Is Insurtech more hype than substance?

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Singapore has emerged as an insurtech investment hub. But policyholders are yet to see significant benefits. Will insurtech bring consumer rewards or is it more hype than substance?

By Joelyn Chan

In short, Insurtech is an amalgamation of “insurance” and “technology”.  Both of which have existed for many years. Insurance firms have continuously sought to leverage the latest technological innovations to increase efficiency and reduce overheads.

The only difference now is the influence of fintech. With tech start-ups taking on the giants of finance, insurtech start-ups are trying to replicate fintech’s success in the insurance sector.

According to Fintech Global, Singapore is one of only five countries that have accounted for 75% of global insurtech deals since 2014. The small nation-state ranked in fourth place. The island-nation is now home to 17 insurch firms.

The nation’s basic MediShield Life plan provides citizens with minimal healthcare coverage. Approximately 68% of Singapore’s residents enhance their health insurance with Integrated Premiums and riders. This has created a thriving insurance market ripe for disruption from emerging technologies.

Have Singaporeans benefited from the rise of insurtech?

The inflexibility of switching insurance providers has muted insurtech’s benefits for Singapore’s citizens.

Switching insurance providers can be costly. Many policies include clauses which incur financial penalties when customers surrender their existing coverage to switch to a new provider. For those who suffer from serious illnesses, their pre-existing medical conditions may be excluded under the new insurance policy or be included at a higher cost. 

As a result, there has not been a surge of policyholders surrendering their insurance policies and purchasing new plans with insurtech start-ups. Many are forced to stay with their incumbent provider and wait for it to improve its service.

This doesn’t mean incumbents can be complacent

Insurtech start-ups are able to offer enticing policies. They do not suffer from the burden of legacy systems and are able to utilise the latest technology. Singapore Life, a start-up that raised more than US$90.3 million worth of funding, reduced overheads by cutting out third-party agents.

By reducing overheads, insurtech start-ups are frequently able to offer policies with reduced premiums and greater coverage than traditional outlets.

With competitive pressure increasing, dominant firms have to take the risk and innovate too. If they do not, they will eventually be made irrelevant with time. Once the benefits insurtech start-ups offer outweighs the penalties incurred by switching, there will be a mass exodus from traditional outlets.

Conversely, should incumbents innovate and improve their customer experience, they can easily exterminate threats from insurtech start-ups. Existing insurance conglomerates have the upper hand. Their strong relationship and name recognition mean they will be able to retain their customer base with even modest innovations.

Photo Credit: Joan Campderros-i-Canas

Incumbents should not expect any regulatory assistance.  MAS Deputy Managing Director Ong Chong Tee said: “We believe that regulations should support and not stifle innovation.” In other words, the government will encourage and regulate the industry’s development. It will never intentionally dampen insurtechs’ growth for the sake of existing firms.

A synergised relationship between the incumbents and the new entrants would benefit everyone

Singapore’s NTUC Income and China’s largest online insurance company, ZhongAn, have partnered up. They will be creating digital insurance products while bolstering innovation efforts in Singapore

The partnership will allow NTUC to access new customer segments and better services for its existing customer base. These types of partnerships will likely increase as incumbents attempt to innovate and seek to leverage insurtech’s technological advances.  

Ultimately, customers will benefit from these partnerships. As the insurtech industry pushes incumbents to innovate, many customers will see an improvement in the experience offered by their provider.

Unlike fintech, the insurtech industry is not a disrupting tsunami banging on the doors of incumbent institutions. The lower premiums and technological advances have not yet trickled down to Singapore’s consumers. Instead, insurtech is a gentle swell slowly building. Insurtech start-ups will continue to drive the industry, forcing incumbent insurers to up their game.