Emerging market revolution
InsurTech is transforming emerging markets, by taking on risks traditional carriers have shied away from
The death of a tea-seller in a remote part of Bangladesh is a telling example of the way InsurTech is revolutionising how the world’s poorest buy insurance.
Samsul Hoq bought a life insurance policy from Bima, an InsurTech company, after meeting one of company’s agents at a railway station. What appears to be a very traditional distribution method belies how radical Bima’s approach to insurance is.
The entire Bima transaction was cashless. Hoq’s annual premium of roughly $7.50 was paid in tiny instalments over the course of a year through mobile phone credit. After Hoq’s death, his beneficiary in Comilla district, Bangladesh, received roughly $720 in cash, enough to start his own business.
Mathilda Ström, deputy CEO of Bima explains that people in Hoq’s village had been deeply skeptical about insurance, believing insurers would never pay claims. That all changed once the cash arrived.
“Our customers may not even know the concept of insurance,” says Ström. “It’s incredible,” she continues. “When people see something work, they embrace it.”
The whole village held a festival to celebrate the claim arriving, with the company selling 40 policies.
Bima is also winning over incumbent insurers. In December, Allianz ploughed $96.6mn into Bima, becoming the company’s largest single shareholder.
Ström says the investment from Allianz brings the Swedish InsurTech company added legitimacy and credibility in the eyes of the global insurance industry. But Allianz also has a lot to gain from the relationship.
“If they are looking at reaching the world’s biggest insurer status, they really need to address the mass market,” says Ström.
Ström says that Allianz is keen for Bima to be paying “even more claims”.
The Bima investment marks the first major investment by the German carrier’s InsurTech arm, Allianz X, since it switched strategy from incubation to venture capital investment late last year. Oliver Bäte, the Allianz CEO, has said the Bima investment will help the carrier access its “next billion customers”.
Measuring the gap
Consumers in developing countries are chronically underinsured. Take Africa as an example: in 2017, Kenya had insurance penetration of around 3 percent, according to Deloitte; in Nigeria, around 0.4 percent of the population have insurance.
But as Deloitte points out in its report into InsurTech in Africa, ‘Leveraging digital to unlock the base of the pyramid market in Africa’, far more people have access to mobile phones than to financial services.
World Bank data shows that 87.8 percent of people in Kenya have a mobile phone and more than four in five Nigerians have a phone.
The Nigerian insurer Cornerstone is working with the mobile network Airtel to bring insurance to the mass market. The Airtel scheme provides its customers with free life and health insurance. The size of the cover available varies each month depending on how much the consumer spends on phone credit.
The company has signed up more than 1.8 million users to the insurance coverage programme. In 2016, the Cornerstone-Airtel scheme paid out 3.4bn naira ($10.2mn) in claims.
Making insurance free for the end user by finding an affiliated entity to pay the premium is also the approach taken by RemitRadar, a UK headquartered InsurTech. The company acts as a price comparison site for money transfers, often used by migrant workers to send cash back home.
RemitRadar has amassed a pool of data on how workers return funds to their families. Its insurance proposition is to sell life and workers’ compensation policies to these workers, with the company acting as a digital distribution platform for global insurers. Premiums are paid by the money transfer agencies in exchange for customer loyalty.
RemitRadar has signed deals with Axa and Partner Re to provide insurance capacity to migrant workers and their families, with the remittances service acting as an intermediary.
The structure and ethos of the InsurTech space is ideally suited to the rapidly changing environment in emerging markets.
Beat Candrian, head of insurance at RemitRadar, says the more conservative culture at traditional insurers and reinsurers makes it harder for them to bring products to under-served customers in emerging markets.
“At some point, you have to take some risk,” says Candrian, who worked at Swiss Re for more than 20 years. Candrian argues that it’s more efficient for insurers to outsource elements of innovation to InsurTech startups.
Asia and the next billion
The Asian insurance market is where many of the ‘next billion’ of insurance customers described by Bäte reside.
In China and India, InsurTech companies have been aggressively disrupting traditional insurance value chains in ways that are bringing coverage to previously uninsured customers.
Policy Bazaar is one such company. India’s largest insurance aggregator, the company has roughly 60 million site visits a year and sells approximately 125,000 policies a month, according to Forbes India.
In China, the world’s largest InsurTech company is gaining ground. Zhong An raised $1.5bn in an initial public offering on the Hong Kong Stock Exchange.
According to analysis of the carrier’s financial statements by the Singapore bank DBS, the insurer had annual premiums of roughly $538mn in 2016, its first year of operation.
The company’s ownership provides intriguing clues to shape of the future Chinese market. Ant Financial is the company’s biggest shareholder, with a 16 percent stake. Owned by the e-commerce giant Alibaba, Ant is valued at around $60bn and is one of the fastest growing financial services businesses in the world. Tencent, one of China’s biggest internet and technology companies, owns a 12 percent slice of the carrier, as does Ping An, an incumbent carrier.
Approximately half of Zhong An’s premiums relate to a type of e-commerce insurance called shipping return cover, the DBS data shows. Zhong An is thus selling totally different types of products to traditional Chinese insurance companies, where 73 percent of premiums stem from motor.
Tobias Farny, CEO of Asia Pacific for Munich Re, explains that in China, the insurance business is dominated by motor business.
The reinsurer is keen for clients to diversify, however. “We try anything we can do to build further business in other segments,” says Farny.
Munich Re has opened an InsurTech consultancy operation in Beijing to help clients adapt to the changing insurance landscape. Farny, who runs China, Taiwan, Australia and New Zealand for the reinsurer, says InsurTech can broaden the insurance market, as new pools of premium entering the market.
Insurers in China are in the middle of a “struggle to transform the market”, he explains. In the Chinese market, Munich Re’s consultancy role therefore involves: “Sitting down with the client to develop new products.”
“What does a private liability product look like for the retail customer? How do we bundle these products to make them more attractive? Can we sell it though an app? Can we sell it through other providers?” Farny asks.
Clearly though, these consumers represent China’s growing middle class, rather than the very poorest.
Digital insurance in China is a rapidly growing space. The total online insurance market in China hit
$57bn in 2016, according to Oliver Wyman, and is expected to reach $223bn by 2021. But there remains a significant gulf in insurance penetration in China compared to more developed markets.
“There’s a huge gap,” says Farny. “Every time we have natural catastrophes, we can clearly see that on the private side and on the commercial side, the sums insured and the insured values are relatively low compared to the western world.”
Munich Re data shows that only 9 percent of losses in Asia were insured on average in 2017, compared to 32 percent in Europe and 46 percent in the US.
Farney points to the opportunities for insurers posed by technology such a WeChat, a messaging app similar to WhatsApp that is incredibly popular in China. The app has become more than a texting programme and is evolving into a private work flow device that people use to plan their lives – both at work and in leisure time.
“If insurers find a way into this private work flow, [carriers can provide] proper protection for individuals not only on an annual basis but also on maybe in real time, or maybe for a certain period of time,” Farny says.
“This is going to happen and it will happen with all the relevant players – be it existing primary, technology companies, or the digital players.”
So from the traditional coffee houses of 17th-century London, to the tea sellers of Bangladesh, insurance is now able to reach vast numbers of new customers through digital distribution. It’s a future that will make a huge difference to families like Samsul Hoq’s.
This article was first published in the Spring 2018 issue of Insider Quarterly