While global insurance technology (insurtech) startups are looking at building traction in Asia, they face enormous regulatory barriers in the geography.
Samuel Hall of Startupbootcamp Fintech notes: “InsurTechs face considerable regulatory barriers, as has been the case for many FinTech startups navigating the different local regimes in Asia. These challenges manifest both in terms of identifiable obstacles and uncertainty caused by regulatory gaps, or grey-areas. Southeast Asia cannot be treated as a homogeneous entity, and scaling successfully in Asia demands that companies deploy highly differentiated strategies in different markets.”
Hall continues, “Some countries will require local partnerships or JVs, whereas some may be directly accessible by startups on their own, perhaps with support from local insurance partners. In all cases, strong relationships and close contact with regulators is likely to play an important role in scaling across the Asian market.”
Additionally, insurtech startups will have to contend with prevailing behaviours and cultural context across different markets, particularly due to the existing status quo of the distribution and delivery of insurance often being well-entrenched and trying across countries. This shapes how consumers interact with viewing and purchasing insurance products.
Deal activity in the insurance tech space hit its highest annual total in 2016, according to data compiled by CB Insights. In aggregate, deals involving insurtech startups rose 42 per cent on a year-over-year basis in 2016 to hit 173, with total funding in 2016 reaching $1.69 billion.
According to CB Insights, this is the second consecutive year investment dollars to the space topped $1 billion, while overall dollars to the space fell 37 per cent YoY between 2015 and 2016. This is due to two separate deals to online HR software firm Zenefits and Chinese online insurer Zhong An Insurance accounted for $1.43 billion.
Nature of insurtech
With insurtech perceived as the latest and most disrupted play in the financial technology (fintech) space, what is likely to occur is a “comprehensive shift to mobile delivery, on demand and micro-insurances,” though building towards this will require careful development that accesses and works with local players and multiple local compliance standards.
With regards to insurtech ventures growing in Southeast Asia, Hall notes: “Flexibility and a well-thought out regional strategy will be key,” as over the coming years, insurtech players deal with increasing competition, which is likely to lead to consolidation in years to come.
With new entrants continuing to emerge – both in terms of startups coming to market and existing players developing more innovative solutions – excellent examples of insurtech disruption ahead exist, in ventures like Lemonade or Trov.
Hall notes: “Successful approaches will likely be replicated and repeated in Asia, so to stay relevant, startups will continually need to make sure that they are executing at a very high level. Something else that InsurTechs will be competing with are in-house solutions from the insurers themselves. Innovation labs are prevalent in Asia, and its clear that the incumbents are increasingly alert to institutional frictions and the inefficiencies in the industry that need to be solved.”
P2P plays in Asia
For peer-to-peer (P2P) insurance and P2P finance, business ventures incorporating such models are likely to encounter regulatory uncertainty, according to Hall, who notes that the uncertainty around P2P lending has “proved a significant hindrance and caused delay with P2P lending companies going to market in Asia.”
This is due to a paucity of precedents in markets around the region, which has led to regulators moving slowly and leaving startup ventures having to negotiate significant uncertainty around what constitutes a legitimate route to market. This lack of clarity has led investors to baulk at backing startup ventures operating in the space.
Hall explains: “Long delays put paid to companies that have short runways and limited financial resources. Without access, P2P lending startups struggle to stay afloat as they look to build out their product for the next funding round. Outside of regulatory issues, given that the P2P companies are effectively marketplaces in nature, it’s imperative that they build demand on both sides. The question for founders is whether they can effectively provide for two different user segments (borrowers and investors) and build demand on both sides in tandem.”
In scenarios where platforms are seeking to open up the market for borrowers not served by existing bank lenders, they also face a challenge in effectively dealing with risk assessment and managing defaults.
Going forward, P2P lenders and insurers need to add value in terms of risk assessment. Such enterprises will need to find effective methods of segmenting their consumer base with different risk profiles on their platforms; this is required in order to offer clear and evolving guidance to investors in relation to borrowers’ risk profiles.
This specific action is one that is difficult to get right and will require time and data to refine, with Hall noting: “Even then, these startups face the challenge of establishing a credible and comprehensive claims process.”
Sharing Startupbootcamp’s view for the 2017-2020 period, Hall says, “We’re bullish. North America and Europe have borne the brunt of ongoing economic uncertainty, but Asia continues to see investment flood into FinTech. As everyone well knows, the pace of development and size of investment in China is enormous, and as its influence in Asia continues to grow we expect to see continued investment in FinTech and InsurTech across the region.”
Hall notes: “banks are slowly coming round to the idea of opening up their APIs, and in Europe, PSD2 will obligate banks to operate open platforms. Greater adoption of open platforms by banks and insurers will dramatically increase the impact that startups can have, and the speed at which they can do so.”
Given that this innovation follows market needs, this is likely to see the scale of opportunity across lending, financial inclusion, payments, wealth management and insurance in Asia expand rather than diminish.
The last few years have seen insurers tend towards making strategic investments with themes tending towards cybersecurity, connected devices and digital insurance distribution.
With increases in smartphone penetration and Internet connectivity across various emerging markets in the region, more opportunities will continue to emerged as an increasing percentage of the population is brought online through mobile technology.
Hall concludes: “The support for development among banks and insurers in the region, and the strong work that MAS is doing to foster a collaborative and innovative culture of development in Singapore, and we’ve got a lot to be excited about in the coming years.”