Insurance Digitalisation Index
Our new Insurance Digitalisation Index gives indication of how much the digital economy could benefit the insurance industry in different countries. Countries at the lower end of the table are emerging markets at earlier stages of development. But many have made significant progress in the 2010-2020 period. It is the catch-up, rather than being in pole position, that generates faster growth.
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South Korea tops the index, coming in first across the different variables most frequently and scoring consistently in the top three countries over 2010-2020. This outperformance is due to consistently high scores across the access, use and innovation dimensions. The greatest room for improvement is in market openness, with much to be gained if the country could catch up in share of digitally deliverable services in commercial services trade. Another noticeable trend is how South Korea is falling behind in fixed broadband coverage, despite leading in this indicator at the beginning of the index period.
The US too performs well, ranking 4th in the index in 2020, and with access, use and market openness dimensions all showing rising scores over the 2010-2020 horizon. The US's overall ranking is dragged down due to it failing to close the gap on innovation, with the gap between the leader and US widening between 2010 and 2020 in business R&D expenditure in information industries as a percentage of GDP.
Catching up in digitalisation coincides with increase in digital insurance penetration
China is catching up rapidly with frontier economies on the index, climbing from 26 out of 29 countries in 2010 up to the middle of the index at 16 in 2020. This rapid progress has coincided with a strong increase in digital insurance penetration (the share of insurance sold online) from 0.2% in 2011 to 8.4% in 2021. Over 2010-2020, we observe broad-based catch-up in access, use and to a lesser extent market openness.
China actually ranks first in filing patents in ICT-related technologies, but lags in business R&D expenditure in information industries as a percentage of GDP. Further catch-up likely if China's 14th five-year plan for 2021-2025 to increase R&D spending by >7% annually is realised. Furthermore, the regulatory authorities have set digitalisation targets for insurance, encouraging insurers to accelerate investment in group-level digitalisation strategies and innovation.
India has ranked in last place of the 29 sample countries all but one year in the 2010-2020 period. The country's strongest indicator is the share of digitally-deliverable services in commercial services trade. India's mobile broadband coverage lags behind other countries even as its fixed broadband score has begun to increase, which has kept access low. The use indicators have closed almost half of the gap with the leading country and yet, the share of new life business premiums from digital platforms remains very low, increasing from 0.52% to 1.55% FY16-FY22. India's insurance regulatory authority has initiated several regulatory changes recently to raise digitalisation in insurance.
Plenty to be done
The potential for further digitalisation of insurance highlighted by the index will take time to show through and will differ by region. Industry digitalisation is to some extent constrained by the digital progress of countries at the macro level, but insurers can nonetheless play their part. For a start, going digital requires the building and operating of various infrastructure assets, which entail various risks, including construction and operational risk. Insurers can provide risk transfer solutions for these risks, working together with businesses and governments to achieve their digital goals. The digital transformation also goes hand-in-hand with changes to the risk landscape, which we discuss in more detail in the next chapter.