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Covid-19 drives insurtech business in Asia
Regulatory curbs hinder digital insurers from fund distribution
25 Nov 2020 | The Asset

Insurtech business is making headway in Asia’s major markets amid changing customer expectations, the availability of financial infrastructure services, and the coronavirus pandemic, according to a recent report.

As lockdowns and safe-distancing rules restrict face-to-face interactions, digital platforms have become the safest and most convenient way to sell and buy insurance.

China remains the leading insurtech market in the region in terms of innovation and level of activity, research and consulting firm Cerulli Associates says in the latest issue of The Cerulli Edge - Global Edition.

Many customers have embraced insurtech in the country, thanks to the ease of subscribing to and investing in insurance plans. On insurers’ own platforms alone, which accounted for 12.8% of total online life insurance premium income in 2019, the total number of customers who signed up for life plans reached 10.4 million in the same year. Online life insurance premium income reached 185.8 billion yuan (US$26.6 billion) in 2019, up 55.7% and accounting for nearly 5% of China’s total life premiums.

However, the potential for fund distribution remains limited, given that life plans sold online are typically savings-type or participating policies, which are easier to sell, Cerulli notes. Investment-oriented plans have also suffered since regulators started cracking down on short-term universal life insurance products in 2016. Investment-linked products (ILPs) in the country accounted for only 1.0% of total life premiums in 2019.

This trend is unlikely to change soon as regulators continue to emphasize financial risk management and protection-type products, the report says. Opportunities to manage life insurance assets will continue to come from insurers’ general accounts.

Singapore has become a hub for insurtech, and this is attributed partly to the regulatory sandbox launched by the Monetary Authority of Singapore for fintech services. However, insurtech players are mostly conducting marketing and distribution. As a highly regulated industry, it is not easy to get into the underwriting business. So far, Singlife is the only purely digital life insurer in the country.

Hong Kong now has at least five digital insurers, but none of them offer ILPs, locally known as investment-linked assurance schemes (ILAS). This means there are currently no opportunities for fund houses to distribute products through these firms.

The lack of ILAS in Hong Kong digital insurers’ product suites could be because they are not authorized to offer them or they have consciously avoided them. Sales of ILAS involve more disclosure requirements and a more regulated process than pure protection products due to previous cases of mis-selling. It is difficult to meet disclosure and other requirements when a sale is done purely online, the report notes.

Indonesia has a huge potential to become a major insurtech market, owing to its vibrant technology startup scene, market size, young population, and rising middle class, Cerulli says. There are opportunities for fund distribution through ILPs, which account for an estimated 40% of life insurance assets. However, there are restrictions on ILP sales conducted online. In May 2020, the regulator allowed insurers to sell ILPs through video calls and use electronic signatures for executing documents, but this is a temporary measure in response to the health crisis.

Cerulli senior analyst Ye Kangting says: “There is a lot of potential for Asia’s insurtech players to reach large numbers of uninsured customers in the region and make insurance more affordable. However, this opportunity is largely limited to product marketing and distribution. Activity is also more in the non-life business, given the greater complexity of life insurance products and their highly regulated nature.”  

“This means the opportunity for fund distribution to grow through this channel is small at this point. However, insurtech is still evolving, and it can eventually open up as innovative practices become more accepted, including by regulators,” she adds.