HKUST Business School Magazine

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." Biz@HKUST 13