Digital Health and Insurance: is the opportunity real?

In breve

Health insurance is a key business opportunity at the global level; in the last 4 years it has outpaced the overall industry in terms of Gross Written Premiums (GWP) growth (7% versus 4.4%, according to McKinsey estimates). The pandemic and the consequent uprise in the need of protection among individuals surely played a role, giving insurers the chance to pursue new areas of opportunities.

Highlights:

  • The global Digital Health (DH) market size is valued between US$ 96.9 and 104 billion in 2020, with a CAGR estimated between 15.5% and 20% up to 2030.
  • Digital health increases service accessibility, allowing for lower health costs, overcoming physical distances, and reducing CO2 emissions. It also leads to greater quality, thanks to higher accuracy both in diagnose and treatment, and to greater care personalisation.
  • Insurers can leverage on digital health revolution to improve their product offering: real-time (Big) data reduces information asymmetries; AI and Machine Learning (ML) techniques can help developing predictive and prescriptive models, generating clear insights for the business, all along the value chain, from underwriting to distribution and claim management. All this could translate in higher level of personalisation as well as efficiency gains: according to McKinsey, insurers could save up to 40% in claims and administrative costs and increase revenues by 30% thanks to higher affordability and cross-selling practices.
  • Despite the clear benefits, the power of digital health insurance is yet to be unleashed: the digital divide and low digital education, the lack of digital standards, data privacy and growing cyber risk are the main barriers limiting adoption. Insurers need to find costs of enabling technology and efficiency gains, avoiding hyper-personalisation and client-selection incentives.
  • As long-term investors, insurers see the (digital) healthcare sector as a valuable investment opportunity: in the listed space, over the last 20 years, the sector posted higher-than-market average returns – even corrected for risk. Moreover, the social value of digital healthcare is appealing from an ESG perspective. In the non-listed universe, Private Equity and Private Debt are now important financing tools for non-listed digital health SMEs. The hedge against inflation risk, attractive yields and low correlation with other asset classes are driving up private investments in the portfolios of long-term oriented institutional investors. Project selection will become key, with DH start-ups to demonstrate both proof of concept and higher-than-market ROI potential.

 

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Digital Health and Insurance: is the opportunity real?
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