InsurTech bandwagon comes to Singapore

There is nothing like attending an InsurTech event to fire the imagination. Enthusiastic startups swap business cards with insurance executives in hope of a happy union, while venture capitalists hover in close proximity. Nobody wears a tie, except for those geeky iconoclasts pairing a bowtie with jeans and trainers, and there are no comperes or masters of ceremony moderating the day’s proceedings. They are DJs, of course. But semantics aside, the InsurTech conference in Singapore in September saw an unprecedented number of attendees discuss the various ways technology could trigger some much-needed innovation in the Asian insurance market, given that it seems to be so far behind the banking sector when it comes to exploiting the latest technology and tools. The use of advanced analytics may be more commonplace in banking at present but the greatest impact will be felt in the insurance industry, says Sophia Van, vice-president, strategy and innovation, Asia Swiss Reinsurance. Nor will Asia escape this impact, particularly in Singapore, which has invested so much in its Smart Nation programme where sensors and cameras are deployed across the city state to monitor everything from cleanliness of public spaces to the movement of vehicles.hideAt the other end of the scale, there are the likes of Thailand, Vietnam and other countries prone to natural disasters but with worryingly low levels of insurance adoption, creating a protection gap that needs to be filled by more innovative insurance products than currently available. “Technology is changing the risk landscape and it requires underwriters to adapt,” says Ms Van. Some risks will change hands, for example driverless cars will transfer liability from car owners to car manufacturers. Biomedical technology will reduce some risks but also mean new risk pools will emerge around body tissue. Similarly, digital business and e-commerce will bring more efficiency to the distribution and delivery of goods and services but will also lead to the accumulation of new risks through cyber attacks and supply chain risks. The power of data New data sources will enable insurers to navigate a course through this new risk landscape, says Ms Van. “They will not have to rely solely on historical data but will have real-time, personalised, fast, accurate and transparent data.” Telematics data has been closely associated with wearables and its application for personal health insurance. Or else it has been used for motor insurance via telematics. But, says Ms Van, the same kind of data can also be used for commercial lines such as natural catastrophe, agriculture and marine. “Agriculture risks are very expensive to underwrite. This cost can be reduced through the use of parametrics but much of it is generic and tells us nothing about individual farms. With the Internet of Things (IoT), GPS and sensor data we can collect more granular data and this will help underwriters to be more innovative. “Nat cat underwriting can be brought to the next level. Terra Seismic is using satellite-generated big data to reduce the risk and damage from earthquakes. Big data will allow insurers to insure the uninsurable. We have new information about behaviour and can feed this into our pricing models,” she says. In marine insurance, the IoT at sea could improve risk mitigation and understanding. Anti-collision systems could help to improve collision modelling. Also, satellite data can be used to develop accurate piracy maps. “Shipping routes can become a measurable risk factor in the same way that driving behaviour can shape motor insurance,” says Ms Van. “It is not easy to derive insights from big data but more tools are available for modelling and mining. And the data enables underwriting to be predictive, evidence-based (from new data sources), dynamic and automated,” she adds. Collective and rules-based logic can be used to streamline the underwriting process, which can be lengthy, complex and invasive. But artificial intelligence can bring it to the next level, says Ms Van. “Underwriters can view complicated risk models that can be refreshed and improved. But there is still a long way to go.” The impact of big data on underwriting will be wide-ranging but there are limitations to its impact and there will still be gaps in coverage. Many of these devices, from satellites to sensors, are expensive and therefore inaccessible to many low income segments or industries, such as agriculture. The use of microinsurance and pre-pay policies can help, as can an on-demand pricing model that enables firms to buy flood risk only on the days of the year when flood risk is at its highest, rather than paying for it all year round. Blockchain technology The blockchain has become the most talked about element in the rise of fintech but has been seldom mentioned in the context of insurance. The blockchain is one example of distributed ledger technology (DLT) and first came to prominence as the backbone behind virtual currencies such as BitCoin. In order for the likes of BitCoin to operate properly as a currency, the blockchain provides the necessary authentication for transactions. The potential for DLT to transform the banking industry has been well documented and various bodies, from the Federal Reserve to the bank of England and most of the world’s investment banks, have explored possible ways to apply the technology – from retail payments to the clearing and settlement of securities. In the insurance market, DLT