Blue revolutionises HK’s stagnant insurance industry

INTERVIEW Blue revolutionises HK’s stagnant insurance industry

One way to break free of the misconceptions about insurance is through gamification.

Hong Kong may be one of Asia’s prized financial centres, yet digital penetration of services in some financial sectors remains low. The insurance sector is one of them. Despite being seen as a mature market, digital penetration in the sector is less than 2%.

And that is just the tip of the iceberg. Hong Kong’s insurance industry also suffers from complex products, complex language, a really complex experience, and in many cases, even poor customer satisfaction.

“Very often in terms of products, you see so many new product innovations, but the consumer doesn’t really have access to all the choices,” Charles Hung, CEO of Blue, Hong Kong’s first digital life insurer, told Hong Kong Business in an exclusive interview.

“In general, the digital adoption in Hong Kong is low, not just for the insurance industry, but even for other online services such as online shopping, digital wallet usage. It is relatively low compared to the other locations, and perhaps compared to other industries, as well,” Hung added.

Hung recognised these pain points; you could even say he is an expert at it. Before becoming chief executive of the digital insurer, Hung spent 30 years working a variety of senior roles in different financial industries, occupying CIO, CSO, and chief executive roles in the banking, insurance, and asset management industries. He has also worked in a plethora of markets, not just in Hong Kong, but also in the US, Japan, and China. His background has given him extensive knowledge about the problems the insurance sector faces—and prepared him for the ambitious task of leading an enterprise set on revolutionising the insurance industry.

Because Blue is going big or going none: they plan to leave their mark by upturning misconceptions about insurance, providing simple, flexible, tech-savvy products and services to their customers.

Hong Kong Business caught up with Hung to learn more about Hong Kong’s first digital insurer, as well as their plans to revolutionise Hong Kong’s insurance industry.

As Hong Kong’s first digital insurer, how has Blue made use of technology i to create a seamless customer journey?

Technology is really is the driving force of our entire business model. We leverage a lot of technology, the ABCD. First in “A,” artificial intelligence (AI). We use a lot of AIs in the journey that we provide to our customers. For example, If you apply facial recognition technology to help in the identification journey, this would really enhance the customer experience.

We are also the first insurer in Hong Kong to adopt Tencent’s cloud technology. This is a very important part of our core infrastructure in terms of dealing with increasing capacities, performance, and speed. We have a very good cloud infrastructure to help us to support our customers. Specifically, this is helping us in Blue to deal with scalability issues and other challenges, because we do have a very good infrastructure in place.

Then for the C and D, that’s cloud and data analytics. We use a lot of data to analyze the market needs and the customer needs. In terms of just market customer data, we use a lot to improve both our underwriting process and the user experience, as well.

Blue is a joint venture between Hillhouse and Tencent. What inspired these two entities to team up and launch a digital-only insurer in Hong Kong?

I’ll say that there are really two parts to that: first, it’s about the market pain points and also about the low penetration rate. The insurance industry has been lagging behind in the financial industry in terms of digital penetration. Overall, the market has less than a 2% penetration from a digital perspective—way, way behind other sectors in the financial industry.

Our shareholders have the capability to house fantastic and very strong investment capabilities. Tencent is of course very strong in terms of technologies and also in the area of the internet. The combination of these two factors gives us the

Charles Hung, CEO of Blue

Blue’s vision is to innovate insurance together. We’re here to disrupt the market

INTERVIEW

strong ability to address the needs of the market.

Our shareholders do see the market opportunity and coupled with their capabilities, I think there’s a huge opportunity that we can capture. Th at, I would say, is the driving force: inspiring them, our shareholders, to invest in this particular area of insurance and to disrupt the market.

Demographic-wise, which age group or generation makes up the biggest share of your customer base? What does this age group expect from digital insurers?

So far, our core customer base ranges from 25 to 45. I would say that they probably make up over 55% of our customers. We also have other age groups, as well, but the 25 to 45 has been our core segment. Th e 25 to 35 age segment will be buying products that are less heavy on premium, whilst the 35 to 45 age group are more mature and fi nancially capable. So, they will be buying more high-end products and more high premium products. Th at has been in line with our expectations. Knowing this is how we have been involved to really meet our customers’ needs.

