INSURANCE

REDEFINED
 A roadmap for Insurers and Insurtechs

Angat Sandhu
Steven Chen
Ajit Rochlani
Jun Hao Tay
Bella Thamrin
CONTENTS

Global mega-trends shaping the future of insurance 1

Economic and demographic changes

Changing consumer behaviour
Accelerated digital adoption
Technological advancements

Asian InsurTech landscape 6

Implications on the future of insurance across lines of business 7

Life insurance
Health insurance
General insurance
Reinsurance

How insurers and InsurTechs are preparing for the future 22

Future state of insurance and InsurTechs 25

Conclusion 26
FOREWORD
This report has been developed by Oliver Wyman and the Singapore FinTech Association, and
it is being launched during the Singapore FinTech Festival, held from 7 to 11 December 2020.
The key focus of this report is to present emerging trends and paint a bold vision of the future
of insurance over the next 10 years and detail the implications of this evolving landscape
on InsurTechs.

As part of the report, we have conducted primary research to understand consumer preferences
and how both InsurTechs and insurance companies are reacting and preparing for the future.
This includes a survey of about 1,000 consumers across six countries in the Asia-Pacific region,
a survey of 42 C-suite executives working in the insurance industry across the region, and the
expert opinions of the industry participants.

The insurance industry contributed 6.6 percent to the world’s GDP in 2019 versus 7.5 percent
in 2007.1 The industry has not kept pace with the growth of the global economy. It needs to
fundamentally transform itself to arrest the slide in its relevance going forward. We have
combined our research insights with an overview of the mega-trends that are impacting the
insurance industry and deep dived into what the future may hold in terms of the potential
opportunities across life, health, general insurance, and reinsurance, and how insurers and
InsurTechs can position themselves to take full advantage.

We hope the report provides InsurTechs, insurers, and industry participants with the right
inspiration when drawing their respective roadmaps of future opportunities, so that they can
fully realize their growth ambitions in the region.

Chia Hock Lai Angat Sandhu, CFA, FRM

President Partner and Head of Asia Pacific Insurance Practice
Singapore FinTech Association Oliver Wyman (Singapore)

1 Source: Swiss Re Sigma

Insurance Redefined

GLOBAL MEGA-TRENDS SHAPING

THE FUTURE OF INSURANCE
To analyse the current state of the insurance industry and understand where the
value lies, we looked at the performance of insurance players across categories
over the last five years.

The recent trends indicate that the value in insurance is shifting towards distribution and
technological capabilities. For example, brokers are being valued at higher price-to-book (P/B)
multiples, and have generated better returns. Similarly, the market is assigning greater value to
InsurTechs that have brought applications of new technologies to the industry that have shown
promising outcomes.

Exhibit 1: Five-year TSR (Total Shareholder Return) versus current P/B multiples for the top
players by sub-sector

5 year return
550%

200%

150%

100%

50%

0%
P/B
P/B
–50%
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5

Life & Health P&C Mutliline Broker Reinsurance InsurTech

Source: S&P, Oliver Wyman analysis

Given the economic and social significance of the insurance industry, it now stands at the
crossroads of several mega-trends by which it is being disrupted. The impacts of these trends are
manifold in terms of growth, financials, and operations. We have summarised the different forces
at play into four key global trends that are having the most profound impact.

© Oliver Wyman 1
Insurance Redefined

Exhibit 2: Four key global trends shaping the future of the insurance industry

Economic and Changing consumer Accelerated digital Technological

demographic changes behavior adoption advancements
Larger insurance and Demand for superior Blurring of lines Innovation and disruption
protection gap customer experience between channels across the value chain

Source: Oliver Wyman

ECONOMIC AND DEMOGRAPHIC CHANGES

Insurance penetration to GDP at a global level has fallen from 7.5 percent in 2007 to 6.6 percent
in 2019.2 While the penetration has grown in some developing economies, it has not been
enough to arrest the slide at a global level. In fact, global wealth has been growing faster than
insurance premiums (see Exhibit 3).

Economic changes combined with demographic changes, such as the increasing average life
expectancy, have meant that the gap between how much insurance or retirement savings we
need versus how much we have has kept increasing.

Exhibit 3: Comparison of growth of insurance premiums versus global wealth

4.8%
3.5% 3.4% 3.7%

Wealth growth Total premium Life premium General insurance premium

Other critical demographic changes

Life expectancy

2019 73 years

2010 71 years

Medical costs as a percentage of GDP

2019 9.9%

2010 9.5%

Source: Sigma Swiss Re, CS, Oliver Wyman analysis

2 Swiss Re Sigma

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Insurance Redefined

CHANGING CONSUMER BEHAVIOUR

Startups and leading e-commerce players have been reshaping consumer behaviour, leading
to increased service and experience expectations from insurance firms. To better understand
the expectations and shift in behaviour of insurance consumers, we conducted a survey in six
countries across Asia.

To be able to meet the changing expectations, the insurance industry needs to improve
responsiveness and make better use of technological advancements. More than 50 percent
of the consumers surveyed stated that they think insurance companies are lagging other
industries in terms of responsiveness, how well they use technology, and the provision of
personalised products.

Specifically, more than 70 percent of the consumers surveyed expect

their insurance companies to give personalised recommendations
in terms of which insurance products are best suited for them, how
much cover they need, and how they can reduce their risks.

Exhibit 4: Examples of consumer expectations

Which of the follow areas do you trust your insurance company with?

