Can the insurance industry survive disruption?

The Hong Kong government sponsored Advisor’s Edge’s trip to cover Hong Kong FinTech Week. Our coverage is written without any input or oversight from the sponsor.

Facing changing consumer behaviour and opportunities from big data, the 300-year-old insurance industry is beginning to adapt.

“Most of the companies have a long history,” said Charles Hung, CEO of digital life insurer Blue, speaking on a panel Wednesday at Hong Kong FinTech Week. That history comes with baggage, he said, such as a complicated organizational structure, legacy systems and a general resistance to change.

Blue launched in September, allowing customers to buy zero-commission term life and critical illness insurance products online. The company is backed by Aviva, Hillhouse Capital and Chinese internet giant Tencent.

Tencent also launched WeSure Internet Insurance Ltd. through its WeChat social platform last year, which works with established insurance companies.

“Do you want to continue investing in your legacy, or do you want to build something that’s completely new?” Hung asked.

For some, the answer will be to partner with insurtech companies that have developed platforms and products with innovative pricing. Moderating a different panel, Toronto Finance International president and CEO Jennifer Reynolds cited a survey of CEOs that showed more than 85% of big insurers are seeking such partnerships.

It’s a tradeoff: the startups offer ideas to attract the next cohort of clients, while the insurance companies offer the trusted branding.

Scott Walchek, founder and CEO of on-demand insurance company Trov, called insurance “perhaps the world’s most brand-dependent industry,” with its implicit trust relationship where the consumer pays regularly and expects the insurer to pay up if something goes wrong. This makes it hard for startups to compete with companies spending millions on advertising, and makes partnerships appealing.

Alan Lau, WeSure’s chairman and CEO, said 80% of the company’s customers are aged 25 to 40. For many it’s their first insurance product and they’re sensitive to price.

“In order to appeal to this new segment of users, the old product doesn’t work,” he said on a panel Wednesday. “We need to help the traditional insurance company come up with products that are much more affordable, that are fun to use, and are relatable as a service.”

He gave the example of a new term life product built around a specific problem. Lots of young Chinese people have left their families in rural areas to work in coastal cities, and they worry about who will look after their parents, he said. WeSure created a policy that would pay a monthly amount to parents for the rest of their lives in the event of the child’s death.

“We essentially turned a classic term life insurance into an annuity,” he said.

Positioning data for the customer

New data points will also change products and pricing, said Naveen Kukreja, co-founder and CEO of Indian fintech Paisabazaar.com, also speaking on a panel Wednesday. Car insurance will move from model and year being the main variables to incorporating mileage and where a customer drives and parks, using location data, he said, while health insurance will use tracking data from smart watches and other devices to determine premiums.

While there are sensitivity issues around data sharing, Kukreja said he expects a regulatory shift that will give consumers ownership of their data. It will then be up to companies to entice consumers to share it.

“I don’t think consumers will have a problem sharing data if they know why they’re sharing it, and as long as you’re transparently using it for the purposes that you’re asking for it,” he said.

Walchek said his company rewards car insurance customers who share location data by offering “mobility points” that turn into discounts on monthly premiums anytime they use alternative modes of transport such as bicycles or public transit.

Lau said WeSure offers discounts on its health product to customers who share tracking data showing their exercise patterns.

“People see a very tangible benefit of offering that data and allowing access,” he said. “We have to offer very clear reasons of why we’re collecting it in the first place.”