Are insurers ready
10 human capital
trends in insurance Innovation shakeup hits Singaporeâ€™s life insurance industry
8 ways to make cyber insurance more sustainable
KPMG, EY, PwC
CEO OF THE YEAR:
TAPAN SINGHEL OF BAJAJ ALLIANZ
HOW DID PROFITS GROW 46% IN HALF A DECADE?
FROM THE EDITOR Publisher & EDITOR-IN-CHIEF production editor GRAPHIC ARTIST
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This issue features the coverage of the inaugural Insurance Asia Awards held in July 2016 in Singapore, where we awarded 12 insurance companies from seven Asian countries. All the nominations were judged by: Mohit Mehrotra, regional head of financial services, strategy & operation at Deloitte; and Dominic Nixon, partner, risk assurance, at PwC.
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MICA (P) 249/07/2011 No. 67
INSURANCE ASIA 1
CEO INTERVIEW Bajaj Allianz CEO reveals how their profits grew at a 46% CAGR in the last FIVE years
FIRST 04 Putting your best insurance plan FWD
20 The 10 human capital trends
26 Eight ways to make cyber
08 Insuring the uninsurable
28 Insurance trends in Asia 29 A six-step framework
24 Spending big time on big data
06 Insure ‘til you drop
Country report Innovation shakeup hits Singapore’s life insurance industry
05 Are insurers in Asia ready for blockchain?
Event Coverage Insurance Asia Awards 2016 kicks off in Singapore
insurance more sustainable
for strategic change
30 The future of insurance in a digital world
31 From hype to reality: Examining the industry’s transformation
32 Emergence of the InsurTech ecosystem in Asia
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co-published corporate profile
Transamerica Life Bermuda: A call for greater transparency in life insurance
Amidst difficult economic conditions, exacerbated by global events such as Brexit and China’s slowdown, the life insurance industry has seen a decline in consumer trust.
Marc Russell Lieberman
“It is crucial for life insurers to invest in honest, transparent partnerships with their partners.”
Based on data from Ernst & Young 2014 Global Consumer Insurance Survey: Reimagining customer relationships, released 12 November 2014
Based on data from Spectrem Millionaire’s Corner Survey, 2014
inancial crises in recent years have resulted in mounting financial volatility and pressure on company margins, and complex terms and conditions in policy contracts have raised questions. As disillusionment grows, stakeholders are demanding greater transparency in the way businesses operate and engage with customers. We see a desire from both consumers and business partners for more frequent and meaningful conversations. Ernst & Young’s 2014 Global Consumer Insurance Survey: Reimagining Customer Relationships1 supports this – across the world, the level of consumer trust in insurers stands at 70%, compared to 84% for supermarkets and 82% for banks. The survey suggests that this is due to low contact between insurers and customers, with 44% of consumers reporting no communication from their insurance providers in the last 18 months from the date of the report. On digitisation Accustomed to the ease and accessibility of digital, consumers are better informed and engaged in key decisionmaking processes, and expect increased transparency from their advisors on product specifics, fee structures, and financial recommendations. This is especially critical among (Ultra-) High Net Worth individuals (HNWIs). They want to know where their money is going, and that their investments will maximise returns in the long run. For High Net Worth (HNW) customers in particular, Spectrem’s Quarterly Report on Advisor Relationships and Changing Advice Requirements2
demonstrates that low transparency lessens retirement confidence, and may encourage customers to switch advisors and providers. The report shows that only 48% of HNWIs felt that most financial advisors were professional and knowledgeable. This led to an overall perception of limited engagement and desire for greater transparency. In light of greater choice and transparency, life insurers are facing the challenge of how to differentiate and market their products effectively. Establishing stakeholder trust The Monetary Authority of Singapore’s decision to shut down BSI Bank, which was implicated in 1MDB investigations, underscored the importance of internal controls, surveillance, and compliance. As more international regulations are implemented across the board, it is heartening that key industry players are committed to championing greater transparency. It is thus crucial for life insurers to invest in honest, transparent partnerships, where business partners share a common dedication to high quality standards. Raising the bar At Transamerica Life (Bermuda) Ltd., we strive for transparency in all interactions with our customers and partners. With over 80 years of heritage in Asia and a strategic focus on the (Ultra-) HNW market, we believe in sharing our expertise of the region with our stakeholders, and keep partners updated on industry trends and insights. Pledged to top performance, we strive to select partners with specialised HNW experience, that share and demonstrate our mutual commitment to provide
exceptional customer service. This takes place through clear, regular communication with our business partners. For instance, regular conversations and meetings with our brokers and bankers are a must. We share our latest business growth, operational updates, and customer service feedback, including our yearly Distribution Satisfaction Survey results. We expect as much transparency from our stakeholders as we do ourselves, which means regular reviews with key business partners to ensure the highest quality standards. Optimised customer delivery On the customer front, we recognise that product information and updates are a priority to consumers. We create simple, straightforward products that facilitate customer understanding from application to purchase and claims. All product information and updates are promptly shared on our website. Our business partners are also privy to our exclusive platforms to access and share marketing materials with clients on the go. All interaction with customers are strictly governed by our service level standards to ensure responsiveness to queries. It’s important that life insurers understand that profits and growth are optimised when the customer is the focus. This is especially so as consumers grow increasingly informed, and appreciate operational and product transparency. Ultimately, it is by aligning business goals with customer interests that we can deliver powerful, innovative solutions that help protect wealth legacies for generations to come. Transamerica Life (Bermuda) Ltd. is authorised to do business in Hong Kong and Singapore. INSURANCE ASIA 3
FIRST take on exciting challenges like rock climbing or sky diving.” FWD has combined these key product features with comprehensive healthcare and financial protection for both injuries and accidents, as well as advanced infectious diseases and even common ailments such as food poisoning. It also covers adventure sports, from sky diving to rock climbing and scuba diving, ensuring people can enjoy adventures that life offers, without worrying about unpredictable risks.
an online battle
Based on a research by Digimind that studied public mentions collected around 21 brands on social media in Southeast Asia from 12 September to 12 October 2016, the top 5 B2C insurance brands on social are: AIA, Manulife, Prudential, AXA, and Allianz. According to the study, Facebook and YouTube are the most popular social media networks for publishing and distributing owned content. About 50% of the companies on these networks have at least 3 owned profiles, usually dedicated to a specific country of operation. Only one company did not have any owned profiles on Facebook, Twitter, Instagram, and YouTube. While majority of the chatter around the brands studied was on Twitter, the platform with the most reach was news publications. Facebook and YouTube are the most popular platforms, with 19 out of 21 brands studied having an owned channel on each platform. Who’s winning? The research further revealed that AIA had the biggest community, thanks to their 1.34m followers across Facebook, YouTube, and Instagram. Prudential was the most engaging, with 656,760 interactions on their owned channels on Facebook and Youtube. AXA was the most active on social, with 667 publications on Facebook, Twitter, Instagram, and YouTube. A significant number of brands studied have false or unverified pages linked to them on Facebook and Instagram. Tokio Marine grew the most in terms of community size, by 26%. In terms of interaction Cigna had the most growth, by 906% to 96,140 interactions across their social media pages. AXA grew the most in terms of social media activity, by 10% to top the companies studied. 4 INSURANCE ASIA
Are you insured when doing extreme sports?
Putting your best insurance plan FWD
hen you are a new insurer trying to crack one of the most over serviced insurance markets in Asia, you have to be innovative. So it will be interesting to see how Singaporeans take the new personal accident policy which has many of the features of travel insurance but applies domestically to things like cancelled concerts due to haze or other financial losses if one comes down with Dengue, Zika, or presumably other mosquito-borne diseases. The insurer introducing the new plan, FWD, was launched in Singapore in 2016, and bills itself as the country’s only fully direct and online life and general insurer. A new personal insurance Abhishek Bhatia, chief executive officer, FWD Singapore says, “As a new insurer, we believe there is a need to create a new kind of personal accident insurance that meets the needs of the modern generation, including young parents. Our view is that people should be able to buy tickets for events, without worrying about them being cancelled due to haze, and also be reassured that they are protected should they contract infectious diseases such as Zika or Dengue. We also want them to know that FWD has their back when they
Using FWD Singapore’s new online and mobile sites, people can select their personal accident insurance policy in under a minute.
Further coverage Recognising that phones, tablets, and computers are lifestyle essentials for people today, FWD will cover the cost of replacing them if they are damaged in an accident that also causes personal injury. FWD also ensures that people are financially protected from third-party liability. For example, if you injure someone when riding a bicycle or cause an accident when crossing the road. Using FWD Singapore’s new online and mobile sites, people can select their personal accident insurance policy in under a minute. Furthermore, 90% of claims can be submitted electronically, without the need to complete any paper forms, ensuring that when you need to claim, it is dealt with quickly and conveniently. Established in Asia in 2013, FWD is the insurance business arm of investment group Pacific Century Group. Outside of Singapore, FWD Group spans Hong Kong & Macau, Thailand, Indonesia, the Philippines, Singapore, and Vietnam, offering life and medical insurance, general insurance, and employee benefits across a number of its markets.
