpitations to an actuary at an incumbent.

Interestingly, most of the experts we spoke to are building across geographies, having acquired licences or brands across Southeast Asia as part of their growth strategies.

Qoala has expanded from its Indonesian roots to Vietnam and Malaysia organically, as well as to Thailand via its acquisition of FairDee, a deal minted in the height of COVID despite neither party having met in person.

Meanwhile Roojai – a specialist in vehicle insurance that has already made two acquisitions in the region, has expanded from Thailand to Singapore and Indonesia.

Group Insurance

Often considered the purview of traditional insurers, group insurance (policies offered to companies to their employees as part of their employment package) is a complicated product. For one entrepreneur we spoke to, the goal was not to displace the old guard, nor even to act as broker and distribution channel, but just to improve the experience for corporates and employees alike.

Noting the parallel driving forces of better-educated employees demanding more from their insurance policies, and a cross-sector talent shortage that has employers scrambling to add perks to hook and retain the right team, Insuretech start-ups are jumping in. By way of example, New Zealand-based Sentro has launched an Enterprise SaaS play that supports HR teams in the administration of group insurance, while providing employees with a platform to learn about new products that would otherwise sit under the radar.

With this approach, the Sentro platform attracts corporates globally, giving them unique insight into upcoming trends. Employees and their dependents will likely soon enjoy company cyber plans, they say, with insurers now able to assess policy holders’ risk across their devices, and support them with rectifications and best practices.

New Categories

Personal cyber policies aren’t the only areas where we can expect innovation. We are seeing startups moving into new categories, such as listings cover in Australia, allowing buyers to protect against paying real estate agent fees if a deal falls through, or pet insurance – a sector benefitting from a surge in pets bought during COVID when humans couldn’t connect so easily with each other.

In Vietnam, Igloo (which recently closed its US$36 million pre-Series C led by Eurazeo’s bespoke Insuretech fund), is protecting agricultural companies against weather events with parametric insurance – a new mechanism that gives an automatic fixed payout if a “triggering event” (such as a flood) occurs, regardless of proven damage to the claimant.

This removes complexity both from the risk assessment and from the claims process, and whilst the payout may not be enough to make the claimant whole against all the costs of a force majeure event, it should at least provide for business continuity.  As the tech-bros would say, with parametric insurance, business owners can ensure they are “default alive” when disaster strikes.

Concluding Remarks

There are two forces at play shaping up the sector across SEA and ANZ: firstly, there’s support for innovators from incumbents in the space, whose legacy costs, increasing compliance needs and internal talent shortage are slowing corporate innovation. Secondly, there’s ample opportunity for the development of new products and penetration of insurance further down the value chain, as well as horizontally into new sub-sectors.