If you go back to what I said, we consider price ability and value for our customers. Th at’s the overarching theme, principle, and vision in what we do. As we evolve, we react to the market, as well. I think oft en my people, whenever we come up with a product, we always ask that question, “Is this product addressing the market? Is this product addressing a customer’s needs right?” If not, we should not be launching.

Blue recently launched the mobile app ‘Blue WeMedi’ alongside a new top-up plan, WeMedi Top Up. How does the launch of the app refi ne your customers’ insurance and health journey?

Th e WeMedi app is particularly designed to help our customers manage their outpatient services from their mobile phones anytime. I would say that this new app really highlights our commitment to creating a fantastic customer experience and maybe even customer-centric insurance solutions by providing greater convenience and providing really fl exible features.

Th e WeMedi outpatient app is transparent in terms of details available to the consumer. You don’t need to fl ip your policy booklets anymore, it’s in your mobile app. For example, when you go see a doctor, you want to fi nd out what’s covered and what’s not by your insurance. Here, you just read it on the app. Th ere’s also a search function, where you can search the nearby network doctors. Sometimes you might fi nd yourself having an emergency, and you can plan when and where to visit. Th is mobile app also gives you an e-medical card, so you don’t have to carry the card with you all the time. I personally always forget to bring my medical card, so this is convenient. It also reduces the size of your wallet.

We also want to utilise this app to communicate with our customers. Th rough this app, we will be providing the latest updates and also special off ers we have.

What are some trends you have observed in Hong Kong’s insurance space? How has this aff ected the digital insurance space?

With the COVID situation, people have become increasingly health-conscious. Th erefore, in terms of demand for health

At Blue, we use a lot of gamifi cation; we like to engage our customers through games

products and insurance products, we’re certainly seeing an increase in that. Second, during COVID, people have been doing social distancing, and so more people have been doing online purchases.

Hence, digital transactions have been more welcomed by the customers. A lot of people are now investing more in those areas. All these things have been translating to heavy adoption of technology in the industry, the ABCD dimension; certainly, there’s an acceleration and heavier adoption of that too.

Th e consumers have been a lot more demanding, as well. A lot more demanding from a product perspective, from a service perspective, and also from an experience perspective. I think traditionally, the products being off ered are all the same: “Here’s the menu, please choose from it.” Now consumers want more tailored services. Th ey want you to know them a little more before you make a recommendation.

All these really translate to the consumer wanting to take the driver’s seat. I think the industry, historically, has been insurance company-driven. Th e insurance company drives the products, drives the experience, we drive most of the stuff . Increasingly we’re seeing the consumer wanting to take the driver’s seat. Th ey request more, they ask for better service. So, those are interesting trends that will make all of us think about how we’re going to capture the opportunity.

What is your outlook for Hong Kong’s insurance sector?

Th e innovation of insurance services and products need to be will be accelerated. You’re seeing that insurers are now competing in terms of the speed of launching new services, trying to impress the consumers. Th at’s number one: increasing innovation, increasing personalised services as technology becomes more advanced, basic acceleration of digital adoption, some of those things become possible.

Th e second one really involves the adoption of artifi cial intelligence. Th ese days, we need to learn and understand a lot more about our consumers. So the usage of data is going to be a big topic for the industry. Th e usage of AI technology is going to be a big topic as well. Having said that, as technology becomes more advanced and digitisation is accelerating, that brings the challenge of cyber security, as well. I think cybersecurity is going to be an area of higher focus in the insurance industry going forward.

Consultations^ made with private medical practitioners in Hong Kong during the 30 days before enumeration by net consultation fee

Source: BLUE

TECHNOLOGY: BANK BOARDROOMS Why banks need more tech experts in their boardrooms

Massive adoption of banking technology without critical tech advice from experts could spell doom for lenders.

