The Asia InsurTech Podcast spoke with Lapman Lee, a professor at Hong Kong Polytechnic University and Chulalongkorn University and a board member of the Hong Kong FinTech Association. We talked about the FinTech and InsurTech ecosystem in Asia and their global connections and how FinTech and InsurTech can become greener and support the UN Sustainability Goals.
Find the transcirpt of our conversation below.
Michael Waitze 0:01
Okay, let’s go. Hi, this is Michael Waitze and welcome back to the Asia InsurTech Podcast. Today should be a very interesting one indeed. We are joined by Lapman Lee, a professor at Hong Kong Polytechnic University and Chulalongkorn University. That one’s in Thailand, the other ones in Hong Kong. He’s also a board member of the Hong Kong FinTech Association. And we kind of don’t know where this one’s gonna go but we’re very excited about it. It’s so great to have you here. Lapman, how are you doing today?
Lapman Lee 0:29
I’m good, Michael, thanks for having me here. It’s a it’s a pleasure, especially after our latest panel event together. So great to be here, Michael.
Michael Waitze 0:38
You know, as soon as we had that event, I went to Therese and I was like, we got to get Lapman back on the show to do like an individual episode because we wanted to dig a little bit deeper into some of the stuff that you had already been mentioning. And before we do that, and get into the main part of this conversation, how would you describe the state of insurance or InsurTech or both like the innovation globally in those sectors?
Lapman Lee 1:01
Yeah, no, thanks for asking that Michael. I think globally if you look at InsurTech, we have two categories. One part is the improving today. So basically, your value chain innovations, you have the reinvent tomorrow part, a part around new digital business models. I think if I look globally, there is probably a more focus in the rest of the world, the rest of the world outside Asia on the improving today part. I see more traction or progress or willingness, or the digital new digital business models here in Asia. And, and that is actually also reflective of if you look at the ecosystem, InsurTech maps, and each and every market here in Asia, you see a number of companies that are focusing on those new digital business models so to stay, so instead of only looking at only looking at the insurance value chain all the way from product developments, underwriting, claims, so you have InsurTechs that focus on one or more of those areas, that I think we are seeing more acceptance, maybe those are because of some of these that say, unique characteristics here in Asia, that companies, investors, startups and sales are a bit more that say, open to to start new things, and new and exciting things.
Michael Waitze 2:27
Why do you think so? Like what accounts for that difference? You know what I mean? In other words, what’s the difference between what’s happening in Asia? And why? To what’s happening in the rest of the world? There’s a maturity difference, for sure. But it has to be more than that. Yeah.
Lapman Lee 2:41
Yeah, no, definitely. I think if I look at it some time, Asia is obviously not just one market is a mixture of different markets or suspection. But it’s probably fair to say that they’re outside InsurTech of insurance and financial services in general. In Asia, we there’s also the let’s say that the issue around financial inclusion, there are a number there’s a lot of under insurance there a lot of people that are uninsured don’t get access to bank, well, basic banking and insurance facility. I think that is one reason for the startups to come say, Hey, can we provide a different shade and more tailored insurance products for the local audience could be for example. We are now living in a gig economy. Is there any pay as you go type of insurance for drivers? I don’t want to mention specific names. But yeah, there it is. Yes, the usual suspects, I guess,.
Michael Waitze 3:45
But this is interesting. And we don’t have to dig so deep on this one. But that business itself has been went from being having multiple competitors to really just having one in every particular region. And and I’ll give you my two cents on this. The venture capitalists, the investors have basically said, I don’t want to invest in both. I don’t know who’s going to win the two of you just figure it out. I’ll give you money. You go away, I’ll give you money. You grow it bigger here. You’re just going to be domestic and just this one country, that’s China, right? And then in some of these other countries work it out. Well, because China has its own it’s a very special and very interesting market. But it’s really just its own thing. Yeah. But you’re right, all of these companies are getting involved in the insurance space, at some level. And the gig part of it is actually making is driving a lot of this innovation, right? Because there’s a GDP per capita cut off, I think, right to where financial services at scale. We can talk about this in the context of the FinTech Association, if you’d like, where you have to have a certain amount of money to care about what to do with what’s leftover, if that makes any sense.
