SoftBank: Where will the next big wave of disruption hit in fintech?

The Vision Fund sees insurance as ripe for a shake-up and it is prepared to back that up with a very big bet.

In an industrial zone of Singapore, middle-aged men queue up to become drivers for a ride-hailing app on a typical weekday in August. A handful of insurance brokers mill around the office trying to sell them accident policies.

Southeast Asian mobility platform Grab teamed up with New Jersey-headquartered Chubb Insurance in March to sell policies to the app’s users. The Chubb agents in Grab’s Sin Ming office were carrying reams of paper forms for the drivers to fill out longhand.

“The next big theme in fintech is going to be user-based insurance,” said Ashkay Naheta, managing director of strategic finance at SoftBank, a major investor in Grab. “The next big thing out of SoftBank will hopefully be in this space,” he added.

The Japanese technology and investment conglomerate is a major shareholder in several ride-hailing apps, including Uber and China’s Didi Chuxing as well as Grab, so Naheta has plenty of insight into the potential of using these platforms to sell a plethora of products to drivers and passengers, as well as how the sales process can be streamlined.

“Why does a person that works for Uber or Grab have to buy insurance on an annual basis - why can’t he just turn it on or off,” was the question Naheta put to a small audience at the Milken Asia Summit in Singapore last week.

SoftBank launched the Vision Fund in October 2016 in partnership with Saudi Arabia’s sovereign wealth fund. It hired Naheta, to help manage the $100 billion technology fund last year.

In Asia, insurance companies have traditionally sold policies via an army of door-to-door salesmen who talk to their friends and family about how to protect growing nest eggs.

That age-old distribution model is under attack. Over the last decade, banks have spotted that they can sell the right to access their customers over their networks, including bank branches, to insurance companies. Now digital platforms are also elbowing their way into the value chain.

“Whoever controls that first part of that retail financial service captures the lion’s share of the economic value. In insurance, the broker or agent, really sucks out the profit,” said Donald Lacey, chief operating officer at Ping An Global Voyager, a fund formed by Chinese financial services group, Ping An.

These ecosystems capture reams of data about their users and are looking at ways to use that information to mitigate risk in insurance.

“I suspect if you are a traditional insurance company that you are going to have a very ugly conversation at some point in your future about what Amazon wants to pay you for access to that customer base and I suspect you are not going to get a very good deal,” Lacey said.

Naheta understands that the platform companies among Softbank’s portfolio of businesses could get in on the act.

“If you look at the potential growth for user-based insurance products it’s going to be in the high 85% to 95% [range], maybe even approaching 100% CAGR over the next four or five years,” Naheta said.

He also thinks there is room for technology to replace some of the costly brokers in the value chain, who take about a third of the insurance premiums in commission.

“There is a lot of fat in the system,” Naheta said. “That will be the next big wave of fintech that will disrupt insurance and lower the cost of insurance."

PAIN POINTS

Nowhere in finance does the man on the street struggle so much as he does with insurance. Pain points include comparing policies, understanding coverage, as well as the tiresome paperwork involved in processing claims.

“The role of technology is to go out and eliminate all of the inefficiencies in the system,” Naheta said.

Japan’s SoftBank is in talks to acquire a tech-savvy company that can help the world’s largest insurers make the painful adjustment to the demands of a digital age.

“We’re looking at an insurance service provider, that helps with the back office at insurance companies,” Naheta, managing director of strategic finance, told FinanceAsia on the sidelines of the Milken Asia Summit.

Zhongan Online Property Insurance, China’s first online insurer, said in August that Softbank’s Vision Fund would invest $100 million in a joint venture with its unit Zhongan Technology to export technology solutions to the rest of Asia.

You have to work with the incumbents and they could become reliant on the support, Naheta told FinanceAsia.

SoftBank's Naheta speaking at the Milken Asia Summit

SoftBank has already made some big bets in fintech. In payments, it was a backer of India’s Paytm, in insurance it bought 5% of ZhongAn when it listed in Hong Kong last year. The Vision Fund has also invested in Atlanta-based Kabbage, which extends loans to small businesses.

The kind of cash SoftBank can deliver can be mission critical for digital start-ups looking to bring as many customers onto their platform as quickly as possible in order to get a jump on the competition.

However, not everyone is open to giving a seat at the board to the Japanese firm.

Swiss Re said in May that the world’s second-largest reinsurance firm and SoftBank had agreed to end discussions about a potential minority investment by SoftBank in Swiss Re.

INCUMBENTS

Ping An has grown rapidly over the past five years to become the largest non-life insurance company in the world by market capitalisation. Ant Financial, the private company behind China’s largest digital payment service provider Alipay, told FinanceAsia in November 2017 that it was also looking to disrupt the world’s insurance market.

“Based on having looked at the sector for the last year and a half, insurance companies realise they are at serious risk of getting disrupted,” said Naheta, even though they are well capitalised and have already accumulated operating licences.

So, US and European insurance companies, some of who are hundreds of years old, are looking to leverage their customer networks to the maximum.

“Some of the incumbents will end up becoming the winners, just because they are willing to disrupt their own cash flows,” said Naheta who was previously the chief investment officer of London-based Knight Assets & Co.

CATCHING SOFTBANK’S EYE

Masayoshi Son, the chief executive of SoftBank, describes the Vision Fund’s strategy as betting on the leading horse in a race at the last turn before the finish line.

“We want to go and fund the leader, maybe even over-fund it, and scare the heck out of the competition,” said Naheta who founded Knight Assets in 2011 and is a former Deutsche Bank trader.

Entrepreneurs can be daunted by so much largesse.

When asked by FinanceAsia if this tactic could be value destructive if a start-up cannot put the capital to work effectively Naheta said: “They think they need X-amount and we say you should scale now, think bigger.”

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