Here are seven steps the insurance industry in the ASEAN region can take to navigate disruption

Shanghai 2019

Night view of Shanghai (Unsplash, 2018)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Lutfey Siddiqi, Visiting Professor-in-Practice, London School of Economics and Political Science & Evelina Pietruschka, Chairperson, WanaArtha Life


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 models 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 an 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:

– Changes 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 assets 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 commits to increasing the share of assets allocated to infrastructure, 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 step 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 anymore. We need to look at the entire value chain, from product development to marketing, distribution, claims management and the 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 avenues 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 avenues 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 WanaArtha Life, AIA, Allianz Life and Taspen signed a 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 at 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 processes. But that’s just a first-order and short-term response. A durable response must recognise that the fourth industrial revolution is much more than digital efficiency. The second-order response requires a fundamental revamp of the value offering and redesign of the ecosystem.

2. New focus

The new reality also requires a new focus on the customer at the centre of our activities. Our design process should revolve around the customer journey, the customer environment and the customer experience. Over recent years, the customer’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 competes with the customer’s experience of walking 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 onerous. Now pro-innovation regulations (such as the sandbox program in Singapore) are helping start-ups compete with customer services as a key design feature.

3. 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 weather, 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 in bite-sized pieces is now feasible in a way that it wasn’t so in the past.

In addition, there is personal, private data. With appropriate consent and the right ethical framework, 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 habits can be utilized to fine-tune insurance premiums.

4. New value

Data analytics should enable the creation of genuine new value to the insured, so that it justifies margins paid to the insurer. This new value 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 insurers 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.

5. 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 systems. The demand for cybersecurity at various operating levels will only grow in significance.

6. New competition

Today’s established players must anticipate competition from unexpected sources. InsureTech start-ups aim to cherry-pick businesses 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 customers 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 marketplaces such as Amazon or Alibaba provide aspects of payment and banking services. As distributors of third-party products or as 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” products 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 may offer discounted drinks 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 looks at healthcare as a process ranging from 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 looks for end-to-end service. Increasingly, insurance must be nested within that process, not as a stand-alone product.

7. New organizational culture

In a world of constant change, nobody has a monopoly of ideas. Organizations with a large headcount have 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 a deliberate and non-hierarchical manner. Without an operating culture that promotes creativity and experimentation, organizations forgo speed and agility, which are the hallmarks of success in the Fourth Industrial Revolution. Companies should also update their key performance indicators to reflect aspects 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 a 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.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Syria’s groundbreaking constitutional talks: ‘a clear success of mediation’ says Guterres in Turkey

10 million Yemenis ‘one step away from famine’, UN food relief agency calls for ‘unhindered access’ to frontline regions

“911, What’s your emergency?”

Nearly a third of the globe is now on Facebook – chart of the day

Climate change is forcing 20 million people a year from their homes, Oxfam says

4 ways Africa can prepare its youth for the digital economy

Germany objects to EU Commission’s plan for a Eurozone bank deposits insurance scheme but Berlin could go along

Alcohol abuse kills three million people a year, most of them men – WHO report

2013, a Political Odyssey: What future for Italy?

This is why mental health should be a political priority

Commission welcomes European Parliament adoption of EU4Health programme

Commission welcomes agreement on the modernisation of EU export controls

7 ways to break the fast fashion habit – and save the planet

ECB again to subsidize euro area banks with more than one trillion euro

Thomas Cook bankruptcy: Better consumer and employee protection needed

MWC 2016 LIVE: Ingenu steps up efforts to build LPWA networks across the globe

Greener tourism: Greater collaboration needed to tackle rising emissions

How digital entrepreneurs will help shape the world after the COVID-19 pandemic

MEPs back plans to promote water reuse for agricultural irrigation

The ECB proposes a swift solution for SMEs’ financing

Working fewer hours makes you more efficient. Here’s the proof

COVID-19: A coordinated EU health strategy needed, say MEPs

‘BioSolar Leaves’ are better at cleaning the air than trees, say the technology’s developers

EU leaders agree to delay Brexit until 31 October

Yemen war ‘a test of our humanity’, and we’re ‘badly failing’ warns UN Children’s Fund chief

German Presidency outlines priorities to EP committees

The refugee crisis seen through the eyes of a young doctor from Turkey

EU, Latin America and the Caribbean: Partnering for prosperity, democracy, resilience and global governance

Collective action to enable sustainable growth will be critical to end tropical deforestation

Adoption of new rules to better protect children caught in cross-border parental disputes

Arrest of three Libyans wanted for grave crimes ‘would send strong and necessary message’ to victims, urges top Prosecutor

State aid: Commission approves around €36 million Romanian rescue aid to state-owned flag carrier TAROM

COVID-19: from the chaos of the pandemic to the difficulties in vaccination

Ecofin: ‘The Friday battle’ for the banking union

Haiti cholera outbreak ‘stopped in its tracks’

The UK option: An overarching alternative for the whole Brexit options

Security Council gravely concerned by Ebola outbreak in DR Congo, demands immediate end to violence hampering response

Here’s how to achieve growth in the Middle East and North Africa

Civil society groups matter for Cambodia’s sustainable development: UN expert

European Institute of Innovation and Technology: Commission welcomes political agreement on strategy for 2021-2027

The von der Leyen Commission: for a Union that strives for more

Number of MEPs to be reduced after EU elections in 2019

The challenge of palliative care in universal health coverage

The world needs carbon-neutral flying. Here’s how to bring it one step closer

Facts, not fear, will stop COVID-19 – so how should we talk about it?

Concorde is a reminder that the only way for innovation is up

Parlamentarians to “break up” with reality in the Google antitrust case

Implementation of tax transparency initiative delivering concrete and impressive results

The world has made spectacular progress in every measure of well-being. So why does almost no one know about it?

EU guidance on the handling of visa applications from residents of Ukraine’s Donetsk and Luhansk regions

MEPs to prioritise environment and climate action in next long-term budget

GDP growth slows in most G20 economies in third quarter of 2019

This is why retail is such a sore point in India-US trade relations

Khashoggi murder trials must public and meet international standards, UN expert urges

UN chief seeking ‘renewed commitment’ to global rules and values, as world leaders head to New York

Agriculture and Fisheries Council

A reality check on inclusive innovation

Austerity lovers to put a break on Renzi’s growth vision for Europe? the Sting reports live from World Economic Forum 2015 in Davos

This man is turning cities into giant sponges to save lives

4 key trends on how COVID has impacted women in business

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s