Lapman Lee 4:51
No, that makes perfect sense. Thanks for the little window for us to or we’ll talk a little bit about the FinTech Associations for us in Hong Kong. Hana, as with many other FinTech Associations that are globally, so we, we focus on something we call ACE. ACE as in – advocate, collaborate and educate. And we try, of course, to be the orchestrator in our FinTech ecosystem. Of course, I think my definition, FinTech and innovation shouldn’t be bound by borders. So we are trying to work more with different FinTech Associationsas like with Thailand, where we’re in discussions. And the way we’re structured with eight committees. Eight committees your usual suspects AI and Big Data, Blockchain, cloud and cybersecurity, digital banking and payments, we have something called Future Foundation. So so there we can add new things like for example GreenTec with InsurTech, RegTech and WellthTech. So what we are trying to do is basically connect different players say I was last week talking with 20 UK tech firms. So that was organized by the local consulate general, and they wanted to work to get our between markets. And my role in there I was one of the various speakers was to say, basically, if you become a member here, if you work with us or with other FinTech Associations, we will help you navigate the landscape. And what I mean by that regulatory landscape, the players if you look for investors, if you look for support, to basically make it easier for startups to scale up and enter into new markets. So that’s what we are doing.
Michael Waitze 6:38
This is super interesting though, right? In the old days, five years ago, I mean, I’m just making up a timeframe, right. I don’t know what it is, like a startup was really on its own to a certain extent, particularly in Asia, right? Because the infrastructure that wasn’t there yet to help them, which means that at the end of the day, right, if you believe what BCG and Hano Stegman says about that all innovation at the end of the day is going to come through corporates at some level. But these startups didn’t even know who to contact inside the corporate. And they felt like they were disrupting at the beginning, but then maybe enabling at the end of the day, and it was hard. But now I think it’s changing, people are looking at these new companies and saying, what part of our business can they help us abstract out? And then how can we work together with them to do this, and this idea that the consulate is now going to basically build a map for them to say, here’s where you need to go for this. And here’s, we need to go to that we’re gonna bring both sides together to make it easier. It’s kind of cool. Yeah.
Lapman Lee 7:34
No, it is indeed. And I think if I look at the past six years or so, I think and I mentioned UK again, because at that time, didn’t really have a yet vibrant ecosystem in Hong Kong. And at the time, one of the board members from the SCA, from the UK came over. We had this nice Dim Sum roundtable discussion with a number of people think of Amex we started to I was at a time or a management consultant. That’s interesting. I don’t mention who was on the table with us, we sort of grew in the ecosystem and got interesting roles and became, I guess, sub-domain experts in our own our own rides. So I think we from the UK, I think, because of them different regulators were feeling some pressure, we have to do more to Polly Boehm see made for on the move. There was at since the oh-six years, we’re seeing more collaboration between markets, between regulators, they called FinTech riches, we are seeing the sandboxes locally popping up, and some sandbox are even, let’s say, work together, where one startup or scale up could talk with different regulators where maybe one regulator, you’re in good job would give you the green light. But you give you sort of an approval and tell the other regulator, talk with these guys, because we have gone through our due diligence, so it’s helping accelerate and provides credibility to some of these startups. I think it’s some, it’s positive, obviously, with the pandemic, it has been good and bad as well. Nothing beats in person contact if you need an investor at the same time, people are getting used to remote buying and selling of insurance, because it was a necessity.
Michael Waitze 9:18
Can I ask you this, too? I want to back up a little bit. You’re an academic, right? You teach it to universities, but you just mentioned consulting. So I want to get to that in a second to your board member of the FinTech Association, which means you have this broad view on what’s happening in a combination of the finance and technology world. We’re talking about insurance like what’s your background? How did you get to here because your your perspective on this is actually super interesting because of all these multiple sort of factors in which you’re involved. But how did you get to this place?
