The current state of the insurance industry

TechWireAsia spoke to Nikola Djokic, the Managing Director of Insurance at SAP Fioneer, about the current state of the insurance industry and the challenges it faces. “Insurance is undergoing a revolution,” he said. “The rise of the insurtech and access to data has allowed non-insurance brands to enter the market and offer insurance as part of their offering, adding value to their customers and generating new revenue. Rather than a separate vertical industry, insurance is now taking a role in several ecosystems. This all represents significant new market opportunities for insurtechs, new players and incumbents alike, but the change is rapid, and traditional insurers need to adapt quickly to take advantage of and benefit from the new world order.”

Digitalization has traditionally been hampered in insurance due to legacy systems. Often built over decades, they have created data silos and operational inefficiencies that hinder the adoption of modern technology. Insurers have struggled to integrate new digital solutions seamlessly into their existing infrastructure, leading to fragmented customer experiences and slow response times. Moreover, the risk-averse nature of the insurance industry has contributed to a reluctance to invest in digital transformation initiatives. Insurers have been cautious about migrating sensitive data to the cloud and adopting emerging technologies like AI and machine learning due to concerns about data security, regulatory compliance, and the potential for disruption to established business processes.

Mr Djokic said: “Decisions need to run from the user interface through the middle office to the back office and back again, and these have typically been disconnected. The process of assessing a customer for a policy, or a claim for a payment, traditionally required (and in many cases still requires) a lot of manual intervention.”

Third-party data has been available to facilitate these assessments, but it is rarely integrated into the core insurance solution, making it challenging to meet customer expectations for digital immediacy. “This has allowed new players – neo-insurers – unencumbered by legacy systems or processes to leapfrog ahead in niche areas,” said Mr Djokic.

Insurance penetration in Asia, standing at around two percent in developed markets and one percent in emerging markets, presents a barrier to sector expansion despite the region’s vast population of over four billion people. TechWireAsia caught up with Chirag Shah, the Managing Director of JAPAC Digital and Core Insurance at SAP Fioneer, to try and understand the growth potential of the industry in APAC.

He said: “The Asia Pacific insurance market is experiencing shifts driven by post-COVID-19 customer perceptions, particularly in healthcare. Rising awareness of the protection gap has led to increased demand for health and life insurance products, especially in emerging markets, where insurance penetration and density are lower compared to developed markets.

“Insurers must navigate challenges such as mobility, cybersecurity, and climate change while enhancing value creation within existing operations like claims and underwriting. Challenges include slowing growth, low penetration, and rising combined ratios, particularly in emerging markets.”

Insurance everywhere

Source: SAP Fioneer

“‘Insurance everywhere’ alludes to embedded insurance,” said Mr Djokic. “Delivering insurance at the point it’s needed, as part of a purchase process, circumventing the need for a consumer or business purchaser to undertake a separate set of steps to insure their car, home, electronic item, or holiday.” By making insurance products more accessible and convenient, insurers can reach a broader audience and meet the evolving needs of modern consumers. Accessibility also opens up new opportunities for insurers to partner with other industries and platforms, expanding their reach and market presence.

Mr Djokic added: “[It] has the potential to increase the level of insurance generally, which is good news not just for the industry but society as a whole, as it becomes more protected. But it also means that non-insurance companies can take market share from the traditional players, unless those players turn the situation to their advantage, and become the ones offering insurance solutions to new industries.”

Personalization with data and AI

Traditional insurance practices rely on limited data and broad assumptions, often leading to unfair assessments of risk based on general demographics. This has sparked frustration among consumers who feel penalized for careful behavior while subsidizing riskier individuals. However, emerging technologies like telematics and IoT devices are beginning to change this dynamic by allowing personalized assessments and rewards for behaviors like safe driving and healthy lifestyles.

“We have seen examples of health insurance companies monitoring exercise levels with fitness trackers and dropping premiums accordingly,” said Mr Djokic. “There is now more data accessible to the insurer to contribute to the risk assessment, be it social media or online behavioral data, credit scores or – in the case of embedded insurance – data held or gathered by the non-insurance company.

