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. 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. The sophistication and availability of digital financial services has therefore expanded greatly, 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 “new technologies with the potential to bring innovation to the insurance sector and impact the regulatory practices of insurance markets”. Insurtech, 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 by Munich Re include micro-insurance for health and crop insurance, which can be contracted and managed via mobile phones.
The share of insurance premium 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 as a percentage of premium to GDP, at 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 had rates of less than 3% of GDP, with large, populous economies such as Pakistan and Bangladesh registering rates under 1%. The most potential for growth is in Africa, which has a rate of 3.06%, and Latin America and the Caribbean, with 2.96%.
The pattern of premium growth, however, is somewhat different, reflecting both stronger growth in emerging markets and the catch-up potential represented by relatively low penetration rates. In 2017 premium were flat in North America, and contracted in Europe and Oceania by 0.5% and 6.2%, respectively. Meanwhile, premium growth in Asia registered 5.7%, but differed markedly between its sub-segments. Advanced Asian economies contracted by 1.1%, while emerging Asian markets in the Middle East and Central Asia grew by 14.7% and 5%, respectively. Premium growth in Latin America and the Caribbean was a modest 0.1%, reflecting muted economic activity across the region, particularly in Venezuela, Argentina and Brazil. Similarly, premium growth in Africa was weak, at 0.5%, dragged down by the performance of South Africa, which dominates the continent’s insurance market, and Nigeria, which experienced an economic blowback from weak oil prices.
According to the World Bank’s 2017 Global Findex database, the share of the adult population that used a mobile phone or the internet to access an account at a financial institution in the past year was 68% in North America, 36% in Europe and Central Asia, 32% in the East Asia and Pacific region, 12% in the Middle East and North Africa region, 10% in Latin America and the Caribbean, and 8% in sub-Saharan Africa. Although not surveyed specifically, it could be expected that the penetration of digital insurance products across these regions would be an even smaller percentage. Worldwide, mobile phone penetration is high relative to the use of mobile banking, underlining the potential for growth going forward. For bancassurers in particular, this provides significant opportunities to cross-sell insurance products, while for pure insurers there is potential for joint ventures with banks and technology companies, particularly in e-payments.
With regard to the insurtech segment itself, CB Insights, a tech market intelligence platform, estimated that total global investment reached $2.3bn in 2017, following a compound annual growth rate of 45% since 2012. In the fourth quarter of 2018, 63 insurtech deals were announced, with a total value of $1.59bn, while funding volume also increased by 155% relative to the same quarter in 2017. The capital invested in insurtech start-ups and scale-ups reached a total of $3.18bn worldwide in 2018, according to data from the FinTech Global database. The bulk of insurtech deals since 2013 have been made in developed markets, with the US alone accounting for 58% of deals that year. While leading emerging markets China and India only recorded shares of 5% and 4%, respectively, they are beginning to make their presence felt. Emerging markets’ share of global insurtech deals is increasing, with China and India accounting for 13% and 10%, respectively, in the second quarter of 2018. Meanwhile, Israel accounted for 6% and South Africa for 4%. While new and sometimes disruptive market entrants are starting to account for a larger share of sales, 83% of those sales made between 2012 and 2017 involved the participation of an established insurer or reinsurer as a sole or joint investor.
Given the size and growth rate of its economy and its fast-expanding insurance sector, it is unsurprising that China is the top contributor to global premium growth. It has also been a key driver of overall growth in recent years when many advanced economies saw relatively lacklustre performances. In 2017 Chinese insurance premium adjusted for inflation grew by 16.2% to reach a 4.1% share of GDP. According to Swiss Re, “China will remain the biggest contributor to global insurance market growth among emerging markets for the next decade at least”. However, given the extent of convergence with the insurance penetration rate in more advanced economies by 2030, the increase in Chinese premium is expected to moderate thereafter, with other emerging markets driving the expansion of global premium.
