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.
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 premiums 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 and the Middle East and Central Asia region 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 a financial institution account 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.
High mobile phone penetration worldwide relative to that of the use of mobile banking underlines the potential for growth in the coming years. 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.
As for 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 first half of 2018 there were $1.3bn worth of InsurTech deals, putting the year in a good position to top the annual record of $2.7bn in 2015. The bulk of InsurTech deals since 2013 have been made in developed markets, with the US alone accounting for 58% that year. While leading emerging markets such as 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 on the rise, 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, sometimes disruptive, market entrants are starting to account for a larger share of sales, 83% of those made between 2012 and 2017 involved an established insurer or reassurer as a sole or joint investor.
Given the size and growth rate of its economy and its even faster expanding insurance sector, it is hardly surprising that China is not only the top emerging market contributor to global premium growth, but has been a key driver of overall global premium growth in recent years in light of a relatively lacklustre performance in many advanced economies. In 2017 Chinese insurance premiums 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 premiums is expected to moderate thereafter, with other emerging markets taking up the mantle to drive the expansion of global premiums.
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 more developed insurance markets in South-east Asia, with a penetration rate of 5.3% of GDP in 2017. This compares favourably to rates 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 less-saturated regional markets.
Latin America & The Caribbean
Some Caribbean islands – notably the Caymans, the Bahamas and Jamaica – already have reasonably deep insurance markets with penetration rates comparable to advanced economies. As the highest income economy in Latin America, it is unsurprising that Chile also had the highest insurance penetration rate of 4.9% of GDP in 2017. With the largest economy in the region by far and a penetration rate of 4.1%, Brazil accounted for the biggest source of premiums at $83.3bn. Mexico is the region’s second-largest economy and had a penetration rate of 2.2%, suggesting significant potential.
InsurTech adoption varies across the region. A notable success in Brazil is Bidu, established in 2011, which has been a pioneer in selling online insurance to final consumers, mainly in the non-life segment. It has built a strong market position by combining savvy use of technology with offline consultations to maximise the quality of the consumer experience. Adoption is somewhat slower in Mexico, however, though market players expect uptake to increase. On the expected impact of technology on Mexico’s insurance sector, Juan Pablo Murguía, CEO of Murguía, an insurance and surety bond broker in Mexico, told OBG that the introduction of core business systems such as customer relationship management, data analytics and portals will have a dual effect: to provide a more comprehensive and efficient system for all actors, and to boost transparency and accountability throughout the entire value chain.
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 premiums 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 products.” Bode Oseni, managing director of RegencyNem, added that premium are already advertised, sold and collected by telecoms companies in the country. “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, yet a penetration rate of just 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 messages related to vehicle licence information, insurance certificates and e-payment links,” he said. “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.” On increasing insurance penetration, he noted that “the key to expanding outside the major cities is to localise content and communication, while riding on established telecoms and mobile money infrastructure”.
It appears that InsurTech will remain a key driver of premium growth, and therefore rising insurance penetration, in emerging markets for years to come. As the insurance sectors of developing and emerging markets become more sophisticated, it can be expected that digital solutions will filter down through the insurance supply chain, driving operational efficiency and ultimately profitability, as is already being seen in more advanced markets.
In markets where mobile phone penetration greatly exceeds that of financial services, the scope for technology-driven, catch-up growth is particularly large. However, while technology may drive premium expansion in emerging markets, this trend is likely to lag behind in more less-developed countries.
Ultimately, achieving insurance penetration rates comparable to those in advanced economies will require further convergence of macroeconomic development and rising disposable income levels. Efforts to boost financial literacy and awareness about the benefits of insurance products in markets where they have not traditionally had a strong presence will also be essential. Finally, it will be important for products to become tailored to specific markets to help overcome persistent cultural resistance to using formal financial services.
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