Using your personal data appropriately

to give you the right recommendation/offers 74%

Giving personalized recommendations

on what protection you need 73%

Personalized advice on reducing your

chances of risk, loss, injury or illness 71%

Giving recommendations to improve your

health and lifestyle 70%

Sharing your interest and provide offerings

accordingly 69%

Helping you grow your wealth 67%

Source: Oliver Wyman Consumer Survey results, n=913 across SG, MY, AU, IN, CN, HK

© Oliver Wyman 3
Insurance Redefined

ACCELERATED DIGITAL ADOPTION

Accelerated digital adoption by both consumers and insurance intermediaries is helping drive
innovation in the insurance sector, such as by forging new business models, ways of distribution,
partnerships, and revenue streams. The experience of shopping online for a range of products
has made consumers a lot more open to buying insurance across different digital platforms
(see Exhibit 5).

Exhibit 5: Examples of digital adoption in insurance

79% 69% 35% 34%

consumers are open consumers are open to consumers are open to consumers are open
to using Internet and purchasing insurance purchasing insurance to purchasing
online platforms for through their bank’s digital through e-commerce insurance through
either researching or platforms (mobile banking, portals (Amazon, popular super apps
purchasing insurance Internet banking, etc.) Lazada, etc.) (Grab, WeChat, etc.)

Source: Oliver Wyman Consumer Survey results, n=913 across SG, AUS, IN, CN, MY, HK

As increasing adoption levels makes it easier for insurance companies to drive processes on
digital platforms, the lines between distribution channels are blurring quickly. The most common
example is of customers starting their purchase process online by conducting research on the
product in which they are interested and completing it offline by meeting an adviser.

Despite the rise in digital distribution channels, it is unlikely that all digital channels will be
equally successful. For example, consumers are more likely to buy insurance on their existing
digital banking application than an e-commerce platform.

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Insurance Redefined

TECHNOLOGICAL ADVANCEMENTS
Across a range of industries, technological progress has been reshaping and driving innovation,
but the challenge with the insurance industry has been that it is has generally been a late
adopter. The technological developments to date are helping insurance companies improve
operations, upgrade propositions, and drive innovation. Although insurance companies have
been users of technology since the very early days of data processing, a wide range exists across
Asia in terms of insurance companies that are technologically advanced versus most that are still
catching up. Therefore, at the sector level, the adoption rate has been slower.

While there have been significant developments in terms of technology, we have summarised
six key ones (see Exhibit 6) that are expected to have the most impact on the future of insurance.
InsurTechs are leading the way in showcasing the successful application of these technologies to
transform the value chain.

Exhibit 6: Six key technologies impacting the future of insurance

Technology Impact on insurance

AI and ML Proactive risk prevention

Smarter claims assessment and fraud detection

Data analytics Personalisation

Better sales and operational efficiency

Open API Partnerships

New propositions

Cloud Efficient variable cost model

Shorter time to market

IoT Ecosystems integration

Data and consumer behaviour insights

Blockchain Increased data sharing

Increased collaboration (e.g. frauds database)

Source: Microsoft-IDC 2018 survey: Unlocking the impact of digital transformation, expert interviews, Oliver Wyman analysis

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Insurance Redefined

ASIAN INSURTECH LANDSCAPE

With venture capital investments in Asian InsurTech firms crossing
US$4 billion over the past five years3, Asia is seen as an important pillar of
the global InsurTech market, propelled by a strong push on innovation and
a growing investment appetite across emerging markets.

InsurTech developments have been witnessed across the entire value chain, with a stronger
emphasis on digitalising processes, mobile platforms, customer connections, and product
personalisation. InsurTechs are bringing in much-needed disruption to the Asian insurance
industry, and shaping the direction for future innovation.

China and India have been frontrunners in the Asian InsurTech space. Southeast Asia has also
emerged as one of the markets with the biggest potential. This is in part thanks to a strong push
by many governments to encourage InsurTech companies to develop innovative solutions to
serve the market. As an example, Singapore, Malaysia, and Thailand have all launched their own
regulatory sandboxes to provide a safe space for these companies to experiment and develop
disruptive products.

Ranked as the smartest city in the world by the IMD Smart Cities Index, Singapore is seen as
the hub for InsurTechs to innovate and take developed offerings to other parts of the region.
Singapore InsurTech participants are split across two key cateogories: value chain disruptors, and
new digital business models. There has been a lot of focus on improving customer experience
and operational efficiency, while introducing innovative insurance products.

3 Oliver Wyman Analysis

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IMPLICATIONS ON THE FUTURE

OF INSURANCE ACROSS LINES
OF BUSINESS
In order to grow and create value in future, the industry needs to transform itself
across the value chain. The exact implications of these vary by different segments
and lines of business within the insurance sector, and below, we have detailed
high potential opportunities across life insurance, health insurance, general
insurance, and reinsurance.

LIFE INSURANCE
With a low interest rate environment, increasing volatility in investment markets, and risk-
based capital regimes becoming prominent in most markets, life insurers need to rethink and
re-examine how they can create value for their customers, whilst also being able to deliver
attractive returns for their shareholders.

Along with the escalation of data availability, the emergence of newer data sources, such as
wearables, social media, and customers’ shopping history, and the advancements in digital
analytics, the future of life insurance re-imagined will be customer-centric instead of product-
centric, as well as digital, simple, and accessible. Customers should be able to easily get a
quote, buy a product, file claims, and access agents, not only with a few taps but also with
higher transparency and better service. We see three clear opportunities for life insurance
going forward:

A. PRODUCT INNOVATION

To facilitate all the changes, insurers should modify their product portfolios. Insurers are
realizing the need to develop more flexible product solutions, and modify existing products to
be more customer-focused and personalised, as consumers continue to seek the right personal
combination of protection and savings. In some markets, life insurers have already begun
transforming their portfolios towards a wide variety of hybrids and unit-linked products that are
more capital efficient and perform well in a low-rate environment. Other shifts in life insurance
include tailoring solutions based on consumers’ life stages, as well as adding value-added
services and non-monetary benefits. Exhibit 7 shows how life insurance products have shifted
over the years in some of the leading markets in Asia, Europe, and North America.

