'Insurtech' will transform insurance, but pace of adoption is slow

INSURANCE is a sector that experts widely believe is "ripe for disruption'' for a few reasons. It is heavily reliant on data. Its cost base is high which suggests inefficiencies.

Distribution costs plus operating costs take up a significant chunk of annual premiums. It remains heavily reliant on face-to-face sales, even though a number of insurers are in the process of digitising parts of the process. In product design, it remains very much in a one-size-fits-most mode - that is, in many products, the best risks pay the same price for protection as poorer risks, even though uninsurable risks are weeded out at the outset. Certainly in life and health insurance, there is virtually no customisation. Despite what seems like fertile ground for change, insurance has been markedly slower than banking in terms of digital adoption. This, however, is shifting, albeit at a pace that is likely slower than one might expect.

"InsurTech", the use of technology to squeeze out inefficiencies in the insurance industry, is a subset of fintech and has been bandied around over the past two to three years. It is something the industry is cognisant of but has yet to fully embrace. Based on a global study by PwC in 2016, as many as 74 per cent of insurers predicted disruption of their businesses over the next five years. Yet only 43 per cent said they have fintech at the heart of their corporate strategy. Less than a third were exploring partnerships with fintech firms, and only 14 per cent invested in or supported fintech incubation.