Oct 6, 2017 - Source: PwC 2017 20th CEO survey â Insurance industry. Percentage of .... Leveraging existing data and a
October 6th 2017
“Digital transformation that works” Impact of InsurTechs on the insurance industry
Agenda
1
Introduction and setting the scene
2
Insurtech Overview
GERO MATOUSCHEK Partner Strategy&, Munich
[email protected]
RIAD conference
3
How to react
▪ Lead partner at Strategy& for digital strategies and transformations in FS across Europe ▪ Lead partner at PwC for insurance strategy across Europe
PwC │ Strategy&
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1. Introduction and setting the scene
PwC │ Strategy&
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According to the most recent CEO survey, Insurance is the industry most afraid of disruption and concern is on the rise Percentage of insurance CEOs that are ‘extremely concerned’ by the threat posed by… 50% 40% 30% 20% 10% 0% 2013
2014
Changing customer behavior
2015
2016
2017
Speed of technological change
Source: PwC 2017 20th CEO survey – Insurance industry PwC │ Strategy&
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Technological change and changing customer behaviors worry insurers the most
28% Of insurance CEOs believe technology will completely reshape competition in the industry over the next five years
PwC research suggests just 27% of consumers trust their insurance providers
58% And another 58% say it will have a significant impact PwC │ Strategy&
74% of insurance CEOs, more than those in any other industry PwC surveyed see lack of trust in the business as a threat to growth 7
As a result, insurers felt under threat of InsurTechs, but increasingly identify the opportunity to partner with InsurTechs as innovation leverage % business that insurers believe at risk to standalone FinTech companies within 5 years* 2017
2016
• Strong culture of self-reliance and stability as one of the biggest impediments to a closer collaboration between incumbents and InsurTechs
56% 48%
• Mindset shifting, perception of InsurTechs changing: ̵ still recognized as major market force… ̵ … but also seen as pivotal driver of the insurance market transformation
20% 22% 10% 6%
1%-20%
21%-40%
• Short-term disruptive effect often overestimated, while long-term transformational effect underestimated
41%-60%
3%
0%
61%-80%
1% 0% 81%-100%
• Insurance CEOs see InsurTechs as enablers and partners, and to lesser extent as competitors
* Does not add to 100% due to other responses included “No risk” and “Do not know” Source: PwC Global FinTech Survey 2017 (Insurance) PwC │ Strategy&
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2. Insurtech Overview
PwC │ Strategy&
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Interest and investment in InsurTech are growing Global InsurTech quarterly Financing (# Deals, Deal volume in $ million)
64
$1’852* 59
43
40 31
30 23
22
19
25
$422 $135
28
$369 $180
$132
38
38
34
$985
$783
$398 $295
$172
$230
$271
$283
• Over $1bn invested in InsurTech in each of the last 3 years • Investment in Q2 2017 was the second largest ever recorded • Deal volume growing quickly year-on-year
Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q1 16 Q1 17 Q2 17 *Funding in Q2’15 includes a $931m capital raise by ZhongAn Insurance, a Shanghai-based internet insurance company Source: PwC Corporate Finance LLC, InsurTech Insights, July 2017 PwC │ Strategy&
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We see six key categories of InsurTech innovation Categories of Insurtech innovation
Business Opportunities In which areas do you see the most important impact to your business from FinTech
External opportunities
Meet changing customer needs with new offering
Product
Customer
Internal opportunities
Enhance interactions and build trusted relationships
Sales and Distribution marketing
Leverage existing data and analytics to generate deep risk insights
Underwriting
Utilise new approaches to underwrite risk and predict loss
Augment existing capabilities and reach with strategic relationships
Claims
Meet changing
75% customer needs with new offerings
51% Leverage existing data
Customer service
Enable the business with sophisticated operational capabilities
and analytics
Enhance interactions
Ecosystem
42% and build trusted
relationships Enhance business with 42% sophisticated operational capabilities
Source: PwC Global FinTech Survey 2016 PwC │ Strategy&
