From Digitisers to Super Platforms

South East Asia is home to the highest mobile phone adoption rates. This provides a solid platform for the birth of new digital and innovative solutions. Prudential recognizes that this presents loads of new business opportunities. But also, that is essential for insurance players to form alliances and tap on the expertise of insurtechs, to gain access to the new technologies that are necessary for the company. Kalai Natarajan Head of Strategic Engagement and Ecosystems at Prudential Singapore plays a pivotal role to making this happen. But she’s also humble. “If after six months of working with an incumbent the only person you meet is somebody like me, then pack your bags and run. Make it a point that you're meeting with the actual business owner that is going to deploy and own the solution,” she says.

Kalai, how do you view the growth in investments in insurtech and the entire tech space over the last few years?

Kalai: “I see two trends. I notice that innovation in the insurance industry has not been particularly disruptive. Let me explain. When fintechs started disrupting the financial services industry, it started with payments. Then fintechs moved to banking with the idea to disrupt the banks. The banks replied and said ‘my pockets are so deep, you don’t stand a chance.’ What happened in the insurance industry is that it is kind of like the Third Frontier when it comes to innovation. The advantage here was that the startups decided that they are better off collaborating with the incumbents. The incumbents were also more accommodating towards the startups. That’s why on the one hand this led to a lack of disruptive innovation. But on the other hand, we’ve seen more developments towards driving up the top line and bringing down the costs to make better margins."

And the other trend?

Kalai: “Using the US as an example, most of the investments that started before 2012 went into a life insurance business. But today, investment in the P&C business is at least 50 percent more than what has gone into life and health business. Why is this the case? Why is there not much happening in the life insurance business? We often blame this on things such as regulation, the underwriting model and the reinsurer, … then we name product complexity, distribution conflict.”

Several speakers at DIA Amsterdam mentioned that it is best to buy a life or health insurance through an agent because of product complexity. Which sounded quite old fashioned to us, living in a country where most of health insurance is sold online.

Kalai: "Let me comment on this by using the example of a cereal box. Typically, when you go to the cereal section you find a picture of a colorful rooster on the box. Next to the rooster you see a nice bowl of cereal. Next to which you see an opportunity to win something. You buy the box of cereal for that. You don't buy it for what is on the back of the box, where all the nutritional information is listed. Now, life insurance is largely presented the other way – where customers are shown the back of the cereal box first. This is done so they are made aware of the features and the fine print of the product given its complexity. Financial consultants help customers navigate product complexities better and make the right choices to suit their needs. But like the cereal box analogy, I think there’s a lot of room for us to make life insurance simpler, more attractive and easier to buy."

So it is a self-fulfilling prophecy. If life and health remain complex than an expert is useful.

Kalai: “Generally speaking, traditional industries put a product out there, pay a distribution channel to sell and eventually make some margins. Present day, most life and health insurers companies have moved to a ‘digitizer’ model: They make the product digital. There is still much difference between companies. Some make it easier to purchase the product whereas others only put a product brochure online. Push a product, try to sell it digitally and call that innovation. Fortunately, some companies do it much better.”

So the current state is that most companies take care that their products are digitized, pushed through a digital distribution channel and that they make revenue. What is the next level?

Kalai: “l see insurance companies in South East Asia that are doing well in this ‘digitizer’ model. The next step, that still is rarely happening yet, is to truly go into a platform model. Here it would not be about digitizing existing solutions but really about opening up to what we've got as resources and getting people to come and work with us on those platforms. Then of course we would be speaking of a Super Platform."

This is the typical space where the big social networks and big retailers are operating. Facebook just moved into currencies. Imagine they would get a life insurance license … we wouldn’t know how the game would change. Amazon is already in that space. But other incumbents in Asia are too.

Kalai: “Yes and some have done very well. Grab has partnered with Chubb insurance to sell personal accident as well as property loss policies to the gig economy; which is picking up quite aggressively in our part of the world. Go-Jek formed a partnership with Allianz. And of course, WeChat in China started WeSure. They decided to use the data they collected through WeChat as well as through the interactions between people to truly customize insurance products for the customers. And they started distributing those products through those online channels as well. You really see that the companies that have started playing in the platform space are the social interaction companies. That is where new technologies should be taking us.”

Yet the incumbents are still in the ‘digitizer’ phase …

Kalai: “Retail banking incumbents have done well. DBS, The Development Bank of Singapore, has done a very good job in developing platforms. They went into, what they call, an open banking platform; which is where they opened up their resources through APIs. They started their innovation program and invited companies to come and use those APIs to develop new things. Over 1,000 experiments took place. Today they have 155 APIs in 20 different categories within retail banking and millions of people exploring what is it that they can do with those API's. The outcome was even more spectacular: They launched India's first fully digital bank called Digibank, hitting 1 million customers across the country within the first year. Digibank is paperless, branchless, signatureless and within a very short span of time they started spanning across such a large country without having to make any additional investment.”

