From Push to Pull: Examining the Case for Direct-to-Consumer Digital Distribution in Hong Kong’s Insurance Industry
This presentation examines the key challenges facing incumbent Hong Kong insurers due to their heavy reliance on intermediaries while also exploring the lucrative opportunities on offer from developing a D2C digital distribution proposition.
Total insurance premiums in Hong Kong grew by a CAGR of 1.3% over the past 5 years, reaching HKD 519bn in 2022, with 97% of policies being sold via intermediaries
Drawbacks of Intermediary-Led Distribution
We see three key shortfalls associated with Hong Kong insurers’ heavy reliance on intermediary-led distribution, namely: (1) vast expenses; (2) reputational risks; and (2) an absence of customer relationship
Vast Expenses: we estimate that Hong Kong insurers paid out a collective HKD 55 billion to intermediaries in 2022. This excludes over HKD 3 billion p.a. from providing sales support to agents and brokers
Reputational Risks: Hong Kong is flooded with insurance agents (note: one in every 36 people employed in Hong Kong is an insurance agent). Given their low education / licensing requirements, misconduct (including fraud and mis-selling) remains a major paint point, exposing insurers to both financial losses and reputational risks
Absence of Customer Relationship: by relying heavily on intermediaries, insurance companies in Hong Kong do not own the relationship with their end customers. As a by-product, they suffer from poor access to customer data (i.e. customer insights), which creates challenges with respect to risk assessment and cross- / up-selling
Rise of Online Distribution
We are seeing a clear global trend of customers conducting research and purchasing insurance independently through digital channels, with 60% of Hong Kong consumers willing to buy insurance policies online
This trend is being reflected in the strong growth in premiums of Hong Kong’s virtual insurers (which grew by a factor of 13x from 2020-22), especially given their competitive pricing vs. incumbents, and rapidly rising online traffic on local insurance research platforms, allowing consumers to easily compare different insurance policies online
The Need For Change
Many incumbent insurers in Hong Kong are laggards when it comes to their digital transformation efforts, especially on the digital distribution front. Most are focusing on digitally enabling their agents and optimising their internal / back-end processes, which does not address the core problems associated with intermediary-led distribution
To address these challenges, while capturing the fast-growing revenue opportunity on offer from online distribution, Hong Kong insurers should look to carve out a carefully crafted digital distribution strategy and operating model, with a specific focus on product offerings, technology, financial implications, and change management
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