Artificial intelligence, machine learning, data analytics, online apps – the “In general, we recommend that banks strive to fill 25% of their board of directors with technology finance world is all about the tech and the digital now, with banks noted to be massively adopting digital technologies over the past five years, according to a recent survey by professional services company Accenture of 2,000 directors from the world’s largest banks.

But even with the rapid adoption of tech, banks’ board rooms still feature a severe lack of experts in this field. Only 10% of boards of directors have tech expertise in 2021. Less than one in ten of board members from China (4%) and Japan (7%) have a tech background; Australia, just a little above that, at 12%.

Having board members with tech expertise is important as the board can often be critical in advising on how to minimise the risks and maximise the benefits of technology investments, according to Fergus Gordon, Managing Director and Banking Industry Lead, Accenture. experience – so there is still work to be done,” Gordon told Hong Kong Business in an intervew.

A study by Accenture found that only 6% of board directors for banks have any technological expertise. What does this tell us about the nature of tech leadership and direction of financial institutions?

When we conducted this research for the first time in 2015, only 6% of boards of directors had technology expertise – that number increased to 10% globally in 2021. The pandemic showed just one reason why technology experience at the board level is so important. The pandemic forced many banks to quickly shift to digital touchpoints and accommodate employees working from home, which required immediate additional technology investments, like accelerating cloud adoption. The perspective of the board, which has a high-level view of the

organisation, can help advise which investments are compatible across various business units – and boards with technology experience can provide invaluable guidance. Banks are also facing complex decisions regarding how best to transform their core systems – whether to build or buy and at In 2015, only what scale – and those choices 6% of boards will have long-term implications. of directors had Whilst banks spend huge sums tech expertise on technology, a lack of tech – that number experience at the boardroom level increased to could ultimately undermine these 10% globally in investments.

2021 Why do you think banks have been quite slow to appoint tech experts in their board? What challenges are banks facing in building up their board’s tech proficiency?

Banks haven’t made much progress in appointing tech experts to their board since the last time Accenture carried out this survey in 2015. Back then, only 6% of bank board directors had technology expertise – this was an era when cloud was gaining traction and emerging technologies like blockchain and AI were attracting interest from the financial services sector. The inertia is likely the consequence of a sector steeped in tradition. This is not necessarily a bad quality when that tradition encourages trust from customers who place their money with you, but it can be an obstacle when the pace of change accelerates and demands innovation. The importance of technology expertise within banks goes well beyond just the board level; banks need to elevate the skills and knowledge of key technologies that are essential to growth, like cloud, AI and cybersecurity, throughout the entire organisation. But a board with a high level of technology expertise can help drive and navigate complex operating model transformation, monitor progress and help steer the ship if it appears to veer off course.

A study by Accenture found that only 6% of board directors for banks have any technological expertise

What can financial firms do to build their bank board’s tech proficiency?

TECHNOLOGY: BANK BOARDROOMS

Percentage of all bank board members who have technology expertise in 2015 vs 2020

Source: Accenture

Banks should make technology credentials a consideration in new appointments. Other ways to bolster expertise can also be explored, such as coaching members on the latest technology, dipping into the knowledge pool of third-party suppliers, and setting aside dedicated time to discuss technology during committee meetings. Some big banks have even established an advisory council to keep executive management up to speed with the latest innovations.

It’s all about fi nding ways to keep the corporate fi nger on the technology pulse; to be aware of key developments around cloud, AI, and the Internet of Th ings. Th ese are technologies that will pose questions around security, compliance, and governance – issues that intersect with business fundamentals.

Could you give us examples of how the lack of tech expertise in boards or tech leadership in general have impacted banks, particularly in Asia, especially in the past year?

One of the many elements of our lives that may have changed forever over the past year, is the way we spend money and interact with banks. In addition to a surge in contactless payments, we have seen a rapid shift towards digital touchpoints – half of retail bank customers now interact with their bank through mobile apps or websites at least once a week.

Th is shift didn’t only impact consumers; with banks having to pivot to remote work, employees

Fergus Gordon

at every level have been forced to sharpen their technology skills.

