
The insurance sector is gearing up to deal with the multiple challenges of the era of digital transformation, CEO of the Insurance Authority Clement CHEUNG says.
Hong Kong’s insurance industry is experiencing a seismic shift driven by rapid advances in digital technologies. From artificial intelligence (AI) to data analytics, companies are embracing these innovative solutions to enhance their operations and serve customers more effectively. However, while digital transformation creates more opportunities and new efficiencies, it also comes with a host of challenges that the sector must grapple with.
"While the insurance industry has traditionally taken a cautious approach due to its risk-averse nature, there is a growing recognition of the benefits associated with adopting technologies like AI," said Clement Cheung, CEO of the Insurance Authority. "Insurers are becoming more open to change as they see the potential for transformation and innovation."
In recent years, digital technologies have begun to exert a profound influence, particularly through the rise of what has become known as InsurTech. New online applications and services have helped to open doors to previously unserved and underserved client segments, while also adding value and elevating the overall customer experience.
These developments have led to four virtual insurers establishing a solid foothold in the Hong Kong market, the impact of which is reshaping traditional business models. Indeed, as of June 2024, the Insurance Authority noted that virtual long-term insurers had over 82,000 in-force policies with a total revenue premium value exceeding HK$314 million, while virtual general insurers had over 53,000 in- force policies with total gross written premiums of around HK$205 million.
Importantly too, these businesses have shown that it is possible to deliver simple and affordable products directly to those in need. By also demonstrating the social value of insurance, they were able to expand by 2.3 times from 2021 to 2023 and, in doing so, have pushed traditional insurers to explore digital distribution channels and form alliances with third- party operators in order to stay competitive.
In addition, Cheung noted, the COVID-19 pandemic brought changes in consumer behavior and preferences, with many more people opting to compare policies and buy insurance cover online. At the same time, the industry has seen a growing emphasis on environmental, social and governance (ESG) criteria, which has been a key factor in accelerating transformation, prompting 80% of insurers to adopt digital platforms as a means of improving customer acquisition and service standards.
Taken together, these forces have created what amounts to a technological revolution in the sector. As a result, according to the Insurance Authority, 70% of insurers plan to maintain investment in technology over the next three years, with 12% intending to expand their workforce in tech- and digital-related departments.
"The emergence of virtual insurers, along with evolving customer behavior in the digital realm, has spurred technological advancements. This shift has prompted traditional insurers to enhance their technological capabilities in response to changing market dynamics."
Navigating the challenges
So, while the integration of technology across the value chain has clear benefits, it also brings disruption and all kinds of new challenges. One of the most immediate now facing the whole industry is the adoption of AI and advanced analytics, and deciding where and how to implement them to best advantage.
“AI is not going to slow down,” Cheung said. “If you look at the amount of people who are actually making use of AI, the amount of data that is available, I think that particular sector will grow at a pace which is unimaginable.”
One key area where AI is already having an impact is in underwriting and risk assessment. Insurers are using the latest technologies to enhance various aspects of front- and back-end operations. For example, robo- advisors can now provide personalized recommendations for individual customers, as well as underwriting assistance that improves risk assessment.
Shifting to high-touch, high-tech
As a result, the digitization of distribution and customer engagement functions is becoming commonplace. Insurers can see that the use of AI plus further investment in online platforms and mobile apps are essential if they want to reach customers more effectively. This entails a shift to a “high-touch, high-tech” model which allows clients to research, compare and purchase policies with greater ease and convenience. However, insurers must also strike a balance because many customers will still want a human touch and in-person meetings, especially if they are considering complex or high-value products.
“The relatively more educated and relatively younger generation, in particular people in their 30s or 40s are starting to do their own research and even investment analysis with the help of AI,” Cheung said, “But they also want to see an agent when it comes to making a final decision.”
Being aware of the dark side
With greater adoption of technology, the insurance industry is also aware of the challenges that come with possible unethical practices or what Cheung calls the “dark side” of AI. This might include increased instances of exclusion or discriminatory practices which single out individuals or certain groups, something which goes against the fundamental principle of insurance as a risk-sharing mechanism, and leads to unnecessary problems.
Another area of concern is the possible lack of transparency and accountability. The use of complex AI models can make it difficult to understand how and why certain decisions are arrived at, and this lack of clarity can erode trust in the methods and outcomes.
“We must not forget what we call unethical or illegal use of AI,” Cheung said. “There are examples of malicious AI as a service on some of these dark websites, providing tools for deceptive practices.”
To guard against this, the industry needs to ensure data privacy and security by all possible means.
“A robust data governance framework will be essential to leverage data and analytics effectively,” Cheung said.
Partnerships as key
The digital transformation of the insurance value chain depends on a secure ecosystem and the continuing development of new partnerships. Therefore, the Insurance Authority has spearheaded several groundbreaking initiatives to promote InsurTech and its potential.
These include introducing an Open API Framework in 2023 to foster cross-sector collaboration and exploring collaboration with institutions such as the Hong Kong University of Science and Technology on risk modeling and climate data discovery to promote further beneficial advances.
Looking to the future, Cheung said that opportunities in the industry are plentiful, but insurers must also be ready to address the various challenges presented by digital transformation. He suggested taking a multifaceted approach that should include upskilling and reskilling the workforce.
“By leveraging technology, fostering a culture of innovation and collaborating with key stakeholders, insurers can navigate the digital landscape and deliver enhanced value for their customers,” Cheung said.