“For the first time, we’re witnessing a ‘win-win’ in the industry, where data helps the insurer reduce their risks and pass this on in the form of reduced premiums to the customer. As consumers become accustomed to this level of tailoring, it will be essential for insurers to offer personalized insurance to stay competitive.”

Increased data availability is enhanced by AI, particularly machine learning, enabling dynamic risk assessments and tailored policy generation. Predictive analysis and risk scenario modeling help insurers proactively cover emerging risks like climate change and technological advancements. Automated policy drafting and scenario simulation improve efficiency and ensure comprehensive coverage tailored to specific customer needs.

“AI can interpret data accurately and immediately to deliver real-time claims processing and payment while mitigating risks.” Said Mr Djokic. “It delivers the speed consumers and businesses now expect while protecting the insurer.”

Mr Shah added: “Insurers in Japan and Korea may leverage AI and data analytics uniquely to cater to their distinct demographics and technological landscapes. Japan’s aging population may drive insurers to develop AI solutions for personalized services and risk management tailored to older demographics. Korea’s advanced technological infrastructure may facilitate the adoption of AI-driven underwriting and pricing models to enhance customer experiences and operational efficiency.”

The future with SAP Fioneer

On the future of insurance in APAC, Mr Shah said: “Despite challenges, Asia remains an attractive insurance market, with emerging markets expected to see higher premium growth in the next two years driven by rising economic growth, increasing risk awareness post-pandemic, and digitalization of distribution channels.

“Digitally embedded insurance is expected to grow significantly by 2030, driven by increasing digital penetration and partnerships with digital ecosystems.”

Mr Djokic says that the key to taking advantage of the new opportunities in insurance is connectivity – the ability to connect a core insurance solution to, for example, a new data source or user interface. “The secret to that is open technology,” he said.

For example, SAP Fioneer’s Engagement Hub is a tool for insurers to connect in an evolving ecosystem. With bi-directional communication, the Hub links a core insurance system with diverse digital channels, letting insurers craft tailored insurance solutions and adapt to market demands. The Cloud for Insurance cloud-native platform boasts fully managed services, ecosystem integration, and an intuitive user experience, allowing users to scale, innovate, and adapt quickly.

For more information on how insurers can embrace open technology and navigate the transformative changes in the industry, download the ‘Insurance Everywhere All at Once’ whitepaper from SAP Fioneer today.

The post Insurance everywhere all at once: the digital transformation of the APAC insurance industry appeared first on Tech Wire Asia.

Aymeric Cabuil, COO of Avenue Bank, Australia, explains: “SMEs [are] not an easy approach for banks. It’s hard for banks to reach out to them and put in an offer that is valuable for [them]. Fortunately, fintech companies were able to pick up this challenge.”

Avenue Bank Australia is a digital bank focused on next-generation cash flow solutions for Australian SMEs. For Cabuil, the main challenge for fintech companies looking to offer financial services is meeting regulatory requirements. Avenue Bank chose to partner with SAP Fioneer in their journey because the tech company has a product that is proven, tested, and known by regulators.

The growth of non-bank players

Non-bank players are fintech companies that collaborate to offer alternative financial services and innovative solutions tailored, often, to the needs of SMEs. Digital lending platforms, mobile payment solutions, and embedded financing offerings like invoice financing can be convenient and easily accessible.

“The non-bank players leverage technology to provide a user-friendly interface and mobile apps, making financial services more accessible and convenient for SMEs, especially when their service offerings are integrated into a broad ecosystem of partners,” said Gökhan Dindar, SAP Fioneer, Managing Director Asia.

Non-bank players are edging banks in SME banking by adopting alternative credit assessment methods. For example, some non-bank players partner with telco companies or retailers to get a history of the SME. Non-bank players also cater to specific industries and cultivate innovation and technology such as introducing new solutions and services specifically designed for SME collaboration and partnership.