Th e banks that pivoted successfully did so largely with the help of cloud technology, which enabled remote work and collaboration, quick upgrades of customer-facing applications, and helped banks deal with a fl ood of fraudulent transactions. However, for many banks, cloud adoption is in its infancy; many of the industry’s important innovations – like mobile banking, data analytics for risk assessment, and personalised experiences would be impractical without cloud.

As banks try to keep up with the accelerated pace of change, broader adoption of cloud will be critical to modernise outdated legacy banking systems and adopt new business models.

What are some good practices you have observed that banks in the APAC region have done to bridge the gap and build up tech expertise in their boards?

Some banks have introduced structured learning sessions to help boost tech expertise amongst board members. As part of these sessions, these banks bring in experts – both internal and external – to educate members on a broad range of technology topics and trends. Where possible, these sessions also leverage actual case studies as examples to showcase the real-life impact that technology expertise can have in boosting business in the fi nance industry.

Taking this one step further, banks can also explore “digital safaris”. Th ese are interactive showcases that show, rather than tell, what the future could look like with technology. Here at Accenture, we off er our clients the chance to experience our Accenture Digital Safari, where we showcase advanced technologies and how these are helping our clients create a competitive edge in their business. Th e live demos of AI, Blockchain, Advanced Analytics, Industry 4.0 and Extended Reality present executives the unique opportunity to fully immerse themselves in a technology-driven future, off ering them a glimpse into the potential it can bring to their banks.

Seeing and experiencing these opportunities through their own eyes may be the diff erence needed to motivate more board members to embrace technology.

Broader adoption of cloud will be critical to modernise outdated legacy banking systems (Photo by Dylan Gillis)

ANALYST VIEW: CHINA AND GREATER BAY AREA

China has set up new schemes that will entice foreign financial firms to enter the market

China’s new foreign-friendly financial market laden with opportunities

If authorities remove the execution-only restriction in Wealth Management Connect, money flows in the channel could grow 10x bigger, says Ernst & Young’s Christine Lin.

China opening up its trilliondollar financial market to foreign firms is cause for much celebration, but that’s not to say that everything is smooth sailing: more foreign firms may be taking a waitand-see approach following China’s ongoing regulator crackdown.

In 2020, China moved to open its financial market overseas, easing restrictions in foreign ownership and finally allowing wholly foreign-owned financial institutions to the country. Foreign firms have much cause for celebration: the revised regulations open up a US$48t-market, as noted by an American think tank Peterson Institute for International Economics.

Already, non-Chinese firms are making waves, with the most notable of them being the asset manager, BlackRock China, whose equity fund raised $1b in its maiden mutual fund just days after it launched in August last year.

China has also set up a number of new schemes that will definitely entice foreign financial firms to enter the market, chief of them being the Wealth Management Connect (WMC), which offers opportunities for financial institutions situated in Hong Kong to offer investment products to millions of investors across the Greater Bay Area (GBA).

That’s not to say that everything is smooth sailing: the recent regulatory crackdown in China–which has affected even the country’s biggest financial players, a chief example being Ant Group’s suspended 2020 IPO— may have driven some foreign firms to take a wait-and-see approach before diving into the Red Dragon’s financial market no matter how enticing it is, noted Christine Lin, Financial Services Assurance Leader and Wealth & Asset Management Sector Leader for EY Hong Kong.

In regards to WMC, restrictions in the scope of activities that can be done under the channel are deterring growth–restrictions which, if removed, could drive money flows within the channel to be much bigger than the US$22.5b (RMB150b) quota set by authorities, Lin told Hong Kong Business.

“[One] of the restrictions is that the banks in Hong Kong, for example for the Southbound, can do “executiononly.” This means that the bank cannot make recommendations to the fund managers on different funds or investments,” Lin explained.

And how big could it grow? “When you look at the population of Hong Kong and the GBA, we’re talking about 7.8 million and 71 million, respectively. If you just talk about that, 10 times, definitely,” Lin said. “So if you have to ask me to put a number on it: 10 times.”