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InsurTech is maturing rapidly, with propositions focused across the value chain External view
Internal view
(Businesses that look outwards from the insurer)
(Businesses focused on the insurer’s own business model)
• Enhancing interactions and building trusted relationships • Meeting changing customer needs with new offerings • Leveraging broader ecosystems
• Enabling the business with sophisticated operational capabilities • Leveraging existing data and analytics to generate risk insights • New approaches to underwriting risk and predicting loss
percentage of applicants
A more even mix of InsurTech propositions is emerging 35%
30%
2017 2017
25%
2016 = External view 2016 = Internal view
20% 15% 10% 5% 0% meet changing customer needs with new offerings
leverage existing data & analytics to generate risk insights
enhance interaction & build trusted relationships
enable the business with sophisticated operational capabilities
new approaches to underwriting risk & predicting loss
leveraging broader ecosystems
Source: PwC & SBC, Ready For Take Off, , (2017) PwC │ Strategy&
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Trends related to these 6 main areas of innovation illustrate how the InsurTech ecosystem is expanding the opportunity space for Insurers (1/2) Meeting changing Customer needs with new offering ▪ ▪ ▪ ▪ ▪ ▪
Reaching the Un(der)insured Spread of value propositions for microsegments Leveraging peer to peer networks Emerging solutions for shared economies Usage & Behavior based personalized insurance New models of holistic advise (Robo-Advice)
PwC │ Strategy&
Enhance interactions and build trusted relationships ▪ ▪ ▪ ▪ ▪
SoMoLo Omni-channel experience Online aggregation and comparison Targeted engagement & Retention models Consolidation of Self directed services Education & Shared Knowledge
Augment existing capabilities +reach with strategic relationships ▪ Rise of B2B2C Platforms ▪ Ecosystem Partnerships
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Trends related to these 6 main areas of innovation illustrate how the InsurTech ecosystem is expanding the opportunity space for Insurers (2/2) Leverage existing data and analytics to generate deep risk insights ▪ ▪ ▪ ▪
Connected car and automated driving systems Connected Health Remote data capture and analysis Quantification of emerging risks
PwC │ Strategy&
Utilize new approaches to underwrite risk and predict loss
Enable the business with sophisticated ops capabilities
▪ Sophistication of preventative insurance models ▪ Granular Risk and/or Loss Quantification ▪ Pay-when-you-need service
▪ Crowdsourcing & Democratization of information ▪ Robotics and Automation in core insurance ▪ Advanced Fraud prediction
14
3. How to react?
PwC │ Strategy&
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Insurers see significant challenges in collaborating with InsurTechs Insurers self-perceived ability to co-create with innovators
Challenges faced by insurers dealing with FinTech companies and vice versa FinTechs
30%
Incumbent insurers IT security
30%
Differences in management & culture Differences in business models Differences in operational processes
17 %
IT compatibility Differences in knowledge/skills Requried financial investments Regulatory uncertainty Insurance
Asset & Wealth Banking & Management Capital Markets
60% 50% 40% 30% 20% 10% 0%
Top 3 Challenges
0% 10% 20% 30% 40% 50% 60%
Source: PwC Global FinTech Survey 2016 PwC │ Strategy&
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Still Insurers are increasingly partner with InsurTechs % of incumbent insurers engaging in partnerships with FinTech companies
45% 28%
2016
2017
58%
30%
21%
monitor InsurTech
buy the services of
establish start-up
in order to
InsurTech com-
programs to
respond
panies to improve
incubate InsurTech
competitively
their operations
companies
and services
14%
11%
8%
set up venture
Acquire
do not deal
funds to fund
InsurTech
with
InsurTechs
companies
InsurTechs
Source: PwC Global FinTech Survey 2017 (Insurance) PwC │ Strategy&
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Recent activity shows specific examples of how incumbents are responding
PwC │ Strategy&
MassMutual and AXA Join Forces
Allianz Invests in Lemonade
Aviva Ventures Leads Series A Funding
H&Q Asia Pacific joined MassMutual and AXA in a Series B funding round for One, Inc., a SaaS platform for policy administration, billing, and customer relationship management.
