THE Philippine insurance industry is slowly adapting to changes brought about by the wave of global technological advancements with the shift to financial technology (fintech), seen to be beneficial for the industry in the future.
Insurance Commissioner Dennis B. Funa told the BusinessMirror that he sees the Philippine insurance industry embracing fintech in the future, as a majority of its markets are adapting swiftly to the changing times.
“The insurance industry will surely continue to embrace fintech. It cannot be denied that the evolution of technology has helped our regulated entities to spread their reach. Our people today rely on technology in going about their everyday lives, thus, it is crucial that they have access to insurance products and services at their own convenient time,” Funa said.
The Philippine Insurers and Reinsurers Association (Pira), the umbrella organization for nonlife insurance companies in the country, pointed out that the sector is currently in the midst of innovations driven by technological advancements, echoing the sentiments of the Insurance Commission (IC) that the insurance industry will have to incorporate the use of fintech in their operations if they want to remain competitive in the market.
“The nonlife insurance industry is actually experiencing a wave of innovations largely driven by the advances in digital technology and the expansion of the availability of Internet service. One area that is most affected by these innovations is in the area of distribution,” Pira Executive Director Michael F. Rellosa told the BusinessMirror.
Crucial shift
He explained that the shift by insurance corporations to digital enabled them to widen their respective distribution reach in the country. In the past, he recalled that agents went to visit potential policyholders on a door-to-door basis just to sell insurance products. But with the advent of the Internet and all the technological advancements being presented every day, the sale of insurance products or services can now be done online.
“In the past, the only distribution channels our industry had were the agents and brokers with the policies delivered [right on the doorstep] through a piece of paper. Now, clients have access to self-directed services, be it through their computers or their cell phones. The IC already encourages electronic policies. Some even sell insurance through prepaid cards,” he added.
The IC, being the regulator of the local insurance industry, continues to encourage its regulated entities to embrace the opportunities offered by fintech but added that the actual initiatives come from the entities themselves.
Making it “safe”
“What the IC does is come up with policies and regulations that will make this emerging trend safe and truly beneficial for both the insurance providers and their clients,” Funa added.
The IC has thus far issued at least five documents to encourage insurance companies to shift to using fintech.
In 2014 the IC issued Circular Letter (CL) 2014-47 imposing guidelines on electronic commerce of insurance products. The circular was intended to provide the basic framework on the engagement of electronic commerce by insurance companies.
In 2016 the IC then issued two successive CLs amending CL 2014-47 to further clarify certain aspects of the guidelines for the use of electronic commerce for insurance
products. The IC issued CL 2016-15, to provide more detailed policies for online transactions of variable life insurance products; while CL 2016-60 allows clients to finalize the processing of their online application by clicking a confirmation button in lieu of an electronic signature.
In the same year, the IC also issued CL 2016-61 promoting the guidelines defining the engagement of telemarketing services for insurance companies, brokers and general agencies, enumerating their respective requirements. The CL was issued to establish the minimum standards to regulate the engagement by insurance companies and insurance brokers of the telemarketing platform.
This year, the IC also issued CL 2018-7, amending item 7.18 of CL 2014-47, regarding the use of mobile applications for the distribution of insurance products. The new CL sets the guidelines for the use of mobile applications in the distribution of insurance products by the insurance industry.
“That said, financial technology is a powerful tool necessary to boost the insurance industry to further growth. With a healthy combination of fintech and intermediaries in the insurance industries, I am confident that we will come closer and closer to the realization of our goals, primary of which is financial inclusion—a key factor in uplifting lives and strengthening our nation,” Funa said.
The IC commissioner also said the commission is veering toward digitizing the process, starting with computerizing insurance agents’ licensure examinations. The insurance regulator also minimized the use of hard copy reports required by its various departments.
“For the meantime, some statistical reports are submitted in digital form through USBs [universal serial bus] and we have an ongoing project which will allows online submission of company reports. The project will further create a digital base for financial data submitted to, then verified, by the IC,” he added.
The shift
Funa reiterated that the incorporation of technological advancements to the operations of companies and businesses do not happen all at once but in small steps, adding that the local insurance industry has already begun the shift to using fintech more.
“Nevertheless, our regulated entities have begun the shift. First, they have developed web sites where clients can get to know about their companies, as well as their products,” Funa said.
Other insurance companies were also pointed out to employ electronic applications, allowing clients to complete the purchase of their insurance policies online. Policyholders of certain insurers can also file their claims, pay their premiums and bring their queries though the Internet.
Pay as you go
Rellosa explained that new technologies are also ushering what is now called usage-based insurance, line insurance technology or insurtech.
He cited as an example the experience from other countries, where certain insurance policies for cars are no longer paid on an annual basis but based on usage.