Hong Kong Business spoke with Lin to find out more about what’s been

Recent regulatory crackdown in China may have driven foreign firms to take a wait-and-see approach

ANALYST VIEW: CHINA AND GREATER BAY AREA

Christine Lin, Financial Services Assurance Leader and Wealth & Asset Management Sector Leader, EY Hong Kong (Source: EY.com)

happening in China since foreign investment funds entered, what the wealth management connect could mean for foreign banks, and what’s in store for China’s push to integrate itself in global financial markets.

Could you give us an overview of what’s been happening in China since foreign investment funds first entered?

From what we observed in the market, a lot of the global banks, private banks, or the global asset managers, actually have been at different paces of their own journey in their goal to set up business in China. Some of the multinational companies are applying for the licenses, and some have actually already set up joint ventures like in the old days when the multinational entity was not able to take a controlling stake, but now they allow fund managers to hold 100% of the wholly foreign-owned enterprise. So these are some of the setups that international firms are doing in Mainland China at the moment.

I think BlackRock has been very high profile and very successful for their first fund launch in Mainland China. In five days, US$1b, [it] was no problem for them. With that, you can see the purchasing power of the middle class in Mainland China presents such a huge business opportunity for the global bands and global asset managers.

But some of the global banks or global asset managers, take a wait-andsee attitude. At the beginning of 2021, or even back in 2020, a lot of them were very bullish on the development of their China footprint. How they move forward will depend on how comfortable they are with their China plans. So it’s quite a diversified market, I would say.

There’s currently a regulatory crackdown happening in China that is also affecting the financial industry. Have you observed whether the activities of foreign investment funds and even foreign finance firms are being affected by this?

At the moment, because of what’s happening in Mainland China with new regulations for a while in the internet gaming, education [sectors], they recently talked about the casino [industry]—I think all these are making them want to stay away for a while. But how long are they going to stay away? I think this all depends on how the regulatory (environment) develops, as well. I do think from a longer-term perspective, China is still one of the core focus for fund managers.

Let’s move on to banking. What does the launch of the Wealth Management Connect mean for the banking industry in the Guangdong, Hong Kong, GBA region?

Fee income definitely. I think you may have already seen some of the media talking about the US$500m annual fee income that banks can benefit from WealthConnect. From the bank’s perspective, in order to tap into these opportunities, they will need to have the right product and also the right resources. That’s why in the early days, you see that multiple banks have already announced their recruitment plans; say, by the end of 2025, how many people they want to recruit from

In five days, US$1b was no problem for BlackRock. With that, you can see the purchasing power of the middle class in Mainland China

the private bank perspective. From the front to the back office, they are recruiting.

The reason I mentioned the product perspective is that when you look at the state of the WealthConnect at the moment, unfortunately, we’re [in the midst] of the COVID situation right now, so Southbound, Hong Kong does allow remote account openings, but Northbound, Hong Kong people still need to physically travel to Mainland China. Because of this, in the beginning, there will be more inflows from the southbound side because of the remote account opening.

From the product perspective, one of the restrictions is that the banks in Hong Kong, for example for the Southbound, they can do execution only. This means that the bank cannot make recommendations to the fund managers on different funds or investments. For the product features, the design, that’s quite important, so they just are able to attract Southbound investors, and so it’s easier for them to buy and understand the product through e-distribution. Fintech design will be one of the key features of the investment for the private banks.

What opportunities does it give to foreign banks and financial institutions?

In order to be successful and to attract Southbound investors, it’s very important to have the right product on the shelf and make it easier for Mainland investors. So if we talk about e-distribution in the Mainland market, when you look at the largest funds at the moment, the one with the largest market share... is Tianhong Asset Management, which is definitely [leveraging] via the Ant Financial e-distribution platform to distribute their products.

When you look at all these local asset managers, China AMC, Harvest, etc, they all have their own-developed e-platform as well. So that’s why e-platforms are quite important for asset managers and for banks to tap into the retail space. And at the moment, WealthConnect is still retailfocused, because they do not allow institutional investors to approach us

ANALYST VIEW: CHINA AND GREATER BAY AREA

for the WealthConnect platform yet. So that’s why e-distribution is very important at the moment.

What issues, if any, does wealth management connect present to the banking and finance industry of the markets?