has mustered few mentions. But according to Nolan Bauerle of Skuchain, a start-up that builds blockchain-based products for B2B trade and supply chain finance, there are several possible applications. “We digitise a lot of the processes in claims management but it is still the same workflows, just sped up. Blockchain may change this,” he says. The blockchain could also help some of the oldest insurance markets and providers adapt to a new digital world, says Mr Bauerle. “Insurance can help with recovery costs but can do little to prevent accidents. Will there be a product that can do this? This is an opportunity because there is not a single product that does this. If there was, companies would begin to see the benefit of insurance. “Lloyd’s, as we know, began its insurance business in a coffee shop because it just wanted a place to find data. Now with the blockchain, they can have an encoded contract shared by everyone and they can see if the document has been opened. The Lloyd’s market has its own habits within London and has tried to export the model abroad but has not been successful yet. But with the blockchain it can create a digital version of the Lloyd’s market that could develop much faster.” Challenges remain though. There are legal and compliance issues around the use of data, especially across national borders, plus an unwillingness among some insurers to share their analytics with third parties. And perhaps most importantly in the eyes of several startups and tech entrepreneurs eyeing up the insurance market, there is the perception that most insurance companies are not ready to exploit the technology on offer. The unwillingness to be the first mover is what makes the industry so ripe for disruption, argue the startups. “Some players have set up innovation labs and partnered with governments and universities but I have to agree that it is not easy. It will be a bumpy road,” says Jan-Phillip Kruip, CEO and founder of FitSense, a Singapore-based startup that provides data aggregation technology to the insurance market. “There is a crisis in insurance,” says Steve Tunstall, director of Tunstall Associates and Pan-Asia Risk and Insurance Management Association general secretary. “There is a recognition that the industry needs to change but little action.” Furthermore, the insurance sector itself is mostly to blame for failing to deliver compelling customer-focused solutions. Nor can the industry cite a lack of demand among risk and insurance managers or any regulatory impediment, says Mr Tunstall. “I think risk managers would absolutely embrace innovation and buy in to the best things insurers have to offer. And the same goes for the regulators if new solutions make the market more transparent and efficient. The technology to do this has been there for years – but it takes a step change to deliver and perhaps the blockchain can be that catalyst.” The problem, says Mr Tunstall, is the existing technology and business models used by insurers. “They are massively invested in these structures and it is difficult to do without them. But we are not talking about changing insurance fundamentally. New so-called disruptors like peer-to-peer insurance Lemonade are essentially the same as takaful, which has been around for centuries and based around age-old principles of sharing and giving back. “They are very basic principles but somehow in the last 50 years we have lost sight of the genuine goodness insurance brings to society. Until we can remove some of these conflicts and make the process less stressful, we won’t move away from that lack of trust, transparency and choice.” Rather than being a disruptive force to be feared, Mr Tunstall believes that InsurTech will be the saviour of the insurance industry. “It is the status quo that is negative. There is a race to the bottom and commoditised pricing. We’ve just seen one of the world’s biggest shipping firms go bankrupt and it would be in nobody’s interest for the insurance sector to experience similar price-driven catastrophes – least of all the customers. “But the insurers have not done themselves any favours in terms of their positioning with clients. They have to make a greater effort to educate their customers because it is not a product that provides immediate gratification. They have got to promote the long-term benefit. That is when insurance is at its most powerful as a proposition. I truly believe that.” Insurers have to remember that in Asia in particular, customers have generally had a good run in terms of experiencing few major loss events, so there is the potential for insurers to misunderstand the benefits of a solid insurance programme, says Mr Tunstall. Any frustration with the slow-moving insurance industry that Mr Tunstall may display is outweighed by his enthusiasm for the InsurTech movement and the current momentum that events like the InsurTech conference are creating. “With technology, timing is everything. The most impressive thing is the event itself. There are 300 people here from all walks of life and they have chosen now to get together and look for solutions. “Some of these businesses will be more dotcom bubble than the next Google but there is no doubt we are on the crest of the wave. I can’t say whether in five years’ time we will all be on the blockchain in a world without insurance agents but it is definitely the most exciting time I have had in the insurance sector.”

InsurTech bandwagon comes to Singapore

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