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Exhibit 7: Examples of product-mix changes in leading markets

Insurance product-mix movement away from longer term products (examples from Asia, Europe,
and North America)

Hong Kong: Product-mix change

Total premiums, %

1% 6%
7% 3%
Annuities 3%
13% 11%
ILAS 9%
Critical Illness 27% 14%

Endowment
Universal Life 57%
49%
Whole Life

2005 2018
Japan: Product-mix change
New policies, %
8% 16%
Others
14% 6%
Annuities
Medical1 35% 34%

Whole Life2
23% 22%
Term
Endowment 15% 16%
5% 6%
2005 2018
Germany: Product-mix change
New policies, %

17%

Fixed annuities 52%

Unit-linked annuities 55% Hybrid annuities
Basic endowment
25%
Unit-linked endowment 8%
19% 18%
4% 2%
2010 2018
US: Annuities product-mix change
New sales, %

25% 24%

Fixed Annuity 16%

34%
Indexed Annuity

VA Annuity
59%
42%

2010 2019E

Source: Industry data, Oliver Wyman analysis

© Oliver Wyman 8
Insurance Redefined

Overall, life insurance products in future will be simpler, faster, more personalized, and user
based. The following are some relevant propositions for the future:
• Proposition design will be truly targeted, underpinned by a strong understanding of the
economics of risk, and adopting a customer-first mentality. Most life insurance companies
still largely find customer needs to fit their product suite rather than designing solutions
to solve customer problems. In the future, they will put customers first, look beyond the
products they want to sell, and understand the problems that customers want to solve during
their life journeys.
• Propositions will be flexible, adapting over time and circumstance to customers’ changing
needs. They will be integrated into the customers’ lives seamlessly, giving them peace of
mind, instead of forcing them to seek different products at different points in time.
• Propositions will move away from capital intensive, longer-term, fixed high-guarantee
products to capital-efficient and shorter-term, adjustable, hybrid products, given the current
persisting low interest rate environment.

B. DISTRIBUTION INNOVATION

As customer preferences and behaviours shift, the way in which insurers traditionally distribute
their products is becoming less efficient. Current practices require significant efforts and
resources, making the economics unsustainable in the long term.

Life insurance companies have generally spent large sums of money and resources to get access
to customers, from investing in setting and scaling up agency channels, to upfront money being
paid for bancassurance deals, to paying for digital partnerships now. Over the years, while there
have been technological advancements and modernisation efforts, the digital distribution of
life insurance products has not yet to scale significantly. Agency and bancassurance distribution
models have continued to dominate the industry across most markets around the world.

Despite the challenges with the economics of distribution channels, and the long waiting periods
to get the expected return on investment, the agency and bancassurance distribution models will
continue to remain significant over the next 10 years. However, life insurers need to rethink new
ways on how to leverage these distribution channels. In this endeavour, digitalisation is the key
in reinventing and transforming them.

For example, traditionally, the agency channel has always been about building larger forces of
advisers, as typically more advisers translates to more premiums. Now, however, with accelerated
digital adoption and technological advancements, the focus in the future will be on improving
productivity and efficiency. This will be done by leveraging digital resources rather than large
physical forces to increase customer outreach. Thus, the resulting agency channel of the future
will be a hybrid that utilises both digital and personal resources. In addition to providing digital
tools to their agents, life insurers need to help them with both upskilling and generating
more leads.

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Insurance Redefined

Similarly, with bancassurance, even though insurance companies usually pay large sums of
money upfront, only a few partnerships flourish, and many fail to deliver on their promise.
With time, the euphoria associated with doing more deals is often replaced by questions from
shareholders and senior management on how to justify the multiples paid and deliver on
the promised plans. Insurance companies have learned the hard way just how difficult it is to
get bank resources to focus on insurance sales, given they already have so many other key
performance indicators (KPIs) to drive, leading to bancassurance models being diluted.

As branch walk-ins fall and digital transactions become the preferred route for customers,
we expect bancassurance models to also fundamentally change, with digital bancassurance
becoming the way forward. Instead of wanting to be present in every bank branch, the focus of
life insurance partners will shift to being present on every digital bank platform. Tapping into the
footfalls there will require far less resources and hence be much more economical.

Although face-to-face relationships and human interaction will remain key to life insurance
distribution, the future will be a combination of digitally enabled and human-centric approaches.

C. SERVICE-LED ENGAGEMENT AND PERSONALISATION

Currently, life insurance customers are mainly segmented by income, such as high net worth
individuals (HNWIs) and the mass market, or demographics, such as retirees and new parents.
Deeper customer segmentation can help reshape existing offerings and create more needs-
based solutions. Going forward, insurers will focus on using data enrichment and advanced
analytics to achieve segments of one and deliver one-to-one level personalisation in terms
of conducting deeper financial needs analysis, assessing overall financial wellness, providing
modular options, and utilising alternative data. As a use-case example, insurers will be able to
map out their customers’ life cycles in order to understand them better: their motivations, the
evolving problems they are trying to solve, their key needs, and the triggers leading them to
buy insurance.

By identifying each customer’s life stage, insurers can identify value-added solutions throughout
their life cycle to meet their needs. Using life events as triggers for making insurance purchases
can be done through following social media, identifying touch points, and launching initiatives
that offer helpful solutions.

Potential insights into customer needs can also come from analysing customer data from
patterns in behaviour, sentiments, and trends, all of which are already possible and will become
even more accessible in the near future. With the sharing of personal data increasing, and ever
more dynamic live feed adjustments from specific digital platforms and wearables, insurers will
have the necessary ingredients in place to target one-to-one level personalisation.

