In Singapore, the shift in focus towards health highlights the need for insurers to close the protection gap that has remained unchanged over the past five years.
Death cover and critical illness (CI) gaps for economically active individuals in Singapore have remained unchanged over the past five years. To address this stagnation, the insurance industry is called upon to develop technology-driven insurance plans that promote health protection.
“For many of the major players that are very active in Asia, health is definitely the number one strategy,” said Daisy Ning, head of life and health for Asia Pacific (excluding China) at Swiss Re.
“You can imagine that all the celebrities and chief executive officers (CEOs) active in Asia will tell you that the top strategy is health. I am convinced that by 2024, there will be more changes and progress in the field of health protection.” Ning accepted Asia Insurance added in an interview.
She delves into the transformative role of technology in reshaping the region’s insurance landscape, highlighting the industry’s challenges, innovations and future trends – from improving affordability to addressing coverage gaps.
According to the 2022 Coverage Gap Study conducted by the Life Insurance Association (LIA), Singapore’s death cover gap is S$373b (US$279b), accounting for 21% of the economically active (EA) population’s death cover need.
The absolute value of this gap (which takes insurance and savings into account) has increased since the LIA’s last study in 2016.
However, as a proportion of death cover demand, the gap has remained relatively stable between 2017 and 2022. This apparent stabilization is attributable to an overall increase in income levels, leading to higher wages, savings, and insurance coverage.
The report emphasizes the importance of individuals regularly reviewing and updating their financial plans to adapt to changing insurance needs.
Meanwhile, CI protection needs for the EA population are S$783b (US$586b), equivalent to 3.9 times annual income.
CI cover (including individual and group CI cover) is estimated at SG$204b (US$152b), with a CI coverage gap of SG$579b (US$433b).
The absolute volume of CI protection needs has increased compared to the previous study in 2016.
However, between 2017 and 2022, the CI coverage gap has fallen from 81% to 74% of coverage needs. This decline is primarily attributable to increased CI coverage, which has grown 67% since 2017.
Ning said despite the influx of capital, the main goal remains clear: reduce loss rates and improve cost efficiency across the value chain.
Challenges facing technology-driven insurance
The latest technology plays a key role in achieving these goals, which can further reduce loss ratios and increase costs for insurance companies.
“I think there will be about a 3% to 8% reduction in loss rates and a 10% to 20% increase in costs in other parts of the value chain,” Ning said of the potential impact of technology on the insurance industry.
She emphasized that technology is critical for better decision-making, leveraging alternative data and analytics to enhance business decisions and customer experience.
She also pointed to the trend of companies creating their own apps from digital platforms. “Many companies are now developing their own applications on digital platforms and collaborating with some health and wellness providers to make the insurance experience richer,” Ning said.
Swiss Re’s Magnum automated underwriting tool was developed over two decades and reflects the industry’s commitment to leveraging technology. These tools can automate the underwriting process for simpler cases, and the automation trend extends to the claims process as well.
Although technology has come a long way, challenges remain, especially in Asia. Data quality in many markets is still developing and poses a significant obstacle.
Ning acknowledges the importance of high-quality data and emphasizes that the output is only as good as the input. “The quality of data is sometimes a problem we face. It’s like the saying goes ‘garbage in, garbage out’. You have to have very high quality data to be able to do quality assessment,” she told Asia Insurance.
Achieving higher straight-through processing rates requires a nuanced approach to risk assessment and an increased focus on building underwriting capabilities, coupled with the incorporation of artificial intelligence (AI).
“On the automation side, we are developing more policies. Through it, on the underwriting side, we will achieve what is called straight-through processing. This means that in many markets, many policies can be automatically automated – underwritten by machines,” Ning explained . On average, that covers about 60 to 70 percent of insurance company applicants, she said.
“Many companies are now working hard to increase the straight-through processing rate. Some people have great ambitions and say they want to reach more than 90%.” Ning said.
But getting there requires strategic thinking about risk assessment, expanding underwriting capabilities, and leveraging artificial intelligence to automate underwriting. As she mentioned, these challenges reflect the industry’s ongoing efforts to streamline processes and leverage technology for efficient operations.
A classic example of this challenge is the foray into financial reinsurance or capital-driven reinsurance. These structures free up capital for insurance companies, allowing them to fund growth plans.
Swiss Re’s recent business – such as a mutual insurance fund withholding arrangement with Samsung Life in South Korea and a longevity arrangement with Income Insurance in Singapore – show that reinsurers are exploring new avenues.
Collaborate to narrow the gap
When the conversation turns to addressing critical illness and mental health disparities, Ning emphasized the importance of working with third-party providers.
Swiss Re works with mental health providers such as Wysa Australia to expand its provider network, develop new products and deliver value-based models.
The company also conducts extensive research through the Swiss Re Institute to raise awareness of key health topics and contribute to the industry knowledge base.
In answer to a forward-looking question, the industry’s strategic shift toward wellness should provide consumers with comprehensive services and coverage that address rising healthcare costs and the coverage gaps prevalent in many Asian markets.
