Fintech is dead. Long live fintech! The evolution of insurtech from being a subset of fintech into a domain of its own has seen much attention shift with it. Advocates of the fintech bubble seem to have become more silent, and the air of concern has been replaced with re-born hopes and enthusiasm for the emergence of a new world of finance.
Maybe insurtech even saved fintech. Wherever you stand in terms of the value of fintech startups – finance does offer broad innovation opportunity that makes it a worthwhile focus for any entrepreneur on a mission to reimagine what we do with our dollars. That has not changed one bit.
However, it is fair to say that fintech in this region has not quite reached its potential. So far, many startups seem overly focused on the low-hanging fruits. Grand visions may live in pitch decks, but not beyond.
Where are the zero-to-one ideas? Is it tempting to believe that there is no need for real transformation in financial services when the majority of Southeast Asians are still unbanked? That it is enough to just import a couple digital finance concepts from the West and the job is done? Insurtech appears to suffer from this the most, and is worthy of a deep-dive in this aspect.
There is no question that the real opportunity in insurance (and wealth management) definitely lies beyond comparing, explaining and facilitating the purchase of vanilla products for end users. Rather, it needs to focus on revolutionising the bigger picture of individual financial planning. Insurance has a major role to play in helping us build a solid financial future.
Add in wealth management, which has traditionally been closely linked to (life) insurance, and there are plenty of options for new and better products. Combining insurance and investments is a natural mandate for wealth managers, and makes tremendous sense from a financial and value proposition perspective. Most customers care more about whether their financial assets are well deployed and protected than about how it is done.
We also really need to stop talking about financial literacy – which carries the implicit and largely unchallenged assumption that people should level up their knowledge in order to understand complex financial products. Perhaps insurance is still the best example for a domain in finance in which complexity is so deeply engrained in the status quo that panic breaks out over every serious attempt at simplifying. This is a global issue, and we see it even in the most lauded startups in the space.
Take Oscar, the new entrant into the US health insurance industry. Beneath the fancy vernacular and experience improvements, what you are looking at is still pretty much a vanilla health insurance proposition. Whether we are talking about first movers or those late to the party, it seems that insurtech branding aims for Mars, but lands back on earth when it is time to launch. I really hope that trov, the on-demand insurance for household and electronic items, avoids going down that same path.
There is a very good explanation for this tendency. Insurance companies (just like asset management firms) are in the business of risk. At least that is what these organisations tend to think. More accurately, they are in the business of turning risks into returns.
Unfortunately, they go about this in a very conservative way. Therefore the biggest risk insurance and wealth management are facing right now are the risks they are unable to identify – the risk of avoiding a change in operating model and leaving the most precious emerging opportunities untapped.
Dangerous as this can be, it reflects a (financial) industry characterised by careful and prudent management of known risk. Trouble is, soon most known risk will no longer be such. With the trove of data available for us to analyse and interpret today, almost everything becomes decidedly predictable.
For example, a future health insurance patient becomes a precise data model whose wellbeing can be accurately profiled and forecast. The only major remaining risk in this context is the free will of the individual to go about life as they please (e.g., go on a Safari in South Africa).
Suddenly, the singular job left to do is to figure out how to influence customers’ behaviour in a way that minimises this remaining uncertainty. The removal of unknown risk and vast potential of artificial intelligence in propelling us beyond historic analysis of risk and return could allow us to automate many specialised and tedious risk-related jobs in the near future. That is bad news for actuaries, claims departments and risk managers, but great news for everyone else.
These three components – (1) transformation of ‘unknowns’ into ‘knowns’, (2) full automation of risk analysis and prediction and (3) focus on facilitating behaviour change is a tendency that characterises a large share of fintech propositions
IoFin is much more than Internet of Value
Couple that with the emerging Internet of Things, and we will soon be seeing traditional financial networks be augmented with intelligent, deeply interconnected mycels exchanging data and insight to offer instant assessments and transfers of value and risk – automatically minimising charges and maximising returns. This is what I refer to as IoFin, or the Internet of Finance. Its root is borrowed from Chris Skinner’s ‘Internet of Value’, a new global financial system based on mobile digital wallets and distributed ledger (Blockchain) technology.
But IoFin can be much more than that. What fintech and especially Insurtech startups and entrepreneurs are really working towards is a world in which the transfer of value and risk is less and less of a static process or formality, requiring fewer and fewer actions to be carried out. Imagine a financial system post underwriting, payment and trading procedures. A world in which the entirety of managing risks as well as transferring and deploying capital assets is automated. This is the end of financial institutions as we know them today – but not so fast!
What we are imagining there is a decade-long transition and just like with self-driving cars, there are many good reasons to be skeptical about a world of finance in which humans have little to no intervention. Most likely, we are going to see financial industries gradually adopt new technologies and increasingly experience the value that lies in them.
My hunch is that the most successful stories in IoFin are going to be driven by value propositions that benefit all existing industry stakeholders, so that we can avoid brutal course adjustments as were necessary during the GFC. Disruption in finance should be less of a shockwave than in other (unregulated) industries, or those whose existence does not depend on handling highly sensitive information and assets.
While we have seen much experiential innovation, product transformation is perhaps the more important priority if we want to reimagine the financial systems that serve us from the ground up. Fintech startups in Asia are only just beginning to dabble into re-designing financial products and value propositions – and we need more of it.
Banks, insurers, asset management firms and other financial players that are accepting the change ahead will easily find ways to do that by combining their expertise, distribution and licensing with startups’ fresh perspectives and technologies. This creates win-win situations that could jointly shape the industry’s future.
In light of the relatively low overall saturation of banking, insurance and wealth management in Asia today, those corporates switched on enough to ‘get it’ will end up with tremendous runway for many good years ahead.
On the flipside, firms that continue to aim for innovation opportunities in isolation from the market could take a major hit, unless they manage to fully internalise the change that is coming. The Internet of Finance might be a handy concept when thinking about how major global trends and fintech startups have lasting impact on the financial services sector, and contribute to a better world of finance.
In the contemporary Pokémon Go analogy, financial services used to be analog like trading Pokémon cards (I am by no means implying it was equally fun, though). Whether nostalgia or complexity keeps this analog world in place is an interesting debate in itself. Most of us eventually moved from physical cards to the Gameboy version, which is roughly akin to the emergence of self-service online financial services. Except that the infrastructure run by financial institutions is much less recent than Gameboys – and also significantly less intuitive.
IoFin is the Pokémon Go equivalent of financial services; a new paradigm that what we learnt to like about the old-school approach to finance, while placing it in an entirely new context with supercharged possibilities and a radically improved experience.
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