Lapman Lee 9:46
Yeah, for me, it’s um, I started out in banking and structured finance back in 1998. And since then, I so I was a banker before or structured finance. And then later on I, my last 20 years was in consulting. So I was a financial services and fintech partner. I help some of these up. Now they’re in Hong Kong, they are eight virtual banks and the number of verge insurers, I advised two of them in a relatively significant way. And some others I did some work with. And so yeah, so So now these two years I’m having this I call it portfolio career where I focus my passion and interest in ESG, and finance. So now I focus on three things governance, risk and compliance, in ESG and fintech. So these three items I combined. And I’m actually getting a lot of interest in terms of the interplay between these technology, with finance, basically sustainable as our FinTech, and then finance with ESG sustainable funding. So those two topics on getting more traction,
Michael Waitze 11:03
What’s the relationship there, because this is also super interesting. People think about Fintech is just banking, money, insurance, money around making profits, taking losses, and you know, we’re having claims and stuff like that. But what’s the connectivity to ESG and sustainability? And how do you how do you look upon those things together?
Lapman Lee 11:21
Right? So I think if you the, if you look at let’s start, let’s take a ESG sustainability lens first. I think if you look at depths, there are people I do believe are aware that climate change is an issue. And to change that issue, everyone can agree or disagree around what needs to be done, it will cost capital. And for that, to drive that capital to derive, let’s say UN sustainable development goals. People need to trust that the money they are investing is going to the right place.
Michael Waitze 11:59
So how do you incentivize it properly?
Lapman Lee 12:00
How do we incentivize, so one you need banks and insurers to come up with new products for banking, I think we’re getting there. Where we’re having green bonds, social bonds, sustainability bonds, those are so called Use of Proceeds instruments. So the money that you’re giving the bond issuer, a corporate sovereign, or even a mere municipal, issuer, it needs to go to certain specific projects. There are also sustainability linked loans and bonds, which means it’s more loose, it’s not a specific item or project, you can use it the corporate can use it for to improve sustainability as a whole in their own organization. And then they get a discount from the bank if they do the right things, or banks are playing a role.
Michael Waitze 12:50
So this is what I want to know the right Can we talk about what an individual bond would look like, you don’t have to name a company, but just like, you know, a company borrows money to build a dam, let’s say or even to build, you know, to buy an airplane or to build a building or whatever. How does this sustainability figure into it? And I guess the other question for me is, who measures whether they’re living up to those promises or not right? Where does that partnership come from? Y
Lapman Lee 13:13
It’s a good, good, good, two questions. I mean, I’ve been doing a number of the interviews with APAC listed companies, some of them pretty large are some pretty good names. One of them that I spoke with I spoke with a company called New World Development is one of the property development companies here. also spoke with MTR Well, you know that the MTR company here, I just had lunch with CK Hutchison, the conglomerate sports, that I’m from the Netherlands on. So different company, but to just to mention maybe neural developments. They are, I believe, last year in 2022, that about 18 billion Hong Kong dollars of sustainable bonds and the share, it’s a lot now it’s this last year was already issued. Now, the total is is outstanding, is 25 billion. And what they use it for is bond on buildings. So on the one hand, they design a build these buildings using those funds, as I mentioned, use of proceeds of that those bonds needs specific right. And they what they do is they say, the tenants in those Well, one the construction and material, the process of it needs to meet certain global standards in terms of how much waste, how much electricity are you using. What they also do is when and this is also where green or sustainable insurance come in, is maybe not in this case. But in general. If we buy certain green building insurance products, it means that yes, the insurer will pay you back when there is some damage. But they might put in a condition where they say you need to purchase from these particular suppliers where we know that the material that to replace your existing material is actually sustainable and helps. SO I think it’s in pieces where banks, insurers, investment managers are playing their role to drive the rest of the corporates. Bacause to be frank, yes, there are pioneers that wanted, everyone wants to do the right thing. But hey, we have shareholders as well. So it’s a delicate balance, and people need to need to strike.
