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| Technological Disruption in the Insurance Industry |
In the earlier years of the internet, the practice of
purchasing financial products online was slow to take off due largely to
concerns of risk and security (Gerrard et al, 2006). Some were early adopters
but others decided to wait and see, depending on each individual’s personal
risk perception (Walker and Johnson, 2005, 2006).
As technology developed and internet security improved, new
distribution platforms were developed despite initial impediments (Dabholkar
and Sheng, 2012), together with new products designed for these platforms
(Sousa and Voss, 2009). Despite each platform having its own set of
characteristics (Laukkanen, 2007), they have completely altered the way that
customers engage with the companies (Patricio et al, 2003) and the relationship
between them (Black et al, 2002).
Today, the industrial revolution of the digital age is
underway and InsurTech (Insurance Technology) companies have set their sights
on the 300-year-old insurance industry. Such technology companies
have sprung up globally, disrupting the way things have been
done. The emerging technologies, together with customers’ expectations, are
causing the insurance industry to consolidate (PWC, 2018). Insurers used to be
working in isolation with few partners outside of the industry; today the
insurer that wants to stay relevant has to work in a complex partnership with
companies from various industries to provide a total customer experience
(Cebulsky M. et al, 2018).
In Singapore, the Monetary Authority of Singapore (MAS) is
the central bank and financial regulatory authority. With the advances in
technology and online security, MAS has embraced these changes and introduced a
FinTech Regulatory Sandbox (Fan P.S., 2017) to encourage innovation and
experimentation of new applications for the financial industry. This ‘balanced
approach’ allows FinTech providers to operate with relaxed regulations in a
controlled environment instead of the ‘real-world’ where more stringent rules.
This allows for creativity but ensures financial stability and consumer
protection.
From the early days, the insurance industry has been based
on a personal interaction ‘hi-touch’ model (Gera R, 2011). Insurance agents
(also called other names: Advisers, Consultants, Planners, etc.) are the major
distribution channel and often the main point of interaction between the
insurance company and the customer (Crosby et al, 1990). In recent years,
however, multiple alternative distribution channels have emerged due to intense
competition, the availability of applicable technology and the need to retain
customers and reduce costs (Jeyakumar N., 2017). One of such channels is
‘Digital to Customer’, where selected insurance plans are made available for
online purchase online via a mobile phone application.
In the initial years of the digital revolution, many
InsurTech companies set their sights to disrupt the traditional players of the
insurance industry. This has shifted gradually to collaboration; the technology
players have begun to see more benefits to work alongside the incumbents rather
than to go it alone in a ‘David versus Goliath’ fight. Instead of disruption,
InsurTech companies look to complement and enhance the insurance companies’
operations from securing transactions, improving efficiency and reducing
operating costs. Other InsurTech companies offer software that complements the
practitioners’ work such as Customer Relationship Management (CRM) and complex
modelling for individual analysis of financial needs.
Perhaps one of the greatest benefits from these recent
advancements in financial technology is inclusion. Using recent estimates,
there are almost 2 billion people living in poverty and some 200 million
‘micro’ small and medium enterprises (SMEs). These segments were previously
marginalised and do not have financial products readily available to them. With
high smartphone usage even in developing countries, financial services can now
be made available and affordable to these groups and potentially reducing
poverty with economic growth (Soriano M.D., 2018).
