Today, a new breed of players threatens to intrude on their turf. Armed with both customers and data, tech titans like Facebook and Google have made significant insurance investments.

From health insurance to product liability coverage, take a look at some Big Tech’s latest insurance plays.

Google: towards all-in-one insurance?

Google has business arms across many verticals, and its insurance investments appear to be widely distributed across them.

What appears to be a common theme across all its investments, however, is an emphasis on precision solutions powered by data analytics.

This is likely due to the fact that Granular Insurance, the flagship subsidiary of Alphabet-owned Verily Life Sciences, focuses on developing prevision risk models which help optimise rates for employer-backed insurance.

On the broader level, its US$100 million purchase of a minority stake in US insurtech provider Applied Systems will see the firms’ talent collaborate with Applied Systems to “drive innovation within the global ecosystem,” says CapitalG’s Gene Frantz. CapitalG is the investment arm of Google’s parent company Alphabet.

In exchange for Google’s investment, Applied Systems can tap on Google’s expertise in aspects such as artificial intelligence and machine learning.

Some of Google’s investments have focused on health insurance. These include a US$375 million investment for a 10% stake in US health insurance startup Oscar Health, as well as a US$81 million investment in US health-tech firm Collective Health.

Other investments made by Google include a US$300 million play in US insurance carrier Lemonade and a US$60 million investment into online people platform Gusto.

Amazon: betting on Indian auto-insurance

So far, Amazon hasn’t been as prolific an investor in insurance.

The ecommerce juggernaut’s sole investment is a US$12 million play in India-based digital insurance startup Acko, which dates back to 2018.

According to industry observers, Acko’s coverage of the “internet economy” was what made the deal appealing to Amazon.

Separately, vehicle owners in India can also sign up for Amazon insurance in two minutes or less, thanks to the firm’s partnership with Acko.

Microsoft: a cloud-driven investment play

 Microsoft’s cloud business has slowly chipped away market share from rivals Amazon and Google, and the firm is looking to solidify its lead by not only building nearly a 100 new data centers each year, but also acquiring and investing in insurance and insurtech leaders.

One such acquisition this year is Nuance. Built upon an existing partnership, Microsoft acquired the healthcare cloud and AI software provider for US$19.7 billion.

The acquisition is expected to accelerate Microsoft’s efforts to develop industry-specific cloud solutions, particularly in healthcare where the firm introduced Microsoft Cloud for Healthcare in 2020.

Microsoft also made a US$74 million investment into digital insurance provider Atbay.  The move has been billed as an effort to strengthen the firm’s cyber-security posture and improve cyber-security for small-medium businesses.

With this partnership, small-medium businesses enjoy 15% off their At-bay cyber insurance policy premiums by leveraging Microsoft 365’s built-in security controls, as well as free active risk monitoring.

Tencent: transforming WeSure into a one-stop shop

Launched in 2018, Tencent’s WeSure has gone from tackling distribution for small-ticket items like mobile insurance coverage to complex, long-term policies that most insurtech disruptors have stayed away from.

Recently, the Chinese tech giant also launched a dedicated sales team that focuses on building new audiences via artificial intelligence and digital channels.

Much like Google’s broad play, Tencent has also made a number of investments across various insurance categories.

Some, like the firm’s US$61.9 million investment in Chinese online financial consulting startup Xiaobangguihua, don’t directly cover insurance.

Others cover a wide swathe of insurance policies. Tencent’s US$218 million-dollar investment in Chinese insurer Hetai Life Insurance, for example, covers female-specific disease insurance, travel insurance, and comprehensive accident insurance.

Tencent has also claimed a 20% stake in multinational insurance firm Aviva, as well as made a US$150 million investment in Chinese insurtech firm Waterdrop.

Sony: catalysing digital transformation for insurance

Sony sells a range of products and services as a conglomerate, and the Japanese multinational firm doesn’t shy away from insurance.

Its subsidiary, Sony Life Insurance, offers a range of insurance policies including life insurance, endowment insurance, personal pension insurance, and nursing care insurance.

Earlier in April this year, Sony’s venture capital fund invested US$2.3 million in US-based digital life insurance platform Covr.