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Insurance Redefined

D. INSURTECH OPPORTUNITIES IN LIFE INSURANCE

Technological innovation in life insurance continues to evolve, and InsurTechs are playing a
critical role in this evolution. Most life InsurTech players are competing to generate better value
for customers in the three key areas we have highlighted above.

For product innovation, InsurTechs are focusing on mobile value propositions and
personalisation to bring faster and easier access to life insurance, while using data to improve
underwriting processes. For example, Ladder offers a product that allows clients to plan for extra
coverage when it is needed and taper off coverage at other times. This allows for a more dynamic
coverage option that is fully needs-based, easy to understand, and helps with better engagement
between the insurer and the client.

In the distribution space, InsurTechs are leveraging mobile and digital channels to improve
their targeted customer reach. InsurTech company Bestow launched an algorithm-powered
life insurance underwriting product, Protect API. It enables companies to offer life insurance
coverage directly to consumers within their mobile applications or websites. The coverage can
also be customised based on each individual life insurer’s preferences and provides life insurers
with the ability to offer coverage solutions that are efficient, affordable, and personalised on a
platform that their consumers already know and trust.

InsurTechs are also leading the charge on personalisation, applying artificial intelligence (AI) to
simplify and digitise insurance, and through this, recommend tailored products to individuals.
For example, PolicyPal in Singapore optimises policies through AI chatbots and recommends
policies based on the customer’s phase of life. It serves as a digital insurance manager, keeping
track of the client’s different policies and giving recommendations on how to update insurance
coverage based on the client’s unique needs.

The opportunity for InsurTechs to continue to expand efforts in this space does not just offer
the potential to disrupt a product that has proven limitations, it also comes with the prospect
of addressing a societal need for customisable and personalised products, something that has
previously been difficult to execute.

Now with improved technology, greater digitalisation, and innovative

use cases, the life insurance industry is ripe for reinvention, and
InsurTechs need tobe at the forefront to drive this change.

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HEALTH INSURANCE
There has been a recent emergence of companies that are competing to try and own the
health and wellness value chain. HealthTechs, hospitals, healthcare providers, pharmaceutical
companies, insurance companies, and many others have recently launched various new
initiatives to gain an edge in this sector. Given the increasing competition, health insurers need
to start re-thinking their role in the entire health and wellness value chain, and how they can
become more relevant.

The healthcare sector is one of the frontrunners with regard to digital innovation, but the focus
of health insurers has largely been on helping customers get admitted to hospitals in cases
where needed and settling their bills. Health insurance companies are now figuring out what
other parts of the health value chain they can transform.

The boundaries are limitless for health insurers with a clear vision of the future. Some are already
moving upstream and working together with healthcare providers to provide services such as
teleconsultation, and downstream to provide services such as the end-to-end delivery of drugs.
Going forward, there are two large opportunities that insurers can focus on to shape the future
of health insurance.

A. MANAGING BETTER HEALTH OUTCOMES

Soon, insurers will have a wealth of health and fitness data that they can collect from different
data sources. Besides having access to their own internal database, via sources such as
wearable devices and health applications, they will be connected to external databases, such
as patient information from hospital claims. This will give insurers a unique opportunity to get
more involved with their customers’ health journey by, for example, proactively suggesting
lifestyle changes, helping deliver medicines from time to time, and even recommending medical
checkups or treatments that customers should consider.

How would this work? Insurers could utilise data analytics to comb through a trove of patient
information to identify trends and patterns amongst patients. For example, if a consumer has a
family history of diabetes and currently has irregular sleep patterns, insurance companies might
be able to use the data to identify similar cases and figure out that these factors indicate high
risk. Insurance companies could recommend changes in lifestyle habits or follow-up medical
checkups to reduce the risk. If customers are willing to follow the recommendations, they could
also be rewarded with lower premiums for their health insurance or other benefits.

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The utilisation of data analytics could also create unique opportunities for health insurers to
shape their future offerings. For example, health insurers could give customers the option to
decide their coverage and premium over the life of a given policy by creating conditions and
giving them incentives to achieve better health and wellness scores. On the business side,
insurers could then enjoy increased customer loyalty, as well as lower claims costs.

B. DIGITISATION OF OPERATIONS

Out of pocket expenditure has remained relatively high across the globe, and there is a huge
value gap that can be addressed by health insurers.

The complexity of health insurance products and the claims settlement processes has led to
customers believing they might be better off saving on their own for future health emergencies.
As a result, health insurance has failed to achieve better penetration.

Going forward, in order to enhance their value proposition, health insurers need to significantly
streamline their operations and use technological advancements to transform customer
journeys. For example, they can use innovative solutions, such as health ATMs, which help
perform non-intrusive medical tests on customers. Then, within minutes, they can issue a
suitable health insurance policy.

Furthermore, insurers can partner with other services to help streamline their operations.
For example, they can partner with healthcare providers to create a platform that provides
teleconsultation on demand, 24 hours a day, seven days a week. Any form of consultation or
service provided via the platform could then be immediately covered by the insurance policy,
saving the hassle of having to go through a formal claims process. The added benefit of such
a service would be to use analytics to, among other things, link consumers up with the most
suitable doctors, and identify the most effective and least expensive treatments.

While the above innovation examples show that transforming the processes is very much
possible, there may also be an impact on outgoing claims, leading to slower transformation
efforts. To drive the future of health insurance, the providers need to drive the operational
transformation, and so make health insurance significantly simpler than what it is today.

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C. INSURTECH OPPORTUNITIES IN HEALTH INSURANCE

Health InsurTech companies have received huge investment support over the past few years.
It has been reported that InsurTech companies focusing on healthcare account for 29 percent
of all InsurTech investments.4 The investment support has also been encouraged by the
increasing consumer focus on adopting healthy lifestyle habits.

