Boosting Insurance Protection for Asian SMEs through Embedded Digital Ecosystems

Insights | Article | November 2023 | 10 min read

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Executive Summary

Small and medium enterprises (SMEs) are the bedrock of Asian economies. However, they frequently face significant challenges in maintaining resilience, financial stability, and business continuity. When seamlessly integrated into the ecosystems where SMEs operate, insurance can be a powerful tool to create awareness and provide substantial protection against these challenges.

In this context, embedded digital ecosystems refer to a digital platform or network where SMEs can access various services, including insurance, integrated into their operational flow. This model not only simplifies the insurance procurement process but also ensures that the coverage is tailored to meet the unique needs of SMEs.

An invitation-only roundtable at Elevandi Insights hosted by Zurich Insurance and moderated by Ecosystm CEO Ullrich Loeffler, featured a diverse panel including executives from the SME ecosystem, Junior Cho, CEO of Zurich Malaysia, and Sean Walker, Head of Commercial Insurance, APAC at Zurich Insurance, sharing valuable perspectives during the session. The discussion explored the pivotal role of digital ecosystems and their innovative service offerings. Given that SMEs have both organisational and employee protection needs, the group discussed how insurance providers could reimagine their approach and distribution methods. This would enable them to create a more embedded, affordable, and personalised interface to access protection.

This report outlines the key points discussed during the session, offering insights into how digital ecosystems can be leveraged to bolster insurance protection for Asian SMEs.

The Key Takeaways

#1 Addressing SME Challenges and Embracing Digital Ecosystems in Asia

INADEQUATE PERSONALISATION AND LACK OF RIGHT MIX OF ADVISORY SUPPORT
The one-size-fits-all approach doesn't sufficiently cater to the diverse needs of SMEs, who often face industry-specific and geographically varied risks. SMEs desire more personalised and relevant insurance packages that allow them to select coverage based on their unique risk profiles.

For example, a tech startup in Singapore might be more exposed to cybersecurity risks and liability and would, therefore, prioritise cyber protection. On the other hand, a restaurant in Indonesia should cover worker compensation, general liability, and business interruptions against natural disasters. The ability to offer personalised policies according to specific risk exposure is critical given a lower level of awareness of protection needs across Asia.

SMEs are often underserved on personalised advisory due to lower premiums and higher interaction costs. However, the complexity of insurance products makes it difficult for SMEs to navigate purely digital platforms. An omnichannel approach can bridge this gap by blending automated and human advisory services. Through a digital ecosystem, insurance offerings can become more personalised, simplified, and contextualised to the specific industry or segment.

COMPLEX APPLICATION AND CLAIMS PROCESSES
SMEs often lack dedicated procurement teams and are pressed for time. They need swift and efficient insurance solutions. They typically view insurance as a necessary box to tick off rather than an aspect requiring deep consideration. The current processes, however, are time-consuming and cumbersome, causing significant disruptions.

Insurance providers should look to implement pre-underwritten, real-time insurance issuance to cater to these needs. This would expedite the process and eliminate lengthy referrals, allowing SMEs to secure the necessary coverage quickly. Insurance providers can help SMEs focus more on their core business operations by simplifying these processes.

FINANCIAL CONSTRAINTS TO PURCHASE AND LACK OF MICRO-OFFERINGS
SME businesses often grapple with financial constraints exacerbated by traditionally high insurance premiums relative to their cash flow. Given their tight budgets and the need for financial agility, lump-sum insurance premiums can be prohibitive even if they see the merit in getting insurance protection. These SMEs typically operate on micro-transaction volumes, involving smaller but more frequent transactions as reflected in their cash flow and finances. This business reality necessitates a shift in how insurance products are designed and offered.

Insurance providers should consider adapting their models to include more flexible, cost-effective micro-insurance products with lower premiums and shorter payment terms. By making insurance more accessible and affordable, providers can better support the financial resilience and growth of SMEs in the region.

#2 Collaboration and Partnerships in the Digital Ecosystem

ENHANCED AWARENESS AND MARKET ACCESS THROUGH EMBEDDING
Insurance companies are facing considerable challenges in educating and raising awareness among consumers about insurance-related matters. Digital ecosystems offer an excellent opportunity for insurance providers to embed insurance through strategies like transaction-specific embedded offers and contextual freemium offers, to name a few, to bridge this gap. This can create awareness and is typically fit for digital straight-through.

