The insurers operating in developed nations are facing some serious challenges. The market is not growing any further, the insurance products have become stagnated, and the cost of customer satisfaction is rising. These limitations have started pushing the insurance firms towards emerging markets.
While the insurers in developing regions have been concentrating on risk management keeping the customer-side of value in the backseat, the insurers in developed regions have had the time and resources to keep a focus on their customer.
By adopting popular technology, embracing unique sales partnerships, and building customized products, the insurers of developed regions give a glimpse into the potential there is to jumpstart the innovation in the emerging markets.
There are several market trends that are driving the growth of insurance in emerging markets and this article explores the trends in-depth.
The Trends Impacting the Growth of Insurance in Emerging Markets
Several emerging nations are upping their insurance innovation game. The growth-focused regulations are helping increase the penetration rate of insurance in the emerging nations, helping build financial resilience.
Better Market Access
Across the world there exists the concept of trade barriers which lowers competition in the re/insurance market which lead to fewer customer choice, poor service, and high premium. These events tend to lower market access. Several emerging nations have started undertaking liberalization and regulation measures that are aimed at improving consumer protection.
The Insurtech Revolution
The incorporation of technology in insurance makes products profitable, affordable while providing access to new risk pools. With over 69 percent of people being comfortable with sharing their data, the adoption of insurtech in emerging nations has become easier, while the growing inclusion of mobile devices and apps in the sector has expanded.
How is Insurtech Making a Difference in Emerging Markets?
Insurtech, across its different business models, is making it easier for emerging nations to adopt insurance and be more open to the idea of being covered. Here’s how insurtech is making it easy for the emerging markets:
Through Customer-Facing Platforms
Insurtech takes on several roles ranging from:
- Being an online broker that gives price comparison services, brings different coverage options from different providers on one platform.
- Online insurers that manage the insurance value chain segments online through the power of machine learning and AI.
- Insurers can use a dedicated app that handles several crucial aspects of the insurance lifecycle. For instance, they can use an app to make it easier for consumers to upload claims documents, making onboarding easy with video or voice based technology.
These customer-facing platforms make insurance extremely accessible for the masses in emerging nations.
Demand-Based Insurance Models
In the insurtech setup, there are two kinds of demand-based models that impact the emerging markets –
- Pay-as-you-use – These models surround charging the customers a premium on the basis of their usage of the asset. For example, in the case of vehicle insurance, the premium sometimes depends on the kilometers that were driven in a month.
- On-demand – The kind of insurance models that revolves around this can be travel insurance, renters’ insurance, or pay-per-mile auto coverage. The idea of the model is to insure individuals for a limited period of time.
Data-Backed Decision Making
With an easy access to a wide set of data and information, including chatbots on websites and smartphone apps, insurtech companies are applying the capabilities of machine-learning tools to provide innovative, personalized services and products.
For example, Metromile is offering pay-per-mile auto insurance to low-mileage drivers in a few US states, while FitSense is allowing life and health insurers to use data from their wearable technology to aid their underwriting, pricing, and claims handling processes.
Peer-to-Peer (P2P) insurance is an insurtech model where individuals pool in all of their premiums together to insure a risk. It eliminates the issues that arise between a traditional insurer and the policyholder when the former keeps the premium which is not paid out in claims.
There are two primary differences between peer-to-peer insurance and traditional insurance systems:
- The insurance pool in the case of P2P is made of acquaintances who contribute for safeguarding each other’s losses. By pooling in the premium funds from known acquaintances, the P2P insurance model aids transparency in the operations as everyone knows who is in the pool, what is the amount of money, and who is filing the claim.
- Any funds which are there in the pool after the coverage timelines end gets refunded to the members. This removes the gap between the traditional insurers and the policyholders. Also, generally, a P2P pool is insured by some reinsurer, so when there are claims that are more than the premium, the reinsurer covers the difference.
From regulatory growth, better market access, to the insurtech revolution, there are several reasons for the growth of the insurance industry in emerging markets. Yet, one factor- the role of Insurtech has made it seamless for emerging markets to adopt insurance.
Although technological advancements have made the process easier, it is important for insurers to remember that it is not free of challenges. It can be anything from a low learnability curve to hesitancy towards insurance adoption. The solution to solve this challenge is two-fold: taking support from regulatory bodies and building campaigns around insurance literacy.