FIRST The distributed ledger technology (DLT) has seen 2,500-plus patent filings and over US$1.4b in investments in just three years.
Blockchain has captured the financial sector
Are insurers in Asia ready for blockchain?
he first time most people heard about blockchain was when Bitcoin burst onto the scene, allowing people to exchange a virtual currency with the record of ownership distributed over the Internet rather than centralised. This technology is more broadly known as distributed ledger technology (DLT) and has seen 2,500-plus patent filings and over US$1.4b in investments in just three years, according to Deloitte. At least 24 countries are investing in it, 50 corporations have joined consortia around it, and 90 banks are in discussions about it worldwide. One prediction has 80% of banks initiating projects on it by next year. DLT has captured the imaginations, and wallets, of the financial sector, but now even insurance forms are going to have to look at how to integrate it into their processes. What is DLT that it could make all this pain worthwhile? Simply put, it’s a technology that allows parties to transfer assets to one another in a way they can trust, through a computer network, without relying on intermediaries. Transactions are recorded in a public, tamper-proof repository organised in chronological blocks. An asset is represented as a token. All parties to a transaction may access this repository. It enables
transparency, immutable records and allows autonomous execution of business rules, allowing superior automation capabilities. For insurers the first place to start may be in DLT-automated claims processing which has the potential to reduce fraud and improve assessment through historical claims information. Submitting a claim Commercial property and casualty (P&C) insurance (covering generally commercial motor, property, and third-party liability) is the second biggest category of insurance, trailing life and health (L&H). In 2014, global premiums for P&C insurance totaled US$728.6b, growing at a rate of 5.1%. Claim and loss processing are major sources of friction in this valuable market, however. In 2016, they made up 11% of insurers’ overall written premium (revenue). On closer examination, it’s easy to understand why. To submit a claim, the insured typically must complete a complex questionnaire accompanied by physical receipts of all the costs incurred by the loss. Brokers mediate this process, sometimes creating delays. Insurers, for their part, rely on third parties to provide asset, risk,
and loss data in the adjudication and underwriting process. Collecting the data is a manual effort and the data may not be updated to boot. Assessments take place by insurer, and the information isn’t shared amongst insurers. This raises the potential for fraud and manual rework. Claim processing Then there’s claim processing. A loss adjuster must review the claim for completeness, finding support for the claim, validating the loss coverage, gauging the scope of the liability, and calculating the amount of the loss. DLT, on the other hand, can streamline the claim submission process by using smart contracts or even smart assets. Broker intervention becomes unnecessary and processing times shrink. Meanwhile, business rules encoded in a smart contract relieve loss adjustors from having to review every claim. With a record of prior claims and asset provenance on the distributed ledger, suspicious behavior is that much easier to identify. The technology also facilitates the integration of trusted data sources, reducing the need for manual review. Even payment is automatic, again using smart contracts to deliver without back office involvement. DLT’s potential has attracted attention from both incumbent institutions and new entrants in the commercial P&C insurance sector. Whatever one’s views on Bitcoin are, its underlying technological mechanism definitely will need to pay attention to.
DLT use cases in financial services, July 2016
Source: BMI, HSBC & Standard Chartered 2015 Annual Reports
INSURANCE ASIA 5
Insure ‘til you drop
Hey insurers: No robo-advisors here
ong Kong plays host to over 40 million mainland Chinese visitors each year, many of whom come to visit Disneyland, sightsee, and shop for products like baby powder that are hard to get in the mainland. One other thing they have had on their shopping list is insurance policies issued in Hong Kong but which cover them on the mainland. Adding on a trip to an insurance centre has become so much a part of trips to Hong Kong that insurance offices are the fastest growing sector in taking up office space in the territory. Surging demand In 2015, mainland Chinese visitors spent USD 4.1b on insurance policies, 30% higher than the previous year and almost 400% more than 2011 levels. To meet the surge in demand, insurers have added an extra 20,600 people to their headcounts over the past five years (2011-2015), with 12,500 people being added in the last two years alone, according to Denis Ma, head of research at property firm JLL. “Although the mainland government has tightened restrictions on the use of third-party payment providers to buy insurance products in the city, including the restriction on mainlanders using their China Union Pay debit cards to
More people ‘shop’ for insurance plans in Hong Kong
buy policies, the underlying factors driving growth in this industry remain unchanged.” Regulation Bloomberg noted that in one tightening move in February, mainland regulators limited the amount of money that residents could transfer to buy certain policies using China UnionPay Co. credit or debit cards. The response: some buyers swiped cards hundreds of times to make a single purchase. One reason mainlanders are buying insurance policies in Hong Kong is that it is a way to move money out of the country legally, and that demand is one thing that is unlikely to change.
New appointees in Asia’s insurance companies Swiss Re Corporate Solutions appointed Jonathan Rake as head of Southeast Asia, effective October 1st. Rake will assume responsibility for accelerating business growth in the region. Based in Singapore, Rake will report directly to Fred Kleiterp, CEO, AsiaPacific at Swiss Re Corporate Solutions. Also in Singapore, Chubb appointed several new executives in November: Koh Wei Lee as division head of accident & health (A&H) and personal & business insurance (PBI); Kevin Xiong as the new head of agency; and Risa Wong as the head of Travel, A&H and PBI. Koh and Xiong will report to Adam Clifford, country president for Chubb in Singapore. MetLife appointed Lee Wood as CEO for its Hong Kong business. Wood will be based in Hong Kong and will report to Damien Green, regional executive of MetLife Asia. Wood has over 15 years of industry experience. 6 INSURANCE ASIA
In 2015, mainland Chinese visitors spent US$4.1b on insurance policies, 30% higher than the previous year.
A survey by Transamerica Life Bermuda found 75% of clients who favour insurance-related solutions tend to be moderate or moderately conservative in their risk tolerance, which has seen demand for life insurance as a low-risk wealth management tool rise. Notably, almost two of three wealth managers surveyed say that childbirth or succession planning is the key trigger event most likely to lead to a conversation about life insurance. This is followed closely by family death or serious medical issues, and significant changes in business ownership. Amongst the three most important criteria that clients look out for when selecting a life insurance provider, product pricing emerged top (73%), followed closely by financial strength (67%) and brand reputation or heritage (56%). Two out of these three factors are trust-based. Growth stimulators The survey also revealed that the most significant factors stimulating growth of life insurance across private banks include the need for client estate, legacy planning and health coverage (36%) and increased relationship manager education (30%). On the other hand, the most significant factors that inhibit growth of life insurance across private banks include unsuitable product terms and pricing (37%), and lack of client or relationship manager understanding (28%). HWNIs also prefer personal service in spite of the trend of digitalisation. Out of the 455 respondents surveyed, a large majority (73%) indicated that their clients prefer to communicate with a relationship manager or private bank, and mostly prefer via phone.
INSURANCE ASIA 7
Insuring the uninsurable
nsurance has always been about risk assessment, but big data could mean some people are just too risky to insure at any premium, according to accounting association ICAEW. The ability to collect and use highly personalised data could mean factors like genetics, how active you are, or whether you need to drive at night means insurance products could become unaffordable — or insurers may refuse to take on certain risks. Based on experience of a range of audit firms with clients across the insurance industry, ICAEW also points out that insurers can no longer assume that they have the best data on their customers. “Insurance protects us against risks we face in everyday life but can’t necessarily bear the cost of it alone. It depends on groups of people being exposed to similar risks and seeking similar cover. Increasingly, technology means there is so much data about our own individual risk factors that it no longer makes sense for companies to group us together,” says Philippa Kelly, ICAEW’s financial services assurance manager. “But this means some people may be so high risk they are priced out of insurance altogether and we get ‘uninsurables’. This can easily be due to factors people can’t control. These might have to do with where you live, Survey
Singapore battles increasing health claims
Singapore’s Life Insurance Association has been hard at work trying to figure out how to reduce escalating claims costs for Integrated Shield Plans, which continues to place upward pressures on health insurance premiums. The average IP claims incidence rate has been growing at approximately 9% per annum, and the overall average bill sizes incurred by IP insurers has increased at approximately 0.6 to 8.7% per annum depending on the medical provider chosen. IP insurers paid out claims amounting to $488m in 2014 alone. Key recommendations include the adoption of published fee benchmarks or guidelines to provide a range of professional fees which will help bridge the information asymmetry gap which currently exists between healthcare providers and consumers, mitigate cases of over-charging by providers, and empower insurers to detect inflated claims.
8 INSURANCE ASIA
genetic conditions, or new developments like cyber risk. Society needs to decide what we do about that. Should regulators intervene to ensure insurance remains accessible even to people who represent a higher risk,” she adds. Customer incentives For products like health and life insurance some companies are offering incentives to customers who provide them with more data. For example, policy holders who use wearable devices like Fitbits or apps to share information about their health and activity may be offered lower premiums. According to Kelly, “This can make insurance products more precise and so potentially better value for customers. However, if such data sharing became a condition of getting a policy, we would need to be careful about who is being unfairly disadvantaged.” As well as helping insurers, technology is also enabling consumers to cut out the “middle man” entirely by doing their own research online rather than relying on brokers. This can make the process cheaper, but customers have to rely on their own knowledge and experience to decide what is best for them. Kelly notes that websites mean it is easy and free to compare prices,
Insurers can no longer assume they have the best data
so customers think they are getting a good deal. But simplified information means that customers might miss important details and not get the value they expect. “People might pay too much, by overestimating the value of their property, or not get the cover they want if the customer does not understand what is and is not protected. The problem is that most people only find out when it is too late and their insurer can’t pay out,” says Kelly.
