In this article, Wei Ng, High Growth Markets Program Director with Financial Services at KPMG International, shares some key lessons and themes from emerging markets and talks to KPMG’s Insurance leaders in the BRIC countries to find out how operating models, products, governance and regulation are influencing the future shape of the industry across the high growth markets.
The future of the insurance industry and the evolution of high growth markets are now inextricably intertwined. For the insurance industry in general, high growth markets represent an opportunity for sustainable revenue growth and great innovation that – if managed properly – could help ensure their longterm profitability.
Mary Trussell, High Growth Markets and Innovation, Global Insurance
At the same time, many of the high growth markets are now reaching a stage in their development where insurance starts to play a key role in transforming risk which, in turn, provides increased confidence for potential investors. A number of insurers have recently collaborated on open-source models, for example building the Global Earthquake Model and the Global Risk Data Viewer led by the UN Office for Disaster Risk Reduction. Meanwhile, Zurich Insurance Group and its Zurich Foundation distinguished itself in 2013 by renewing a five-year, US$23 million partnership with the International Federation of the Red Cross to establish a community flood resilience program, with Mexico being the first of several countries to include community projects and sophisticated flood risk modeling.
Future economic growth and development in these markets therefore depends on the growing sophistication and availability of insurance products. Turning demographics into dividends One of the biggest drivers of this symbiotic relationship is the emergence of a young – and increasingly mobile – middle class who are now looking for financial ‘inclusion’ and demanding a range of appropriate products to fit their changing lifestyles. Given the low levels of insurance penetration in these markets, the opportunity across all areas of insurance is significant: Swiss Reestimates that the size of the life insurance market in Asia alone may top USD40 trillion. Before these potential new customers can be brought into the market, they will require financial education. In Latin America, insurers are physically ‘packaging up’ products in tins and placing them on supermarket shelves in order to associate insurance with shopping patterns that consumers are already familiar with, in a trusted shopping environment. This helps create trust and supports financial education. Alianza Seguros Colombia has packaged policies in a box or can, like any other consumer good, so that a shopper can read the label and add it to their cart. They also sell birthday card policies, promoted as thoughtful gifts for loved ones. The shopper pays just US$2.50 for a greeting card that provides the recipient with a US$1,250 accident policy. However, across most of the developing world, banks and agent networks continue to play a crucial role in improving financial access and education, and remain the key channels for retail, financial products, although this is likely to change.
Access to the new middle classes is now a strategic priority for those financial institutions operating in (or considering entering) these emerging markets. To achieve this, many insurers are starting to consider innovating their channels and products to differentiate themselves and expand their reach. Alternative channels such as mobile and internet portals are gaining traction.
Experience in the BRIC markets suggest that technology is also now being leveraged to fundamentally change insurance business models in the emerging markets. Indeed, as customer expectations increase and they begin to demand more from their banks and insurers, many are looking to technology to increase their operational efficiency and improve their customer service by providing multi-channel servicing platforms. The approach seems to be working. Some of the more innovative financial institutions in these markets have already achieved great success in product innovation through ‘crowd-sourcing’, while the provision of mobile channels has allowed even the most isolated rural farmer to be brought into the financial market. New China Life Insurance has achieved a 50% faster system response since launching a “counter service standardization” project as a step to implement its customer-centric business strategy. Looking to lessons from the banking sector, such as the overwhelming demand for the recent US$1.1 billion IPO of Tinkoff Credit Systems, Russia’s online bank, suggests that investors agree that new technologically driven channels can provide success in high growth markets.
The mobility of the population, combined with improving health care and declining birth rates also means that traditional family networks are being disrupted. Older segments of the population can no longer rely on living with their younger relatives and therefore are starting to consider how retirement products might support their self-reliance and self-sufficiency in old age, thereby creating a unique opportunity for these types of products, particularly among the middle and upper classes. The rapid economic growth currently being enjoyed by many high growth markets, underpinned by these shifting demographic pyramids, has also created a wide range of opportunities in commercial insurance. Insurers also generate funds for investment, an important catalyst for the development of capital markets and investment in infrastructure. And investment in infrastructure brings its own needs for insurance.
Broadly speaking (since all markets are inherently different), some of the insurance sectors where
we anticipate to see significant growth in the high growth markets include infrastructure, real estate, healthcare, natural resources and shipping.
Over the last few weeks, I sat down with one of our KPMG insurance leaders in each of the BRIC countries to find out how these trends are impacting the insurance business model in their markets.
Here is what they told me:
It is clear that the insurance industry and its customers are changing rapidly. Insurers need to have proactive strategies to capitalize on the new technologies that can help them become more efficient, agile and customer centric. They need to experiment with new routes to market while preserving existing distribution networks. Many financial institutions already have innovation labs. Identifying and implementing new technologies and systems can enhance customer satisfaction while reducing response time. Identifying the right technology partners will help – both in product development and operational efficiency.
Crowd sourcing can help develop new products to ensure insurers remain relevant as their customers move across segments, demographics and up the technology curve. Customer profiling and analytic tools will also help and in this regard, there are lessons to be learnt from other sectors such as retailers, telcos and online portals.
Outreach programmes can help attract talented nationals with experience of other markets to help drive innovation and a step change in culture – which we know is not always straight forward in the insurance industry. Investment in staff training and targeted hires are critical but only part of the solution. Staff retention can be challenging in fast growing markets and a clear employee proposition will help attract and retain talent. Insurers should work with regulators, governments and NGOs to help drive mutual benefit for sustainable development.
For less developed markets, there is an opportunity to establish trust in insurance as an industry and open up entire market segments.
Juggling multiple projects in a fast changing world is a challenge for many CEOs. However, it is clear that inaction is not an option.
Our Financial Services High Growth Markets team works with governments, regulators and financial institutions to champion and help implement new innovations and solutions in financial services. We consistently challenge both organizations and their regulators to think differently about issues related to business strategy and operations.