Digitalisation is key to closing the protection gap

THE need to make insurance more affordable and accessible for all has become increasingly urgent, as the global protection gap hit record levels in 2020.

The Covid-19 crisis has heightened global awareness about the importance of getting insurance protection. In particular, it has drawn attention to the predicament of large uninsured or under-insured populations, who have been disproportionately hit by the Covid-19 outbreak and economic fallout.

Emerging markets in Asia and Africa are among the countries at greatest risk of seeing protection gaps widen even further in the post-pandemic era. These populations are likely to see their healthcare burdens increase considerably as they experience major demographic shifts.

The gap is big but can be narrowed, especially with the advent of new digital technologies. Digital innovation can offer a significant boost to financial inclusion efforts.

Industry incumbents as well as "insurtech" players are leveraging digital technologies to reach under-insured and under-served segments in new ways, while catering to their needs with more affordable and simpler products.

Mind the gap

Last year, the global health protection gap expanded by 8.1 per cent to a record high of US$747 billion. Two-thirds of this gap came from emerging markets, particularly emerging Asia, according to a 2021 report by Swiss Re.

This problem is tied to extremely low insurance penetration rates - 20 per cent in Asia, and just 1.1 per cent across the African continent, excluding South Africa.

The gap is likely to be exacerbated by the twin demographic shifts of longevity and ageing. Many of these countries have seen rising life expectancies in recent decades.

Meanwhile, Asia's population aged above 65 is expected to double to 16 per cent between 2015 and 2040. The growth in Africa's elderly demographic could outpace that of any other region in the world from 2020 to 2050, according to the US Census Bureau.

If people do not save and plan early for retirement and longer lifespans, their protection and financial gaps could worsen. But many are hindered from increasing their coverage, possibly due to factors such as accessibility, cost and complexity of insurance.

The good news is that digital technology can offer new ways of overcoming some barriers to financial inclusion by widening access, broadening the reach of insurance and lowering costs.

Digital platforms and partnerships

From mobile-based insurance apps to remote sales and advisory services, insurers can improve outreach to customers. Such digital channels can broaden access to insurance not just for the under-served segment living in rural or faraway locations, but also for the broader population.

More consumers - particularly those in developing markets across Asia and Africa with relatively high smartphone penetration rates - are increasingly relying on digital channels for financial products and services.

Reaching informal workers

One under-served segment which is already benefiting from the convenience and ease of access to mobile finance is the informal economy.

In developing Asian and African countries, "grey economy" workers form the majority of the workforce and are often among the most financially vulnerable groups, because many do not have healthcare protection and do not even own a bank account.

Hence, some insurers are offering them insurance through their mobile phones. Purchase and claim processes are done through a mobile wallet.

Prudential's partnership with telcos in Ghana, for instance, has provided hospitalisation and income loss insurance for 1 million people. Meanwhile, our tie-up with a digital payment service provider in Indonesia offers highly affordable digital Sharia insurance plans to consumers across 34 provinces.

Meeting needs of SMEs

Another under-served group that can gain significantly from insurers' digital push are the employees of small and medium enterprises (SMEs).

Many SMEs omit insurance and employee benefits, which they deem too expensive and hard to manage. Since SMEs make up over 95 per cent of all Asian businesses and provide 2 out of 3 private-sector jobs on the continent, their employees are a particularly large group with a considerable protection gap.

Insurers are broadening and simplifying access to insurance and employee benefits for SMEs through digital platforms. Employees can access such portals anytime, anywhere, to tap its health and financial wellness resources. They can also use "self-serve" functions such as submitting insurance claims. This helps to reduce the human resources SMEs need to manage employee benefits.

Enhancing financial literacy

More financial education and engagement is also needed for the under-insured and under-served segments. Digital wealth tools not only make it easier for these consumers to access and learn about insurance, but also enhance their individual accountability so they would take action to get adequate insurance coverage for their needs.

Artificial intelligence (AI)-powered digital assistants often offer users wealth tips and answers frequently asked questions about retirement and insurance topics. The chatbots can also connect users to a real-life financial advisor or insurance agent to get in-depth, personalised advice.

These meetings, which can take place remotely in a virtual setting or face-to-face, ensure consumers get the personalised advice needed to meet their financial and life goals.

Lower costs, faster processes

Meanwhile, digital technologies are enabling insurers to offer better services and to reduce costs through functions such as instant underwriting and e-claims.

AI-powered underwriting enables insurers to approve insurance applications within hours - or even instantly for simple cases - instead of days. This makes the buying process easier and hassle-free for customers, encouraging them to take action to close the protection gap.

What is more, operational cost savings enabled by technologies are making end products more affordable, which will benefit consumers.

Collaborating to advance inclusion

Consumers are increasingly aggregating myriad aspects of their lives - from finances to work, education, health and more - on their smart devices to make the right decisions about retirement and health.

At the same time, insurers will need to expand multiple offerings that combine health, wealth, retirement and lifestyle knowledge and solutions - and they cannot do it alone. They will need to collaborate with partners in diverse industries from technology to healthcare and consumer goods, and across the public, private and academic sectors.

The good news is, this process is gathering momentum.

As growing cross-industry collaborations make healthcare and financial security more widely accessible and affordable to all, digitalisation could go a long way to closing the protection gap - and help people to live well for longer.

• The writer is chief digital officer, Prudential Corporation Asia.