Global Perspective: InsurTech taps premium growth potential in emerging markets
30 Jan 2019
Two of the biggest trends in global insurance in recent years are premium growth in emerging markets and the rising importance of technology across the supply chain. The latter has come to be referred to as InsurTech, a potentially disruptive trend that heralds both threats to and opportunities for incumbents and newcomers alike. While technological solutions are being applied along the insurance supply chain in advanced markets, their focus in emerging markets has primarily been on driving premium growth. Stronger growth in emerging and developing economies since the turn of the century has given rise to a swelling middle class. At the same time, many lower and some middle-income countries have managed to largely skip the mass rollout of fixed-line telephony, as the prevalence of low-cost mobile telephony has seen a surge in mobile phone penetration rates not too dissimilar to those in advanced economies. In turn, this has facilitated financial inclusion, allowing tens of millions to access formal financial services for the first time. Kenya’s mobile money system, M-Pesa, is a notable example, blazing a trail for mobile banking in developing economies. In fact, Kenya’s mobile payment system is on par with, or even ahead of, those in many advanced economies. Over time, the sophistication and availability of digital financial services has greatly expanded, from e-payments to microcredits and, more recently, insurance products.
According to a report titled “Technology and Innovation in the Insurance Sector”, published in 2017 by the OECD, InsurTech is used to describe “the new technologies with the potential to bring innovation to the insurance sector and impact the regulatory practices of insurance markets”. InsurTech, as compared to financial technology (fintech), is more often related to service improvements for individuals, as opposed to businesses. Sector participants sometimes use the term more broadly to encompass the application of digital technology to all stages of the insurance supply chain. In its insurance market outlook for 2018-19, global insurer Munich Re noted that “InsurTech start-ups benefit from the achievements of fintech companies, as new financial technologies also allow insurers’ product ranges to be expanded, alternative sales channels to be created and additional groups of clients to be reached”. This is highlighted as being particularly relevant in “underdeveloped insurance markets by offering simple, innovative and needs-based products digitally, and thereby developing new markets”. Concrete examples cited in the Munich Re article include micro-insurance for health and crop insurance, which can be contracted and managed via mobile phone.
The share of insurance premiums in GDP is closely and positively correlated with GDP per capita, and varies significantly across regions. According to the report “World insurance in 2017: Solid, but mature, life markets weigh on growth” by Sigma, Swiss Re’s research and analysis arm, North America and Europe had the highest insurance penetration rates that year, measured by premiums as a percentage of GDP, with 7.1% and 6.5% of GDP, respectively. Asia, which includes the Middle East, and Oceania tied in third place with 5.6%. While Taiwan (21.3%), Hong Kong (17.9%), South Korea (11.6%), Japan (8.6%) and Singapore (8.2%) recorded rates above those seen in North America, about half of the countries in Asia have rates of less than 3% of GDP, with large, populous economies such as Pakistan and Bangladesh registering rates under 1%. Latin America and the Caribbean, as well as Africa, hold the most potential for catch-up growth, with penetration rates of 3.06% and 2.96%, respectively.