In 2020, how can insurers respond to the evolving APAC market?
TODAY, technology is disrupting not only insurance products but also how they’re sold.
The insurance market no longer dependent on agents selling policies for high commissions, going directly to the customer via direct platforms as well as e-commerce, among other channels, is not only possible but also practical.
The main determinant of the future of the insurance industry is the market in the APAC region, which is home to almost a third of the world’s population.
Insurers looking to stay competitive ought to look out for key trends in this region.
This is because its landscape can be used as a benchmark to gauge the general health of the insurance industry, and give actionable insights on how to better serve customers.
As such, we aim to look into the prospects of APAC’s life insurance sector in 2020.
Overall, the growth of the life insurance sector in the region is slow. From 2013 to 2018, there was a 0.2 percent decrease in market penetration rate, with an increase of US$180 billion in Gross Written Premium (GWP).
Various factors contribute to slow growth, one of which is the wide spectrum of challenges faced by countries in the APAC region.
Take consumer channel preference for life insurance as an example.
In mainland China, most life insurance consumers (59 percent) prefer to buy insurance policies online, and the same goes for Thailand (55 percent) and Australia (44 percent). In Singapore and Malaysia, however, there is a strong preference for agents.
Economic uncertainties are another example: China’s insurance growth has noticeably slowed amidst trade tensions; the growth rate in Singapore is also directly impacted by the possibility of the city-state going into recession.
There are common challenges across the board as well.
Insurance companies are taking a hit as interest rates are falling, and yields on treasury bonds are not performing as well as expected: the Philippines experienced the biggest dip in yield from October 2018 to October 2019, with Vietnam following shortly after.
The aging APAC population and slow productivity growth are also taking a heavy toll on the insurance sector.
To stay relevant against this backdrop, insurers must consider the following:
# 1 | Digitizing the salesforce
APAC insurers are making strides in going digital, mostly by empowering agents with tools that maximize productivity.
However, given the investments pumped into such initiatives, ROI is low. Employees often find it threatening and are unwilling to adapt.
‘Change is inevitable, digitization will not snatch jobs but will boost efficiency’ is something insurers must communicate to their staff.
Training and upskilling are crucial, but above all, management must lead by example.
What this entails is for C-suites to openly embrace technology, break down barriers, and demonstrate that technology augments employee efforts, and does not replace them.
In the past year or so, a gradual mindset shift and openness to technology have been seen. This shift is most apparent in mature markets such as Australia and Singapore and developing ones such as Malaysia and Indonesia.
The change came in response to the realization that productivity is below par despite having a huge salesforce. The only way forward is to go digital, using digital tools to address challenges and boost performance.
Ultimately, insurers should aim to have genuinely omni-channel propositions, with a healthy balance of digital and human. This will take great effort. However, it will be worthwhile as insurers will reap maximum benefits over time.
Insurers should also be cognizant while going digital, as the success of distribution digitization is highly dependent upon local regulations.
Again, taking Australia as an example, it is difficult for insurers to invest in going digital. Under the Hayne Royal Commission, disclosure statements are stringent, and insurers cannot recoup technology investments through commissions.
The resulting consequences include lost sales, higher training and compliance costs, and a shrinkage of the middle and mass markets.
Thus, insurers should be well versed with the various regulations implemented. Those that thrive will be the ones that can keep up with local regulatory changes, effectively empower employees, and strategically digitize distribution channels.
# 2 | Drive growth through D2C (Direct to Consumers)
Prior to the advent of digitization, insurance companies relied heavily on third party agents to engage consumers, and revenue depended on the selling capabilities of agents.
This has changed over the past decade. Enabled by the increasing acceptance of performing insurance tasks online, insurers can now engage digital-first customers directly, cutting through ‘middleman’ agents.
China’s insurers are veering heavily towards this. Its first online-only insurance company has amassed a customer base of more than 400 million, of which 60 percent are 25-30 years old.
Bringing business online has multifold benefits: not only can the fidelity of information received by consumers be preserved, but costs can also be drastically reduced.
Also, regulators in some markets are facilitating the shift to digital and direct.
In 2017, Singapore approved a full direct life insurance license to new entrant Singapore Life. In 2018, Hong Kong granted the first virtual insurance license as part of its initiative to grow its online financial services industry.
While larger players are adapting rapidly to this trend, others are slow to gain traction via direct channels.
Going digital requires heavy investments, and the initial ROI is expected to be modest at best. Only companies that are forward-looking, and can afford to take a long-term perspective on these investments will thrive amidst these changes.
In light of all this, insurers ought to recognize that each market and organization is unique. Blindly following suit is not wise: Insurers need to take into consideration various facets of the business, such as financial constraints and talent availability.
Whatever the situation of individual insurers, however, they cannot afford to ignore emerging trends, especially prominent ones that are bound to reshape the industry.
The only way forward is to put their heads together, decide on what role they need to play in this evolving ecosystem, and then develop strategies to best fulfill their roles.
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