Allianz invested an undisclosed amount into Lemonade, an AI-focused InsurTech startup that donates underwriting profits to charity.
Aviva Ventures partnered with Munich Re to accelerate the growth of Neos Insurance, a connected home insurer that combines smart home technology with property insurance coverage.
Munich Re Invests in OnDemand Insurance Munich Re announced a strategic partnership with Trov along with its $45m investment. Munich Re’s partnership will aid Trov, an on-demand insurance provider, in international expansion.
Hiscox + Bold Penguin Bold Penguin’s commercial insurance portal will gain access to real-time price quotes through its partnership with Hiscox.
Nationwide and Sure Partner to Sell Renters Insurance Nationwide will offer its renters insurance through InsurTech startup Sure’s real-time mobile app. The partnership will allow users to purchase a Nationwide policy and pay their premiums through the Sure app.
Markel Corporation + Next Insurance
Punter Southall Partially Leads £180 investment
D.A.S partners with Traity
Markel Corporation partnered with Next Insurance’s small business insurance platform to offer narrow and specific insurance products to niche markets.
UK life insurance start-up Gryphon raised a £180m (~$230m) round from investors Punter Southall and Leadenhall Capital to redefine the life insurance industry.
Partnership around “landlord income protection insurance to people with nontraditional forms of employment, without credit scores, young, students, immigrants, or people who hate to pay high deposits to their landlords”
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Two imperatives to manage the digital challenge and to take advantage of InsurTech innovation I
Digital transformation of core business
Build pure digital insurance models
II
+ ▪ ▪ ▪ ▪
PwC │ Strategy&
Building on existing assets and capabilities Focus on loyalizing existing customer Recognize but stretch limits of legacies and stakeholders „to the max“ Leverage emerging technology and partner w/ insurtechs to optimize business model
▪ ▪ ▪ ▪
New, purely digital No legacies, no limits (cannibalization) Attract new customers Take advantage of typical hurdles for insurtechs to get a full insurance license 19
I Approach digital transformation core business Digital transformation…
….that works ▪
Become one of the drivers within your industry
▪
Build on your unique and stable core assets
▪
Fundamentally anchor around the customer
▪
There is only a start, not an end
▪
Impact required now, not in 1-2 years
▪
All management levels in driver seat but transformation governance required
▪
Top down not good enough – conditions necessary for expected change across all levels
Customer
PwC │ Strategy&
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Next to Data analytics and Mobile, “Advanced automation” moved towards the most important investment area regarding emerging technologies Relevant areas of technological investment of insurance companies over the next 12 months 84%
Advanced Automation 58% 34%
33%
33% 12%
11%
8%
Public cloud infrastructure
Biometrics and identify mgmt.
“Blockchain”
Internet of things (IoT)
Cybersecurity
Artificial intelligence
Robotics (RPA)
Mobile
Data analytics
22%
Source: PwC Global FinTech Survey 2017, Insurance Sector Participants PwC │ Strategy&
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A step-wise advanced automation approach is required to industrialize innovative technology for maximum benefits Automation Technology differentiation
Automation roadmap ▪ This is the beginning of the automation journey, with adoption opportunities all along the way
Automation Complexity
Input: Structured, unstructured patterned, unstructured free form Automation quality: rule based, machine learning, Interactive, Cognitive
High
POC
POC
Pilot
Pilot
Rollout
Medium
POC
POC
Pilot
Pilot
High
Medium
Volume of Operations PwC │ Strategy&
Rollout
Rollout
Low Low
Time
Rollout
▪ It will start with improved productivity, improving what we do today
