How can riding the new S-curve be a game changer for insurance business?

Date: February 2020
Author: Nantawat Sumraunhant and Kanchanok Bunsupaporn

The insurance business has been one of the businesses that has continued to grow over the past decade. During 2007-2018, total revenue of life and non-life insurances grew on average at 10.9% and 7.9% to 627 billion and 233 billion baht, respectively. These businesses still have opportunities to expand further given supporting factors, including an entering of the aging society, growth of the middle-income population, and support from the government. In addition, the insurance market still has potential to grow since insurance provision is still concentrated in the city and among middle-to-high-income consumers, with more than 70% of total premium coming from the insured in the central region.

However, insurance business slowed down for the first time in 2019. It has to cope with internal challenges from being too reliant on particular products, such as car insurance which accounts for 60% of insurers’ portfolio. Meanwhile, there are also external challenges including being acquired by another company, as well as low levels of interest rates which affect investment returns. Moreover, there could be intensifying competition due to the entry of new players such as Grab, which recently penetrated into the insurance industry. Grab has information privileges, so it is able to know and understand customers very well. Grab thus appears to be a competitor to keep an eye on carefully.

Although there will be periods of challenges for entrepreneurs in the insurance industry, there are still rooms to grow through development of new products. Considering the diversity of insurance products in Thailand, most of the products are mainly traditional products, including life insurance and car insurance which account around 70% and 60% of portfolio of life and non-life insurers, respectively. Whereas, new insurance products are not yet widespread in Thailand.

Therefore, entrepreneurs should focus on growth strategies through product innovation by applying digital technology to make a difference and be able to meet the needs of consumers, as well as to be able to develop solutions to solve pain points of consumers. Currently, world-class players have adopted such strategies and applied digital technology to develop new products. For example, AXA offered new products under the brand, Fizzy, which is an insurance for delayed flights, utilizing Blockchain to increase transparency and reduce operation time. This offers greater convenience for consumers from not having to process insurance claims as the system will handle it automatically when the flight is delayed for more than 2 hours. Whereas, ZhongAn, a Chinese player under PingAn, utilizes Big data by using data from various sources to analyze customer needs. It is thus able to develop over 200 new products that meet the needs of consumers and have never been launched before, such as shipping insurance when returning products to online stores and a mobile phone insurance for cracked screen, etc.

In order to be able to quickly and successfully create new products, insurers should set up an agency specifically responsible for product innovation and led by Chief Innovation Officer. This agency will have different organizational structures and corporate culture from traditional ones. These changes include designing organization as organic organization that encourages employees to make a difference and make decisions quickly, designing methods to offer incentives for product innovation through setting measurable targets and giving rewards, as well as having a corporate culture that encourages employees to take a  trial-and-error approach so that they can learn from experiences and move onto different solutions quickly. Regarding resources, resources will be allocated appropriately to this agency, including both talented personnel and capitals. In the end, this agency should create innovations that will be beneficial to existing agencies, together with investments on product innovation to build the new S-curve for the organization in the future.

Therefore, in the digital disruption era where many businesses are being disrupted, insurers should start creating new products today to disrupt themselves before being disrupted by other players and finally replaced.