Navigating Covid-19: An InsurTech Pioneer

Boasting more than 160 authorised insurers, Hong Kong is one of the most developed insurance markets in the world. In 2018, Hong Kong’s per capita insurance premium – a widely-used measures of insurance density – surpassed US$8,800, ranking the city first in Asia and third on a global scale (after only Luxembourg and Ireland).

Though somewhat late to the party, compared with other industry groups, insurers are fast adopting digital initiatives such artificial intelligence (AI) staples as natural language processing, robotic process automation and machine learning. The knock-on effects of Covid-19 are set to speed up the pace of digital transformation in Hong Kong’s insurance landscape, especially when the social distancing measures have wreaked havoc on the traditional models from sales and distribution to claims.

In light of this, HKTDC Research interviewed OneDegree, which is a veteran of digital insurance with a dual identity as an InsurTech solution provider and a new virtual insurer, to share its insight on how the insurance industry is responding to the Covid-19 outbreak with accelerated digital transformation efforts. Being the first independent technology company in Hong Kong to offer non-life insurance directly to customers through an entirely digital platform, the home-grown virtual insurance pioneer considers the unprecedented coronavirus crisis to be an epoch-making event for the city’s InsurTech development.

Simple is Beautiful

Digitalisation in the insurance industry is the growing trend. In recent years, an increasing number of insurers have started to use online platforms to sell their policies, complementing the traditional sales and distribution channels such as insurance agents, brokers and independent financial advisers. The range of policies available for sale online has been extended from travel insurance to more complex products offering coverage that includes the likes of medical expenses and critical illness. Although the online purchase channel has empowered every insurer to reach out directly to consumers, only a few can successfully turn this new opportunity into sales. The key is to make the online transformation a simple, yet secure, journey for prospective customers.

Explaining how the company had streamlined the whole online application process so its customers didn’t have to answer unnecessary questions or provide needless information for risk assessment, OneDegree CEO Arthur Lee said: “Our product description uses no jargon or difficult technical terms, but plain writing. ” By following this rationale, OneDegree claims to have shortened the average application time to just a few minutes.

“That’s easier said than done,” said Lee. “Apart from potential channel conflicts between online and offline, well-established insurers usually have put into use best practices and incumbent protocols with standardised work procedure and configurated product descriptions that are somewhat difficult to change separately without disrupting the incumbent system. This is also why some insurers when developing new, virtual products will opt for external InsurTech solutions. Using a fresh pair of eyes, we question every small detail to keep the insurance experience as simple as possible, like everything else that thrives in the digital era.”

Digital Disruption

Another limitation of digital insurance offered by traditional insurers is the incomplete digitalisation process. For example, many insurers still follow traditional claim procedures, which generally require policyholders to download and complete a claim form online and return it together with all the supporting documents by fax, email or post.

To digitalise and simplify the claim process is perhaps the most important step to delivering a customer-oriented experience to the new generation of insurance buyers. By going completely online, insurers can engage and connect with the millennial and Gen Z population in a bid to turn them into future clients.

“To file an online claim, our pet-insurance policyholders, for example, only need to answer a few questions and take a photo of the receipts after visiting any of the vets in our expanding panel network,” said Lee. “Utilising our online claim platform, we’re committed to having at least 90% of our claims settled within a two-day window – a level way faster than the industry average of one month.”

Seeing technology as the primary source of value creation, the virtual insurer has adopted a strategic approach to developing an integrated and continuous process , which runs through the selection of necessary technologies to the methods of process development. “As part of our invoice verification process, we are about to embrace optical character recognition (OCR) technology and explore how speech recognition can be applied in order to improve our customer experience,” stressed Lee.

As time was precious, claim automation could also save insurers a fortune, explained Lee. “Comprising mainly claim-verification expenses, the overheads could account for as much as 10-20% of total premiums received, depending on the business scale. Usually, the overhead costs increase more slowly as the total premiums grow due to economies of scale.”

There was also plenty of room for digitalisation in other parts of the insurance process. “Nowadays, many technologies are mature enough to deliver results for insurers throughout the insurance process. This is increasingly important for insurers to stay competitive in the digital battlefield. For example, we are aware that some European insurance companies have already started to use IoT devices to track their insured’s biometrics and physical characteristics, including the amount of physical activity of pets insured to generate useful insight for risk assessment and pricing decisions. This is definitely a possible direction we and other insurers are moving towards as businesses scale up. Another popular tool is AI chatbots, which enable insurers to provide 24/7 consumer service in a much more cost-effective way.”

As the Covid-19 pandemic throws the traditional insurance models into disarray, more insurers have turned to digital initiatives spanning sales, distribution and claims. To ensure a quick turnaround, many insurers have sought help from third-party InsurTech companies. OneDegree, for example, has since the outbreak received dozens of enquiries from other insurance market players about its pioneering InsurTech solutions.

To this end, Hong Kong is well-placed to facilitate the collaboration between insurers and InsurTech companies. Not only does the city have a well-developed insurance ecosystem, but Hong Kong’s fertile soil for InsurTech start-ups is also playing a crucial role, as Lee explained. “Although Hong Kong is not necessarily the first mover for InsurTech development, the city’s open business environment with free flow of capital and information makes it a favourable breeding ground for start-ups, not to mention the extensive pool of local and international venture capitalists, incubators and accelerators.

More Pies

“In the traditional insurance model, the insurance market is driven by the supply side – whether or not agents and brokers are incentivised to sell those insurance products and whether the premium of an insurance product justifies the overhead costs – both of which will encourage the sales of higher-premium products and savings insurance plans.”

In a new era of virtual insurance empowered by the digital transformation of the insurance industry, every insurance product will have a fair chance to be pitched to potential customers. The enhanced product diversity and distribution with more insurance products capable of generating profits will, in turn, broaden and deepen the diversity of Hong Kong’s insurance industry.

Lee cites its Pawfect Care pet insurance as an example. “Pet insurance is one of the least-exploited insurance market segments in Hong Kong, with a penetration rate of just 3%. But as a virtual insurer with lower overheads but more flexible services, OneDegree has an inherent advantage to close the protection gap in this underserved market. Considering that penetration rates in other mature markets such as the UK stand at as much as 25%, there’s plenty of room for growth in the Hong Kong market.”

To cash in on the market dynamics, OneDegree debuted eight days after getting the virtual insurance licence for its maiden Pawfect Care pet insurance on 23 April 2020, creating a buzz around the company’s revolutionary offer of Covid-19-related medical coverage.

As a flagship product that could unleash the potential of Hong Kong’s pet-insurance market, OneDegree has adopted an inclusive approach to policy terms, offering coverage for all breeds of cats and dogs with no sub-limits in claims.

Despite the Covid-19 headwinds, the company is aiming for 10,000 sign-ups in the first year of launch, but has a far more ambitious long-term goal of a 10% penetration of Hong Kong’s 500,000-strong pet cat and dog market as the virtual insurance sector matures.