Unleashing Potential: The emerging Insurtech opportunity
The emergence of Insurtech
The rise of Insurtech, the fusion of insurance and technology, has led to a transformative shift in the insurance landscape.
By leveraging the ubiquity of internet-connected smartphones, along with data analytics and artificial intelligence, insurtech companies are reshaping traditional insurance practices.
Their mission is to offer more transparent, customer-centric products, enhance efficiency, cut costs, and improve the overall insurance experience. Whether through wholly digital operations or hybrid business models, insurtech is revolutionizing insurance services, automating claims processing, enabling real-time risk assessment, and tailoring personalized policies.
Eduard Melli Investment Manager - FI Equity
The role of Insurtech in promoting Financial Inclusion
The global outlook for Insurtech is promising, with technological advancements and evolving consumer behaviours propelling its growth. However, its impact varies significantly between developed and emerging markets.
In developed markets, the focus of insurtech is primarily on enhancing customer experience, refining processes, and modifying products to serve specific niche markets. While these improvements are valuable, they do not fundamentally transform the insurance landscape or significantly extend insurance coverage to underserved populations.
Conversely, in emerging markets, insurtech presents a unique opportunity to reach underserved populations, create new product categories, and develop innovative distribution channels tailored to each country’s specific needs.
Historically, insurance offerings in emerging markets have largely excluded the majority of the population, limiting coverage to urban, affluent areas. As a result, there is low insurance awareness and education in the semi-urban and rural areas, leaving a significant segment of the population financially vulnerable. Insurance penetration in emerging markets is approximately 3.3x lower than in developed markets.
In this context, insurtech is a game-changer. By harnessing digital solutions, innovative companies are creating new insurance products and exploring online distribution channels, making insurance accessible, affordable, and transparent to previously uninsurable and uninsured individuals. In the process, insurtech is driving financial inclusion, providing security to both individuals and businesses. Insurance coverage safeguards from unforeseen events like accidents or illnesses, while businesses can afford to take more calculated risks, fostering economic growth.
Addressing climate change and environmental impact
The importance of insurtech in emerging markets is further accentuated when considering climate change and environmental challenges. While developed markets contribute significantly to the global CO₂ emissions, it is emerging markets that face the brunt of climate change catastrophes.
Today, emerging markets face a USD 110bn natural catastrophe protection gap, representing 50% of the global protection gap. Insurtech plays a crucial role in addressing this issue by introducing innovative risk-management models like parametric insurance. This form of insurance offers timely pay-outs based on predefined weather indicators, especially when combined with accurate weather forecasts and climate models. Moreover, improved data analytics enables data-driven underwriting allowing insurers to offer policies and pricing adapted to changing environmental conditions and areas that would otherwise remain uninsurable.
Impact Investing Opportunities in Insurtech
As an emerging sector, insurtech presents significant opportunities for impact investors. It promises not only financial rewards but also contributes to creating a more resilient and sustainable future. By promoting financial inclusion, mitigating climate change risks, and driving economic growth, insurtech aligns with impact investors' goals of generating positive social and environmental impact.
Investing in growth-stage insurtech companies in emerging markets can present its challenges though. The fast pace of technological innovation, regulatory changes, and competition requires market and industry expertise.
To navigate these challenges and risks, responsAbility leverages its global team and emerging market expertise of over two decades. Our locally embedded teams across our investment regions provide invaluable market insights that equip the investment teams to understand potential growth and navigate regulation, while local know-how provides a perspective on consumer behaviour and cultural nuances. This is critical in identifying, choosing and managing investments that are financially viable and generate high impact.
For instance, in populous Asian countries like India and Indonesia, the insurance industry predominantly serves top-tier cities and affluent demographics, leaving a vast majority of the population underserved and numerous high impact opportunities untapped.
RenewBuy in India and Qoala in Indonesia exemplify growth-stage insurtech companies that are proactively addressing this untapped potential by promoting agent-assisted distribution models. Leveraging their innovative digital apps, these companies empower independent agents to efficiently distribute multiple insurance products from diverse insurers, slashing the policy issuance time from 14 days to just a few hours.
The integration of technology dramatically expands the reach of existing insurance companies into new target markets while enabling new-to-insurance customers to compare and purchase products with efficiency and transparency. Through strategic investments in insurtech companies like RenewBuy and Qoala, impact investors seize the opportunity to not only achieve financial growth but also foster positive change by bridging gaps in insurance accessibility and ensuring a more inclusive and prosperous future.
Financial Inclusion was responsAbility's first investment theme back in 2003 and we are excited to leverage the power of technology today to reach more people with empowering opportunities going forward.