Claims incidence rate
National hospital admission rate vs average IP claims incidence rate
Source: Life Insurance Association Singapore
Claims incidence rate of IPs with different ward entitlements National hospital admission rate vs average IP claims incidence rate
Source: Life Insurance Association Singapore
INSURANCE ASIA 9
insurers’ digital transition
Are you ready to take a risky move?
Insurers must embrace investment risk
eak economic growth and historically low negative rates reinforce a trend towards greater risk appetite for insurers despite geopolitical uncertainty, a BlackRockcommissioned study has found. Against a backdrop of geopolitical uncertainty, depressed bond yields, and anaemic economic growth, BlackRock’s fifth annual global insurance survey of 315 senior insurers, conducted by the Economist Intelligence Unit, found that just 8% of respondents plan to reduce their exposure to investment risk, against 47% who expect to increase it and 46% who plan to maintain over the next 12-24 months. This result signals a slightly greater level of caution than in 2015, when 57% of insurers globally planned to increase investment risk against 38% who expected to maintain it. Investment risks Weak global growth has been a key area of concern in past polls, with around 50% citing this as one of the most serious issues in their investment strategy since 2014, but it now firmly overlaid with a sense that the political environment has become much more uncertain. Geopolitical risk was cited by 51% as one of the most serious risks to investment strategy this year, up from 25% in 2014. A persistent low interest rate 10 INSURANCE ASIA
environment was the most cited serious market risk to investment strategies, according to 59% of respondents, followed closely by asset price volatility (57%). While these results pre-date the Brexit vote in late June, an additional flash poll of more than 100 insurers found the anticipated effects of Brexit are seen as reinforcing pre-existing trends, particularly the notion that interest rates will remain lower for longer. Insurers’ willingness to assume greater investment risk contrasts with the large percentages who also expect to increase allocation to cash and government bonds. 50% of insurers said they planned to increase their cash holdings in the next few months, up from 36% last year, while 47% of insurers globally still expect to increase allocations to government bonds – the highest figure across the entire range of fixed income assets.
57% of insurers globally planned to increase investment risk against 38% who expected to maintain it.
Source: Bain digital insurer of the future benchmarking; Bain/Research Now and Bain/ SSI global NPS surveys
Co-published corporate profile
Peak Re eyes narrowing the Asia protection insurance gap Four-year old Peak Re proves that young does not mean inexperienced.
he reinsurance industry is undergoing rapid and fundamental change, with much of this change happening in Asia. Old business models have been observed to be breaking down and becoming irrelevant as a new generation of buyers sprouts. Peak Reinsurance Company Limited (Peak Re) is one of the organisations well-aware of the ongoing changes. “Our customers see inefficiency and redundancy in the provision of reinsurance, and they are driving these changes,” says Peak Re CEO Franz-Josef Hahn. “Perhaps the most significant trend for me is the need to be relevant to our customers and the markets we serve – how to be relevant, and stay relevant is also our biggest challenge.” “Each day, we want to pay our claims swiftly and efficiently so that in turn, our clients can pay claims quickly,” he continues. “That is the essence of the insurance system – the ability to pay legitimate claims to businesses and individuals on a speedy and efficient basis.” He notes that the company has an important role as a reinsurer to help narrow the protection insurance gap. Indeed, Hahn says that gap in Asia is a societal issue which his company can help change. New angle Since Peak Re began almost four years ago, it has developed strong local and regional know-how, and understands what clients need. “Our industry tends to be very traditional, but I detect changes being driven here in Asia,” Hahn says. “The distribution
channels are changing, the products are changing, and the way consumers buy things is also changing. Hence, we need fresh young minds coming from a refreshing perspective.” For Hahn, the industry shall no longer focus only on numbers, but to work on the customer communications, and getting some of the complex insurance ideas across in a very simple manner. “We are proud to be an Asiabased reinsurer headquartered in Hong Kong. We are close to the emerging markets in the region as these are markets which everyone wants to get into. This gives us a significant advantage,” he says. Ambitious and able Though just a young player on the block, it has already been making its mark in the industry. Peak Re is now one of the top 50 global reinsurance groups by gross written premiums, as ranked by AM Best, the leading industry credit rating agency. Peak Re started as a property and casualty reinsurer, but has since expanded its business and broadened its suite of services in four years in order to meet clients’ needs better. It obtained a long-term reinsurance (life) license in 2014, and also strengthened its offerings with credit and surety business, and it now has an aviation business license, too. “Peak Re is also committed to engaging in constructive private-public dialogue,” says Hahn. “Asia Pacific is our home, and we try to
Franz-Josef Hahn CEO, Peak Re
contribute to narrow the protection gap that exists in this region.” It also aims to continuously grow its business as this will allow the company to continue to diversify its portfolio, both organically and via strategic opportunities. Hahn says the company’s Zurich branch is in the process of being transformed into a fully-licensed subsidiary, and Peak Re has just completed its first M&A, with the acquisition of 50% stake in NAGICO, the Caribbean insurer. Out to prove excellence Peak Re’s focus for the immediate future is to consistently diversify its portfolio, and deliver value to shareholders, aligned with growing its customer base as a trusted partner. “We would like to be seen as a mature business partner even though we are still a young company,” says Hahn. “We want to grow wisely, and to build and enhance our brand, and we will do so through recognition from our clients and peers.” Being nimble, close to clients, and adapting to the major changes taking place in reinsurance and the world economy are the focal points for Peak Re as it moves forward. Hahn muses that even though the market is stubbornly soft, there are still lots of opportunities in Asia.”However, only the reinsurers who are well equipped with the right qualities – knowing the market, clients, how to pay claims quickly as well as being agile and effective – are the ones who will survive and prosper,” he shares.
“Peak Re’s focus for the immediate future is to consistently diversify its portfolio.” INSURANCE ASIA 11
My obsession with my customers and employees drive my business decisions. The idea behind every business decision is how it is going to make a difference in the lives of the end users, be it the customer or my employees.
Predee Daochai Tapan Singhel President MD & CEO Kasikornbank Bajaj Allianz General Insurance 12 INSURANCE ASIA
Bajaj Allianz CEO reveals how their profits grew at a 46% CAGR in the last five years Not succumbing to the price war and a risk-based underwriting model has indeed paid off.
t the inaugural Insurance Asia Awards held in July this year, Tapan Singhel, managing director and CEO of Bajaj Allianz General Insurance bagged the most prestigious award of the night â€“ the CEO of the Year. In an exclusive interview with Insurance Asia, Singhel talks about the market trends and challenges in the region, and how Bajaj Allianz grew in size and scale over the years. How is the insurance sector affected by the big push towards digitisation in the financial services industry? Digitisation has transformed the insurance business model and has enabled insurers to directly sell online to customers which helped facilitate the sales of personal lines of business and also the creation of simple product and purchase mechanisms. Insurers equipped the sales force with tablets and opened virtual offices which eliminate the need to set up brick-and-mortar offices, thereby reducing costs and enabling better distribution and access to newer markets. It also ensures that the collection of data is also systematised, enabling insurers to use more analytics in underwriting and curbing frauds. Self-service platforms that did not exist a few years ago have empowered our customers and business partners to take insurance-related decisions independently while making available the solutions anytime and anywhere. Today, customers can lodge the claim and the company can immediately assess the loss and settle it directly with the customer, which ensures that the company has better engagement and constant connection with its customers. What are the biggest challenges facing the insurance sector today? Pricing has been a major challenge for the industry which has consistently seen mounting underwriting losses over the last few years. An increased impetus on bringing down organised frauds to some extent and sustainable pricing will help counter the high claims ratio seen by the industry. The general insurance industry also needs to step up its focus on designing simpler and more customercentric products to increase penetration in personal lines of business. Non-life insurance penetration in India stands at merely 0.8%, lower than other developing countries such as Malaysia and Thailand. What do you consider as your biggest achievements so far as the CEO of Bajaj Allianz? The last five years as the MD & CEO of one of Indiaâ€™s most customer-focussed companies has been an incredible journey. My endeavour has been to take our customer initiatives to the next level and create an environment that fosters innovation and growth even within the company. For me, achievement is when we have created a solution that has benefitted the customer and has made
their transactions faster and more seamless. Continuous engagement with our customers beyond insurance by making Bajaj Allianz a one-stop shop for solutions to all the unforeseen problems faced by the customers has been the biggest achievement. Today, we provide our customers with a gamut of value-added services apart from insurance solutions, and this has enabled us to take our relationship with them beyond insurance. The digital revolution and the culture of innovation within the company has not only empowered the employees, but has also resulted in many customer-centric industry-first initiatives such as our robust digital distribution network, mobile-based selfservicing platforms and even new-age products, the latest in the offing being a mobile solution that will enable the customers to settle their own motor claims. What progress do you think the company has made under your leadership? Bajaj Allianz General Insurance is the only insurance company in the Indian market that has made consistent profits despite the challenging business environment. The companyâ€™s profits have grown at a CAGR of 46% in the last five years while paying claims worth over US$2,237m during the same time period. Not succumbing to the price war and a risk-based underwriting model has helped the company improve its financial performance year on year and deliver to its customers in times of claim. Today, we are not only one of the most profitable insurance companies in India, but also have the highest solvency in the industry. Consistent focus on digital initiatives has also enabled us to take our footprint to over 600 new towns and cities across India. We have grown in size and scale by keeping our customers at the centre of every initiative we have taken. What are your key business philosophies? My obsession with my customers and employees drive my business decisions. The idea behind every business decision is how it is going to make a difference in the lives of the end users, be it the customer or my employees. I believe that happy employees make customers happy. How do you feel about winning as the CEO of the Year at the inaugural Insurance Asia Awards? I am extremely humbled and honoured to receive this recognition and would like to take this opportunity to thank the members of the jury and Insurance Asia Awards for bestowing this accolade. I would like to thank my employees and our business partners for their unstinted support, together with whom we have been able to achieve many a milestones. It also is a reminder that we have a huge responsibility towards continuing to innovate and push the benchmark for our customers. INSURANCE ASIA 13
Country report: singapore
Is the insurance industry struggling?
