May 28, 2019
If you have been tracking the latest developments in Hong Kong’s FinTech landscape, you may have noticed a recent report about the Hong Kong Monetary Authority (HKMA) issuing the first set of virtual banking licenses in the country. What stands out here is the speed at which Hong Kong’s FinTech policies are actively being put into action. It is evident that the country has come a long way since it first started adopting FinTech, perhaps a little reluctantly at first, but it soon grew in pace.
It comes as little surprise that the pace of change in financial services and insurance in Hong Kong has been accelerating in recent years. As one of the world’s freest economies, Hong Kong has been recognized as a favorable destination for international banks and insurers to set up headquarters. What’s also contributed to this is the country’s highly globalized and modernized industry outlook. Due to its laissez-faire economy, the city has drawn favorable comparisons to prominent financial hubs, such as London and New York.
Consider this: as of December 31, 2018, there were 161 authorized insurers in Hong Kong, of which 93 were pure general insurers, 49 were pure long-term insurers, and the remaining 19 were composite insurers. Hong Kong is one of the key insurance hubs in the world. Here is the general mix of insurers: 90 of them have been incorporated in Hong Kong while 71 insurers are incorporated elsewhere.
From a strategic viewpoint for many FinTech companies, having a presence in Hong Kong is essential to expand into the emerging APAC market. Hong Kong is endowed with world-class physical infrastructure, a healthy level of openness & innovation, a dedicated FinTech-friendly government, and proximity with mainland China.
Hong Kong has a vibrant entrepreneurial foundation, which is evident from the fact that it has over 3000 startups according to WHub, and is one of the fastest-growing startup ecosystems. The startup population is estimated to be 550+ FinTech companies & startups and 30+ InsurTech startups.
The Insurance Authority (IA), the foremost insurance regulator in Hong Kong, launched an InsurTech Sandbox in September 2017. The sandbox provides a platform for authorized insurers to run pilot trials of innovative InsurTech applications, enabling them to obtain real market data and information on user experience before the launch of any formal product. The sandbox allows insurers to test the application of new technologies in a controlled environment without the need for full compliance with the IA’s supervisory requirement.
On September 29, 2017, the IA launched a pilot scheme called Fast Track to expedite applications for a new authorization to carry on insurance business in or from Hong Kong using solely digital distribution channels as a means to promote the development of InsurTech in Hong Kong. Insurers under Fast Track must have an innovative and robust business model that uses digital distribution to bring benefits to the consumers in Hong Kong in product development, delivery, customer service, and cost efficiency.
The Future Task Force (FTF) of the insurance industry has been set up to explore the future of the insurance sector and draw up recommendations. Out of the three working groups under the FTF, the Embracing FinTech in Hong Kong working group focuses on promoting the application of FinTech in the insurance industry.
With a view of providing deeper insights into the Hong Kong InsurTech landscape and ecosystem, we decided to identify two of the region’s leading InsurTech startups and engage with them to understand their perspectives on the subject. The two startups: Galileo and MoneyHero. MEDICI interviewed representatives from these companies and received some highly interesting responses that shed light on the growth and development of insurance and FinTech for insurance in Hong Kong over the years while providing a clear picture of present-day Hong Kong’s InsurTech segment.
MEDICI (M): Janet (MoneyHero) and Mark (Galileo), thank you for speaking with us. We appreciate it. Let’s start with the very basics. What is the elevator pitch about your respective startups/companies?
Galileo (G): Galileo Platforms is a B2B technology company servicing the insurance sector. Using blockchain technology, we cost-efficiently connect distributors, insurers, and reinsurers, enabling them to transact in real time and to deliver a seamless, digital customer journey.
Fundamentally, we are taking the functionality found in traditional policy administration systems and encoding this using smart contracts on a blockchain – this covers the entire business process, including quotations, purchase, client servicing, renewal, and claims. It is ambitious, but the outcome has the potential to transform the industry.