The investment is expected to catalyse Sony Life Insurance’s digital transformation. By enabling new modes of distribution, this tie-up with Covr may enable Sony to offer more accessible policies.

Plastic economy
Difficult to create, from local material, all based in SEA and South Asia

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What does it mean for insurers to go digital? Many times, it’s often supplementary than necessary. The impetus of going digital tends to revolve around staying ahead of competition, keeping up with the rising digital native consumers, and improving customer satisfaction – adding value to existing products and services. But what if… the only way is digital?

Think about the traditional way we buy insurance: Multiple visits to the office, long turnaround times, reams of paperwork and occasionally, the human errors that come with these. And that’s only the purchase part of it! Don’t forget about claims submission and receipt… Let us consider customers who live far away from town or/and do not have the time to do all of the aforementioned within office hours, most would not have made it past the customer onboarding process.

That said, the potential of using insurtech to deliver insurance to the emerging market is far-reaching, and there are takeaways to gather from what our banking counterparts have done in these areas like how it is different from developed markets. We explore how digitalization can become a mediator for insurers to tap on the emerging market.

Why look at emerging markets?

Formal financial institutions have often failed far-reaching rural populations for various reasons like inconvenient location and the incompatibility of one-size-fits-all financial products. Emerging or developed markets-alike, the demise of an one-size-fits-all approach for both banks and insurers is a key takeaway here.

Back to the point, this financial gap has led to the rise of leveraging upon mobile services to provide access to financial services in the emerging market. As McKinsey & Company says, mobile money is “much more than a “use case” … a lifeline, bringing the benefits of financial services to those who currently lack access.”

When it comes to scaling up the financial services in the emerging market, the mobile network operator and the Internet are at a better position to provide financial services to this untapped market than the bank:

Source: Mobile money in emerging markets: The business case for financial inclusion, McKinsey & Company, Mar 2018

Also, it’d be far-fetched for us to say that the insurance market is saturated. We have a long way to go when it comes to closing the protection gap between insured losses and actual economic losses. According to Swiss Re, the global insurance protection gap is estimated to reach a “new high” of $1.24 trillion in 2020 and in emerging markets, insurance and savings still meet less than 10% of the population’s protection needs.

Particularly in the life insurance portfolio, emerging market premiums are expected to outpace developed market premiums. Some drivers of growth include:

1. Government welfare policies push insurance as a form of social safety net and promote financial resilience in households.
2. Lower barriers of entry and a more liberalized industry, coupled with consumer protection laws and industry standards/requirements to bolster consumer trust for insurers.
3. Alongside the growing use of mobile devices is the use of insurtech making products more affordable and expanding access to new markets.
4. Investment in infrastructure provides substantial insurance opportunities (e.g. Property catastrophe insurance).

Source: The future of life insurance: Reimagining the industry for the decade ahead, McKinsey & Company, Sept 2020

State of Insurance Distribution in Emerging Markets

Traditional distribution channels like the use of brokers, agents and even bancassurance (selling insurance through banks) are capital-intensive on staff expertise and infrastructural investments. Aforementioned that these channels are geographically limited to urbanized areas and are expensive to set up in the constantly evolving and growing rural areas.

Given the low penetration of insurance in emerging markets, there is often low consumer awareness and trust with insurance products. That said, both the products and platforms where they are being distributed need to be easy to understand and easy to use such that they engender consumer trust and are cost-effective to provide.

How to reach these markets at scale within the most practical means? By making distribution more efficient and effective in its outreach, the cost of the product (premiums) can be lowered to achieve economies of scale. This can be done by embedding insurance within contact points frequented by potential customers. Some of these include the local shops, minimarts, telcos, microfinance institutions and farmer cooperatives.

Digitalization as a Mediator

Given the high smartphone penetration in the emerging markets, the digital channels can be leveraged upon to connect and serve these potential customers. With 75% of its customers now accessing insurance for the first time, BIMA, a startup that provides life and health insurance, has leveraged on both partnerships with leading telecom players and the increasing penetration of mobile phones across Africa and Asia to reach traditionally underserved consumers – by embedding health microinsurance within the mobile phone ecosystem.