Source: Shutterstock

“In the future, banks may partner with fintech companies to offer digital learning platforms or payment solutions for their SME customers. This allows SMEs to benefit from the technology and agility of a non-bank player while still leveraging the stability and security of a traditional bank,” added Dindar.

In Singapore, Malaysia, and Thailand, the banking sectors are the most developed and generally offer a wider range of services tailored to SMEs compared to some other Southeast Asian countries.

“It is important to note that the banking landscape is dynamic and will evolve rapidly in Southeast Asia. The integration of technology in banks needs to streamline processes and enhance services. This includes the use of mobile banking apps, crowd-based funding platforms and digital payment systems. Such technological advancements can benefit SMEs as it provides convenience and efficiency in financial transactions,” he added.

SME banking for banks

Governments across Asia have implemented initiatives to support SMEs, including establishing dedicated SME banks, guaranteed schemes for SMEs, and credit programs to improve access to finance for SMEs. For example, in Singapore, the government has set up an enterprise funding scheme, which enables SMEs to access financing more readily.

So how can traditional and incumbent banks cater to the needs of the SMEs? What changes do they need to make to seem approachable to SMEs?

There are three key drivers in this respect:

• Increasing customer expectations – SMEs expect fully digital and seamless banking services. Meeting the growing demands for digital services, wallets, and other digital payment methods is crucial.
• Regulatory pressure – Regulatory changes, like open banking and PSD2, and increasing competition are putting pressure on banks to innovate and diversify.
• Technology – AI and ML are transforming SME banking, enabling banks to automate processes, personalize services, and gain insights into SME needs for enhanced efficiency and decision-making.

“The SME banking segment is a much greater opportunity, with much more revenue potential. If you look at the whole ecosystem play for SMEs, multiple providers can help and serve this segment,” commented SAP Fioneer’s Thomas Becher.

For Becher, it all comes down to what drives the bank’s needs. Becher was responsible for the buildup of the SME banking segment in ING in Germany. As an expert focusing on driving vertical sub-segment offerings for banks, Becher believes SMEs are the most relevant segment in every economy.

He says that managing the customer experience should be a priority for banks looking for SME banking. “Technology today is capable of addressing topics such as digital customer journeys, and customer experience at a comparatively moderate cost. At the same time, AI and machine learning capabilities make data available faster which can improve decision-making. It’s not just about fraud prevention […] but it’s also capable of providing capabilities for really lean operations. This enables banks to be really successful in the market.”

Source; Shutterstock

Legacy systems remain the biggest challenge for incumbent banks. Transforming and upgrading are essential. He continues: “Banking will never die. SME banking will never die. But banks will do if they are not willing to jump on solutions. The responsibility of banks is to build value propositions to bring value to customers, to their end customers. And we, with our offering, help our banks by not only providing the technology and the capabilities as such but also with experts like me and others in our organization. […] We can help our banks drive or derive from our capabilities, [many] value proposition ideas that they can implement.”

And this is where it gets interesting. SAP Fioneer has launched the Fioneer SME Banking Edition. The solution enables both banks and Neobanks to offer banking capabilities in a digital-first and data-driven approach tailored to SMEs’ financial needs.

The plug-and-play solution benefits existing banks that want to rapidly deliver services to the SME banking segment. It also caters to new players who want to get to market fast and don’t want to build everything from scratch. Both segments need to compete on user experience quality, onboarding, KYC, integration with accounting systems, and instant loan assessment.

“This solution provides front-end capabilities, middleware and orchestration layers, and for sure, also core banking capabilities. Simply put, you get a full stack bank out from one provider. You don’t need to think about who’s the best front-end provider, best back-end provider and such,” explained Becher.

How SAP Fioneer SME Banking Edition works

SAP Fioneer is in a unique position as it can couple SME banking with embedded finance. An incumbent bank does not need to reinvent the wheel to enter SME banking. With SAP Fioneer, banks can build a new stack next to the existing legacy provision and enter the market more quickly.