Bright Health is a good example of an InsurTech player that is operating in this space. It has
already raised several rounds of equity funding. The company aims to provide a more meaningful
integration of its payer services into the patient journey. Members have access to health rewards
programmes, and personalised healthcare teams on both web and mobile platforms.

Another health InsurTech company, Clover Health, is focused on innovating multiple parts of the
value chain. It aims to improve the experience of both users and physicians, as well as reduce
doctor-insurer friction by increasing the visibility into the health of each patient.

Other than health and wellness products, InsurTechs are also focusing on targeting extremely
niche markets. As an example, Spot is an InsurTech firm that provides health and accident
insurance for athletes, travelers, and adventurers. It has a subscription-based model for just
around US$20 per month and can be cancelled anytime. Subscribing for this service takes
roughly 90 seconds and requires minimal information. It is targeting a niche market of
extreme outdoor sports that has traditionally been underserved by many insurers.

GENERAL INSURANCE

General insurance is the line of business that is likely to be most disrupted by future trends.
There is already an increasing prevalence in the number of innovative solutions. Many new
entrants have emerged from next-generation distribution intermediaries to peer-to-peer
insurers, intending to meet unmet needs or solve customer pain points.

Outside of the industry, we continue to see a greater proliferation of transformative forces, such
as self-driving cars, and the sharing economy that has started to change the landscape of how
assets are being owned and used. This increasing trend, coupled with innovations such as big
data, machine learning, and distributed ledger technologies, are all positioned to change how
insurance is structured, consumed, and provisioned for in the future.

4 NSI Investments

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Here are the implications on key product lines in detail:

A. FUTURE OF MOTOR/MOTOR 2.0

The adoption of new technologies, such as telematics and advanced driver assistance systems
(ADAS), will continue to have an increasing impact on auto insurance. However, in the longer
term, autonomous vehicles will significantly change how auto insurance is underwritten in the
future. The key difference is that original equipment manufacturers (OEMs) would likely be on
the hook if their technology falters, instead of the “driver” having to bear the liability of the
accident. As the risks shift from consumers to OEMs, auto insurance in the future may no longer
be a personal line of business, but a liability line of business for OEMs instead (see Exhibit 8).

Exhibit 8: High-level timeline of trends impacting auto insurance

Stage 1 Stage 2 Stage 3

Technology improvement Technology breakthrough Technology commercialisation

Telematics and ADAS Penetration of ADAS and More driverless vehicles, and
continue to be adapted telematics reaches scale autonomous vehicle adoption
becomes new norm
Frequency and severity of Autonomous vehicle adoption
crashes start to decline on the rise New risk and commercial model

Source: Oliver Wyman analysis

Another trend that has seen widespread adoption recently is that of ride-sharing. The
combination of ride-hailing technologies and autonomous vehicles would result in a fewer
number of cars required and much safer driving conditions, which is likely to have a significant
impact on auto insurance pools.

B. FUTURE OF PROPERTY

The increased adoption of sensors creating an internet of things (IoT) community of data
capture and detection functions is becoming a huge opportunity for insurers to capitalise on and
transform how risk is managed within the property space. The rise of smart buildings and homes
has given an individual identity and risk scoring to property that was difficult to fathom even a
few years back.

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Home 2.0 (Connected homes)

The digital sensors installed in smart homes can provide real-time proactive alerts that can help
prevent accidents waiting to happen. For example, a smart smoke alarm can help detect any
signs of fire and immediately alert the homeowner to act before it gets out of control. Adopting
these technologies can help insurers reduce costs, and result in customers paying fewer
premiums and experiencing less hassle. Ultimately, insurers can move beyond their traditional
role as a financial safety net towards one that helps their customers proactively manage risk.
Instead of reacting to situations, IoT and connected homes provide insurers an opportunity to
influence customers and reduce costs.

As insurers move from being reactive to proactive in their pricing plans and strategies, insurance
companies will be able to deepen their relationship with customers in the smart home market.
This, in turn, can help deepen the penetration in this significantly under-penetrated segment.
More personalised products could be tailored to customers who adopt more smart devices, and
each home could then also be rated based on the differing risk behaviour of each homeowner. In
other words, connected homes enable static pricing strategies to be replaced with dynamic and
automated risk assessments that can also reward customers who are “safer” than others.

Exhibit 9: Examples of smart-home sensors

Thermostat to automatically
adjust temperature in the room
to save energy and electricity

Automated smoke detectors that

can be connected to mobile devices
to alert home-owners preventing
fire damage

Alarm system that will

sound when a sensor is
triggered to prevent
Smart water system
future cases of theft
to shutoff valve
when there is a
potential water leak
or flood is detected

Source: Oliver Wyman analysis

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Other infrastructure coverage

The prevalence of digital technology is reshaping the way insurance is managed for other
infrastructure. In the past, there would have been multiple rounds of consultation between a
contractor and an insurance company to discuss the overall risk levels of a project. However,
technologies like sensors, design-modelling simulations, and 3D design processes can help
develop novel approaches to evaluating risk. These real-time monitoring capabilities can help
isolate potential vulnerabilities, and prompt pre-emptive maintenance, lowering the risk of
mechanical breakdowns and project delays.

Insurers could also play a more active role to ensure workers are
adhering to safety procedures and help set up better processes to
reduce the likelihood of accidents on site. The significant reduction in
risk would provide insurers with an improved level of comfort when
underwriting projects, and result in reduced costs.

C. SME INSURANCE

The small and medium-sized enterprises (SME) market has remained relatively underpenetrated
for a very long time. The primary challenge that most insurers and brokers face is the difficulty
in tailoring policies to suit a vast number of small but complex firms with different needs. On
the SME side, many companies struggle to understand the intricacies of various cookie-cutter
policies. They also struggle to find the right level of coverage for different stages of growth.

