KPMG: Digital transformation of the insurance industry in a no-contact era

June 8 2020

How will the market’s digital transformation take place? 

By Jae-Park Jo and Jae-Beom Choi 

Covid-19 has significantly impacted lifestyles and consumer behavior. Contactless consumption through online platforms and mobile devices has exploded, while interest in healthcare is increasing. The advent of the no-contact era is expected to accelerate the digital transformation of the insurance sector, and in areas like distribution and education.

With digital technology and data redefining the market’s entire value chain, customer touchpoints are shifting to mobile channels; while standardised products of the past are transforming to customised or new niche products that reflect customer needs. Furthermore, the industry is expanding its scope of services by leveraging its connection to relevant industries such as healthcare.

Digital technology is transforming the end-to-end value chain
Digital transformation is taking place throughout the entire industry value chain – from sales and distribution, to product development, underwriting and claims management.

Customer contact and sales approaches are rapidly moving from traditional face-to-face channels to digital platforms, while super apps that provide various financial services through single platforms are intensifying their influence on the market. KPMG’s annual Fintech100 report with H2 Ventures identifies three companies from Asia (ZhongAn, PolicyBazaar and Coverfox) which were selected as insurtech leaders in 2015. This number grew to eight in 2019 (PolicyBazaar, Singlife, ZhongAn, Acko General Insurance, Bowtie Life Insurance, Masii, OneDegree and Policypal), signaling the trend of insurance joining forces with digital technologies.

In addition, super apps from platform companies such as Ant Financial (China), Grab (Singapore), Gojek (Indonesia) and Ola (India) are emerging as active insurance sales channels and transforming into integrated financial services platforms. These platform companies used to sell products in partnership with insurers, but have more recently been attempting to launch their own businesses. Grab, which used to sell products of affiliated insurers, expanded its presence in the market by obtaining a non-life license in Malaysia in 2019, followed by a joint venture with ZA International, a subsidiary of China’s ZhongAn Insurance.

“Customer contact and sales approaches are rapidly moving from traditional F2F channels to digital platforms.” 

Customised insurance products are released using technologies such as Internet of Things (IoT), artificial intelligence (AI) and big data. Car insurance products linked with individual driving habits and mileage through IoT devices have been unveiled. For instance, Korea’s Carrot Insurance introduced mileage-linked car insurance. Singapore’s Grab also launched an ‘on-off auto insurance’ product using the Grab Driver app. By using wearable devices, personal characteristics and needs can be reflected in premium pricing. In September 2019, Prudential launched its first digital health platform ‘Prudential Pulse by Prudential’ app in Malaysia, which manages customer health through AI and real-time health related data. They plan to introduce the service in 10 additional Asian markets. The market prediction is that various health-related wearable devices will be increasingly utilised in the industry due to a growing middle-class and rising income levels in Asia.

“Customised insurance products are released using technologies such as IoT, AI and big data.” 

The demand for micro-insurance – which covers various short-term risks from activities in our daily lives – is increasing. Micro-insurance products, such as short-term overseas travel insurance and pet insurance, can provide consumers with easy and convenient choices by lowering premiums to reasonable levels for reduced risk coverage. Limitations on data and distribution channels previously hampered the development of micro-insurance. However, advancements in IT technology have now enabled data-driven underwriting for micro-risks and convenience in product comparison, to allow selection via remote channels. Micro-insurance is recognised as an alternative that promotes financial inclusion in the Asian market by eliminating blind spots for vulnerable groups. Micro-insurance is expected to continue its expansion. This will start from micro-Property & Casualty, such as delivery and return shipping insurance linked with online to offline channels, to micro-life products.

“The demand for micro-insurance — which covers various short-term risks from activities in our daily lives — is increasing.” 

Market convergence with heterogeneous industries — and expansion as a financial instrument beyond risk management
Through convergence with other industries, insurance products are considered as whole life financial and health risk management methods.

Insurance services are starting to be combined with healthcare services such as telemedicine and health management. Insurers are releasing products linked with an individual’s financial, health-related and medical records, while actively partnering with hospitals and pharmacies – or even providing healthcare services themselves. For instance, Chinese tech giants Baidu, Alibaba and Tencent, are actively entering the online life space. The three players, collectively known as China’s BAT, drove 90% of the annual growth of the country’s online marketplace between 2011 and 2018. China’s PingAn Insurance also established its online healthcare platform. PingAn Good Doctor provides AI-driven healthcare services with 1,000 internal medical staff. In Japan, which is grappling with an aging population, has seen Nippon Life and Sumitomo Life providing personal healthcare services since 2013, when healthcare services by private insurers became legally allowed. In Korea, life insurers such as Samsung Life are actively preparing and launching health-related services as legal grounds were prepared in 2019.

“Insurance services are being combined with healthcare, such as telemedicine and health management services.” 

Hyper-personalised needs are reflected in the selection of insurance products. Financial management and rebalancing efforts in conjunction with a policyholder’s life stages are increasing. With the population aging across Asia, demand for financial management of variable annuities and retirement pensions is expected to rise. To meet individual needs, wealth management approaches, such as with the deployment of robo-advisors, will continue to rebalance long-term financial assets. From a lifecycle perspective, this includes annuities, pensions and whole life insurance. As data, consumption patterns and financial status flow through super apps – allowing investment and insurance products will be customised for individual needs.

“Hyper-personalised needs are reflected in the selection of insurance products.” 

Future market competitiveness will rely on how insurers internalise and leverage digital transformation
Due to the Covid-19 pandemic, governments have cut interest rates to the lowest levels in history. This raises concerns about the profitability of insurers, calling for insurers to search for new growth engines and achieve operational efficiency. Asian markets, with its high economic growth rates, population sizes and low financial accessibility, means high growth potential for insurance. Digital transformation is likely to progress more rapidly in Asia, due to the region’s demographics and mobile penetration levels, which will offer potential new customers. How insurers respond to this paradigm shift – to a technology-based digital economy – through their own digital transformation, will determine the competitiveness of future insurers.

Insurers must redefine markets and customers to respond to the digital shift
The emergence of ICT-oriented platform companies and insurtech will trigger digital transformation and competition within the market. Insurers and market players must redefine customers and markets to address with this competition. In this digital age, customers interact with insurers on their own and become active managers of their own risks and lifecycle assets – rather than taking in advice and services passively.

While utilising customer data linked to relevant industries like healthcare and delivery services, insurers should provide new products such as on-demand products at reasonable prices and optimise the customer experience.

Additionally, digital transformation in a company’s value chain and within the organisation should be considered. This includes collaboration with platform companies or insurtech firms to secure continuous customer channels and data utilisation capabilities.

The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG in Korea.