If we are in the early innings of a global paradigm shift with regards to insurance, how can I leverage FinTech to capture premiums and market share? That’s the question that insurance industry executives are pondering as they begin to grasp the true scale of the burgeoning opportunity associated with the un(der)insured.
The sheer demographics and current low adoption rate of insurance globally confirms this enormous growth opportunity. But who will capitalize: forward-thinking incumbents or savvy new entrants?
Consider the numbers. According to 2015 data from Swiss Re, the overall penetration of insurance within developing markets (defined as premiums as a percentage of GDP) remains paltry at 2.7%.1 Obviously, there is plenty of upside here. But just as important, a shift in attitude toward the greater adoption of insurance appears to be underway. This same data from Swiss Re suggests that insurance coverage has been trending higher since 2000, particularly in developing markets.
The DeNovo Q2 2016 FinTech ReCap and Funding Review, which examines this un(der)insured opportunity in detail, points out the importance of considering the nonlinear relationship between the need for insurance and the growth in GDP. As development occurs, the necessity of insurance rises much faster than the underlying GDP. In other words: buckle up. This is still a greenfield opportunity with uncommon potential, particularly in developing markets. If an incumbent wants to pass on this type of growth potential, there are fast-moving InsureTechs who will be happy to fill the void.
One of the key challenges could be perception. Frankly, the un(der)insured do not see the reasons to buy insurance. And it’s not just emerging markets consumers who are skeptical. For example, approximately 60% of U.S. adults have life insurance coverage, compared with the 94% who have bank accounts. There are a multitude of factors behind the low coverage rate, namely the uncertain benefit to the covered and the misconception of the cost of a policy.
A 2015 study by Life Happens, a nonprofit focused on insurance planning, showed that millennials overestimated the cost of insurance by 213%. In essence, insurance has a public relations problem.
Some may view it as a tax or a burdensome payment with uncertain benefits, whereas basic banking services can bring immediate convenience with low to no fees. Thus, in order to capitalize on this opportunity, it will be critical for the financial services industry to address the simple lack of education about insurance.
Another key to capturing this opportunity is embracing mobile and other technologies that can enable enhanced customer targeting. Already this is forcing carriers to move beyond traditional intermediaries and coverage programs to better understand evolving consumer behavior. And in developing markets, carriers have skipped the traditional agent/broker model altogether and are leveraging mobile and nontraditional partnerships.
Again, digital delivery may be the key enabler of success. By integrating the sales activity into an existing digital purchase made via mobile, carriers can mitigate the cumbersome nature of shopping among multiple carriers and try to overcome the negative consumer attitudes toward insurance products.
The fledgling consumer class in developing nations appears to be embracing insurance as economies mature. And millennials (as well as other groups) in the U.S. also represent a significant opportunity set. There are various strategies that incumbent insurers and InsureTechs can deploy to capture their share of the un(der)insured opportunity in both developed and developing markets. To learn more about these strategies and this lucrative un(der)insured opportunity, please read The DeNovo Q2 2016 FinTech ReCap and Funding Review.