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Insurers tap startup platforms to open new distribution channels
LURED by the promise of a large user base and a well of data to tap, insurance companies are tying up with non-insurtech digital platforms to open up a new distribution channel for their products.
These insurance products are typically shorter-term, inexpensive solutions linked to a specific purpose or need, such as travel, gadget or shipping insurance.
In the latest move, Grab announced on Wednesday a joint venture (JV) with a subsidiary of Chinese Internet-based insurer ZhongAn Online P&C Insurance Co to create a digital platform to distribute insurance products in South-east Asia.
Grab and ZA International's JV will collaborate with global insurers to develop products tailored to the region. This follows the news this month that AXA is partnering e-commerce platform Carousell to offer vehicle insurance.
Players outside Singapore have been getting in on the act too: Tencent and Taiwanese insurer Fubon Property & Casualty Insurance joined forces in 2017 to distribute insurance products via WeChat; Amazon teamed up with The Warranty Group to launch a policy against accidental damage, breakdowns and theft of objects bought off the site.
For Grab, the key to the insurance game will be offering users specific products based on how they have been using the app. So when users book rides to the airport, Grab's app might register that they are likely to be travelling, and suggest that they buy travel insurance.
Reuben Lai, senior managing director of Grab Financial, told The Business Times: "Most of us don't wake up and suddenly say that we want to get insurance. It comes to mind when it is relevant."
Winston Nesfield, partner at PwC's strategy consulting arm Strategy&, told BT that this is exactly what traditional insurance firms are counting on. By bundling insurance with the broader buying experience on a digital platform, insurance companies are able to distribute the product at the point of purchase where the customer is most committed.
Besides gaining access to user data to improve the underwriting process, this new distribution channel also solves the pain points of low interaction levels with customers and the cost of going through an agent.
Chen Yongchang, head of research and consulting at the Institute of Service Excellence at Singapore Management University (SMU), said: "Traditionally, insurers tend to have lower contact frequency with their customers than e-commerce platforms or even other financial service providers such as banks.
"It limits their ability to offer relevant products at significant moments, when customers are likely to require their products."
There are longer-term implications of this distribution model for insurers, too. Mr Nesfield pointed out that for millennial and Generation Y customers, awareness of the role insurance can play in financial wellness remains quite low.
"Embedding insurance products into larger e-commerce platform interactions can educate and compel future customers to assess the emotional, financial and risk tolerance trade-offs of paying a little today to avoid an unknown but larger risk tomorrow."
He added that companies should also exercise a high duty of care to allow consumers to research that an offering is right for them in terms of both features and affordability.
Among non-insurance platforms, the draw of the insurance industry is clear. Grab's Mr Lai told BT: "If you were to look at the penetration levels, we are maybe around 30 to 40 per cent lower than markets such as China. And even though it's under-penetrated, the market size is about US$80 billion to US$100 billion right now, and that market is expected to double in the next few years."
Partnering with insurers gives these players access to a regulated product and allows them to position themselves as a one-stop shop, thus generating a stable revenue stream.
Jan Weiser, Simon-Kucher's head of Insurance Practice in Asia, said: "There is either a commission earned through every insurance sale or a profit-sharing agreement in place. Most of these micro insurances are very profitable products, thus the platforms generate a highly attractive source to boost its bottom line."
These platforms might have a one-up over insurtech startups too. Chris Wei, executive chairman of Aviva Asia, has reportedly said that large online platforms are more likely to disrupt the insurance industry than insurtechs due to their vast user base and high customer retention.
Currently, these platforms run parallel to traditional distribution channels like banks, though they might eventually start disrupting the behemoths too.
Just last week, United Overseas Bank (UOB) renewed its bancassurance deal with Prudential for 15 years, during which time the bank will pocket S$1.15 billion. In 2015, DBS signed its 15-year deal with Manulife Financial Asia, for which Manulife paid DBS US$1.2 billion.
Though banks tend to offer more complex products with higher premiums - examples are life or investment-linked insurance - online platforms might in the long term be able to scale up to offer these products too. However, this will happen only if they figure out how to best explain the product, and earn the trust of their customers, said Mr Chen.
Elysia Chan, a financial services managing director for Accenture in Asean, told BT: "I think it would be a matter of time for life insurance to be distributed via such platforms, but the buying population would need to be ready for that.
"Typically, for such large-ticket items, face-to-face advice is still valued."