Is insurtech in Southeast Asia an underserved market?
We previously spoke to Ganesh Rengaswamy, Managing Partner of Quona Capital and he shared the region is “lagging behind in the growth of insurtech, financial advisory, embedded finance to address daily life needs through financial innovations, and holistic digital banking.”
While Raunak Mehta agrees, he believes insurtech providers hold the keys to addressing this.
e27 sat down with the Chief Commercial Officer of Singapore-based insurtech firm Igloo (previously named Axinan) to discuss how insurtech addresses the underinsured gap and the important role regulators play in supporting innovation within the industry, among others.
Below are edited excerpts of the interview.
Why do you think insurtech is not lagging behind within Southeast Asia?
Insurtech has picked up over the last decade and we have witnessed tremendous growth within Southeast Asia. However, the pandemic has accelerated the digitalisation of insurance beyond our expectations within a short period of time.
Asia is shaping to become a lucrative market for insurtech – with over S$5.3 billion (US$4 billion) in investments injected in the last five years alone. Moreover, insurtech investments reached an all-time high last year. This growth has continued into Q1 2021.
We have also witnessed a historic level of activity for merger and acquisitions, new investments and public offerings. This clearly shows the insurtech industry has remained undaunted by the pandemic, proving to be resilient and adaptable.
At Igloo, we have also gone through a momentous year. In April 2020, we successfully raised US$16 million in funding. Gross written premiums facilitated through our platform have quadrupled as compared to 2019. We have also expanded our presence across key markets such as Thailand, Indonesia, the Philippines and Vietnam by entering into strategic partnerships.
This surging momentum suggests insurtech is on an upward growth trajectory, as countries in the region continue to accelerate their digitalisation drive, injecting fresh funds and resources to build a digital infrastructure that can compete on the global stage.
What are the key challenges to be tackled for insurtech companies in Southeast Asia?
The focus over the last decade has been to make insurance more accessible by employing alternative channels of distribution. While this has yielded some success, the growth has not been equally distributed.
Insurtechs have to overcome the distribution challenge and identify, develop and grow more avenues for insurance products to be made available to consumers.
Another challenge companies may face is the issue of gaining trust and brand recognition amongst customers and other insurance stakeholders. While digitalisation has been the buzzword for the past decade, many still view it with a veil of doubt and scepticism, perceiving it as inherently disruptive to industries.
This is one of the main barriers that are hindering insurance industries from going fully online. Hence, it is crucial for insurtech companies to showcase their reliability and credibility in the long-term, to build trust amongst customers and insurance companies and even regulators.
Regulatory policies have been a notorious challenge for insurtech companies. Have regional regulators been more supportive of new insurtech products?
The rise of insurtech has definitely been a game-changer for the insurance industry, affecting not just insurance companies, agents and customers, but regulators as well – and we recognise that this is the environment we must navigate in.
Rather than seeing it as a challenge, we perceive regulatory policies as an opportunity for negotiation and a sign that the insurance space is growing. As the industry continues to undergo digital transformation, insurance regulators will inevitably need to quickly adapt to the new reality, and keep up with the developments in the digital economy.
However, they are often faced with the difficulty of finding a balance between exercising their traditional role to ensure financial stability and consumer protection; and allowing room for innovation to meet the changing needs of consumers and the market, and enhancing free competition.
Seen as such, regulators become proxies between innovation and law. As insurtech firms, we can actively collaborate with governments and regulators, as we have the advantage that traditional insurance companies do not – we can navigate the complexities of the regulatory environment more quickly and easily due to our size.
Could you share some new regulatory policies that have been implemented to support the growth of insurtech within the region?
There have been a number of new policies implemented to support the growth of insurtech within the region, and we foresee more to come in the near future.
In recent years, the regulatory sandbox model that was first developed in the UK has been adopted by Southeast Asian markets such as Singapore, Malaysia, Indonesia and Thailand to cultivate and encourage innovation in the financial technology sector.
This regulatory sandbox helps to allow startups with limited resources to study new and untested business models in a contained environment with loosened financial regulations, allowing them to explore the possibilities different technologies can offer.
The Singapore government has also been actively supporting the growth of insurtech. To date, it has one of the largest concentrations of insurtech startups – with over 80 companies registered. The Monetary Authority of Singapore (MAS), which regulates and oversees all insurance activities has been continuously and actively putting into place policies to promote digital innovation.
How have consumer habits driven the rise in demand for microinsurance products?
Covid-19 has definitely changed the way we live and work on a daily basis. With worldwide lockdowns and circuit breakers, more people have been going online – with over 40 million new users from Southeast Asia joining the internet last year.
The rise of verticals such as e-commerce, edutech and medtech, are all signs of this shift towards increased digitalisation and it seems that changing consumer habits and lifestyles are here to stay for good.
The question now arises – how can we meet these changing demands? This is where microinsurance comes into play.
As consumers’ working and personal lives have changed, we realise that there is an urgent need to address these demands by providing digitally-driven, lifestyle-focused microinsurance products that help to meet the lifestyle needs of customers and to address the pain points they face in their everyday lives.
Compared to traditional insurance offerings, microinsurance is more affordable as it offers coverage to lower-income people with little savings. In emerging economies, this allows more people to access insurance services.
Why is there an underinsured gap within the region? How can insurtech firms help address this?
Asia has one of the highest insurance gaps in the world. The primary reason contributing to that is insurance premiums tend to be costly and people cannot afford to pay when they are already struggling to make ends meet.
Due to the pandemic, this problem has become more severe. Economies worldwide have been badly affected and people have lost their livelihoods.
This is where insurtech plays a pivotal role in helping to make insurance more affordable and accessible to the common people. Technology has become a tool for the democratization of insurance, as people from all walks of life can now afford to purchase insurance and protect their loved ones and themselves.
How does the future of insurtech look like for you? What roles must the different stakeholders (regulators, companies, investors etc.) play for this to happen?
The future of insurtech looks promising from Igloo’s perspective. It is poised for growth because of the large underinsurance gap in this region.
As countries in the region look to pick up their economy following the aftermath of the pandemic, we foresee that microinsurance and insurtech will play an even more pivotal role in encouraging insurance penetration and financial inclusion for everyone. Digital insurance is expected to grow at least three times compared to the overall insurance industry.
However, stakeholders within the ecosystem – including insurance companies, regulators, investors and customers play an important role in ensuring that insurtech in this region thrives. Insurance companies will have to actively adopt digital means to improve their business operations and efficiency. One of the ways that they can do without overturning their entire infrastructure is to work strategically with insurtech firms in the region.
Insurance and insurtech companies have to work in collaboration with regulators to come up with the best practices and policies that can ensure overall room for growth in the industry.
Investors, on the other hand, can help insurtech firms improve and expand their technological capabilities by injecting fresh funds and capital, ensuring that the ecosystem is always moving ahead.
Image Credit: Igloo
The post ‘Microinsurance will play a pivotal role in accelerating financial inclusion in SEA’: Raunak Mehta of Igloo appeared first on e27.