Innovation shakeup hits Singapore’s life insurance industry
Singaporeans now have more convenient choices to purchase direct and online insurance products, but the industry is grappling with increasing healthcare costs and outdated regulation.
hen FWD launched a fully direct and digital approach to life insurance in Singapore, it was a response to the gaping hole it saw in the traditional agency model predominant in the island. Disruption is rising as a strategy amongst insurance players as Singaporeans become more connected and mobile, and become better equipped to purchase insurance products online and directly from providers. Financial technology firms are also cranking out new tools and business models to improve online insurance products, although the government is rolling out regulation to make sure consumers are better protected as the industry continues to post steady growth. The boom in life insurance also comes with worries over escalating health insurance claims. “We see a general trend that in more developed markets, there 14 INSURANCE ASIA
The insurance industry lags the banking, travel, and retail industries in terms of adapting to the digital world.
is an increasing appetite amongst consumers to purchase directly, and we are therefore reflecting that in Singapore,” says Abhishek Bhatia, CEO at FWD Insurance Singapore. “With the increased connectivity and mobility that Singaporeans have, combined with their growing preference for online commerce, it seemed like a natural decision for us to choose a direct-to-consumer model.” Bhatia cited a recent FWD research that the insurance industry lags the banking, travel, and retail industries in terms of adapting to the digital world, with only 52% of 600 Singaporeans surveyed thinking that insurance is well adapted compared to banking (100%), travel (92%), and retail (77%). “The local insurance market is predominantly made up of players with traditional agency channel. Whilst this model might have worked
for them, we studied local market trends and identified opportunities we felt we could address better,” says Bhatia of their decision to go with a digital and direct-to-consumer approach. “Singapore is one of the most digitally and mobile connected countries in the world, and we know Singaporeans will continue to appreciate the choice of being able to buy what they need online,” he adds. FWD is planning to invest S$500m to grow its presence in Singapore over the next five years and introduce other insurance policies that reflect the needs of modern Singapore, which Bhatia says will be defined by a growing middle class that increasingly understands the value of insurance and financial technology (fintech) firms. “Fintech has helped to drive innovation and digital transformation in the insurance industry,” says
Country report: singapore Bhatia. “The fintech story in recent years has concentrated on leveraging new technologies and disruptive business models to enable the development of new products and services for previously underserved markets. The same dynamics have been driving change in the insurance industry.” Direct purchase insurance The concept of directly buying insurance has been gaining steam since April last year when the Monetary Authority of Singapore (MAS) also introduced the direct purchase insurance (DPI), a class of simple life insurance products sold by companies without commissions and financial advice. “The introduction of DPI by the MAS is an excellent initiative, offering simple, effective, easy to understand products that are perfect for most Singaporeans, especially those purchasing life cover for the first time,” says Bhatia. MAS, in collaboration with insurance industry and consumer groups, also launched the compareFIRST web service (www.comparefirst.sg) which lets Singaporeans compare various life insurance products, including premiums and benefits, to make a better decision before their purchase. Despite the positive developments to enable Singaporeans to purchase insurance products online and direct from providers, many still find the process difficult and daunting. “While the DPI product is simple, the application process is not which has put many people off,” says Bhatia. DPI and the move towards online insurance products is part of a larger trend of virtual healthcare, especially in Asia where both life insurance demand and technology use are firmly growing. “The increase in virtual healthcare is another interesting trend, with increasing demand for digital technology to deliver healthcare at the click of a button,” says Derek Goldberg, managing director, Southeast Asia at Aetna International. “This is of particular interest for Singapore and other Asian markets, due to the availability and extensive use of technology across the region, as well as the need to meet the
challenges of access to care for a rapidly developing and demanding population.” The life insurance industry in Singapore continues to report steady growth with an 8% increase in total weighted new business premiums for year-to-date third quarter 2016 (YTD 3Q16) compared with the same period in 2015, according to latest data from the Life Insurance Association Singapore (LIA Singapore). Total weighted new business premiums amounted to S$2,33m for the first three quarters of the year. In the YTD 3Q16, the industry also recorded an 11% increase to S$730.8m in weighted single premiums, with more than threefourths (78%) comprising of single premium par and non-par products, while less than one-fourth (22%) were single premium linked products. YTD 3Q16 also saw a 6% increase to S$1,600.1m in weighted annual premium. Approximately 10,000 more Singapore residents obtained additional health insurance coverage, mostly through Integrated Shield Plans (IP) and/or riders, and approximately one in two individuals in Singapore (2.87m lives) are covered by health insurance with total premiums amounting to S$1,367m, as at 30 September 2016. “The continuing increase in the number of lives covered by IPs and IP riders show Singapore residents’ growing appreciation of the necessity for health insurance and the choice of additional benefits provided by IP plans and IP riders,” says Dr Khoo Kah Siang, president of LIA Singapore. Skyrocketing healthcare costs With life insurance coverage climbing in Singapore and a barrage of disruptions that are changing how the industry operates, the challenges of skyrocketing healthcare costs and regulatory changes loom over the near-term horizon. “In as much as life insurers need to play their part, unless collective and specific efforts are made by all the different parties, Singapore will not be able to effectively tackle escalating healthcare costs that are beyond
Khoo Kah Siang
the usual incremental increase, and therefore escalating health insurance claims,” says Khoo. The industry-led Health Insurance Task Force has forwarded some key recommendations to reduce healthcare costs while maintaining the quality of care like including the publication of medical fee benchmark. It has also been proposed to include pre-authorisation to provide clarity to the policyholderpatient on the level of coverage they have for treatments before they proceed with any medical procedures. “The purpose of these recommendations is to curb overtreatment and/or over-consumption which, in turn, are expected to mitigate the inflation of healthcare claims,” says Khoo. Goldberg argues that the rising cost of claims and over-utilisation of medical treatment are one of the significant challenges for health insurers in the region at present. “Coupled with the increased emphasis that regulators are placing on market stability and integrity, insurers will need to look to innovative solutions to build a sustainable future,” he says. Goldberg cites the MAS making significant enhancements to its insurance regulatory framework, leading to proposed amendments to the Insurance Act of 2012. Meanwhile, Bhatia reckons the regulatory framework in Singapore is very robust, but he points out that some of the regulations need to be amended to accommodate the wave of disruption sweeping the industry. “Current industry guidelines were framed for a face-to-face business model and might not be fully appropriate for an online or direct distribution model,” says Bhatia.
New business (individual life & health) total weighted premium
Source: Life Insurance Association Singapore
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Insurance Asia Awards 2016 kicks off in Singapore
he inaugural Insurance Asia Awards was launched this year under the Asian Banking and Finance brand, with 12 winning insurance companies from seven Asian countries. All the nominations were judged by: Mohit Mehrotra, regional head of financial services, strategy & operation at Deloitte; and Dominic Nixon, partner, risk assurance, at PwC. “We had such a wide range of interest for tonight’s awards, so thank you all very much. I’d also like to thank all our judges who patiently went through all the nominations,” said Tim Charlton, publisher of Asian Banking and Finance. Below is a list of all the winning companies. We hope to see more awardees next year. Again, congratulations!