Michael Waitze 15:40
Let me complicate this even more for a second and see what you think, kind of put on your academic hat here, maybe for a second or combine them, I think it’s better to have like multiple hats on at the same time. If these sustainability linked bonds are being issued, and there has to also be some monitoring, right of whether people are meeting the obligations that they’ve said they would meet inside of this. It feels to me, like sometimes the markets are moving too fast for existing service providers. And we can call them whatever we want to then issue these bonds. And we talked about financial inclusion as well. So let’s throw all this together. And say if a big company wants to issue a sustainability bond to be able to build a building, but also wants to include a bunch of people that haven’t been inside the financial system to begin with, do they need to go to different issuers? In other words, do they need to go to companies that can then fractionalized these bonds, using Blockchain? So that so that more and more people can then trade them on exchanges, let’s say like, I mean, I don’t I don’t know like the HG exchange, the edX, like all these companies that are coming up to provide democratize the access to financial products, right. So that then these bond issuers have to go to them to do it, because Goldman and Merrill can’t do it anymore. What do we think about that?
Lapman Lee 17:08
Maybe to your first question, yes, I spoke a number of banks and yes, they do require issuers to find an external party to verify whether they’re meeting the standards, because there are different parties. I can’t name which one but it’s, there are the banks typically have a list of let’s say, approved verifiers, many players out there includes probably the big four audit firms, specific players like DRM, or some specific firms, and some are getting better traction in their specific mark. Definitely, it can’t be the company itself, that says we’re doing a great job, obviously, there has to be an external verifier. It’s a little bit like with enforcement actions where a regulator says you need to get your governance risk controls in place, and you find a third party to see whether you are doing a good job. I think what what I also want to mention is so banks are providing some of these sustainable performance target, they called SBTs. To to the issuer to look at his SBTs. And what the issue or Stan do, depending on how sophisticated they are, I would say they look for a party to say verify or do the right thing, et cetera. I, you remind me so your other question was around ?
Michael Waitze 18:37
Is there a blockchain or distributed ledger technology aspect that then allows us to do financial inclusion in a way that we couldn’t do it before, particularly for these types of bond issuances? Right, because it’s a new stuff. So do you have a new issue as well?
Lapman Lee 18:51
So I think on the one hand, yes, I don’t recall the exact name. But I’ve seen examples, also from the Bank of International Settlements around that you get a fraction of a sustainable bond using Blockchain one, you reach a broader audience that can get a slice of that sustainable bonds, which is good. And are you ever used and plus using Blockchain technology, you can also reduce the cost. There’s a lot of there’s a lot of advice law firms, accountants that need to, in a traditional balance need to come together. So that’s improve increases the costs. So I’ve seen examples of of using Blockchain to optimize that process a bit more sharing information. So the cost of those bonds issuing those bonds will be lower meaning that there will be more of these bonds that can be issued which if you don’t use blockchain, it will be non economical, economically less feasible to do so. Plus now because you can slice and dice that bond into parts. It’s easier for you and I or other investors to do the right thing without putting out a humongous amount of money. So if we’re seeing some of that internal product, Blockchain is also helping, in general, once we get information from the environment, but that’s probably separate question to share that amongst parties for us, because I see that there’s a lot of duplicated demand for information if blockchain can relatively easy share the tool to share information amongst parties in a transaction, that would be useful.
Michael Waitze 20:40
Can we talk about data for a second? Again, from your perspective, what role is data playing in the sort of distribution, the growth of products and this whole idea around insurance and InsurTech that we’ve been talking about?