▪ Increasingly it will be about innovation, applying the insight we get from data to actions delivered through robotics – doing things we haven’t even thought of yet ▪ The journey will demand more from our human capital – higher skilled people to adapt to large scale change 22
RPA is a great opportunity to realize significant cost efficiency within a short time frame
Cost reduction
Compliance and Quality
“Business Case”
Talent management
RPA benefits Flexibility
PwC │ Strategy&
▪ Pay-back within 12-18 months 24 × 7 × 365
Customer and employee satisfaction
▪ Cost reduction potential of RPA >-30% per process
▪ No changes of IT landscape required to realize RPA benefits
“Time To Market”
23
Two imperatives to manage the digital challenge and take advantage of insurTech innovation I
Digital transformation of core business
Build pure digital insurance models
II
+ ▪ ▪ ▪ ▪ PwC │ Strategy&
Building on existing assets and capabilities Focus on loyalizing existing customer Recognize but stretch limits of legacies and stakeholders „to the max“ Leverage emerging technology and partner w/ insurtechs to optimize business model
▪ ▪ ▪ ▪
New, purely digital No legacies, no limits (cannibalization) Attract new customers Take advantage of typical hurdles for insurtechs to get a full insurance license 24
Currently several pure digital insurance companies are in development Level of insurance disruption
Aggregator
Integrator
Pure digital insurance companies
Insurance
▪ New players occupy the frontend and aggregator different product providers
▪ New business models around „Customer Episodes“
▪ E2E integrated, often segment-specific D2C insurance players ▪ Pure digital models with high Partnering flexibility („API insurance“)
Partner
Build PwC │ Strategy&
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There are clear advantages for insurance incumbents to build pure digital insurance models Incumbents advantages to build pure digital models ▪ Underwriting knowledge: Startups do not have loss history and claims experience. Therefore, they lack the traditional data required to price risks effectively. Some InsurTechs try to overcome this by seeking to leverage Big Data, third party data vendors and open source data to compensate. ▪ Capital: Startups seldom have the capital strength which is needed to comply with the regulatory requirements for a (re) insurance company. Returns on equity aren’t attractive for a venture capital firm and there are easier ways to invest. ▪ Regulations: Strong and continuously stiffening regulations pose a significant hurdle for startups. They require lots of knowledge, robust infrastructure and high investments in compliance early on. ▪ Customers’ trust: While consumers are open to new solutions and services, they highly appreaciate3 the brand and recognition of established (re)insurance players. Source: Swiss Re Sigma report 2014, e-commerce defined as direct internet& telemarketing. Various sources including national insurance associations and supervisory authorities, Swiss Re Economic Research & Consulting calculations PwC │ Strategy& Confidential
Digital Opportunity depends on market E-commerce Purchase, Overview (selected countries, in %) Spain Belgium Italy
3 4 2 1
7
Pure-online Purchase Germany Liability
35
Additional health
34
Car
33
Home contents 37
UK
24
Legal protection
10
Accident 19
China
Homeowners Private Pension
Motor
Property
8 6 0
Online purchase
Source: Swiss Re Sigma report 2014, GfK market research report 2016, purchase period Sept 2015-Sept 2016 Comparison:y UK motor: >44% (~20% direct internet, ~24% comparison platform) NL motor: >46% (new business)
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Success depends on a distinct business case - Example Germany for set-up of a digital insurance model Key Drivers for positive Economics
Cost ratio Operations (%) 1 3 ,8
Industry average
7 ,2
8 ,5
HUK (Cost Leader)
New BM (50 Mio.)
5 ,4
4 ,1
New BM (100 Mio.)
New BM (200 Mio.)