CEO of the Year, Tapan Singhel of Bajaj Allianz
WINNERS OF INSURANCE ASIA AWARDS 2016 Aetna International New Insurance Product of the Year - Singapore AIA Company Limited International Life Insurer of the Year - Thailand
AXA Affin General Insurance Berhad International General Insurer - Malaysia New Insurance Product of the Year - Malaysia Bajaj Allianz General Insurance Co. Ltd. Domestic General Insurer of the Year - India New Insurance Product of the Year - India COFACE Digital Insurance Initiative of the Year - Singapore Asian Credit Insurer of the Year Expat Insurance Local Broker of the Year - Singapore FWD Life Insurance Corporation Digital Insurance Initiative of the Year - Philippines Marketing Initiative of the Year - Philippines
Paul-Henri Rastoul and Hengky Djojosantoso of PT AXA Life Indonesia
Hong Leong Assurance Berhad Domestic Life Insurer of the Year - Malaysia Krungthai-AXA Life Insurance Public Company Limited CSR Initiative of the Year - Thailand Peak Reinsurance Company Limited Asian Reinsurer of the Year PT AXA Life Indonesia Digital Insurance Initiative of the Year - Indonesia Transamerica Life (Bermuda) Ltd. International Life Insurer of the Year - Hong Kong Tapan Singhel - Bajaj Allianz General Insurance Co. Ltd CEO of the Year 16 INSURANCE ASIA
Franz Josef Hahn of Peak Re addresses the audience
Emmanuel Nivet and Rebecca Tan of AXA Affin General Insurance Berhad
Ran Wang, Fiona Lee and Hanna Tantoco of Aetna International
Roche Vandenberghe, John Sion, Blaes Cordova, Diet Lagura and Kristopher Lim of FWD Life Insurance Corporation
Marc Lieberman of Transamerica Life (Bermuda) Ltd.
Loh Guat Lan of Hong Leong Assurance
Tapan Singhel of Bajaj Allianz General Insurance Co. Ltd.
Fabien Conderanne of Coface Singapore
Saifon Sutchasila and David Korunic of Krungthai-AXA Life Insurance Public Company Limited
Mark Norman of Expat Insurance
Franz Josef Hahn of Peak Re INSURANCE ASIA 17
interview: asean insurance council
Insurers set to meet at the ASEAN Insurance Summit in Indonesia
Insurance and infrastructure
Evelina F. Pietruschka, secretary-general to the ASEAN Insurance Council, discusses how insurance can play a bigger role in infrastructure financing.
SEAN’s leading insurers and regulators are set to meet at the 2nd ASEAN Insurance Summit in Yogyakarta, Indonesia, to discuss a range of issues that will enhance the industry as the region integrates. The biannual summit was launched in 2014 and its initial aim was to increase the awareness of the ASEAN economic community blueprint. The ultimate goal of the summit is to propose to the stakeholders to strategically position the insurance sector as an economic pillar in the ASEAN development. Evelina F. Pietruschka, secretary-general to
The ultimate goal of the summit is to propose to the stakeholders to strategically position the insurance sector as an economic pillar in the ASEAN development.
ASEAN Insurance Council, told Insurance Asia magazine that in the west, the insurance sector is the same size as the banking sector, so it is able to maximise its role in economic development. “We see that the bottleneck of the ASEAN economic development is infrastructure. That is one of the key issues we have to address and this is where insurance can play a bigger role.” “This year is more strategic because our goal is to strategically position the insurance sector to play a bigger role in the ASEAN economic development. There will be a lot of discussion between the private
sector, the regulators, and the government. We have at least five ASEAN regulators talking about how they prepare themselves for the integration,” she added. The integration is part of the 2025 blueprint. It is governed by the ASEAN Framework Agreement on Services, and it will discuss payment and settlement integration, capital account liberalisation, and capacity building between different countries. “Right now individual countries are developing themselves, but the talk is that by 2025 people can buy insurance products cross border,” she said. The Council has 13 members and will also address the progress of the recommendations from the previous summit, such as tax treatment for insurers. “In some countries, they implement tax incentives for policyholders to buy long-term insurance products which can be used to build long-term funds. Thailand and Singapore have implemented these tax laws, whilst Indonesia and the Philippines have not,” said Pietruschka. Another issue is using insurance premiums to invest in infrastructure. “In Korea the government implements favourable tax treatments for insurance companies that invest in infrastructure,” noted Pietruschka. Microinsurance is also on the agenda with a workshop driven by the Philippines, and there will be a workshop from the Singapore College of Insurance for ASEAN’s young insurance managers and sales senior executives. Another activity of the Council is to give grants to the lesser developed countries like Cambodia, Laos, and Myanmar.
Evelina F. Pietruschka is the Chairman of Wanaartha Life, an Indonesian life insurance company, since March 2011. Prior to her chairmanship, she was the President Director of the company since 1999. Pietruschka was elected as Secretary-General to ASEAN Insurance Council in November 2011, an affiliated civil society organisation where previously she was actively involved with as Council Member and Head of its education sub-committee. As the Secretary General of AIC, she has beefed up the Council’s activities and reintroduced annual meetings in order to make AIC a more active organisation. She has in mind several new initiatives for AIC and some of them are already being implemented since 2013 up to now. The first one was the launch of AIC Permanent Secretariat in Kuningan, Jakarta which aimed to transform AIC into an independent and professional organisation and be able to support its members even better. 18 INSURANCE ASIA
co-published Corporate profile
Find out how Expat Insurance expands its coverage beyond homegrown workers A local insurance firm looks beyond borders to serve the insurance needs of expats. would get involved at the very early stages of these multinationals coming to Asia and support their insurance needs,” says Warner.
Danielle Warner Founder of Expat Insurance
ompared to several companies that have grown and thrived over the years, seven years may come across as a relatively short period to claim corporate success. But for an insurance executive based in Singapore, seven years proved to be an “eternity”—and turns out, more than enough to establish her insurance firm in the market. “It does [feel like forever], but in a good way, because I’ve also seen how far we’ve come in seven short years,” confesses Danielle Warner, founder of Expat Insurance, a company that specialises in providing professional insurance advice and services to expatriates in Singapore. Expat Insurance, a multi-line and independent brokerage focused on delivering insurance protection to the high net worth expatriate and globally mobile workforce markets in Asia, was founded by Warner, then an art gallery manager who newly relocated from New York. “Insurance is in my blood, and that’s something that has always been the case. My mom, my aunt, my husband, my cousin, everyone has always been part of the insurance industry. When I relocated from New York to Singapore 10 years ago, I recognised an opportunity for a specific market that seemed underserved at the time,” Warner shares. According to Warner, the people who visited her art gallery often raised questions on the insurance industry that compelled her to form Expat Insurance. “One of the first questions you get asked is ‘What do you do?’ And so for me, “What
do you do?’ has always had insurance within that reply. And so people would always say, ‘Oh, insurance! I don’t know where to go to find out about this, or find out about that.’ This experience, Warner shares, led her to “identify very quickly there was not a company in Singapore that was looking after the expatriate and multinational company community.” An opportunity tapped Interestingly, Expat Insurance traces its roots to a period of worldwide crisis: the aftermath of the 2009 global financial crisis, which wreaked havoc on Western economies and prompted several companies, including insurance firms, to shift their focus to Asia and set up shop here. “When we first started, the business was focused almost exclusively on private clients, but as the business grew, the focus really turned toward working with multinational companies that were either setting up or expanding across or into Asia. Following the financial crisis, many of the multinational companies in the United States, United Kingdom, Europe, and Australia started to set up companies and looked to bring either their headquarters or set up Asian operations, either in Singapore or Hong Kong as a base. And so we became a firm that
Insuring diverse labor pools As a company, Expat Insurance focuses on business insurance such as work injury compensation, professional indemnity insurance, director and officer liability insurance, SME business insurance, public liability insurance, and marine cargo insurance, to name a few. But what sets Expat Insurance apart from its insurance peers is its emphasis on serving a diverse clientele. “If you’re an employer that has a solely domestic workforce, we’re probably not best-suited for you. But for a firm that has a really diverse group of employees across a wide age demographic, a wide nationality demographic—those are the companies we can really utilise our knowledge and expertise to help companies structure, design, place, and administer their programmes in the longterm,” Warner advises. Moving forward, Expat Insurance is poised to continue expanding to serve more clients in Singapore’s insurance sector. “Two to three years forward seems quite short because of all the plans we’ve got, but I know you’ll definitely see us operating in this very same market and providing clients with integrated, holistic, and end-to-end service solutions, both in the private client space and the employee benefits space,” Warner predicts. “I definitely can say our business will focus our growth on the employee benefits space and continue to add value to our niche client base. We are also looking at bringing some new insurance products to the market here, that’s definitely in the cards. We also want to focus on growing the business here in Singapore and also in Hong Kong in the next two to three years,” she adds.
“There was not a company in Singapore that was looking after the expatriate and multinational company community.” INSURANCE ASIA 19
analysis: human capital trends
Leadership remains a perennial issue
The 10 human capital trends in insurance Deloitte unravels these evolving trends that, if left unaddressed, could prevent insurers from successfully adapting their business models to meet the changing demands of the market.
he insurance industry is experiencing change at a rate that has not been seen for at least a generation. The regulations that govern the industry are changing at the same time that innovations, like telematics and wearable health/fitness devices, continue to shift the way insurers analyze customer behavior as well as price and sell their products. Customer expectations for how they will interact with their insurers also continue to increase, making it more important than ever that insurers provide a high-quality customer service experience. Additionally, external forces are putting pressure on the traditional insurance business model, including but not limited to the rise of ride sharing and other “sharing economy” services, shifting generational preferences, and the reduced cost of entry for new market players. All these factors combined create a “perfect storm” for insurers and make it more critical than ever that they evaluate and tackle the associated human capital challenges, which if left unaddressed could prevent them from successfully adapting their business models to meet the changing demands of the market. In this point of view—inspired by Deloitte’s Global Human Capital Trends Report—we will discuss 10 human capital trends that, although common across several industries, will contemplate and opine on the unique implications for the insurance industry. 20 INSURANCE ASIA
Executives-inwaiting note a lack of access to leadership training, which creates an obstacle to assuming leadership roles.