The open platform strategy under the open banking system really made sense for DBS. What about your work in this area at Prudential?

Kalai: "We’re not at the stage of developing open platforms yet but we started our innovation programme under the umbrella of the PRUFintegrate Partnership programme back in 2017.

Several years before I took this job, the process started by realizing something was going on in the market. The company initially thought about starting our own innovation incubator but we realized that there were many companies out there already doing a fine job. Our edge, we learnt, would be in partnerships.

We decided to reach out to technology companies because we wanted to enhance our solutions and at the same time push ourselves to rethink our model as we work to further improve the customer experience. Through the PRU Fintegrate Partnership programme, we aim to build an ecosystem of partners from the FinTech, InsurTech, HealthTech and MedTech communities to solve our business challenges with their creative solutions. 

That’s also the main reason why I make it a priority to go to DIA every year, because that’s where ideas come together and where we can start engaging and see how we can work together."

When we meet with insurance executives to discuss ‘the state of innovation’, quite a few say they are worried about the limited scale on which these new solutions are being used. Inside their organization, but also with regard to the visibility in the market. The impact on the top line and bottom line is still limited - so they say. Can you share your view?

Kalai: “I'll be the first to admit that this is not an easy journey for any incumbent. We need to explain how and why the innovation in question will benefit the different business stakeholders and their customers."

Why is that?

Kalai: “I’d say there are four main challenges that some companies may face. The first challenge is killing the sacred cow, which in our world is the risk pooling model. This model is skewed because we live in a country where the population is ageing, and more people are afflicted with chronic diseases earlier in life.The other sacred cow we face in our industry is all the documentation, compliance and risk assessment involved."

So it’s the environment in which PoCs happen is one of the reasons why they don't really happen … What is the second challenge?

Kalai: "The second challenge is the innovation question. What is innovation? Many departments feel that what they are doing is already very innovative.

Separately, I also came across a Harvard Business Review research study where they spoke to 270 innovation leaders of big US corporations. 55% percent of the respondents actually said innovation died because of the politics and the lack of alignment within those organizations.”

Kalai: “The third challenge is getting the necessary resources. If you look at companies that are very willing to invest in new companies, they already have a very established R&D framework. Think about pharmaceuticals, aerospace, electronics, automotive and so forth. R&D is key to the business of these industries. But if you’re operating outside of these industries, there is no R&D budget. So, the Harvard example I just mentioned had 40% of the respondents say that innovative ideas died or that the companies didn't have the necessary funding. They are talking about investments of no more than $5 million - that is all the funding anybody ever got.”

And the last reason?

Kalai: “The burden of BAU. Innovation in some companies is not even a department, they are a bunch of people that get together as an extracurricular activity to start thinking of some new ideas. Those people finish your ‘project’ and they get back to their day jobs and that is the reason why those ideas don't flourish. They don't go anywhere."

So PoC’s don’t progress because you don't want to kill the sacred cow, you don't really define what innovation is and who really owns it. We are always being torn apart with resource questions and people having to perform a BAU task because we are not really committed. How to deal with these challenges?   

Kalai: “If you really want to move into a bolder area, we need to move away from the digitizer model and move to the platform model. The digitizer model is a labour intensive model. We spend a great amount of time in the onboarding of startups. Because of this long and painful process, we are very selective. Through an open platform model, mentioned earlier, we should actually be funneling in a lot more PoCs and pilots in order to start determining what really works for us."

Some final advice for the insurtechs that are part of the DIA Community?

Kalai: “First of all, we all need to push the incumbents to start rethinking their strategy and to start thinking differently. Secondly, demand clear ownership. If after six months of working with an incumbent the only person or team that you meet is somebody like me in the innovation and ecosystem leadership position, then pack your bags and run because that simply means that there's no traction for your solution within the organization. Make it a point that you're meeting with the actual business owner that is going to deploy and own the solution. Thirdly, look for companies that will simplify the onboarding and will make your life easier when you actually want to work with us.

Lastly – the diversified revenue model. We, the incumbents, want to push down your margins as much as possible so that I get the satisfaction that I'm benefiting. In the ecosystem model the companies that do that will probably fail because the only way we are actually going to be able to diversify our business model is by working with you. And the only way you want work with us is if you are successful.”