The U.S. insurtech landscape has expanded significantly over the past decade, with customers and carriers benefiting from new developments ranging from digital offerings to faster quotes, attracting venture capitalists to an industry not historically associated with innovation. Still, many insurtechs have suffered some setbacks amid this period of growth. As insurtechs in Asia now face a similar inflection point, they can learn from both the successes and missteps of their U.S. counterparts.

Here are a few key takeaways for firms to keep in mind.

1. Adopt technology that improves the insurance customer experience.

Today’s consumers expect to be able to buy insurance the way they buy everything else: online. To satisfy this need, many insurtechs in the United States created a website where, in a couple of minutes, a customer can generate a quote and bind a policy with minimal customer input. We have helped many companies automate the underwriting and rating processes using third-party data sources to instantaneously identify the data elements needed to underwrite and rate.

Insurers that have failed to modernize their front-end customer experience have fallen behind, while those that have modernized their products and front-end processes have improved the customer experience and increased their market share. This success has even spurred many companies to go a step further and create an embedded insurance experience.

2. Maintain communication with reinsurers and other partners.

As century-old insurance companies have evolved and adopted cutting-edge insurtech techniques and partners, many have retained legacy systems for back-end processes. Although these systems have sometimes been criticized for being slow or “clunky,” they do continue to work and reliably report performance indicators such as policies written, premium, and losses, which helps keep partners informed.

Newer insurtech entrants into the marketplace have often launched with slick, fast, and more efficient front-end systems. But as firms were sometimes less aware of the reporting needed by their insurer and reinsurer partners, regulators, and other stakeholders, the systems needed to satisfy reporting requirements were often an afterthought, and firms sometimes failed to create the reporting functionality needed to support back-end processes, resulting in a communication gap with partners. Without the necessary financial metrics, insurers and reinsurers were less able to understand their aggregate risk and concentration risk across portfolios, and their ability to make informed business decisions was hindered, ultimately leading to reduced profits and capacity. As the climate crisis intensifies, it is imperative that insurtechs that want continued capacity ensure their back-end reporting is just as slick as their front-end systems and satisfies reporting requirements for each of their underwriting partners.

3. Don’t neglect insurance fundamentals.

Amid the focus on bringing new products and experiences to market, some U.S. insurtechs failed to incorporate insurance fundamentals into their processes. Even the best product, with solid policy-level underwriting and rating, will fail if risk aggregation, concentration, or classification aren’t continuously monitored to ensure consistency with the developed rate plan.

This was evident, for example, when hailstorms and wildfires caused catastrophic losses for some books of insurtech business because a process to monitor and report on aggregation and concentration of catastrophe risk had not been set up before the new slick sales process began.

An example of misclassification of risk occurred during the stay-at-home orders early in the COVID-19 pandemic, when some state regulators ordered insurers to refund consumer premium, alleging they were collecting too much profit. Insurers did not take into account the increased severity of accidents during that crisis period, when drivers were reaching higher speeds on empty roads, resulting in more severe accidents. Nor did insurers anticipate the quickly rising cost of cars, a shortage of labor and parts to repair them, and the subsequent years of higher inflation. Although more typical driving patterns have since returned, severity continues to rise, eroding profitability for insurers that were not able to increase rates to keep up with these trends. Profitability further eroded in states where regulators delayed approval of auto rate increases that insurers filed to combat inflation and increasing severity.

This scenario could have been avoided if insurers were permitted to instead reclassify the risk by adjusting a driver’s mileage and/or vehicle use from “drives to/from work/school” to “pleasure.” This would have automatically adjusted the premium amount to account for reduced driving during that unusual period without the residual impact that has since occurred and required sharp increases to bring the rates back in alignment with the risk.

Opportunities ahead for Asia’s insurtechs

With insurtechs just beginning to gain ground in Asia, the market in many ways resembles the U.S. market from a decade ago. However, some regional differences may mean that insurtechs in Asia are already positioned for early success, especially if they can learn from the U.S. experience.

For example, Asia’s tech-forward culture makes it increasingly unlikely that insurance companies in Asia would resist adoption of new, more nimble tech, as was initially the case with traditional insurers in the United States. The prevalence of technology in Asia, rather than “clunky” legacy back-end systems, may also pave the path to more open communication and transparency among insurtechs, insurers, and reinsurance partners. In turn, that can lead to more stable partnerships and increased capacity and profitability. In addition, while regulations vary by country, the Asian regulatory restrictions on insurance customer experience and ratemaking are generally easier to navigate than the 51 jurisdictions in the United States. For example, more than 85% of cars and 90% of homes in the United States are insured because of compulsory auto insurance laws and lending requirements, compared to less than 30% in some countries in Asia.

However, having fewer regulatory requirements is a double-edged sword, because it also means that more effort is needed to educate the consumer about the value of insurance. This creates a stronger opportunity for embedded insurance in Asia than in the United States. But the embedded players in Asia that are quickly gaining market share and rolling in the sales commissions also need to learn from the United States. Some embedded players in the United States were rewarded based on commission without alignment on underwriting profits. They took their eye off strong underwriting and proper rate classification. These U.S. embedded players had to face the music when their underwriting partners pulled capacity.

In Asia, the greater transparency and better alignment among distributors, insurers, and reinsurers, coupled with the embedded opportunity, create the ideal environment for an orchestra that is playing in unison to create a magical performance. Asia’s emerging insurtechs can succeed by knowing their strengths and blind spots and coupling innovative technology with solid insurance fundamentals that can withstand underwriting cycles. Local experts can help fill in knowledge gaps and vet potential partners so that new firms can flourish across the region.