Digitalization to Make New Market Segments Financially Sound

Q: How has RGA used its global experience to focus on the Mexican health insurance context?

A: Our motto is global support with local expertise. We have a network of global contributors and a common library where we share success stories. This is an online database updated by all RGA regions. Each year, we do a retreat in which we analyze ways to strengthen collaboration among regions more effectively and in line with our customers’ needs. Digitalization is the new normal and RGA is embracing this because it is also in the best interest of our customers. In Mexico, we need to try, to fail and to learn. I believe we are still in this stage in the country of launching new products and seeing how they fare. If they fail, we can fine-tune all different variables involved. For instance, we are conducting a global study on COVID-19 and its potential financial impact. Given our reinsurance schemes, if we need to deal with a pandemic, we will be required to pay a lot of money.

Latin America, especially Mexico, is at the forefront of one of the newest products RGA is about to launch. A special insurance product that provides coverage for people who live with a chronic disease. Traditionally, insurance covers the potential risk of being ill but not a pre-existent illness. We designed a product that will be completely digital. After more than a year in development, we are combining artificial intelligence and Big Data to embrace the digital revolution.

Q: How is technology transforming insurance companies?

A: The digital revolution has impacted the healthcare industry greatly, as well as insurance companies. In particular, health insurance companies are suffering a double impact. On the one hand, you have genomics, personalized healthcare and smart medicine, among other technological advances that are being integrated into patient treatment. On the other hand, insurance companies are trying to expand their distribution channels and are adopting blockchain technologies and smart coverage, among other features, to make the client’s journey as smooth as possible.

AMIS conducts surveys on how people perceive insurance and the fact is that products that contribute the most to the sector’s bad reputation are medical and car insurance. We have not done our homework on improving customer experience. Thanks to technology, we have an extraordinary opportunity to make processes smoother for our customers. Most importantly, technology will enable us to participate in different market segments. Today, private insurance companies have been focused on the upper and upper middle-class segments, where a broker or agent model usually works well. When thinking about mass products, we need to think about other distribution channels. Smartphones and other technological features will enable us to participate in other segments while reducing our costs. For instance, we can employ a chat box where patients can talk to a doctor before going to the hospital. Telemedicine provides filters that will provide the user with a better service while greatly reducing costs.

Q: How will RGA help insurance companies to take this next step?

A: We are creating these products and solutions so direct insurance companies can distribute them. At the end of the day, we will absorb the financial risk. In the insurance value chain, there is the customer first, the direct broker or agent, the insurance company and then reinsurance companies. We are not really visible to the end customer. As a reinsurance company, we trust insurance companies to perform all the market analyses needed to understand the needs of individuals and companies so that they can design products accordingly. This is changing. Insurance companies need more focus on satisfying the needs of individuals and companies. RGA has been supporting them directly, understanding end customers’ current and changing needs so we can truly serve them. We have all the infrastructure to design a product that actually satisfies those needs.

Q: Based on your knowledge of the Mexican market, what other opportunities have you identified?

A: The success of private health insurers depends on the public health system. The US has the largest private health insurance market in the world as public healthcare is non-existent. In Colombia or Chile, social security provides basic universal coverage but at a certain level private insurance must come into play. However, in countries like Mexico, private health insurance is 100 percent voluntary, it does not participate in Mexico’s public health system, which is why its participation and penetration is pretty low.

Mexico offers greater opportunities for private companies as more people will keep on looking for private coverage. More than designing a product, a crucial point on health insurance is how to finance it. In Mexico, the typical customer is used to having either everything covered or nothing. In Asia, for instance hospital cash programs are a real success. We should look at medical insurance as a financial instrument that serves to avoid a financial catastrophe when medical attention is required. People should think about what they can actually afford. We can go from a deductible of MX$5,000 (US$250) to MX$50,000 (US$2,500) where the actual cost of the insurance premium will be much lower. We need to think about reimbursements, critical illnesses and hospital cash products, which are part of the health insurance universe of products. It is a matter of what the customer needs and wants.

Q: What challenges do distribution channels create for insurance companies?

A: Distribution channels do not promote all health products, such as critical illness or hospital cash, due to the fact that 70 percent of medical insurance in this country is channeled through agents and brokers. Consequently, an insurance product that costs US$2,500 will provide more compensation opportunities for the intermediary than a US$250 product that most likely target a first-time insurance customer.

Digitalization strategies will help us to promote a wider range of products. Brokers and agents will continue as they are, focused on attending certain market segments. But the industry will focus on other market segments that require attention through alternative distribution channels and here is where we assume risks that allow the overall industry to offer new products to new segments.

Q: How will this change in mindset benefit the sector?

A: Younger generations have greater familiarity with new technologies. Talking on the phone is often surreal to them. We should adapt our products to what younger generations are looking for. We are now advisers to the first digital health insurance company in Mexico. We need more companies like that in our industry to overcome the crisis we are in and better serve the final costumer.

Technology disruption will change the way business is conducted. How we calculate premium is also changing. Before, we would take into account a company’s last five years of claims to calculate risk and premiums. Now, we are exploring prospective analysis and dynamic models that can simulate and predict risk. In a short time, we will be able to explore the feasibility of taking into account a person’s genetic scheme to determine the risk of acquiring certain diseases.  

We need to become innovative and disruptive. In this sense, we need to renew business models, grow existing markets, expand operations to new markets, improve risk selection and keep on finding operational efficiencies to make insurance an attractive service to the final customer.

Reinsurance Group of America (RGA) is one of the largest global life and health reinsurance companies. With operations in 27 countries, it supports clients and partners around the world with innovative approaches and customized solutions