Unlocking the Potential of Life Insurance Market in New Frontier Markets
By: Jude Gomes, Chief Executive Officer, Union Assurance PLC
Faced with a host of macroeconomic headwinds, geopolitical challenges, rapid advancements in digitization, and evolving customer expectations, insurance is poised for a major transformation. Many carriers are embracing the need for change sooner than ever before and are revisiting their strategies to remain relevant and competitive.
As the economic turmoil continues, inflationary recessions are approaching the horizon, though GDP growth has been resilient for the moment. The global insurance industry is faced with multiple challenges, including investment and underwriting pressures. While life insurance premiums are expected to contract across regions (-0.2%) in 2022, there is anticipation for a turnaround in 2023 with an estimated 1.9% increase in premiums across advanced and emerging markets.
While emerging markets will continue to grow, the growth rate will weaken and will no longer be a strong engine of global growth as advanced economies suffer. Against this backdrop, Asia has further strengthened its standing as a key growth region for the life insurance sector in recent years, and new frontier markets within Asia are proving to be potential destinations for life insurance companies.
Golden opportunities in new frontier markets
A new middle class has begun to emerge in Southeast Asia, including China and India, where the middle-class population is projected to grow to 1.2 billion by 2030, making up nearly 14% of the total global population. This trend indicates a greater share of the population might need access to savings products, which will in turn create an opportunity for accelerated growth in such markets.
Bangladesh, Laos, Nepal, and Sri Lanka offer life insurers promising new frontier markets. These countries have similar economic statistics and characteristics that make them desirable for the industry's growth.
Digital and data integration, along with an integrated distribution ecosystem, is crucial for insurers to succeed in these markets.
The four countries have a total population of around 229 million, offering life insurers a vast customer base to serve. Bangladesh has a median age of 27, Laos 23, Nepal 24, and Sri Lanka 34. Bangladesh, Nepal, and Laos' young populations imply an increasing working-age demographic, whereas Sri Lanka's median age shows a mix of working-age and older citizens. This demographic profile suggests a potential customer base for life insurers as these populations seek financial protection and long-term savings solutions.
In terms of economic indicators, Bangladesh has the greatest GDP, $416 billion, followed by Sri Lanka with $88 billion in 2021. Laos has $18 billion, and Nepal has $36 billion. All four countries are experiencing efforts for economic stabilization and reforms, creating opportunities for life insurers to cater to the increasing disposable incomes and insurance demands of the population.
Sri Lanka has 92% literacy, Bangladesh 74%, Nepal 71%, and Laos 87%. These statistics emphasise the significance of financial literacy and education to improve insurance product understanding and awareness. All these countries are also expanding digital and smartphone adoption, though at different rates. Life insurers can use technology and digital platforms to reach more customers, manage policies online, and offer digital insurance services.
The protection gap in new frontier markets
Despite the prospects, these countries have poor life insurance penetration and coverage. Life insurance penetration in Nepal is 1.6%, indicating a significant protection gap. Bangladesh has a 0.4% life insurance penetration rate, while Sri Lanka has a 1.3% penetration rate and an estimated 0.03% in Laos.
Insurance adaptation is hindered by the public's lack of knowledge. Affordability is another challenge, as the premiums for life insurance can be perceived as costly for individuals with limited disposable income. Moreover, access is limited, especially in rural areas where most of the population resides.
"The industry appears poised for significant growth through multiple challenges in the bigger picture of the transformation to generate faster growth and secure a long-term future."
Key differentiators for growth and meet evolving customer needs
Access to new and underserved markets is crucial, allowing insurers to tap into segments that have previously been overlooked. By expanding their reach and targeting underserved populations, insurers can unlock significant growth potential.
Digital and data integration, along with an integrated distribution ecosystem, is crucial for insurers to succeed in these markets. Simply digitizing existing processes is not enough; insurers need to go beyond that by creating new offerings and building differentiating capabilities to fuel innovation and growth. Insurers can disrupt traditional distribution channels by using digital ecosystems and customer intelligence to create digital platform-compatible products and services. Insurtech companies are also increasingly automating and optimizing claims processing, policy administration, fraud detection, and customer service using AI, ML, and blockchain to support growth.
Additionally, employing a lean operations focus to compete on price and enable strategic investments is crucial. By building an outcome-oriented organization and adopting an agile delivery model, insurers can optimize their cost structures and offer competitive pricing. Also, ESG responsiveness will become a competitive differentiation for insurers seeking talent, investors, and market share.
The industry appears poised for significant growth through multiple challenges in the bigger picture of the transformation to generate faster growth and secure a long-term future. Companies that navigate with well-thought-out strategies and visions will ultimately champion the new frontier markets.