One thing the industry asks about a lot is regarding it being execution only.

They cannot recommend which fund or which product the investor can buy. For example, if I’m a Southbound investor in the Mainland, looking at the products offered by my bank, and I am looking to invest in Hong Kong when I’m from the mainland, I will of course look into the bank’s website, where there are 50 to 100 funds listed. You can already tell how difficult it is for a normal investor just to pick out a fund from the long fund list there.

At the moment, you can sort of do reverse solicitation, which means if the investor asks for the features of a particular fund, then the RM in Hong Kong can explain. But they still cannot make recommendations. So this is an issue the industry will need to think about how to tackle in order to make wealth connect work for their bank.

The rules for WealthConnect at the moment use the word executiononly and the HKMA was very clear in their FAQs that you cannot make recommendations on the investments. If the regulator allows the banks to be able to sell and make investment recommendations, WealthConnect will work much more easily for the Hong Kong and the China banks. This is why the industry is asking that they be able to sell and make recommendations on investments.

So you don’t think it’s going to affect the foreign firms? Will this discourage them from offering investments in China?

I think in the short term, yes. But from a longer-term perspective, China is still being seen as one of the growth engines by many of these global companies. So I do think that in their long term business development plans, China still has a place in their development. In the short term it could be affected, [due to the] geopolitical issues, different regulations, we’ve also seen all these regulations come out very quickly, so there might be an impact.

It’s also been observed that the Chinese regulators seem keener to keep capital within the country and have made it harder for foreign listings. What is your view on this?

Whether they keep funding within the mainland or make it difficult to invest into Mainland China...I am looking at this as the mainland government making the call. This is a kind of policy that, given the geopolitical environment at the moment, would probably be a temporary policy. I don’t think they’re trying to make it so difficult, or trying to cap the money within the mainland.

Do you know if the Hong Kong industry is lobbying to have wealth management connect openly to institutional investors?

At the moment, the banks are lobbying for a larger quota, lobbying for their product list to be larger because they want to include more products in the wealth management connect. Whether WealthConnect can be opened to institutional investors, for the longer term, yes, I think the banks will lobby for that as well. But at the moment, we haven’t heard that the banks are lobbying the regulator for institutional investors yet.

Earlier you said that there are many foreign firms that are taking a wait and see approach. So what changes in regulation have made foreign firms rethink their strategies?

I think for some of the firms, when they look at their whole China strategy, why they put it on a wait and see is because they can see their peers setting up, and can see how well their peers are doing, whether they are making profit or not, etc.

There are a few things not purely from the regulatory perspective that push them to take a wait and see approach. Number one, actually, when you look at all the global banks and asset managers, talent is really an issue for them. I mean, onshore Mainland China talent. The lack of a talent pool in Mainland China makes hiring very

The lack of a talent pool in Mainland China makes hiring very difficult for global players

difficult for global players, to get the onshore people they need to help fuel their infrastructure. Chinese high net worth or ultra-high net worth investors follow their relationship managers a lot; and for many firms, it is very expensive and very difficult to find and retain a good relationship manager.

I think the second one is also when you’re comparing those global players, their global minimum numbers sometimes are actually higher than the local China regulatory requirements and also the China market practice. From the global banks’ perspective, they will need to adjust this concept, if they want to go ahead with their China operations or China setups.

Number three is from the value proposition perspective. The Chinese high net worth and ultrahigh net worth investors may not see immediate value in using a foreign player unless they want to get exposure to overseas products or services. The Chinese banks will also need to offer well-designed products, which will be able to provide profitability and protection fit for the Chinese investors’ habits and preferences, as well, and be able to meet the needs of the current FinTech development in Mainland China.

The last point I want to make is that the enhanced data security law in Mainland China, which came in force on 1 September 2021, actually contains provisions covering the usage, production and also protection of data in Mainland China. This is also another issue that the global banks and the global asset managers will need to talk about in terms of what data can be or cannot be transmitted outside of the mainland. How this will impact their China operations is something the global banks and global asset managers will need to figure out.

China is still being seen as one of the growth engines by global companies