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 length of 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 “World insurance in 2017: solid, but mature life markets weigh on growth” report by Sigma, Swiss Re’s research and analysis arm, North America and Europe had the highest insurance penetration rates that year, measured as 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 less than 3% of GDP, with large, populous economies such as Pakistan and Bangladesh registering rates under 1%. Latin America and the Caribbean and Africa hold the most potential for catch-up growth, with penetration rates of 3.06% and 2.96%, respectively.
The pattern in 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.
Mobile phone penetration is almost universal in advanced countries, and rapidly catching up in emerging and developing economies. According to the World Bank, in 2017 there were more than 115 mobile phone subscriptions per 100 people in North America, Europe, and the East Asia and Pacific region, while there were more than 100 in the Middle East and North Africa and Latin America and the Caribbean regions. Even in sub-Saharan Africa, there were more than 70 mobile phone users per 100 people.
A similar pattern can be found in the use of mobile banking services, albeit at much lower levels. 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 would be an order of magnitude smaller across all regions. Moreover, the extent of mobile phone penetration 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 – notably e-payment – companies.
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 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, 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 reinsurer as a sole or joint investor.
Even if much of InsurTech investment has thus far been complementary, rather than disruptive, to incumbent insurers, large technology companies are entering the market, particularly in economies such as China. For example, Alibaba, sometimes labelled as the Chinese Amazon, teamed up with Tencent, another Chinese technology giant, and insurer Ping An Insurance to launch China’s first wholly online insurer, Zhong An, in 2013. Over time, it is likely that the biggest global tech firms will look to enter insurance markets in other advanced and emerging economies, either through their own well-established brands or through joint ventures with established insurers. An August 2018 survey by US-based marketing research company JD Power found that one in five US consumers would be willing to purchase home insurance from Amazon or Google.
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 Southeast 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 markets such as the Philippines.
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 Latin American economy, it is unsurprising that Chile also had the highest insurance penetration rate at 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, the region’s second largest economy, had a penetration rate of 2.2%, suggesting it has significant catch-up 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.
Middle East & North Africa
Both insurance penetration and digitisation rates vary across the region, registering higher rates on average in the Gulf 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 the investment management multinational Société Générale Group, stated that bancassurance holds a competitive advantage owing to the contacts that 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 sector 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 much lower compared to the rest of the region. For example, the penetration rate in Algeria in 2017 was 0.7% 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 countries in the region, while Namibia ranked second in the region at 7.6% and Kenya third at 2.6%. However, there is considerable scope for tech-driven catch-up growth in premiums in West and East Africa. Market players are confident in the potential of digitisation to drive premium growth 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, a local insurance company, added that premiums are already advertised, sold and collected by telecoms companies in the country. “Mobile money is already helping increase Ghana’s insurance penetration rate, particularly in rural areas. Premiums are already advertised, sold, and collected by telecoms companies,” Oseni told OBG.
With the continent’s largest population and economy, yet with a penetration rate of 0.3% of GDP in 2017, one of Africa’s lowest, Nigeria has perhaps the most striking potential for catch-up premium growth in the years ahead. Adebowale Banjo, general manager of global distributor of insurance products AutoGenius, told OBG that “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, sending messages, such as 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 than 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. As has been the case with mobile banking, in markets where mobile phone penetration greatly exceeds that of financial services, the scope for technology-driven, catch-up growth is particularly large. While technology may drive premium growth in emerging markets, this trend is likely to lag behind in some less-developed markets.
Ultimately, achieving insurance penetration rates comparable to those in advanced economies will require further convergence in terms of macroeconomic development and income levels. Efforts to boost financial literacy and awareness about the potential 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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