Business Case (€ m) Book of business Cost (HR, IT, Other)
4.5 2.9
13.4 2.9
23.1
31.3
3.2
3.5
39.4
47.2
3.8
4.0
0.62
One-time invest (IT) Ebit w/o invest PwC │ Strategy& Confidential
0.03
0.03
-2.6
-1.2
-0.1
2017
2018
2019
0.03
0.03
0.03
0.5
1.5
4.2
2020
2021
2022
Low initial Costs & Investment ▪ Lean team set-up (~20), digital processes E2E ▪ Partnership with attractive standard application/suite provider ▪ Lean proposition offering for start Scalable Technology Top Line Scaling ▪ Partnerships with digital platforms, pools, etc. ▪ Factory services 27
Example for pure digital insurance model for LPI: Dextra differentiates through holistic online services offering and competitive pricing Overview
Business Model
Illustration
Product/Idea ▪
Innovative insurance company, specialized in private and corporate legal expenses insurance
▪
Lean product portfolio of favorably priced standard policies with a broad scope of coverage
Business Model
Key Facts/ Background ▪
Founded in 2012
▪
Employees: 28
▪
Footprint: 1 country (Switzerland)
▪
Funding: Exclusively funded by its four founders
▪
Premium income: 11 mio. CHF
PwC │ Strategy&
Clients/ Partners ▪
▪
Clients are private persons, small businesses as well as corporates A sales network of brokers, agents and other partners complements direct online sales channel
▪
Convenient online end-to-end conclusion of insurance contracts
▪
Streamlined administration and digital (e.g. claim handling) as well as automated processes (policy issuance) reduce costs and ensure high service quality
▪
Favorable cost structure is reflected in competitive pricing, flexible contracts and broad risk coverage
▪
Unbiased advisory services due to company independence
▪
Holistic digital service portfolio for private as well as corporate customers offers maximum convenience in the conclusion and management of insurance contracts
USP
28
To fully scale the InsurTech partnership opportunity, ecosystem building capabilities are yet to be developed “Digital ecosystem”
Call for action… •
Technology platform
• Ecosystem owner • Product provider (primary proposition) • Service provider (primary proposition) • Enabling service/ data provider
• •
•
Proposition portfolio centred around customer needs/ episode Network of (>= 2) companies/ institutions that interact to create a combined client proposition, thereby generating value for each partner Enabled by a technology platform which connects all elements (primary products/ services, enabling services, data)
PwC │ Strategy&
New customer access platforms, pressure on margins and decline of traditional insurance revenues
… and opportunity
Typical challenges •
Value proposition: scalability and customer experience/ engagement
•
Partnering: agile and flexible partnership deals with the right partner
•
Operating model: support within own organization, access to required resources and partnership management/ internal capabilities to be a good partner (technical and organizational)
•
Overall significant change management challenge
Establishing/ expanding digital ecosystems is an opportunity for insurance companies to •
Strengthen their value proposition, thereby increasing loyalty of existing customers and attracting new customers
•
Access new customer platforms and address new segments
•
Benefit from (Fintech) innovation
•
Gain new data insights, thereby lowering their risk
Self-perceived ability to co-create with innovators 30%
30%
Asset & Wealth Management
Banking & Capital Markets
17 %
Insurance
29
Building and expanding into new ecosystems is a challenge for most insurers – key success factors help overcome these Typical pitfalls & challenges Designed proposition lacks customer engagement, scale and satisfaction (value-add below expectation)
Closing of partnership deal lacks agility, quality and speed, while driving high costs
Success factors (Strategy& experience) • Take the customer’s lense… ̵ … when generating/ discussing new ideas: What are needs around the object/ risk insured or linked to our core capabilities? How relevant is the ecosystem? ̵ … when evaluating and prioritizing ideas: is there a clear value-add that can be easily communicated? Is the customer journey seamless and convincing? ̵ … when designing the detailed proposition and MVP: prototype, test with customers • Build ecosystem deal capability and consistently track relevant opportunities • Diligently screen potential partners against clearly defined criteria to ensure you choose the right partner • Develop procedures/ standards that assure quality and speed, adapt partnership standards anticipating requirements & characteristics of start-ups
Lack of support within own organization and unsatisfactory B2B partnership management
• Dedicated ecosystem team understanding and pushing needs within organization • Ensure you have the right supporting operating model in place incl. clear responsibilities, specific incentive structures and processes – allowing variances from “traditional” processes, e.g. regarding data security and compliance
Too much focus on identifying the opportunity, too little focus on growing the partnership
• Cluster partnership opportunities (strategic must-have vs. tactical revenue upside), and manage & develop specifically • “Test & learn” especially with start-up partners with tactical revenue upside • Build in flexibility in start-up partnerships and adapt as they mature, but also exit partnerships if they do not scale
PwC │ Strategy&
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Thank you for your attention.
© 2017 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.
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