“These are so-called pay-as-you-go insurance, which are based on the mileage the driver would use the car. It’s no longer time-based. And it makes sense because, through this, insurance companies would have better rates for those who use their cars less than those who use their cars more,” Rellosa said.
He quickly added that new technologies like those of other countries, which can be adapted in the Philippines, would require a monitoring technology, pointing out the concept of telematics.
“Telematics is like putting a black box inside a car. The insurer would know exactly how and how far the car is used. Telematics is becoming more affordable, so I believe this will eventually be a popular way of insuring motor vehicles,” he added.
Telematics is the branch of information technology that deals with the long-distance transmission of computerized information, while insurtech is the use of technology innovations designed to optimize savings and efficiency from the current insurance industry model.
Agri insurance
Another innovation that the nonlife insurance industry is looking at is parametric insurance, which is no longer based on actual assessment of losses but based on certain parameters that are set at the start of the policy, according to Rellosa.
An example of parametric insurance is parametric agriculture insurance, where farmers don’t need to prove that their farm suffered a loss in order to file a claim. The insurance company simply needs to establish certain parameters that need to be present for the claim to happen.
The Philippine Life Insurance Association Inc. (PLIA), the umbrella organization for all life insurance companies in the country, pointed out that although the organization has not undertaken initiatives incorporating fintech as a whole, several life insurance companies have started to shift.
“There is nothing being done as an association level initiative regarding fintech but several leading companies have been building up related capabilities. At least two companies already have their own mobile applications that enable viewing of account status and values…,” PLIA Executive Director George C. Mina told the BusinessMirror.
Data security challenge
According to the IC commissioner, data security is one of the major challenges in enabling the insurance industry to fully shift to using fintech.
“Probably the biggest challenge in going digital is keeping data secured,” Funa said.
He pointed out that governments of developed countries, as well as the biggest Internet communities, such as, Yahoo, Facebook and e-Bay, among others, have had their securities breached at some point. Hackers will always be an issue.
But he quickly added that data security challenges will not hamper the IC and the local insurance industry’s efforts in line with incorporating technology with its processes.
“Technology is here, and it is good, and we just need to know how to use it and protect it from malicious entities. Innovations always come with challenges. When you’re trying something relatively new, you don’t always know what will work or not,” Funa said.
Meanwhile, Rellosa said that for the nonlife insurance the cost of migrating to new technologies is seen to be the biggest challenge to date.
“Many insurance companies still rely heavily on old systems and adopting new ways of doing business is not always easy. Right now, many companies are facing a major challenge in terms of the high capitalization required by the government. So it is but natural that things like technology are not on their priority list,” Rellosa said.
Product complexities
PLIA’s Mina added that changing the rigid sales process, as well as product complexities, still remains to be a challenge for the life insurance industry.
“Fintech support in life insurance is mainly postsale-based. Due to product complexity and rigid sales process, it is difficult to overcome the generally accepted ‘insurance is sold not bought’ concept of life insurance. This restricts the opportunities for pushing technology-enabled or online-based life insurance selling. Typically, only simple term and accident plans are marketed in such channel,” Mina said.
Opportunities
The IC sees more opportunities rather than challenges in terms of shifting to using digital technology, adding that its plan to establish a financial database for the insurance industry is a result of adapting to the changing times.
“Definitely, insurance technology brings with it opportunities. In the case of the IC Financial Database project, it will provide opportunities to speed up delivery of services. The online submission will allow us to collate data faster and at less cost for the insurers. Plus, with less documents in hard copies, there is less need for storage space; less fire hazards, as well,” Funa said.
Rellosa, for his part, mentioned that even though the Philippine insurance industry is taking its time to adapt to the changes that technology poses, the good thing is that the country will learn from the experiences of other countries to arrive to what works best for the local insurance industry.
“But being a latecomer in this technology race is not really that bad. In fact, it has its own advantages. Because as late adopters, we get to learn from the mistakes of our more advanced neighbors, and we get to choose the best and most affordable solutions for our needs,” he said.
Mina also pointed out that the local insurance industry still has room to adapt to technological advancements, specifically shifting to the use of fintech.
“There is much room for the rest of the industry players to follow suit in creating better service value proposition to customers through fintech-supported postsale processes,” he said.
Geographical plus
Prospects for the local insurance industry to adopt to fintech shines bright in the horizon with a number of industry players slowly but surely adapting to the changing times.
“The Philippines, with our strategic location in the typhoon belt and the Pacific Ring of Fire, will always be a very good market for insurance. And with our fast-growing population and the low penetration rate of insurance, nonlife insurers have a very big space in which to grow their business,” Rellosa said.
Mina pointed out that successfully shifting to new technologies is a two-way street, with private insurance companies as well as the IC working together to accomplish the goal of digitalization.
“We should be flexible to adapt and compete on new grounds. Regulation is key in ensuring a level playing field and the protection of the insuring public,” Mina said.