Speech by Mr Daniel Wang, Executive Director, Monetary Authority of Singapore, at the 19th Asia CEO Insurance Summit on 12 March 2019
Ladies and Gentlemen
1. Good morning. I would first like to thank the Asia Insurance Review (“AIR”) and the Geneva Association for inviting me to the Asia CEO Insurance Summit this year. It is not often that leaders in the insurance sector from the region can gather together in one place. I hope my remarks, seen from a regulator’s perspective, can contribute to the discussions that will take place over the next two days and back in your boardrooms.
What does digitalisation mean for insurers
2. In recent years, digitalisation and what it means for insurance has become a key part of MAS’ conversations with the industry, be it through our dialogues with the local insurance industry associations, and bilaterally with the firms. I also note that the issues and challenges surrounding technological change and digitalisation have featured in some form at the last five AIR CEO Summits.
3. What is clear is that digitalisation and the impact of technology on your business model and operations, whether as an enabling or disruptive force, is no longer a new phenomenon.
a. For individual insurers, Boards and Management teams are all grappling with this challenge and trying to develop an effective strategy that can allow them to pursue new opportunities that arise. Key questions over who to partner, what technology to procure and how to proceed will involve trade-offs and difficult choices. For instance,
- In vendor selection: do you pick the upstart that claims a groundbreaking technical solution but comes with a shorter track record and poorer financial position, or the reputable stalwart with the conservative and perhaps more expensive solution?
- In IT budgeting and investing: how much should you spend overhauling legacy systems compared to investing in new ones? How will such system changes affect business-as-usual today even as you strategically position your company for the future? How best should one explain these needs to the Board and to shareholders?
b. For the industry, the traditional notions of who is an insurer and what risks can be insured is fast changing. Your competitors come in all shapes and sizes - from the large ecosystem players and BigTechs, to small but enterprising InsurTechs. Likewise, the advent of the digital economy and its enabling technologies have shifted insurance from standardised, comprehensive, and long-term offerings to more tailored, granular and on-demand coverage. Today, one can purchase return shipping insurance to complement your online shopping for a mere US$ 3 cents to US$1.50 per policy in China, and you can even protect yourself from surge pricing on ride-hailing platforms when it pours in tropical Singapore.
c. For consumers, digitalisation promises much – a virtuous trinity of lower costs, better and more tailored products, and an enhanced customer experience. However, this does not come risk-free – concerns over cybersecurity, data privacy and protection, and unfair discrimination have become the new worries of the digital age.
4. In short, the digital economy and the rapid pace of technological innovation and adoption are here to stay - what matters for the insurance industry is how you exploit the opportunities these changes bring. On this front, I would like to make three points:
5. First, you do not have to face this technological challenge alone.
a. In 2017, PWC's Survey of CEOs1 highlighted that Insurance CEOs were acutely aware of the disruption and change facing this sector. In 2018, the same Survey2 found that a more positive mood had set in - on one hand the anticipated disruption did not materialise to the extent that was feared, and on the other, collaboration rather than competition with disruptors had become the new norm. The reality today is that many of you are already exploring different approaches towards working with the disruptors. Whether it is entering into a joint venture, being a seed investor or bringing such expertise in-house, you will need to find the approach that can best accelerate and complement your transformational efforts. Here in Southeast Asia, Allianz started a strategic partnership with Go-Jek in 2016 and in 2018, it went further to invest US$35m and became the sole international insurance shareholder of Go-Jek. Closer to home, Prudential and NTUC Income are collaborating with the tech startup community to develop new solutions for customers and to address business pain-points and challenges.
b. Many regulators have signaled a facilitative stance in fostering innovation in the financial sector. Regulatory sandboxes and the encouragement of innovation hubs are increasingly common approaches. Certain regulators have moved beyond by developing and facilitating a wider-set of initiatives. In Singapore, we have taken a holistic approach that not only directly promotes technological adoption, but also builds the conducive ecosystem needed to support it. For instance, the MAS has collaborated with three other government agencies to strengthen the AI ecosystem for the financial sector through (i) a grant to support the development of AI and DA applications, (ii) facilitating link-ups between local firms and credible solution providers and (iii) building a pipeline of professionals with necessary skillsets.
6. Next, focus on the problem statements, not the technology. The allure of adopting the ABCD of FinTech (ie. AI, Blockchain, Cloud Computing & Data Analytics) can be tempting, especially when competitors or other parts of the financial industry are making announcements on their adoption or investments in these areas.
a. But the fact is that not all, or even any of these solutions can necessarily solve the problems or challenges specific to your company.
b. The promise and capability of the solution should not be confused with its suitability.
c. A well thought through and more deliberate approach towards technological adoption is warranted. Being a means to an end, it is important to first start with the use cases or the problem statements, and to determine accordingly the desired end state or outcome. One should also question whether conventional options can serve your purpose and bring about the desired outcome more effectively and efficiently.