An example highlighted by Dindar is the SME Purchase Order. If a corporate client orders goods and services from an SME, it shares every purchase order with SAP Fioneer’s Embedded Finance platform and all its connected banks. SAP’s Embedded Finance-as-a-Service platform delivers innovative experiences that are native within ERP and other enterprise systems. The platform is compatible with all major cloud providers, providing flexibility in deployment.

Source: Shutterstock

“This means the bank is using our SME Banking Edition for origination and subsequent servicing as well as presenting the SMEs’ pre-approved financing of their options for this purchase order. This allows the SME to have access to funds faster. In the end, both banks and SMEs benefit from the streamlined processes based on the data provided,” mentioned Dindar.

“We are also pre-integrated to open banking providers. For example, banks can use the Open Banking API to Mastercard via our solution. This provides access to very powerful data (based on customer consent), which enables transactional screening and transactional scoring, among other things. All these pre-integrations help banks to jump into dedicated propositions without buying the whole SME Banking Edition. We are able to combine SME banking needs and capabilities with embedded finance. With embedded finance capabilities, banks can look at plugging their lending journey into e-commerce marketplaces,” added Becher.

Banks can move quickly into new businesses, develop new markets, create value, and develop their USPs.

“I am very proud […] that we are able to help banks support this critical segment of our economy,” Becher concluded.

Click here to learn more about SAP Fioneer’s SME Banking Edition.

The post SMEs – the not so small opportunity for banks appeared first on Tech Wire Asia.

The biggest challenge is often dealing with legacy systems and infrastructure. These outdated systems can no longer handle the speed, scale, and complexity required today. Hence, banks will be looking to replace or upgrade these systems – a costly, time-consuming, and risky process if not planned and implemented properly.

In fact, any fundamental change or upgrade to these systems in the past would typically take at least six months to a year, but likely more. In turn, this would lead to increasing costs as well as the risk of operational challenges. Banks had no choice but to endure this lengthy process.

Today, the process of implementing changes to a bank’s core environment has changed significantly and financial institutions are benefiting from new approaches that result in reduced cost and required effort. Banks can easily build, test and run new applications in weeks.

According to Dr. Christoph Market, Head of Architecture for SAP Fioneer, in the past, a lot of the technology used by banks was proprietary and not pre-packaged. There was a limited set of standards and banks did not really have a plug-and-play concept.

“When we look at implementation costs, it’s mostly driven by time. If you blow out your timeline, it is very likely your costs will increase. A fundamental objective for banks was reducing implementation and integration timelines. In the past, you needed to start from scratch. There were no pre-set accelerators available. Pre-configured business capabilities only gained acceptance by the industry when cloud services became increasingly adopted. The cloud allowed faster deployments in more environments and was a big time saver that saved cost, especially with its implementation speed,” said Dr. Markert.

Cloud and banking

Cloud services enabled the IT department of banks to evolve into a commoditized service centre powered by cost efficiency, agility, innovation, collaboration, security and improved customer services. With proper planning, implementation and management, packaged business capabilities deployed in the cloud can be a game-changer for banks to modernize their legacy core applications. That modernization enables the acceleration of digital transformation and delivers individualized and value-adding services to customers.

When it comes to the cloud for banking, SAP Fioneer recommends a two-platform architecture for the overall core. By developing this model, banks can deploy specific applications for differentiation rapidly. As well as not impacting the core’s codebase, they can also benefit from continuous innovations provided to them by their vendor.

Apart from the cloud, other drivers that have revolutionized how banks build and deploy new applications include their architectural and deployment style. Two decades ago, banks would need to take a big bang approach to deploy new products that were hosted on-premise. This process was lengthy and often lead to increased costs.

In the 2010s, banks could deploy new products on a ‘parallel run’ basis on platforms hosted on commodity hardware. While this method reduced deployment time, it primarily leveraged a service-oriented architecture approach, meaning there was still a need for some building by the banks and integration it into the end-to-end system landscape.