Beyond China, the extent of insurtech’s impact varies. Kheedhej Anansiriprapha, executive director at Thai General Insurance Association, told OBG that “online insurance sales account for a relatively small proportion of the market, with only motor and travel products being purchased online. For life and non-life, agents and bancassurance will be the vehicles for distribution in the short to medium term”. By contrast, Mark Lwin, president and CEO of AIG Philippines Insurance, explained that some segments have already seen a big impact. “Technology has had a broad and deep impact on retail and high-volume insurance segments, such as life and consumer insurance,” he told OBG. “However, the commercial segment in the Philippines lags globally and has not undertaken major investments in ICT or digitally enabled products and capabilities.”
Thailand is one of the most-developed insurance markets in South-east Asia, with a penetration rate of 5.3% of GDP in 2017. Lower rates can be found in Malaysia (4.8%), Indonesia (2.4%), Vietnam (2.1%) and the Philippines (1.8%), suggesting that insurtech could play an even stronger role in driving catch-up premium growth in regional markets that are less saturated.
Middle East & North Africa
Both insurance penetration and digitisation rates vary across the MENA region, registering higher rates on average in the Gulf countries than in North Africa. In the latter, some countries are tapping into insurtech to help drive premium growth. Philippe Vial, administrative director-general of La Marocaine Vie, a Morocco-based life insurer and subsidiary of financial services multinational Société Générale, stated that bancassurance holds a competitive advantage due to the contacts they have with customers. “These contacts constitute an asset in that they provide us with personal information that helps us to better serve our customers,” Vial told OBG. “The optimisation of these assets is one of our major priorities in the coming years.”
By contrast, the use of technology in the Algerian and Egyptian insurance sectors is very much in its infancy, though it has broken some ground. Youcef Benmicia, CEO of Compagnie Algérienne des Assurances, an Algerian non-life insurer, told OBG that the firm has “introduced e-payments and bank card payments for insurance premiums, SMS notifications of contract expiry and online subscriptions for some types of insurance”. Some Algerian insurers also use social media to contact clients, but digitisation efforts in the country are still relatively unsophisticated and insurance penetration is lower than the rest of the region. For example, the penetration rate in Algeria in 2017 was 0.7% of GDP, compared to 3.5% in Morocco.
South Africa’s insurance market is already relatively saturated, with a penetration rate of 13.8% of GDP in 2017 – higher than most advanced countries and many other economies in the region. Namibia ranked second in this cluster, at 7.6%, and Kenya third, at 2.6%. However, there is considerable scope for tech-driven premium growth in West and East Africa. Players are confident in the potential of digitisation to raise premium in Ghana, for example.
“Digitisation is needed to help customers apply advanced payment techniques, such as staggered premium payments,” Esther Osei-Yeboah, managing director of Imperial General Assurance, told OBG. “By removing the feeling of a bulk payment, staggered payments will increase uptake of insurance.” Bode Oseni, managing director of insurance company RegencyNem, added that premium are already advertised, sold and collected by telecoms companies. “Mobile money is helping to increase Ghana’s insurance penetration rate, particularly in more rural areas,” Oseni told OBG.
With the continent’s largest population and economy, but a penetration rate of 0.3% of GDP in 2017 – one of Africa’s lowest – Nigeria has perhaps the most striking potential for premium growth in the years ahead. Adebowale Banjo, general manager of global insurance product distributor AutoGenius, told OBG, “WhatsApp coverage has provided a great way to distribute insurance online, using a platform Nigerians already understand and trust. WhatsApp Insure, for example, has been very effective for dealing with enquiries and sending information related to vehicle licence information, insurance certificates and e-payment links via messaging. Eventually, artificial intelligence will be employed to handle enquires, claims and build better risk profiles. Independent firms will continue to drive insurtech in Nigeria and the more established incumbents will have no choice but to join the prevailing trend.”
Insurtech will remain a key driver of premium growth, and therefore rising insurance penetration, in emerging economies for years to come. In markets where mobile phone penetration greatly exceeds that of financial services, the scope for technology-driven, catch-up growth is particularly large. Still, achieving insurance penetration rates comparable to those in advanced economies will ultimately require further convergence of macroeconomic development and rising disposable income levels. Efforts to boost financial literacy and awareness of the benefits of insurance products in markets where they have not traditionally had a strong presence will also be essential.
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