1) Leadership: Why a perennial issue? Insurance sector executives consistently rate leadership as a top human capital concern. Given the many factors contributing to a volatile landscape in the insurance sector—including regulatory uncertainty, an increasingly challenging cyber environment, and evolving customer needs—having effective leaders who can provide strategic clarity is crucial. This conclusion is reinforced by a 2015 survey conducted by Deloitte, where 87% of insurance respondents agree that leadership is an “important” or “very important” issue. Yet, only 33% believe their leadership pipelines are “ready” or “very ready” to lead and respond to these business challenges. Currently, a majority of executives across industries say their direct reports lack the skills needed to join the C-suite, citing a “lack of personal ambition and motivation” as a perceived deterrent. To compound the issue, executives-in-waiting note a lack of access to leadership training, which creates an obstacle to assuming leadership roles. These sentiments reflect a need to develop leadership at all levels across organizations. This is especially pertinent for insurers that provide a variety of products to institutional, commercial, and individual consumers, as developing leaders for the enterprise is critical, not just leaders within the silo of a function or business line. To do so, insurers can begin by creating a leadership strategy
analysis: human capital trends that aligns to the enterprise’s business strategy. Second, insurers should leverage an unbiased, data-driven capability assessment process to identify high-potential candidates. Finally, a sustainable, enterprise-wide leadership program needs commitment from existing leaders across the organization. 2) Learning and development: Into the spotlight Learning and development issues have increasingly become one of the most important talent challenges for organizations today. Meeting the demand for new and rapidly changing skills in the workforce is complicated enough, and that task is made even more difficult by the pressures insurance companies are facing, including an increasing skills gap and a changing learning landscape. The insurance industry, in particular, faces a significant skills gap. According to a 2015 Deloitte survey, only a third of insurance companies consider themselves ready or very ready with the skills and abilities required to meet their business needs. For example, data sciences are increasingly essential to the business, but traditional product managers struggle with new pricing techniques and senior leaders are skeptical to abandon traditional approaches for new data-based decisions. Furthermore, agents struggle to explain these new quote breakdowns to customers. To address the most critical talent gaps in the organization, including voids left by the retirement of Baby Boomers from the workforce, many companies have turned to peer-based informal learning to supplement traditional, formal learning. Leadingpractice learning organizations leverage experiential methods to ensure knowledge transfer. In insurance, nearly two-thirds of companies surveyed indicate that they do a sufficient to excellent job in developing a culture of apprenticeship and on-the-job learning—a clear strength upon which insurers can build. 3) Culture and engagement: The naked organization Traditionally, an insurance company’s survival depended on its strict adherence to the industry’s conservative, risk-adverse philosophies. However, changes in the workforce, technology, and customer expectations require that insurers adapt quickly to help ensure their survival. Millennials now comprise the largest percentage of the workforce, technology has eliminated barriers Open talent economy continuum
Research shows that only 13% of the global workforce is engaged and more than half of the workforce would not recommend their current employer to a peer.
to entry, and customers have more influence than ever before. To meet these challenges, insurance leaders must make culture and engagement a top priority. Research shows that only 13% of the global workforce is engaged and more than half of the workforce would not recommend their current employer to a peer. Furthermore, insurance has one of the largest capability gaps of any industry, with 93% of insurance industry respondents in a 2015 Deloitte survey indicating that culture and engagement is their top challenge, but less than half reporting they are ready to face that challenge. When asked how long it has been since they updated their retention and engagement strategy, 37% of insurance industry respondents said that they are currently updating their strategy, 35% said they have updated their strategy in the past 18 months, 15% said that they did not have a strategy, and 13% said that their strategy is outdated. In spite of these lackluster results, a robust engagement strategy is vital to retaining a competitive advantage in an increasingly complex marketplace. 4) Workforce on demand: Are you ready? More than half of respondents to a 2015 Deloitte survey say the need for contingent workers will continue to grow during the next three to five years. Insurance companies remain no strangers to the changing world of work and have already begun feeling the shift in core workforce capabilities, from in-house to open-sourced or “borrowed” talent. This on-demand workforce offers companies the ability to tap into extensive networks of innovators, technical experts, and seasoned professionals. On the heels of a rapidly emerging Open Talent Economy, insurance companies are already exploring more sophisticated approaches to managing their entire workforce, including the hourly, contingent, and contract employees. The insurance industry is undergoing significant change and one emerging theme is innovation. Innovation is particularly impacting the industry through constantly evolving disruptive technologies that are changing how insurance companies function, interact, and provide services to their customers and, in turn, how they leverage their workforce to address changing customer demands. The second dominant trend in the industry is the growing importance of analytics in running the enterprise. Analytics have always been core to the insurance sector, however, with emerging technologies such as big data and automation, it has become even more fundamental to how businesses function and make decisions. Both these themes drive the need for thinking beyond the current walls of the organization to the external marketplace, especially to drive innovation and leverage the analytical mind power that exists in these networks. Insurance companies have traditionally developed talent in-house and allowed careers to span long-term growth trajectories. While some of these elements will remain, to leverage key analytical skills and drive innovation, insurers will need to go beyond the traditional models of developing talent. Given that most INSURANCE ASIA 21
analysis: human capital trends insurance companies have highly skilled employee populations, they tend to think a contingent workforce is not an issue that they will have to deal with; on the contrary, with new emerging talent and technology breakthroughs, more and more evidence is mounting that depicts new ways to perceive talent and manage it in the new world of work. 5) Performance management: The secret ingredient In many organizations, performance management processes are more focused on quantifying performance than they are on managing and improving performance. At worst, they are seen as a drain on time for direct managers, a source of frustration for employees, and a waste of time by HR professionals and organizational leaders who still don’t feel they have a good line of sight into the performance levels of their people. Organizations are rethinking their performance management philosophies in an effort to better align their processes with their organizational strategy and culture. Some organizations are beginning to move away from managing performance through traditional performance scores and annual/semi-annual performance reviews to a process where performance is managed on an ongoing basis through simplified, datadriven reports, regular feedback, and coaching. It has been years since many organizations rethought their performance management processes, which are often on the front lines of the employer/employee relationship. Performance management has the capacity to deliver on a wide range of organizational talent needs—from driving a high-performance culture and increased employee engagement, to helping identify and retain future leaders. 6) Reinventing HR: An extreme makeover It’s time to reinvent HR. In the fast-paced and changefilled business environment, top business leaders are calling for HR to deliver greater business impact and drive innovation. To accomplish these business imperatives, HR needs an extreme makeover. HR originally evolved from the “Personnel Department” in early generations, where it focused on implementing controls and “policing” the way organizations managed people. In those early days, the primary focus of HR was establishing policies, procedures, rules, and boundaries for the management of an organization’s “Human Resources” and the technologies utilized focused on the transactional elements of HR and payroll. Information about the workforce was limited and, where it existed, was maintained manually. The next HR evolution will likely feature a move towards “Business Driven HR” with HR supporting the business in a more strategic way, enabled by tight linkages between business imperatives and HR and people strategies. To meet the increasing complexity, economic pressure, global completion and other imperatives of today’s business, HR must transform itself to be more agile, business- and data-driven, and focused on managing the organization’s talent and employee engagement. 22 INSURANCE ASIA
The next HR evolution will likely feature a move towards “Business Driven HR” with HR supporting the business in a more strategic way.