Once SMEs are introduced to micro-offerings, insurers and ecosystems should devise strategies to migrate them to more comprehensive covers. In designing those, it's essential to acknowledge the need for assistance to better understand the terms and conditions. However, in finding the right technology to overcome this, providers should be cognizant that too much technology might backfire, too, as many SMEs still prefer genuine human interaction over an automated conversation.

BRIDGING POLICY GAPS TO SUPPORT SME MATURITY
Digital ecosystems such as super apps, e-commerce, and digital payment platforms are reshaping SMEs' reach and access in Asia. These platforms offer unique opportunities for insurance providers to offer tailored solutions throughout an SME’s growth stages.​

From the time they initially introduce basic coverage, the ecosystems should monitor the lifecycle to tailor the insurance coverage over time. As SMEs mature and face risks like supply chain exposure or currency fluctuation, these platforms should offer more comprehensive coverage and risk mitigation solutions. Continuous collaboration in leveraging these unique insights from the platforms will be key to keeping suitable protection at every stage of their growth.

INTEGRATION OF VALUE-ADDED SERVICES WITHIN ECOSYSTEMS
SMEs should be offered risk mitigation and management solutions similar to those offered by large commercial businesses. However, these needs are often underserved due to cost-efficiency concerns at the individual SME level.

Integrating value-added offerings into digital ecosystems could significantly increase insurance adoption. Services, such as risk assessment tools, cyber safety and compliance training, or business continuity planning, can enable insurers to enhance their product value and deepen engagement with SMEs. This integration within digital ecosystems can also allow insurers to serve SMEs more effectively and economically, bridging a huge gap in the market.

#3 Harnessing Data Insights to Innovate Continuously

DATA ANALYTICS FOR SME’S BENEFIT
Data analytics plays a vital role in modern insurance, particularly for SMEs. It can enhance customer experiences through streamlined claims processing, proactive risk management advice, and strategic planning insights. However, it's crucial to use data in a way that benefits SMEs and doesn't reduce them to mere data points. Transparency in data usage and prioritising SMEs' needs can foster stronger, more trusting relationships.

CREATING INTUITIVE AND USER-FRIENDLY DIGITAL EXPERIENCES
It is crucial to develop intuitive and user-friendly digital experiences that recognise the diverse digital proficiency among SMEs. This means not just developing a digital portal; it involves designing embedded experiences that are easily navigable and understandable for all users, regardless of their digital savviness.

Making the solutions user-friendly is key to increasing active adoption. Leveraging technologies such as AI virtual assistants can help create adaptive interfaces that respond to users' varying levels of digital literacy.

LEVERAGING ADVANCED AI AND TECHNOLOGY
Integrating advanced technologies, like AI and machine learning, can revolutionise insurance services for SMEs, especially when combined with a human touch. This is where GenAI can play a crucial role. The 'machine mate' concept, where a broker and their GenAI assistant collaborate, can transform transactional processing. GenAI ensures services are empathetic, user-friendly, and tailored to a wide range of users, from digital natives to less digitally literate, on a country or regional level. This blend of GenAI and human interaction can make insurance more accessible and engaging for all SMEs.

Conclusion

Asian SMEs face challenges securing relevant coverages throughout their lifecycle without adversely impacting their cash flow. These challenges range from needing personalised and immediate insurance to flexible premium options. However, these challenges also represent opportunities for innovation and growth.

By leveraging digital ecosystems, insurers can offer tailored solutions based on the SME industry and risk profile and continue to provide relevant changes throughout their lifecycle.

Insurance providers should consider implementing pre-underwritten, real-time insurance issuance to expedite application and payment processes. This approach eliminates lengthy referrals, allowing SMEs to secure the necessary coverage quickly.

Additionally, insurance providers should focus on value-added services for risk mitigation and management within these digital ecosystems. These services, such as risk assessment tools, cyber safety and compliance training, or business continuity planning, can add significant value to insurance products and deepen engagement with SMEs.

Lastly, the use of data and analytics can further enhance these efforts. Insurers can gain valuable insights into SMEs' needs and behaviours by analysing data from these digital ecosystems. This can inform personalised offering and engagement strategies, help create relevant content for insurance literacy, and provide SMEs with insights to run their businesses smoothly.

A comprehensive strategy that balances customisation, process efficiency, digitalisation, and the human touch, complemented by value-added services and data insights, will lead to greater adoption of embedded insurance among Asian SMEs. This approach not only addresses the unique challenges of this sector but also unlocks substantial growth opportunities for insurance providers in the region.