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[Disrupted Finance] Insurers and brokerages embrace technology as regulations are eased

May 20,2019
Technology has become so important in the insurance industry that they’ve even come up with a new word to describe the phenomenon - InsurTech.

Technological advancements such as big data and artificial intelligence have paved the way for new types of insurance products based on hitherto inaccessible data.

The advent of those technologies allows insurance companies to offer more customized, behavioral products, a shift away from the one-size-fits-all approach that rarely takes into account policyholders’ demographic characteristics, lifestyles and personal traits.

“The rise of connectivity … has generated a massive amount of real-time data and turned the insurer’s relationship with policyholders from static and transactional to dynamic and interactive,” said global accounting consultancy Deloitte in its 2019 insurance outlook report. “Meanwhile, InsurTech is fundamentally altering the rules of the game and spurring the creation of a new ecosystem driving innovation.”

Korea’s legacy insurance companies are gearing up for the evolving shift driven by the new environment.

Hyundai Insurance, the country’s second-largest non-life insurer, taps into its partnership with Hyundai Motor to launch policies using clients’ driving habit information, also known as usage-based insurance. The service provides discounts for those with safe driving records.

The program works with the automaker’s in-house connected service Blue Link, which acts as a gateway between orders from exterior sources and vehicles.

“Blue Link can extract data indicating how well you drive, including speeding, hard stops, time of day driving and mileage,” said a spokesperson at Hyundai Insurance.

The results, the spokesperson says, are potentially lower rates.

The underwriter released a product where those with a higher score, according to the Blue Link data set, are entitled to a 7 percent discount.

The insurer is also preparing for the self-driving car era by fostering a partnership with the Advanced Institute of Convergence Technology, a research institute under Seoul National University. Together they will study the development of insurance for vehicles with automated driving modes and, eventually, fully autonomous cars.



Targeting the health conscious

Another target area is health and wellness as major insurers launch products linked with a healthier lifestyle.

Health-related insurance products became popular in countries like the United States and Britain several years ago, but only debuted in Korea last year due to recent changes to regulations.

The driver for the move is people’s increasing interest in health alongside the ubiquitous presence of smartphones that allows for the tracking of movement and steps.

Insurers reward a healthy lifestyle with benefits ranging from discounts on insurance subscriptions, higher claims and even different mobile coupons when subscribers follow through with their health goals.

Samsung Fire & Marine Insurance has embraced the concept with its activity detection app Anyfit. The company will allow holders of certain policies to use its app, which provides points based on steps and exercises.

The introduction of app-based health management insurance products became possible after Korea’s financial authorities amended rules and lifted restrictions in 2017, prompting multinational insurers to bring in their related services and products.

The Korean arm of AIA Life Insurance took the lead as it drew on its experiences overseas with its well-established health management program Vitality.

AIA’s cancer coverage, released last April, offers a 10 percent discount on insurance fees if a policyholder reaches 10,000 points on a step-counting app.

The collection of such data, however, raised concerns for some consumer advocacy groups as they say the attempt could cause problems.

One of the issues is the lack of transparency, since few companies reveal specifically how they use and manage the data and generate scores.

Another concern is the possibility of an insurer using the information it has gathered against policyholders if the two parties enter into a legal battle over coverage.

Workers from Hyundai Insurance and Hyundai Motor pose after the two companies signed an agreement to develop an insurance product backed by big data on March 13 at the office of the automaker in southern Seoul. [HYUNDAI INSURANCE]
Other insurance firms deploy artificial intelligence in enhancing customer services and digitalizing their products.

Samsung Life Insurance, the country’s largest insurer, introduced its AI-based chatbot named ‘Ddabot’ to handle customer services on mobile.

The system is able to list the terms and contracts of policies and link clients to policy loan services upon request.

KB Insurance said that it took a two-way approach in harnessing the technology.

“We’ve adopted robotic process automation (RPA) in handling internal work such as policy issuance to claims registration,” said a spokesperson at KB Insurance.

Hanwha Life Insurance took a cooperative approach in embracing technology through its start-up support program DreamPlus.

“We not only provide working space, but also encourage member start-ups to collaborate with us and other Hanwha affiliates,” said Park Hye-jin from the public relations team at Hanwha Life Insurance.



Robotic wealth management

The securities industry is particularly keen to embrace automated investment systems such as the use robotic advisers.

Many of these advisers use systematic trading strategies aimed at balancing expected returns with risk to devise the optimal portfolio, though it still remains questionable whether automated systems can draw higher returns than human counterparts.

Still, the securities players can take advantage of the new trading scheme as it is cheaper and has less likelihood of making errors.

Shinhan Financial Group, the largest financial holdings unit, established a new unit called Shinhan AI, which will be focused on providing robo-advising services and different types of products built upon machine learning and artificial intelligence.

This is the first time that a major financial player has set up an affiliate fully devoted to tech-backed investment.

Market analysts project that Shinhan Investment, a securities affiliate of the group, will likely build close ties with the AI-focused investment unit.

NH Investment & Securities is on track to expand the lineup of products using robo-adviser services, since many of them are limited to funds. The brokerage, the country’s second-largest by capital, launched a pension fund backed by a robo-adviser last May, a first for the industry.

“In our digitalization efforts, robo-advisers will take center stage,” a spokesperson at NH Investment & Securities said.

But other firms are taking a more hybrid approach in adopting technology in trading services.

Samsung Securities, a securities affiliate of Samsung, released a wealth management service called Smart Advisor last year. The service recommends investment portfolios based on the result of algorithms and human managers’ insights.

Established securities companies typically foster partnership with smaller robo-advising firms to tap into their expertise on algorithms, as was the case for NH with December & Company.

Other start-ups specializing in robo-advisers include Quarterback Investments, which worked with KB Securities, Korea Investment & Securities and Kiwoom Securities, and Fount.

So far, those partnerships have been crucial for the smaller start-ups since the financial regulator requires them to partner with licensed financial institutions to sell robo-advising funds.

The Financial Services Commission, however, lifted the regulation on Wednesday to bolster the sector and bring in more new players.

But regulations still get in the way.

In the robo-adviser segment, automated investment cannot be done completely online since clients still have to visit the offices of securities companies and speak face-to-face with fund managers for the initial sign-up process. That makes it impossible for fund operators to offer fees that rival those in the United States, where such regulations do not exist.

Mirae Asset Daewoo, the largest brokerage in Korea, uses big data analysis in recommending investment portfolios.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]


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