By 2020, advancements in technology had enabled banks to offer new on a ‘sidecar SaaS’ basis. Sidecars represent packaged business capabilities deployed next to an existing system landscape. A sidecar is typically capable of running independently from a bank’s existing system landscape with only minor integration pointing towards it.

In comparison, a ’parallel run option’ still has major integration touchpoints with existing systems, representing one of the fundamental differences between the two approaches. Cloud hosting has reduced dramatically the time required to build and deploy new products, allowing banks to focus more on feature development.

The graph below from SAP and SAP Fioneer data since 2000 illustrates how deployment time and costs have fallen in the past two decades.

Source: SAP & SAP Fioneer data

Reducing costs and time to deploy

There are three key areas banks need to look into that will help them reduce the cost and time needed to build and deploy new applications for their customers.

First, when it comes to core banking, being able to react to ever-changing business requirements in an agile, rapid and operationally non-disruptive way is a key differentiator. Structurally, this means a separation between the core processes and capabilities for standardized business offerings (e.g. everyday banking accounts, mortgages, etc.) and those residing on a cloud-based platform. That structure enables market differentiators, like personalized pricing for individual customers, for example.

Next, banks need to be able to separate banking components into packaged capabilities with connectivity to the core and other parts of the broader ecosystem. This opens the possibility for combining modules together for rapid expansion OR integration with third-party services allowing a bank to rapidly extend its offering.

Thirdly, it’s about having standard key banking components. For commoditized services like onboarding, know your customer (KYC), lending, and such, banks should not have to reinvent or build from scratch but instead rely on pre-configured, end-to-end products that can get them up and running with new or improved offerings very quickly.

For example, SME banking may be an area a financial institution might want to expand into. However, it might lack the technical capabilities to realize such a growth strategy quickly without invasive and disruptive changes to its existing IT platform. With SAP Fioneer, banks can have a full SME banking solution that allows them to easily deploy on a “plug and play” basis.

Building blocks of banking

Dr. Markert explains that this entire process is like building a platform with Lego blocks. For example, banks have options for which hyperscalers they want to use. The base plate of the Lego represents these hyperscalers.

Source: SAP Fioneer

When banks want to launch a new product like SME banking, they plant a packaged business capability with pre-configured content onto the platform.

“All of these platforms already have a base that SAP Fioneer supports. Banks just need to plug into it. For example, when it comes to SME banking, they just need to plug pre-configured content onto the platform. It will be easily deployed via packaged business capabilities. Banks do not need to spend time building these models and capabilities from scratch,” explained Dr. Markert.

Source: SAP Fioneer

Dr. Markert said APIs sit on top of the packaged business capabilities so they can be easily integrated into the broader ecosystem of a bank.

Source: SAP Fioneer

These APIs provide the connectivity towards a broader set of value-adding services, which may be required to build and realize the overall end-to-end process of a service offering such as AML or KYC. This concept enables financial institutions to focus on, invest in and build out their innovation and differentiation capabilities for competitive advantages – such as personalized pricing, a one-minute onboarding experience or an AI-powered banking concierge service.

Source: SAP Fioneer

Dr. Markert also highlighted that not all APIs provide access to and from packaged business capabilities as some may already come directly from the cloud provider’s platform.

“We are now down to three months to roll out any current account, banking product with a card, or simple lending products. Twenty years ago, this would not have been possible and would have required a lot more time and work. You don’t have to build from scratch anymore and this saves a lot of time, cost, and mitigates risks as well. Combining this architecture with a side-car approach, limits the amount of change required to your existing system landscape significantly, whilst accelerating your deployment.,” added Dr. Markert.

Why does speed and deployment methodology matter?

As Markert points out, faster deployment means less cost, obviously. But more than that, if you compartmentalize new development, you reduce risk, caused, for instance, by operational issues in existing systems. And more importantly, you release funding and resource to where it’s needed for a competitive edge. That gives banks the room to develop new products and features that differentiate them in the market, and a way of getting those new products and features to their customers quickly.

To find out more about SAP Fioneer’s composable, cloud-based banking solutions, click here.

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