7. Thirdly, and most importantly, prioritise your customers and their interests.
a. A crucial area in need of transformation is in the consumer’s experience of insurance and insurers. In 2018, Forrester’s inaugural Singapore Customer Experience Index3 found that all the insurance brands it surveyed were not ranked well - more than two-thirds of customers interacting with insurance companies conveyed that their experiences were neither easy nor effective, and this translated into the lowest loyalty retention of any segment at just 26%. Comparatively, customer retention for airlines was almost double at 53%.
b. Insurtechs, perhaps unburdened by legacy, have put in the hard and thoughtful work required to make their websites and on-boarding process clear, simple and effective. By engaging customers and giving them a delightful purchase and onboarding experience, Lemonade, a US-based Property and Casualty insurance startup, on-boarded 250,000 customers within two years of starting operations. This is a testament that using technology to deliver a simple, more seamless experience is not only good for customers, but also good business.
c. Advances in the Internet of Things (“IOT”) can help to deepen the relationship with your insured and align their incentives with yours. Today in Singapore, Great Eastern allows you to Get Great, Income keeps you in the Orange of Health and AIA gives you Vitality. Behind every slogan is a carefully designed app that can be linked to a wearable to track a user’s physical activity. By gamifying fitness, policyholders are encouraged to stay active, lead healthy lives and motivate others to do the same. At the same time, an insurer benefits from positive selection and natural segmentation - the more engaged policyholders are, the more discounts they will earn, and the more likely they will stay with the insurer.
Engender trust in the use of data
8. I had focused earlier on how insurers can seize the opportunities afforded by digitalisation. However, like other innovations, digitalisation does come with its own risks, and it can also lead to an erosion of trust between insurers and consumers. For example, the advent of big data can result in new informational asymmetries. Unlike the consumers who are generating the data, firms are better positioned to harness its potential and to exploit this advantage. In the insurance context, this could accentuate concerns that insurers may exploit data to unreasonably deny or delay claims.
9. As the quantity, quality and availability of data increases with continued digitalisation, two key areas will have to be addressed – data use and data protection.
10. MAS has partnered and consulted widely with the financial sector industry to create a set of principle-based FEAT guidelines relating to the use of Artificial Intelligence and Data Analytics (“AIDA”). These cover the following key areas:
a. Fairness: AIDA-based decisions need to be accurate, explainable and justifiable;
b. Ethics: AIDA-based decisions are to be in line with a company’s ethical standards and should minimally be held to the same standards as human-driven decisions;
c. Accountability: Ownership and responsibilities over AIDA-based decisions have to be clear, with consumers being granted access to recourse over such decisions; and
d. Transparency: Use of AIDA in decision-making is proactively disclosed to consumers, including what the data is being used for and its resulting impact.
11. The Personal Data Protection Act (PDPA) in turn requires companies to consider consent, purpose and reasonableness in the handling of personal data. All insurers that collect and use customer data have to ensure that they obtain policyholders’ consent and that these policyholders are aware of the purpose of use. Collectively, the PDPA and FEAT principles are in place to ensure that insurers in Singapore continue to safeguard and prioritise consumer interests in their use of data, even as the digital transformation continues apace in the insurance industry.
Strengthen confidence in the security of data
12. Consumer and company data need to be well-protected. A vital area of data protection in a digitalized world is the mitigation of related technology and cybersecurity risks. Given the interconnected and international nature of cyberspace, no firm is an island and the timely sharing of cyber security information amongst trusted parties is highly useful. In this case, MAS has introduced several initiatives to help promote such cooperation. MAS partnered the life and general insurance industry associations to set up the Insurance Standing Committee on Cyber-Security (ISCCS) in 2015. Since then, the ISCCS has rolled out a number of noteworthy initiatives, including the development of data loss protection guidelines for insurance agents, the creation of a cyber-security monitoring framework for insurers, and the issuance of guidelines to help insurers secure their sensitive data in the cloud. More recently, MAS has partnered the Financial Services Information Sharing and Analysis Centre (FS-ISAC) to setup its Asia Pacific Regional Analysis Centre in Singapore, and we will be launching the ASEAN-Singapore Cybersecurity Centre of Excellence later this year.
13. As the system is only as strong as its weakest link, MAS will be issuing a Notice on cyber hygiene to raise the overall level of cyber resilience in Singapore. This will require all financial institutions in Singapore to implement a set of fundamental controls and adopt practices such as strong authentication and proper patch management. Likewise, our Technology Risk Management (“TRM”) guidelines, which is currently under public consultation, has been refreshed to keep pace with technological developments. It now gives greater emphasis to cyber resilience and includes guidance on effective cyber surveillance, secure software development and management of cyber risk posed by IOT, among other things.
14. To conclude, digitalisation may transform the industry, but the ingredients for succeeding in a digitalised world have much in common with the physical one – know your customer and do right by them. As your company strategically positions itself for the digital economy and makes the necessary investments in technological innovation, continuing to build customer trust and loyalty not only enhances your reputation, but also makes good business sense.
15. On this note, I would like to wish you all a successful and rewarding Summit.
1 Source: PwC’s 20th CEO Survey – key findings from the insurance industry (2017)
2 Source: PwC’s 21st CEO Survey – key findings from the insurance industry (2018)
3 Source: Forrester Singapore Customer Experience Index (2018)
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