MoneyHero (MH): MoneyHero is Hong Kong’s first and largest comparison site for banking and insurance products offering objective analysis of product features for 339+ products in the market across 11 categories, as well as education on personal finance so consumers can find the best product for their needs.
M: How did you come up with the idea of your respective startups?
G: It all started when we understood that legacy systems drive manual business processes, constrain product innovation, and inhibit the delivery of a complete digital experience for insurance customers. In-person sales channels are not scalable and drive up minimum ticket sizes. Collectively, these systems and channel problems prevent access to insurance for many retail consumers in Asian markets.
Our low-cost, straight-through, digital process makes it cost-effective to provide insurance for underserved segments.
MH: Our founder, Alister Musgrave, used to work in London where the financial comparison industry has several large players in the market. When he arrived in Hong Kong and needed a credit card, he realized there was no such service to simplify his search and decided this was a niche with incredible potential given the maturity of the Hong Kong market in matters of personal finance.
M: That’s interesting! Could you tell us a little about the most critical initiative you are currently working on? Please share with us your plan for achieving the goals you’ve set for it.
G: We’re looking at an end-to-end policy administration solution using blockchain technology to connect different participants in the insurance ecosystem. At the moment, we’re focusing on:
Micro Insurance: Low-premium, high-volume products. E.g., agricultural/microlife and health products. We provide a cost-efficient, automated, and scalable solution for the insurers and distributors in the emerging market.
Medical Claims: We provide a solution to connect insurers and medical service providers with streamlined processing of pre-authorization and claims – this will provide cashless claims directly paid to the provider or customer and better customer-centric experiences.
Bancassurance Model: Traditional relationships between the bank as a distributor and insurers are complex and often create manual work between the two players. Our solution enables straight-through processing throughout the end-to-end life cycle of a policy.
MH: At MoneyHero, we are doubling down on our original vision of creating a new way for users to find the right products for them, enabled by rapid digital adoption across both the consumer & provider base, improved data mining capabilities, and a rich library of content we have built up and continue to develop.
M: Here’s a follow-on question: how is your company differentiated among market incumbents? Also, what is your core proposition that makes you consumer-centric?
G: We are a B2B company that focuses on innovation and disruption from the core of the insurance industry. Our team here in Hong Kong has extensive experience in the insurance and technology industry, and we bring real business solutions to the immediate needs of customers. We work very closely with our consumers and always start our engagements with understanding what the current problems are, where they want to be, and the viewpoint of our consumers’ customers.
MH: Well, there were no market incumbents when we started this category! We have a 70% share of voice amongst other similar services.
M: That’s great to know. Moving on to the geography your company is located in, we’d like to know, in your opinion, what are the advantages Hong Kong offers in the context of developing a robust InsurTech business?
G: Hong Kong has simple regulatory and tax laws. As far as Galileo is concerned, this means there are fewer resources required to run the administrative side of a business, and we can dedicate more towards our product and our customers.
Furthermore, Hong Kong has an entrepreneurial culture and has readily available development talent. At Galileo, we are working with cutting-edge technologies, and Hong Kong brings us the energy and passion we need to drive our business forward.
MH: The way we look at it, Hong Kong is the most mature and advanced insurance market in Asia where many large banks and insurance companies are investing in talent and technology; we are close to China with lots of innovation, which makes Hong Kong the perfect launch pad for Asia.
M: Coming to InsurTech specifically, what are your views on its market’s growth in Hong Kong in the times to come?
G: With the establishment of ‘virtual insurers’ in Hong Kong, we see that there will be considerable growth in the InsurTech market here in Hong Kong. The Insurance Authority (the industry regulator) is more receptive to new technologies, and incumbent players in the insurance industry now understand that they will have to adopt innovative InsurTech solutions to remain competitive.
MH: We believe it will be a very vibrant sector, given the trajectory we are currently seeing. Consumers will need some education to warm up to the idea of not having agents to liaise with, but Hong Kong consumers have historically been very open-minded about adopting new ideas. The entrepreneurial spirit that Hong Kong is known for will continue to be the bedrock of Hong Kong’s success.