Insurers’ slow adoption of transformative technologies is one of the major factors that has
hindered development in this space. The adoption of technologies, such as artificial intelligence,
will help insurers develop stronger insights on SMEs, allowing them to develop a suitable product
offering that is attractive to these enterprises.

Going one step further, insurers could be integrated with the core systems of SMEs. They could
then leverage internal company data from the systems and enrich this with external market data
to create a comprehensive and dynamically priced suite of insurance products that serves all
the SMEs’ needs, ranging from inventory, property, marine transit, and cyber coverage, to even
employee benefits. They could also make it extremely simple for the SMEs to sign up for the
coverage. For example, they could even consider something akin to a simple subscription-based
opt-in/opt-out model.

© Oliver Wyman 17
Insurance Redefined

D. INSURTECH OPPORTUNITIES IN GENERAL INSURANCE

General insurance is seen as one of the more innovative lines of business, so it presently has the
focus of the majority of InsurTechs. Speed of delivery and convenience are key factors in gaining
a competitive advantage in general insurance, and many players aim to excel in these areas
across diverse segments.

UK-based Cuvva was an early entrant in the auto InsurTech market, opting to sell hourly car
insurance policies that can be bought in a couple of minutes via a user-friendly app. This
approach meets the needs of digital-savvy consumers wanting simple, flexible insurance to suit
their on-demand lifestyles.

In the property market, InsuraGuest provides specialised insurance products to hotels, resorts,
and vacation rental properties. InsuraGuest integrates the client’s property management
system with its own liability policy. This helps to manage the risk exposure for property
owners and provides policies for guests who might benefit from coverage needs that are not
typically provided.

The commercial potential for differentiated and new to market offerings in general insurance
is huge, and therefore attractive for InsurTechs. As an example, Flock is an InsurTech company
that specialises in drone insurance. Drones will likely be one of the many industries that will
experience rapid growth over the next few years. Flock is positioned to capitalise on these
technological tailwinds, and it has goals to expand its product suite and become the go-to
insurer for connected and autonomous technologies.

REINSURANCE

Due to the increasing prevalence of catastrophic events, reinsurance has endured a prolonged
soft market until recently where there are signs for potential hardening. Currently, there is
uncertainty surrounding the development of claim reserves associated with recent catastrophic
events, social inflation, and the impact of the COVID-19 pandemic. Not all reinsurers are best
positioned to capitalize on these developments within the current market dynamics. Bracing for
an uncertain market, we have identified two opportunities arising in the future for reinsurance:

© Oliver Wyman 18
Insurance Redefined

A. DATA ANALYTICS AND TECHNOLOGICAL ADVANCEMENTS

When it comes to innovation and technological advancements, reinsurance companies were

once the early adopters, such as when they used cat-modelling techniques in the early 1990s to
predict and assess risk. In a business that relies on actuarial data to assess and manage risk, data
is the biggest asset for reinsurers.

Over the years, the way reinsurers use data has evolved, from a recording tool to a means
to understand future growth opportunities. Although analytics has been a core part of the
reinsurance business, the proliferation in technological advancements and digitalisation have
allowed reinsurers to magnify the use of reinsurance data. Combined with advanced analytics,
the possibilities for the future are wide, and can have immense scale.

In addition, reinsurers will need to drive innovation in the insurance industry and develop new
solutions. Data analytics and technological advancements will be the competitive advantages of
reinsurance companies.

Reinsurers can unlock key future successes by identifying emerging

risks and trends, developing insights into customer behaviour, and
acting upon themselves to refine their risk-management models and
increase operational efficiency.

B. NEW ROLES FOR REINSURANCE

Reinsurance helps to protect against tail risks. As we know that reinsurance can be an
unpredictable business, adapting to the risk landscape and identifying new potential risks are
central to the functioning of reinsurance firms. A few factors are set to reshape the risk landscape
over the next decade, such as climate change, natural catastrophes, digital technology, and social
inflation. With the global COVID-19 pandemic exacerbating pre-existing market conditions, future
reinsurers need to come up with new models. Below, we see several trends emerging and roles
that reinsurers can play in the future:

© Oliver Wyman 19
Insurance Redefined

Public-private partnerships
As a pandemic affects all, and yet only a fraction of the enormity of the resulting economic loss
can be covered by insurance, both public and private sector organisations need to work together
and be prepared for potentially extended periods of economic disruption. A public-private
pandemic risk solution is essential to rebuild confidence for businesses, create more informed
risk management decisions, ensure operational and financial resilience, and facilitate recovery.

On their own, private insurers and reinsurers do not have the financial resources necessary
to underwrite and manage risks as complex as pandemic risks. Therefore, a public-private
partnership reinsurance model is critical to build a more proactive and agile response
mechanism. As we progress into the future with more complex and systemic risks, a partnership
model could be the way forward for private reinsurers and the government to work together in
managing and mitigating tail risks.

Exhibit 10: Several ways a public-private insurance/reinsurance mechanism could

be developed

Private Public

Semi-private pooling Public-private partnership Public funds for

reinsurance scheme (PPP) reinsurance schemes noninsurable risks

Joint entity created by insurers to Structured risk sharing model Pure government setup, without
pool risk and share knowledge between policyholders, insurers any direct private involvement
and government (other than aligning coverage)
Participation may be voluntary
or legally mandated Government explicitly provides Fund is created with a reserve,
backing to the private built up over time, that can be
Financing primarily provided by sector to cap exposure and used to pay out claims in the
the private sector, with limited drive affordability event of a pandemic
(if any) initial government
financing and typically no Participation may be voluntary Claims against the fund should
committed reserve or legally mandated be aimed at covering risk events
that cannot be covered by
existing insurance offerings

Relevant options for managing pandemic risk

Given their global nature, pandemics are unlikely to offer insurers

and reinsurers any diversification. Some form of public support
will likely be required to enable viable insurance and
reinsurance markets.

