Across the fintech boom in Southeast Asia, we believe something interesting is happening in the insurance sector. Call it insurtech. Call it digital insurance. This article aims to take a deeper look at the 5 attributes of new insurance business models, global unicorn examples, and why 500 Startups believes similar models in Southeast Asia have the potential to scale. Let’s take a deeper look.
In this article:
- The 5 key attributes of new insurance business models.
- Global unicorn examples in insurtech.
- Why we believe in similar models in Southeast Asia.
Attribute #1: Direct to consumer
New insurance businesses do not rely on the old direct selling model via agents. They typically use digital media to reach consumers directly, offering a fresh brand image for a new generation of digital-savvy consumers.
For example, in India, Digit Insurance went direct. It offers tailor-made micro insurance policies on health, auto, travel, smartphones, and commercial properties amongst others. The company’s valuation surpassed USD 1.9 billion only five years after its establishment, and is now one of India’s largest insurance firms. We believe Southeast Asia has the potential to develop its own version as well.
Source: https://www.godigit.com/
Attribute #2: Vertical domination
While the direct-to-consumer insurance brand Digit Insurance is a horizontal player, examples like the New York-headquartered Oscar Health focuses on affordable digital health insurance. Founded in 2012, the company went public earlier this year and its market cap was reported to be US$4.8 billion as at 18 May 2021.
In India, 500-backed Clinikk is pursuing the health vertical. It offers numerous services including family health insurance and telemedicine consultations within one platform. The startup has covered more than 500,000 customers across India, with 95% of its subscribers using the platform as the entry point for healthcare.
Another example is Next Insurance which provides small businesses and blue collar insurance. They offer a range of specialized products, from general liability insurance to tools and equipment protection for specific lines of work. The company is currently valued at USD 4 billion.
Source: https://www.nextinsurance.com/
Attribute #3: Micro, or pay-per-use
What if you only cared about insuring your prized smartphone, DSLR camera, pet or road bike?
In London, 500-backed Laka, provides protection for bicycle enthusiasts. Laka has grown since 2018, providing insurance cover for over 10,000 bikes to a value of over £26 million).
Pay-per-use insurance is another expression of this. Travelers in Southeast Asia may be familiar with AirAsia’s per-trip travel insurance that can be bundled with the purchase of plane tickets. 500-backed Grab offers similar pay-per-ride protection for passengers, on top of its group personal accident coverage for drivers. By allowing customers to purchase a one-time-only policy without the long-term commitment, it is able to offer affordable prices.
Source: https://laka.co/gb/
Attribute #4 : Data-driven personalization
New insurance businesses which leverage data have the ability to offer personalized quotes or premiums to consumers. For example, a safe driver may be offered lower premiums than a careless driver. In the US, Root Insurance (reported market cap of US$2.31 billion as at 18 May 2021) has usage-based car insurance programs which are equipped with artificial intelligence to learn driver’s behavior so that it can determine the appropriate premium type and cost.
Source: https://ir.joinroot.com/static-files/085ff0e9-7d87-46d8-805b-0da1dbc7df17
Attribute #5 : Simplicity and transparency to consumers
Consumers of traditional insurance policies may find it difficult to understand what they are paying for, and what is covered. New insurance companies aim to differentiate themselves by being simpler and more transparent. For example, Lemonade (reported market cap of US$4.45 billion as at 18 May 2021) aims to operate on this proposition, going as far as charging a flat fee and donating unused premiums to charity.
Source: https://www.lemonade.com/
Potential Growth for the Insurance Sector in Southeast Asia?
Large uninsured population
Singapore aside, we believe that the insurance penetration rate in Southeast Asian is low, with less than 5% insurance penetration across countries like Indonesia and Malaysia, there may be over 600 million people in the region who are still not insured.
Rising digital-savvy middle class
Southeast Asia’s GDP in 2017 reached US$ 6.5 trillion and the region is projected to see strong economic growth moving forward, at around 5% CAGR to 2030. The average percentage of internet users who have adopted mobile ecommerce in a number of Southeast Asian countries has surpassed both China and the US.
Source: DataReportal – full Digital 2021 global report (SEA (Indonesia, Thailand, Philippines, Malaysia, Vietnam, Singapore); China; US)
In fact, insurance purchased online grew by at least 30% from 2019 to 2020 and is expected to grow by a CAGR of 31% until 2025, according to the e-Conomy SEA 2020 report by Google, Bain, and Temasek. We believe these all show a promising future for more digital insurance adoption in the coming years.
Source: https://www.bain.com/insights/e-conomy-sea-2020
Rising healthcare costs lead to rising insurance costs
In a few Southeast Asian countries, out-of-pocket healthcare costs were reported to be above the global average. This may lead to a further rise in insurance costs. For example, Malaysian medical insurance premiums increased by up to 30% in 2020 on the back of rising healthcare costs.
Global Medical Trends: Healthcare Benefit Cost Growth, 2019-2021
In an increasingly volatile world, we believe that the insurance sector has the potential to grow, create value and provide financial solutions.
We’d love to hear from you!
Are you building a company in this space, or do you know a startup being built in this space? Let us know.
Sources:
- https://www.godigit.com/
- https://www.businessinsider.in/business/startups/news/digit-insurance-becomes-2021s-first-indian-unicorn-as-existing-investors-pump-in-funding-pushing-valuation-to-1-9-billion/articleshow/80279463.cms
- https://www.godigit.com/
- https://www.joinroot.com/
- https://ycharts.com/companies/ROOT
- https://ir.joinroot.com/static-files/085ff0e9-7d87-46d8-805b-0da1dbc7df17
- https://www.hioscar.com/
- https://bit.ly/3cPKNxP
- https://ycharts.com/companies/OSCR
- https://www.clinikk.com/
- https://www.techinasia.com/500-startups-invests-preseries-indian-healthtech-firm-clinikk
- https://www.nextinsurance.com/
- https://techcrunch.com/2021/04/01/next-insurance-raises-250m-doubling-its-valuation-to-4b-in-under-a-year/
- https://laka.co/
- https://www.prnewswire.co.uk/news-releases/laka-exceeds-ps1m-investment-target-to-flip-the-insurance-industry-815429144.html
- https://airasia.tuneprotect.com/malaysia/en/
- https://www.grab.com/sg/grab-financial-group/
- https://laka.co/gb/
- https://www.lemonade.com/
- https://ycharts.com/companies/LMND
- https://bit.ly/3xzUI2z
- https://www.consultancy.asia/news/1660/bcg-report-highlights-the-growing-upper-wealth-classes-of-asean
- https://datareportal.com/reports/digital-2021-global-overview-report
- https://economysea.withgoogle.com/
- https://www.bain.com/insights/e-conomy-sea-2020/
- https://www.bangkokpost.com/business/1799744/aseans-evolving-healthcare-needs
- https://focusmalaysia.my/featured/health-insurance-firms-hike-premium-rates-bank-negara-mum/
- https://www.humanresourcesonline.net/how-healthcare-benefit-costs-are-expected-to-increase-in-2021-data-from-across-asia
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500 Startups is a venture capital firm on a mission to uplift people and economies around the world through entrepreneurship. Across Southeast Asia, the 500 Durians family of funds have backed over 240 companies across multiple sectors from internet to consumer to deep technology. We look to connect founders with capital, expertise, and regional and global networks to help them succeed.
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