Some differences between insuring developed markets versus emerging markets

What we see across insuring developed and emerging markets is the greater diversity within the respective markets. No one consumer is alike to one another and thankfully today, we have a pool of technology tools that we can use to harness data that will allow insurers to better understand their customers.

The low penetration of insurance in the emerging market is a testament to the failure of a one-size-fits-all-approach. The more customized the business model, the better the overall outcome. As illustrated In the BIMA example, none of the incumbent insurers was able to tackle as well as this Swedish microinsurer who went down to the nitty-gritty details of their potential customers.

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Gone are the days when technology was engineered to fit the business model. Now, tech becomes the threat that inspires… the birth of on-demand insurance models.

Traditionally, the agent has been most integral to the customer experience. While juggling the need to be customer-centric, the process tends to be ladened with paperwork and manual processes. The ability of the agent to customize the policy for the customer is limited to accommodate the diverse needs of every one of your customers.

The world today is hyper-connected, and technological innovation has enabled real-time service delivery in many aspects of our lives-  from banking, commuting, shopping to getting food. That said, your potential customers would be expecting the same standards when it comes to getting insurance. As we get better-informed and engaged consumers among us, this would have heightened their expectations around the extent and quality of services that you can provide.

On-Demand Insurance, Explained

On-demand insurance enables customers to purchase policies without directly interacting with the agent. At the comfort of their personal device, customers have the ability to turn their coverage on and off, pay as they go by checking what they want to be covered, and submit their claims- all on the App with a click or a swipe.

This business model leverages cutting-edge innovations such as the internet of things (IoT), artificial intelligence (AI), predictive modeling and big data to deliver nearly instantaneous risk assessment, quick policy issuance, and seamless claims handling.

On-demand insurance can be classified into pay per mile, pay per day to Personal Accident (PA) insurance. For example, for pay per mile insurance, the rates are based on the customer’s actual driving habits and insurance providers may use telematics to track how far the customer drives. Such insurance can offer the same coverage types as the conventional car insurance, as well as to allow customers to check the coverages they want to opt for.

What’s driving on-demand insurance? (Source: The Digital Insurer)

The rise of this model has been most prominent for microinsurance policies. Microinsurance refers to coverage of smaller risks via rapid underwriting in products like travel or event insurance. This type of insurance enables the customer to cherry-pick features that offer the right amount of financial protection for the shortest period of time.

In the aspects of life and health, microinsurance is aimed at providing a safety net for the low-income market at very minimal cost to avoid debt traps that may imperil their livelihoods. That said, microinsurance often entails very low premiums.

Target Markets & Drivers of On-Demand Insurance

According to the Boston Consulting Group, waiting time typically consumes at least 95% of insurance application processes. Coupled with the diverse and fast-changing needs of some consumer segments in society, technology plays an important role in closing the gap.

Top 10 on-demand insurance startups you should know

• Lemonade
• Trov
• Zego
• Bestow
• Cuvva
• Hellas Direct
• Getsafe
• Coya
• SkyWatch
• Jones

Distribution Startups Backed By Insurance Providers (Source: IAIS’ FinTech Developments in the Insurance Industry, Feb 2017)

Succeeding at the Microinsurance Model Distribution via Partnerships

Insurance providers have been making unprecedented investments in startup technology. Instead of thriving on the traditional supplier-buyer relationship, insurtech startups and insurance providers are increasingly operating within new partnership arrangements to enable the latter’s value proposition.

According to Michael Costonis, Chief Operations Officer, CNA Insurance, here are several business models that can support an effective microinsurance strategy:

Some principal areas where insurance providers are partnering with insurtech startups include but are not limited to:

• Digital claims management;
• Fraud detection;
• Blockchain-based digital distribution that includes cloud services;
• Smart underwriting;
• Risk management;
• Customer engagement; and
• Connected insurance that links Internet of Things initiatives with telematics.

Ultimately, the customer is at the centre of innovation. Given how quickly the insurance value chain is evolving- from product development to distribution which requires work from its respective expertise, partnerships between insurance providers and technology will be the future of the insurance industry.

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