Source: MMC

© Oliver Wyman 20
Insurance Redefined

Escalation of alternative capital

In recent years, reinsurers have been working with alternative capital providers. Many private
equity and other capital providers are investing in reinsurers, bringing in additional investment
and operational expertise. We expect alternative capital to continue to play an important role in
the reinsurance industry. This trend will be mainly backed by the rising demand from institutional
investors for less correlated assets and increasingly innovative transaction structures.

The escalation of alternative capital will also help the reinsurance industry to finance risk at
lower costs. It is expected that more reinsurers will adopt a hybrid earnings model, combining
underwriting returns and fees from risk-sharing. Capital providers will also explore new
partnership models in the future that further deepen their relationships with reinsurers.

C. INSURTECH OPPORTUNITIES IN REINSURANCE

In the reinsurance space, there are fewer InsurTech companies. However, reinsurance companies
have been actively setting up their own venture funds and accelerator programmes to invest in
other early-stage InsurTech firms. These venture funds and programmes often focus on funding
InsurTech firms that focus on artificial intelligence, mobility, and technology.

This partnership between InsurTech and reinsurance is mutually beneficial. InsurTechs are
increasingly seeking direct contact with reinsurers to source underwriting capacity, risk
expertise, and capital strength. On the other hand, reinsurance companies can develop strategic
partnerships with InsurTechs to change the way reinsurance is distributed, priced, underwritten,
and administrated.

Going forward, InsurTechs and reinsurers need to bring their collective capabilities in
accelerating the development of technology-driven reinsurance solutions and drive their success
through collaboration. For InsurTech companies, there are a few considerations to keep in mind
so that they can foster long-term mutually beneficial relationships with reinsurers. Firstly, they
can leverage the massive data that reinsurers have collected over the years, as well as utilise
the reinsurers’ risk expertise and insights. Next, they can explore innovative partnerships in
new sharing economies and work with reinsurers to expand their products and services. Lastly,
InsurTechs must be more flexible, adaptable, and patient with reinsurers, as transformation and
disruption could still take many years.

© Oliver Wyman 21
Insurance Redefined

HOW INSURERS AND INSURTECHS

ARE PREPARING FOR THE FUTURE
We surveyed 42 C-suite executives of the insurance industry to better understand
how they are preparing themselves for the possible changes in the future.

Over 50 percent of executives believe that the use of data technology and digitisation is the
most important theme for their respective companies to grow, with product innovation and
personalisation, and customer engagement coming in second and third, respectively. Comparing
these results to our consumer survey, the two main priorities for consumers are having better
service and responsiveness, and product innovation, with the use of data technology being their
third biggest priority. As such, the insurance industry is focusing relatively well on meeting their
consumers’ changing expectations.

Exhibit 11: What are the most important themes for your company to grow in this fast-
moving world?

Use of data and technology,

54.8 31.0 4.8 4.8 4.8
digitization and automation

Product Innovation 38.1 38.1 11.9 7.1 4.8

Personalization and
28.6 52.4 2.4 11.9 4.8
customer engagement

Build/participate in
23.8 47.6 9.5 11.9 7.1
eco-systems

Distributive transformation 16.7 40.5 28.6 9.5 4.8

Optimization of in-force 9.5 42.9 33.3 7.1 7.1

Most important Very important Somewhat important Less important Least Important

Source: Oliver Wyman C-Suite survey results, CEOs across Asia, n=42

© Oliver Wyman 22
Insurance Redefined

The survey also brought to light that internal hurdles are more of a challenge to insurers than
external market pressures. Despite the insurers’ desire to move towards a digital and more
technologically driven business, their biggest hurdle at present is the legacy IT and infrastructure
systems that they are currently using.

Insurance has always been served by fragmented processes, driven by its legacy systems.
Experts within the insurance value chain operate in separate business functions and do not
have an efficient process to collect and share data between these functions, making it difficult to
harness the right data to provide meaningful insights.

InsurTech companies have also been focusing on solving legacy claims systems. For example,
AI/ML technologies can help improve end-to-end claim management by making it more time-
efficient, accurate and customer-focused. InsurTechs can use AI-based regulation control
and increased data points to assess damages and quickly settle claims, improving the overall
efficiency of claims settlements and lowering the claims costs for insurers.

Other than these areas, InsurTech companies are targeting the disruption of underwriting,
payments, and collections operations. Current underwriting processes are lengthy, and inflexible
for both the insurer and consumer, providing an opportunity for InsurTech companies to shape
future products that solve customer pain points. Payment and claims processes, on the other
hand, are traditionally slower and prone to discrepancies and delays in reconciliation. InsurTech
firms can work on innovating to create more accurate and efficient processes.

Talent came up as the second biggest hurdle for most insurers as a potential issue. It is
important for insurers to double-down on their initiatives to get the right talent. The competitive
pool of talent is gradually dwindling, as other industries are aggressively competing to hire the
same group of people.

Hiring the right talent would also help drive transformation from
within the company, and solve the legacy IT and infrastructure
systems problems.

© Oliver Wyman 23
Insurance Redefined

Exhibit 12: What are the biggest hurdles in reinventing the insurance business for
the future?

>70%
of industry C-suite executives think that legacy IT and infrastructure systems are their
biggest hurdle and 60% are also investing in them

What are the biggest hurdles in reinventing the insurance business for the future?

Legacy IT and infrastructure 71%

Talent 36%

Changing customer demands 26%

Uncertain economic outlook 24%

Persisting low interest 17%

rate environment

In which of the following areas do you plan to invest the most over the next 1-3 years?

