The ingredients for disruption in the insurance sector – and the economic drivers for change – are compelling. It is a traditional business with legacy management and operational systems. It is also a regulated industry, and the evolution of regulation is the key to whether innovation can take root and flourish.
Where does Hong Kong stand?
Hong Kong wants to play a big role in this development – and it knows it must if it wants to become a fintech hub. The insurance sector is a core financial service. So to that aim, the Office of the Commissioner of Insurance (OCI), the primary regulator of the insurance sector in Hong Kong, has already taken the following steps:
And while this is a good start, there is still a lot we don’t know as there is no activity report for the fintech liaison team of the OCI.
We don’t know how many meetings OCI has conducted. We don’t know if the OCI works with other fintech groups apart from HKFI. We don’t know how many, or what, fintech events the OCI has attended. We don’t know how many individual cases involving fintech the OCI has supported. We don’t know if and how the OCI has connected with international fintech developments in insurance regulation.
There is an information vacuum. Consequently, it is difficult to assess where we are in Hong Kong. But we do have the information to speculate what the city should try to focus on, regulation-wise.
What the future holds for the insurance sector
In the future, we will see transformation at each stage of the insurance product cycle – from products, distribution and underwriting to administration and claims. Let’s look at one specific tech innovation to assess this. Sensors in cars, property, and personal devices will provide information that will directly feed into the insurance products that someone purchases. Insurance will become tailored to the individual’s track record, risk profile and behavior, all tracked in real-time.
Then, using both actual and predictive analysis tools on big data, insurers will be able to assess risk, price, and reserves more accurately.
You can see this carries complex regulatory risks. Let’s look at the use (or misuse) of data. In a favourable light, the provision of real-time data to insurers allows them to construct an individual profile including risks, and offer better pricing based on that tailored information or as a reward for behavioral change.
Viewed more cautiously, questions arise. Will consumers be penalised if they refuse to provide data? Will there be an increase in risk segmentation that leads to higher risk consumers becoming uninsurable? Will there be data leakage so that data received and reviewed to assess a risk profile, is also used to assess other issues such as ability to pay?
The solutions to these regulatory risks are far from known at this stage. What is clear is that whatever got the insurance industry to where it is now, is not going to get the insurance industry to where it will be in the future.
Regulators must look ahead
If Hong Kong truly aspires to being a fintech hub, with insurtech as an integral part, then the regulator needs to proactively participate in the creation and growth of the environment to make that vision a reality. The OCI has historically been the most approachable of the regulators in Hong Kong. The regulator must see itself as a central cog in a wheel that will connect innovators, insurers, industry and regulators in a virtuous circle of collaboration.
We are in a new world where technology is transforming the delivery of financial services. Regulation often has its eyes in the rearview mirror. Now is the time for regulators to look ahead.
Soon the OCI will be replaced by a new independent insurance authority (IIA). The IIA should be part of a new approach to the insurance industry in Hong Kong that looks to connect, collaborate, and create. We will then have a real prospect of Hong Kong being the Asian centre for insurance technology innovation.
Category: Hong Kong