7) Analytics: Stuck in neutral Insurance companies pioneered the use of advanced analytics to increase the narrow margins in their customer-facing business—across the industry, customer segmentation, pricing models, and risk analysis have become standard tools to drive revenue and minimize expense ratios. And yet internally, industry HR leaders still rely on the blunt instruments of headcount reduction and reactive performance management techniques to manage workforce costs and track employee performance. Insurance chief human resource officers are overdue to begin applying the same analytic rigor to the acquisition, development, and retention of employees as they do to the parallel stages of the customer life cycle. By embracing the analytics techniques of their colleagues in finance, marketing, and operations, HR leaders can help companies improve their bottom line and provide a competitive advantage in the war for talent. On the surface, HR leaders recognize the potential of analytics: 75% of respondents to the 2015 Deloitte Human Capital Trends survey—and 80% within the insurance industry—indicate that people analytics is “important” or “very important.” Unfortunately, only 8% of survey respondents believe that their organization is “strong” in this area—a marginal change from the response in 2014. Applied thoughtfully, HR analytics can help refine employee retention and engagement strategies, improve the quality of new hires, and even predict likely compliance risks. With regard to implementation of people analytics, HR leaders are currently stuck in neutral. 8) People data everywhere: Bringing the outside in In today’s economic culture, the competition between an organization’s talent and customer base is growing. To address this issue, organizations are realigning their data strategies, which now include people data (external data). By combining people data with internal data, leading organizations are experiencing organizational performance unlike anything they have seen before. The people data that organizations are gathering
Millennials now comprise the largest percentage of the workforce
analysis: human capital trends ranges from social tools (social networks, recruiting networks, and talent networks), to well-being tools (like wearable fitness trackers), and other tools created to collect human data. The data collected can determine how many “likes” and “dislikes” an organization receives based on a post on social media sites, providing new insight into their target audience/customer base. With this trend, insurers could leverage Fitbit or similar activity trackers to monitor a human’s behavior just as American car insurers are now monitoring the driving habits of their customer bases to make better investment decisions. All of this rests on an organization’s ability to not only leverage the data set from the major people data players including top social media platforms, but also to discover different ways to collect data that the major players don’t have. In the coming years, organizations will need to take advantage of available people data rather than risk incurring opportunity costs through inaction. These advantages include monitoring engagement, developing compensation strategies, building employment brand, and recognizing flight risk. An organization can either address this internally or turn to dozens of new startups that are building additional tools to help HR and other business professionals make sense of the mountains of data currently available. 9) Simplification of work: The coming revolution Employees report being more overwhelmed than ever as a result of pervasive technology and connectivity, globalization, increased administrative and compliance demands, and overly complex business processes and systems. In addition to these cross-industry challenges, the insurance sector is also experiencing employees who are overwhelmed due to increasing regulatory pressure and rapidly changing technologies. As a result of these challenges, insurers are finding it difficult to meet regulatory demands, keep up with technology, and compete for top talent. Simplifying the work environment by streamlining compliance processes, investing in technology, and prioritizing work-life
Intelligent technology on the whole has the capacity to help companies shift their focus rather than replace the human element.
balance can help insurance organizations address increased regulatory pressure, attract and engage employees, and ultimately become more competitive in the marketplace. One of the primary issues facing insurers today is increasing regulatory pressure. The industry faces heavy regulatory demands, and compliance processes are often complex, inefficient, and time consuming. Second, the insurance sector is struggling to keep up with rapidly changing technologies. Many companies have outdated, overly complex systems and processes that take up employees’ time, particularly in the HR and IT functions. Third, insurance organizations are struggling to recruit top talent, as the industry is unpopular among business students when compared to other options. In a 2015 Deloitte survey, 81% of insurance industry respondents indicated that their work environment and business practices are either “complex” or “very complex.” Insurance organizations can take several approaches to simplify aspects of their work environment. For instance, many insurance companies are already taking the initiative to streamline processes by investing in business process reengineering. As regulatory scrutiny expands to include HR, finance, and IT, insurers must enable the systems and processes in these functions to evolve. 10) Machines: Collaboration, not competition New technologies are changing the ways employers across industries do business, deliver products, and interact with their customers. A 2013 Oxford University study examining the impact of technology on hundreds of occupations in the United States found that nearly half of total US employment could potentially be automated over the next two decades. Yet, according to the results of a 2015 Deloitte survey, this is still an area with significant capability gaps—while the vast majority of respondents surveyed rank it as important or very important, they also rate their organization’s degree of readiness as firmly “not ready.” The potential for impact to the insurance industry by this trend is significant. Technical innovation is slowly but steadily becoming a significant factor as insurance companies gradually deploy machines to automate underwriting, provide insurance quotes online, and computerize customer service help lines. The general tendency is to view machines and automation as a substitute for human capital. However, the context of this trend tends to veer toward collaboration rather than competition. Intelligent technology on the whole has the capacity to help companies shift their focus rather than replace the human element. It allows employees to perform routine and tedious tasks more efficiently, pay more attention to challenging issues, and drive innovation. Emerging technologies are having a deep impact on the insurance industry, especially in terms of enhancing the skill sets of its workforce, who desire more innovative opportunities and want to move away from routine operations that can be managed via machines. An excerpt from Deloitte’s Human Capital Trends in the Insurance Industry report INSURANCE ASIA 23
analysis: big data in insurance create innovative new products or expand underinsured markets. Automakers, for instance, have a parts warranty exposure of more than $60 b per year, but they lack the capability to aggregate and analyze their claims data. We Predict, a UK-based company, built an analytics engine that accurately predicts parts failure, which it now licenses to the industry. This engine helps to improve supply chain efficiency (getting the right parts to the right dealer at the right time), reduce dealer fraud (detecting when repair rates are higher than normal) and raise consumer advocacy (by anticipating problems before they occur and notifying loyal customers in advance).
Big data yields big payoffs for insurance companies
Spending big time on big data Annual investment growth on Big Data analytics will reach 24% in life and 27% in property & casualty on average, according to a Bain’s survey.
ig Data and advanced analytics have begun to yield big payoffs for a few insurance companies. And insurers globally plan to spend more on it over the next three to five years, having seen the early successes of companies such as Progressive in personal property/casualty (P&C) lines and AIG in commercial lines. Annual spending growth on Big Data analytics will reach 24% in life and 27% in P&C on average, according to the 70 insurers surveyed for Bain’s benchmarking database in 2015. Opportunities expand every day with the proliferation of new sources, including sensors, Web chat logs and videos, as well as the 195,000 datasets that US government agencies have made publicly available. Yet most insurers have barely scratched the surface. Roughly one in three life insurers and one in five P&C insurers do not apply Big Data advanced analytics for any function, according to Bain’s benchmarking survey. On average, insurers apply 24 INSURANCE ASIA
The real value lies in avoiding signing on a client with a high probability of a $100 million accident down the road.
Big Data to approximately two functions, and many companies do not have a solid plan to wring value out of the data. Discussions tend to hover on data management issues and technology investment decisions, rather than focusing on the more important question of exactly how to derive wisdom from data in order to make better decisions. Big Data can improve decisions in the following three areas: A better customer experience: A life insurer wanted to reduce the cost and hassle of expensive blood tests required for prospective new customers. It found the right external health data to combine with the prospects’ answers on applications, and built an algorithm to predict which prospects would qualify without the test. The model allowed the company to eliminate blood tests for 30% of applicants. Innovation: Some insurance companies are using analytics to
Underwriting and claims: At a commercial lines carrier, underwriting due diligence took up to nine months, with on-site inspections of scores of properties owned by any large business applying for coverage. The carrier decided to review its own database of clients to uncover best safety practices and then check US federal data on safety violations as a way to screen prospective clients. While the analytics have helped the carrier reduce expensive initial site inspections, the real value lies in avoiding signing on a client with a high probability of a $100 m accident down the road. Turning to claims, Santam in South Africa wanted to reduce the fraud rate of its medical claims. Working with IBM, the company decided to analyze three years of customer data to hypothesize where fraud was most likely to occur. It then established a set of rules on claim type, amount and other red flags to segment incoming claims and take appropriate action. Claims data, combined with pathology results and customer questionnaires, has helped Santam forecast and prevent further health risks. The initiative saved $2.4 m in the first four months, and it has given Santam the ability to accelerate half of processed claims by putting them to straight-through processing. By Lori Sherer and Henrik Naujoks, Bain & Company
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analysis: Cyber insurance
Wariness of cyber risk is widespread
Eight ways to make cyber insurance more sustainable
With gross written premiums set to reach $7.5b by the end of the decade, how can insurers leverage the opportunities in cyber insurance?
yber insurance is a potentially huge but still largely untapped opportunity for insurers and reinsurers. We estimate that annual gross written premiums will increase from around $2.5 b today to $7.5 b by the end of the decade. Accordingly, many insurers and reinsurers are looking to take advantage of what they see as a rare opportunity to secure high margins in an otherwise soft market. However, wariness of cyber risk is widespread. Many insurers don’t want to cover it at all. Others have set limits below the levels their clients seek, and also have imposed restrictive exclusions and conditions – such as state-of-the-art data encryption or 100% updated security patch clauses – which are difficult for any business to maintain. Given the high cost of coverage, the limits imposed, the tight attaching terms and conditions, and the restrictions on claims, many 26 INSURANCE ASIA
“Although the scale of potential losses is on par with natural catastrophes, cyber incidents are much more frequent. ”
companies question if their cyber insurance policies provide real value. While underwriters can estimate the cost of systems remediation with reasonable certainty, there isn’t enough historical data to gauge further losses resulting from brand impairment or compensation to customers, suppliers, and other stakeholders. And, although the scale of potential losses is on par with natural catastrophes, cyber incidents are much more frequent. Moreover, many insurers face considerable cyber exposures within their technology, errors & omissions, general liability, and other existing business lines. As a result, there are growing concerns about both the concentrations of cyber risk and the ability of less experienced insurers to withstand what could become a rapid sequence of high loss events. So, how can cyber insurance be a more sustainable venture that offers
real protection for clients, while safeguarding insurers and reinsurers against damaging losses? We believe there are eight ways insurers, reinsurers and brokers could put cyber insurance on a more sustainable footing and take advantage of the opportunities for profitable growth. 1) Clarify risk appetite Despite the absence of robust actuarial data, it may be possible to develop a reasonably clear picture of total maximum loss and match it against risk appetite and tolerances. Key inputs include worst case scenario analysis. For example, if your portfolio includes several US power companies, then what losses could result from a major attack on the US grid? What proportion of claims would your business be liable for? What steps could you take now to mitigate losses by reducing risk concentrations in your portfolio to working with clients to improve safeguards and crisis planning? Asking these questions can help insurers judge which industries to focus on, when to curtail underwriting, and where there may be room for further coverage.