Developing Partnerships 79%

Digital technology and 60%

infrastructure

Digital tools for distribution 45%

Internal digital teams 40%

and talent
Direct distribution through 38%
digital channels

Source: Oliver Wyman C-Suite Survey results, CEOs across Asia, n=42

Additionally, insurers believe that the right way forward over the next one to three years would
be to develop strong partnerships, acknowledging that the journey of transformation requires
support from external allies. It is important to choose the right partners to work together
on these large-scale, multi-year programmes. The biggest challenge ahead for insurance
companies would be to create a single platform that integrates the various operations of partner
companies. If insurance companies can successfully create this platform, they will have set up a
strong customer ecosystem that may well be pivotal in retaining customer loyalty and improve
customer propositions.

© Oliver Wyman 24
Insurance Redefined

FUTURE STATE OF INSURANCE

AND INSURTECHS
For the past decade, startups have emerged in the insurance market, seeking to
deliver more customer-centric insurance products and services in more efficient
ways. The InsurTech scene in Asia has picked up a lot of pace in recent years, and
many signs point to Asia being the hotbed for the next generation of InsurTechs.

The relatively low insurance penetration rate across multiple markets, coupled with high
e-commerce and social penetration, represents a growing opportunity for insurers to develop
niche and tailored local products for consumers. Many countries, such as Thailand, Malaysia, and
Singapore, have already developed regulatory sandboxes for startups to test their new business
models in a safe and regulated environment.

In order to understand which area provides the best opportunity for disruption, it is important
to have a holistic view of the insurance value chain. Consumers’ growing expectations for on-
demand products, instant access to sales providers, and an omnichannel experience provide an
opportunity for InsurTech firms to create more customer-centric product offerings. By collecting
and analysing unprecedented amounts of data, InsurTech products will continue to create
solutions across the entire insurance value chain:

• Marketing and Distribution, Platforms, and Partnerships: InsurTechs are collaborating with
traditional insurance companies and digital platforms to develop value-added solutions.
• New Insurance Service Offerings: New products and offerings in the digital space have
emerged, such as usage-based insurance and digital assets insurance.
• Customer Experience: InsurTechs are delivering innovative, personalised, simple, and
digital products with a seamless customer experience. For example, artificial intelligence
can improve customer interaction and conversion ratios, as well as reduce claims
turnaround times.
• Underwriting and Risk: Sophisticated prevention models can offer new approaches to
underwriting risk and predicting losses. More data from IoT sensors will result in a more
holistic and accurate model of risk profiles, driving higher predictability towards personalised
insurance products.
• Claims Management: Claims management is becoming faster and more efficient. For
example, a leading Chinese InsurTech firm has shared that its automation rate of claims
underwriting and settlement has exceeded 99 and 95 percent, respectively, and the
proportion of artificial intelligence applied in online customer service has reached 70 percent,
resulting in a 61 percent saving in terms of manpower.5

5 Company presentation

© Oliver Wyman 25
Insurance Redefined

• Data Management: Data management is being enhanced by the development of data

standards, blockchain technology, and aggregation, along with the application of enrichment
capabilities through external data sources.

Insurance companies do not need to go through technological transformation by themselves.

If they did, it would take them longer to build disruptive capabilities. Instead, insurers need
to establish deeper relationships and collaborate in win-win partnerships with InsurTechs to
fast track the transformation of the insurance industry. By working together, they can combine
traditional insurers’ underwriting capabilities and InsurTechs’ technological solutions to deliver
greater efficiencies and innovative improvements to insurance customers.

CONCLUSION
The insurance sector will continue to remain competitive, forcing both incumbents and new
entrants to constantly innovate and refine their product offerings to meet the changing needs
in the market. However, there are many growing trends that present themselves as significant
opportunities for insurance companies to capitalise on, and they will need to focus on five key
themes. Here is a summary of the themes that will shape the future of the industry.

• From product-centric to customer-centric: Go beyond standardised product solutions,

engage with customers in a deeper, more meaningful way, and transform insurance into
being a service focused on customer centricity.
• Product innovation with modular solutions: Leverage evolving digital and data capabilities
to offer personalised solutions that suit individual needs.
• Distribution and customer experience excellence: Do away with the distinction of channels,
and heighten customer experience by utilising the best of both personal and digital channels.
• Development of partnerships with other industries to maximise value: Continue partnering
with other industries to create ecosystems and generate leads for sales, and leverage
partnerships to go beyond sales to achieve operational breakthroughs.
• Up-skilling and improving capabilities: Train workforces to keep up with the development
of digital technologies and so efficiently drive transformation across insurance companies.

Overall, the insurance industry needs to not only continue to play its core role of providing
protection to its consumers, but also develop creative, customer-centric products that provide
greater value. Despite the many challenges, the insurance industry presents many opportunities
for companies that are willing to innovate and improve their operational models.

© Oliver Wyman 26
Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialised
expertise in strategy, operations, risk management, and organisation transformation.

For more information, please contact the marketing department by phone at one of the following locations:

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AUTHORS

Angat Sandhu Steven Chen Ajit Rochlani

Partner Principal Engagement Manager
[Link]@[Link] [Link]@[Link] [Link]@[Link]

Jun Hao Tay Bella Thamrin

Consultant Consultant
[Link]@[Link] [Link]@[Link]

Acknowledgements

We would like to thank Tomasz Kurczyk, Chairman, InsurTech sub-committee, Chia Hock Lai, President and the entire
SFA team for their great support and contribution in developing this report and all the senior industry executives that
responded to the survey.

We would also like to thank Prasanna Patil, Principal at Oliver Wyman, for his valued contributions towards this report.

Copyright © 2020 Oliver Wyman

All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman
and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect.
The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on
for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every
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