The insurance market has taken great strides to keep up with changing technology, advanced data sharing, and consumer preferences. But recent digital and sustainability-related trends have given companies new opportunities to improve. McKinsey recently spoke with Elysia Chan, a partner in the firm’s Singapore office, about the impact of these trends on insurers in Asia and what they can do to adapt.
McKinsey: What trends are affecting insurers in Asia?
Elysia Chan: There are three main trends that are influencing insurers. First, consumers’ growing expectations and their affinity for digital services are driving many permanent changes within the industry and have accelerated the future for many insurers.
Second, the advent of open insurance represents a structural change and marks a further step in the convergence of industries within ecosystems and marketplaces. Singapore leads in this region for openness in financial services with the Singapore Financial Data Exchange, which helps citizens make better financial-planning decisions by pooling relevant consumer financial data across participating banks, insurers, and government agencies and making it available on a centralized platform. Open banking and insurance presents opportunities for banks and insurers to come together to share and consume data and services via APIs, removing information asymmetry because players have equal access to information about the customers they serve.
Third, the spotlight on sustainability impels insurers to reimagine their products, services, and experiences to customers and distributors, while building responsible, sustainable, and innovative businesses.
McKinsey: What implications do these trends have for insurers?
Elysia Chan: Customers want to take control of their digital lives. This means finding ways to empower them and to influence the premiums they pay through their behaviors and actions. We are already seeing this happening with health engagement platforms that insurance companies offer. Down the road, we can expect customers to want to cocreate their own experiences through the products and services they choose.
In terms of data, financial institutions would have access to previously unavailable ecosystem data on their customers, which would open opportunities for them to take more appealing value propositions to market, including personalized services and experiences. The benefits for customers will be immense, as will the gains for companies that take the initiative to prepare.
Last, insurers are expected to develop digital solutions and improve data availability to enhance ESG [environmental, social, and governance] policies and reporting, but they could turn this into competitive advantages for their organizations. Being ESG-compliant could help insurers achieve operational excellence and drive continuous innovation to reduce waste, enhance health and safety for their employees and their clients, and unlock new market segments through sustainable insurance offerings. Business benefits could include potential improvements in brand image, reputation, and company standing with investors. Additionally, being ESG-friendly would endear insurers to younger consumers, who favor experiences that encourage sustainability.
McKinsey: What are some steps insurers can take to stay on top of these trends?
Elysia Chan: The way insurers interact with their customers will need to change; insurers will need to rethink their online presence and how they can connect with their customers in a relevant and relatable way. Increased customer digital footprints have generated new and more data points that provide insurers with insights about their customers’ behaviors and preferences. Tapping into these trends would become standard, no longer differentiating, as more insurers develop “next best action” capabilities.
Digital leaders can take customer interaction a step further by encouraging consumers to interact with data that pertains to them and allowing them to draw their own conclusions based on it. Offering customers more choice and the autonomy to make informed decisions on the types of products and levels of coverages that they require improves their experiences, especially as the metaverse becomes more developed and adopted.
With open banking and insurance, customers get a 360-degree portfolio view of their personal liabilities and assets, such as their bank balances, their investments and loans, and the proportion they hold in different areas. They also know their personal cash position, can see what is going in and out of their accounts, and enjoy improved convenience and hyperpersonalized advice and products. For insurers, combining third-party data with their internal data will allow them to generate actionable insights and bespoke offerings. In turn, they can offer more holistic advice and targeted products and services that would best serve the financial objectives of their customers. In this vein, ecosystem players including insurers can partner to better align with customers’ lifestyles and deliver integrated products, services, and experience based on them. This will allow companies to engage better with customers, create new revenue pools, and bring new business models to life.
Finally, advancements in AI and technology can also play a key role in helping the industry operate sustainably and equitably while helping companies meet their ESG objectives. Initiatives in this vein can include offering financial services to traditionally underserved and underinsured socioeconomic segments, providing loss prevention insights to corporations that are affected by climate change, and rewarding customers who advocate for sustainability.
McKinsey: What can insurers in Asia expect in the future?
Elysia Chan: Successfully navigating these trends will involve a very intricate interplay between data and technology, and it’ll be important to have the right digital and data fundamentals that insurers can build on. As consumers start to own their spaces on the internet, with concepts like Web3, and as data and information become democratized, we can expect to see increased data sharing across ecosystem actors that serve a common customer.
We can expect an increased level of competition among insurance companies, which would raise the overall standard of financial services. Financial institutions will want to be the first to redesign digital experiences to delight the customer and build deep data and AI capabilities to maximize actionable data and insights.
We can also expect to see more insurers weave ESG into their corporate strategies and take important steps toward building purpose-driven organizations that promote green solutions, net-zero footprints, inclusion and diversity, ethics, and a culture of giving back to the community.
Elysia Chan is a partner in McKinsey’s Singapore office.