In the next few years ahead, the Insurance industry in Indonesia will face a challenge from the implementation of IFRS 17, the rising of aggregator intermediary and change customer behavior. If we look back, the insurance industry is the oldest financial industry when the first insurance cargo contract is issued in 1347Genoa Italy.
The insurance industry in Indonesia started when the Dutch (VOC) introduce the insurance contract. After declaring Independence in 1945, the underwriting an actuarial from Lloyd’s England. I believe the insurance industry journey may vary both in emerging and mature market. According to data from the Financial Service Authority Indonesia(OJK), in 2018 the digital lending grows about 605% compared from last year. The data confirmed that the disruptive is already started in the banking industry. Sooner or later the insurance Industry will be disrupted too, and insurers are facing the same challenge when it comes to the internet where is everything is connected.
Internet change the way the company do in the existing business model and it changes the way customer response in behavior. How can insurer still relevant when to underwrite driverless vehicle, Who are the main insured? The owner, the operator, or the vehicle itself. The way insurer does business will never be the same again. Insurer needs to keep relevant with the market or they will out of the competition.
The future of the insurance industry only belongs to an insurer who realize the gap between the current condition and 5 years from now. The analogy is like the flood that comes suddenly, insurer needs to prepare to leverage their basic foundation to overcome the disruptive flood. It is impossible to build in overnight to keep staying in the market.
Staying relevant in the market means an insurer needs to place customer attention at the business. There are 4 things that insurer need to keep relevant in a disruptive era:
1. Digital Distribution :
Since Steve Jobs introduced the first iPhone in 2007. IPhone reinvents the phone that was only used for just communication with email, SMS, and MMS. He introduced the Apps for everyday needs from gaming, social media through e-commerce. People spend much time on their phone. The marketplace is moving from physical to virtual, now it evolves into a wearable device and home appliances. Insurtech aggregator in Indonesia already disrupts the market. People can buy insurance with the rate and benefit that they prefer. Instead of building the app by yourself, you can build a strategic partnership with the marketplace that aligned with customer’s risk appetite and preference. Building the app is very time consuming and costly.
What I’ve found in Indonesia, most insurer already has their own claim apps, but most of the customer still prefer to call the hotline instead using the apps. Well if your apps are not be using regularly by the customer then most likely your apps will be distinct and remove by the customer or they only using one time apps for a claim than uninstalled it.
2. Data is your New Oil.
Besides money, Insurer needs to realize that their data is the most valuable asset.
The competition is getting harder, Insurer sells the same product with the rate that regulated by the Financial Service Authority. There is no competitive advantage in the conventional market. Every insurer must build their own unique value, which brings the customer interest. It’s time to look deeper than the number of sales only, which is your customer profile. Customer retention is your first priority rather than getting a new customer with high acqusition cost. Getting more insight on why they buy the product in the first place, their loss ratio, and asking why if they want or not to renew your product.
This data set helps you to create a unique product that meets customer preference.
In a mature market like Canada,Telematics technology already implemented for underwriting dan pricing in auto insurance since 2014. Insurer monitors the behaviour of the insured driver. They can give incentive until 30% to their annual premium if the loss ratio is good.
3. Cloud Technology.
I know every insurer have their own issue on the legacy system. One of my colleagues told me that he still using MS-DOS platform for the core system. Sure it’s very stable and virus free, but when it’s very difficult to integrate with another system. If too risky to change the core system, you can start initiative to build the second layer from the core system. The platform must accommodate these few things :
• Agile development-friendly
•Works great with API(Application Programming Interface)
• Scalable with any microservice
Moving on from software, now you must plan your server and infrastructure. The great things about the internet are the exponential effect with short time-framed. Youtube viral can get a million views in a few days. You can not anticipate big transaction if you’re still using the on-premise server. The Capital Expense in buying high-performance server is very costly. Cloud provider nowadays have a flexible charge from yearly, monthly, daily, even hourly. It’s more affordable and cost-friendly. I know people still debate and worry about the security, we can discuss this section in another time. IT division must focus and drive the business proposition, rather than focusing on this issue. Developing AI(Artificial Intelligence)
in actuarial, pricing, and underwriting is more important than just supporting the business process.
The key is to be fast enough for accommodating data input, processing analytics, and delivering the output.
4. Customer Convenience.
Last but not least important is the customer. Subscribing now is the new buying behavior for a customer. The business model like Netflix and Spotify, giving the most convenience customer to enjoy the product. They get free trial 1 month if they like they can subscribe for a month or a year. Annual premium like auto insurance is very costly. It’s not easy to make a customer buy in the product, besides customer still thinks they only pay for nothing (only a piece of contract paper). It’s not a lucrative market when you sell the intangible product. Presenting the fear from risk only make it worse for selling.
The challenge is how we can use digital technology to present the product more tangible. One of the life insurance in Indonesia already giving wearable device for their customer. The device is to monitor their health and giving health advice. The insurer presents the risk for a better living.
In conclusion, these are still not a final answer yet. But I believe these are the area that every insurer need to work out. Let’s hand in hand together to create good competition to give the best product for the customer.