Lapman Lee 20:58
I think the word jumps to mind with me is trust. So in terms of ESG, investment product, you and I, I mean, we, we have to work for our money. So if we want, even though we want to do the right thing, we need to be clear that the money that I’m spending on this particular bond is actually being used with my values in mind. Yeah, I think what I see is, so what I see here is that in terms of data, and data and technology can help build that trust with the investor. And why do I say that? If it’s there is a lot of data out there. For example, if I invest in a bond that says that invest in forestation in the Amazon, for example, I don’t know where it’s happening. And yes, sure, I can rely on the external verifier that says, Yeah, sure. This is what is actually being used with that money. So that’s the use of proceeds. But I also want to use see, what is the effectiveness of the use of my proceeds, as well. And I think what comes into play are, are all the internal things to remote sensors, the satellites that you have out there, to see what is happening with the money spending on fruit that bound on a particular project. I think that that’s one part. I also see technology through artificial intelligence tools, big data to put information together, because it’s rarely the case that you have a full set of information that’s accurate, it’s consistent dynamic. There will be gaps, there will be gaps in your in your datasets, and to make proxies and to still get a relatively accurate picture. And of course, hopefully, through machine learning, the data set will improve over time. I think data and technology can help build that trust. But as we said, with Blockchain, it will also be helpful for investors, not just the institutional ones, but also the retail investors to get access so it gets access to dynamic data, environmental data that’s out there. And it’s useful as input for your sustainable finance products, whether it’s insurance or banking or investment management toggle product. Plus, it helps provide access to me as an as an investor. Plus, it helps all these corporates to to fill in accurately all their ESG reports that they are required to do by regulators, whether it’s the exchange or whether it’s a specific financial services recognize that there is a good potential significant potential for tech firms FinTech InsurTech, to work on that and insurance have a specific role there to play as well.
Michael Waitze 23:54
Interesting. I want to talk about financial literacy a little bit, again, from your perch at the Hong Kong Hong Kong FinTech Association, right. Hong Kong itself is a is a well, wealthy Island. Right. And literacy is driven, obviously, through education. When you’re having conversations about inclusion, because I don’t think you can have inclusion without literacy. What are those conversations like at the FinTech Association? And how do they then bleed into the other things you’re doing both for traditional fintechs but also for the insurer Tech’s as well?
Lapman Lee 24:27
Thank you. If you look at the education side with the understanding of technology, what we’re looking at is what we try to do as as well, a number of our members or co chairs in our committees, they are also having similar academic roles to myself. What we do is we talk with the university we talk with the regulators in terms of how do we make people accept more technology in their lives? And of course, there’s the issue of I talk about trust again, but digital trust cybersecurity. So what is how is my data being used? And of course, it’s then a question is not like to me, you just give out all your data, you don’t care. To me it needs to be transparency, what if I provide this data? Do I get, let’s say, a better offer for an insurance product or banking products? And can I also stop that? Do you know you as the company using my data? Think if if there is that clear process, that’s good. I think that those conversations are there. All universities, I guess, have now a program that in some shape, or form, are teaching people around FinTech or not just FinTech, maybe the underlying technologies that are not just applicable to financial services, it’s, I mean, IoT and satellites. They are applicable to many things. And I think if I look at insurance, it’s probably more than two plates are investment and risk management. Those two are the two plays, where all these different technologies can come together. And let’s say shape and for the future of insurance, I would say,
Michael Waitze 26:11
the last thing I’ll ask you, before I let you go is I think you’ve mentioned cybersecurity and security as well. Do you think there’s a natural tension between the technologists that are developing these new services and systems and the people that are concerned with cybersecurity, which means that they’re trying to keep up with all this development to help protect it from getting attacked?
Lapman Lee 26:32
Yeah, as always a double edged sword. I guess, when we talk about open API’s, we talk about more and more sharing of data. Yeah, yeah, sure. It’s sort of a battle of different parties. And I think the regulators play an important role, different markets. I think most markets have a data privacy watchdog in their country, or markets. And I think they have an important role to to play. Sometimes not all markets are or the people in those agencies might not be as sophisticated because just to the world is moving very fast. So they also need to keep up. So I do see more regulators speaking with other regulators around, what do you see what do I see sharing best practices? So we’re seeing a bit more of debt? So it’s not easy. It’s going to go back to your question. Yeah, there is that ongoing tension between need for data protection versus the need of unlocking the power of your data for products and services and better customer experience, etc?
Michael Waitze 27:42
Yeah, and I think it’s relevant for the FinTech ecosystems at scale. Yeah, and for the InsurTech and insurance businesses as well. I’m gonna thank you very much Lapman Lee, a professor at Hong Kong Polytechnic University and Chulalongkorn University and advisor to startups. Tons of experience, also a board member of the Hong Kong FinTech Association. Thank you so much for doing this today. I really appreciate it.
Lapman Lee 28:05
Michael, great to be here and I look forward to continuing the dialogue in the future.