M: How does being located in Hong Kong help the regional growth of your business? Could you tell us a little about what your future strategy might be with the emergence of global competition?
G:** **As one of the hubs of the Asian financial service industry, Hong Kong provides a great platform for the startup to meet industry leaders, understanding the market trend and needs within the Asia-Pacific region.
However, it is important to understand that the smaller players in the insurance industry are also emerging from developing countries within and outside the APAC region. For startups, it is a great opportunity to target this market segment as there will be fewer constraints in terms of adoption of new technology or replacement of existing technology.
MH: We are a local aggregator and will focus on that strategy, but global competition will be good for an aggregator like us as we simplify the landscape for consumers with a very relevant, local lens.
M: Once again, following up from the previous question: recently, we have witnessed not only many insurance companies but also other industries actively embracing InsurTech. According to you, what are some of the critical parameters to ensure a successful partnership between business and technology?
Understanding the problem the industry or the company is facing. Technology is simply an enabler for the business. It is important for the industry to understand which problem they are facing. E.g., a new channel to distribute the product, new product innovation, cost reduction opportunity, or process improvement. The technology or solution is then selected to tackle the problem itself.
Adoption of new technology from multiple parties in the insurance ecosystem, including insurers, banks, distributors, reinsurers, and medical service providers. The collaboration between the different parties is the key to drive the benefits from the latest InsurTech technology.
Differentiation of existing core technology. E.g., the traditional policy administration system and the digitalization of front-end, customer-facing website/app. Many players in the industry are actively going through a digital transformation but focusing only on the changes to the front-end-facing technology. This digital lipstick has limited benefits, and its impact has a limited lifespan. It is more important to transform the core, allowing an end-to-end transformation to the business – this will enable a company to drive its business strategy and goals.
MH: We’ll keep it simple – it is important to know and understand that they are peas in a pod, and one needs the other to flourish!
M: Thank you both for sharing your thoughts and perspectives with us. Before we wrap this up, do you have any advice for startups or companies that would like to set up their InsurTech business in Hong Kong?
G: We’d recommend participation in industry events, including conferences, forums, and workshops organized by FinTech organizations or industry leaders – this helps startups to understand the activity in the market and make sure they are creating solutions that are tackling problems faced by the industry.
We’d also recommend engaging with Hong Kong’s government and FinTech bodies, such as InvestHK, Cyberport, Hong Kong Science & Technology Parks, and the FinTech Association of Hong Kong. They offer resources and experience in connecting with the right people in the industry and offer a great platform to expand in Hong Kong and Asia. We are ourselves a part of the Cyberport Incubation program.
MH: While we are not in the InsurTech business in the purest sense of the term, we will say that the tech space is incredibly talent-hungry and it will get increasingly competitive with virtual banks looking to build out teams in the coming months. Our advice would be to make sure you have a clear vision & mission, establish your single-minded value proposition, and build a network of people you can trust.
Perspectives like these serve to reinforce the reason Hong Kong is known around the world as an important financial hub in Asia. In addition to the growth of startups engaging in rapid innovation in InsurTech and other segments across the domain of FinTech in Hong Kong, it is worth pointing out that there isn’t a single large, global bank that doesn’t have its presence in the city. Not to mention, its proximity to mainland China has let it become a bridge to one of the largest economies in the world, paving the way for rapid FinTech innovation.
This kind of innovation has found an active support system in InvestHK, a government agency responsible for attracting foreign direct investments. It has set up a dedicated FinTech team in Hong Kong with correspondents located in London and San Francisco. The team offers free, customized, and confidential support to FinTech business launching and expanding via Hong Kong and Asia. Galileo and MoneyHero are two good examples.
Besides, InvestHK has recently announced another FinTech motivation: a significant expansion of its annual Hong Kong FinTech Week, which is the world’s first cross-border FinTech event. Now in its fourth year, the event will run from November 4–8, 2019, in Hong Kong and Shenzhen. InsurTech will be featured as one of the important topics with a specific exhibition dedicated to InsurTech. You can pre-register here.