analysis: Cyber insurance Moreover, even if an insurer offers no standalone cyber coverage, it should gauge the exposures that exist within its wider property, business interruption, general liability and errors & omissions coverage. 2)Gain broader perspectives Bringing in people from technology companies and intelligence agencies can lead to more effective threat and client vulnerability assessments. The resulting risk evaluation, screening, and pricing process could be a partnership between existing actuaries and underwriters who focus on compensation and other third-party liabilities, and technology experts who concentrate on data and systems. This is similar to the partnership between CRO and CIO teams that many companies are developing to combat cyber threats. 3) Create tailored and risk-specific conditions Many insurers currently impose blanket terms and conditions. A more effective approach would be to make coverage conditional on a fuller and more frequent assessment of the policyholder’s vulnerabilities and agreement to follow advised steps. This could include an audit of processes, responsibilities and governance within a client’s business. It also could draw on threat assessments by government agencies and other credible sources to facilitate evaluation of threats to particular industries or enterprises. Another possible component is exercises that mimic attacks to test both weaknesses and plans
Clarifying risk appetite is vital
for response. As a result, coverage could specify the implementation of appropriate prevention and detection technologies and procedures. This approach can benefit both parties. Insurers will have a better understanding and control of risks, lower exposures, and more accurate pricing. Policyholders will be able to secure more effective and economical protection. Moreover, the assessments can help insurers forge a closer, advisory relationship with clients. 4) Share data more effectively More effective data sharing is the key to greater pricing accuracy. For reputational reasons, many companies are wary of admitting breaches, and insurers have been reluctant to share data due to concerns over loss of competitive advantage. However, data breach notification legislation in the US, which is now set to be replicated in the EU, could help increase available data volumes. Some governments and regulators have also launched data sharing initiatives (e.g., MAS in Singapore and the UK’s Cyber Security Information Sharing Partnership). In addition, data pooling on operational risk, through ORIC, provides a precedent for more industry-wide sharing. 5) Develop real-time policy updates Annual renewals and 18-month product development cycles will need to give way to real-time analysis and rolling policy updates. This dynamic approach could be likened to the updates on security software or the
“Annual renewals and 18-month product development cycles will need to give way to real-time analysis and rolling policy updates.”
approach taken by credit insurers to dynamically manage limits and exposures. 6) Consider hybrid risk transfer – Although the cyber reinsurance market is relatively undeveloped, a better understanding of evolving threats and maximum loss scenarios could encourage more reinsurers to enter the market. Risk transfer structures likely would include traditional excess of loss reinsurance in the lower layers, and the development of capital market structures for peak losses. Possible options might include indemnity or industry loss warranty structures, and/ or some form of contingent capital. Such capital market structures could prove appealing to investors looking for diversification and yield. Fund managers and investment banks could apply reinsurers’ and/or technology companies’ expertise to develop appropriate evaluation techniques. 7) Improve risk facilitation Considering the complexity and uncertainty surrounding cyber risk, there is a growing need for coordinated risk management solutions that bring together a range of stakeholders, including corporations, insurance/ reinsurance companies, capital markets, and policymakers. Some form of risk facilitator – possibly brokers – will need to bring together all parties and lead the development of effective solutions, including the cyber insurance standards that many governments are keen to introduce. 8) Enhance credibility with in-house safeguards If an insurer can’t protect itself, then why should policyholders trust it to protect them? If the sensitive policyholder information that an insurer holds is compromised, then it likely would lead to a loss of customer trust that would be extremely difficult to restore. The development of effective in-house safeguards is essential in sustaining credibility in the cyber risk market, and trust in the enterprise as a whole. An excerpt from PwC’s Top Insurance Issues in 2016 INSURANCE ASIA 27
Woo Shea Leen
Insurance trends in Asia
ustomer Centricity and Technology remain the two key themes as the Insurance sector continues to seek growth amidst margin pressures, regulatory demands, and savvy customers in Asia. InsurTech brings the promise of disruption to an industry that has remained largely the same for more than a hundred years. Although the industry has seen a number of exciting new innovations and new business models within the past decade such as the Billing-asa-Service model to reduce overheads. InsurTech start-ups do the insurance ecosystem a great service by identifying service gaps and providing innovative solutions to enhance customer experience. Still, PwC’s Global FinTech Survey in June 2016 found that whilst 9 in 10 insurance executives believe that at least part of their business is at risk of disruption, less than 43% of insurers have InsurTech at the heart of their corporate strategies and only 28% explore partnerships with start-ups. Pacing InsurTech adoption Insurers, being proponents of extremely well-calculated risk, are likely to start with low-risk InsurTech options that may appear unexciting to the entrepreneurial community, but still packs potential to have a transformational impact on the business. External factors should not dictate the pace at which the industry adopts change. A well calculated, step-by-step approach is still the best way to set the pace of adoption. One of the first steps is to get the house in order – ensure systems and processes are in place and prepare people for changes to follow. For example, leveraging data must start with Data Management before implementing Data Analytics, Predictive Analytics, and Prescriptive Analytics. An insurer would be ill-advised to push out new offerings based on predictive analytics if they have not figured out basic data management. Getting the Fundamentals right Data and Analytics form a key pillar of the Digital push driving the future of insurance where new technologies allow leaders to make more informed decisions about how best to serve customers, stay relevant, and remain competitive. Insurers should narrow their immediate focus on improving data sourcing, storage, cleansing, usage, and protection. Insurers sit on large data goldmines, but not leveraging it to the fullest potential. This is a perfect storm situation where on the one hand, insurers are seeking growth opportunity amidst margin pressure, while on the other hand, they are sitting on the very information that can propel the business forward. Bottom-line improvements through risk and cost reduction include leveraging existing data and analytics programmes to generate risk insights and utilise new approaches to underwriting risks and predicting loss. Better data management and reporting processes could also reduce employees’ reporting burden.
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Woo Shea Leen Insurance Leader PwC Singapore
Additionally, automating some of the lower level underwriting and claims processing would free up employees to focus on higher value-adding activities instead. One example would be Robo-Claims Adjusters that promise to reduce claims processing time and costs whilst increasing company and customer satisfaction. Some of these technologies have the potential to similarly shift low-value-add tasks away from the agency force and free up their time to focus on customer-centric high-value-add services that will have top-line impact. Outlook and way forward In the early days of FinTech, Financial Institutions faced much regulatory and security concerns when partnering with start-ups. PwC’s Global Digital IQ Survey found that Financial Services Executives are conscious of the need to proactively plan for cyber and privacy risks. As InsurTech begins to gain momentum in Singapore and the rest of Asia, the industry will draw lessons from the banking sector and adopt innovations with adequate consideration for cyber security. The product development and go-to-market roadmap is rather favourable to insurers as the game-changing disruptions tend to first hit other industries like retail, banking, transportation, and hospitality with the likes of Amazon, Uber, and Airbnb. This offers insurers the opportunity to observe the adoption of new consumer technologies, understand customer needs and expectations for new insurance solutions and interaction channels, and study the successes and failures of innovation across different industries and countries, before they develop new solutions for their specific clientele and geography. PwC has identified the core business imperatives insurers can use as they develop a corporate roadmap to prepare for the new operating environment. Insurers who focus on getting their fundamentals right will be best placed to harness technology for their next stage of growth.
Jonathan Zhao A six-step framework for strategic change
cross the diverse Asia Pacific region, a number of forces are converging to create a pressing need for insurers to innovate throughout their entire value chain: premium growth is slowing, even as new markets open; consumer demands for digital products and services are increasing; competition within, and from outside, the region is growing; and regulators are developing more complex rules to protect consumers and reduce market risks. Major factors likely to impact the Asia Pacific region’s insurance market in 2016 and beyond include: changes in regulatory and economic environment; increasing levels of technological innovation and urbanization, and the rise in consumer wealth. Inexorable changes in the insurance market will compel insurers to embrace innovation and find new avenues to growth and profitability. Asia Pacific insurers will want to apply the following framework for strategic change in order to gain the upper hand to adapt to this new environment. The six step framework is as follows: 1. Accelerate the shift to online and mobile access With mobile technology expanding across the region, Asia Pacific insurers will need to extend their digital presence and reconsider how they interact with customers and handle internal processes. The priorities around this would focus on: a) A shift from a transactional to a relationship perspective by the personalization of sales and marketing strategies to enrich the customer experience; b) Rethinking products and customer interactions for the digital marketplace which will require insurers to reimagine their products and services and to recast many aspects of their business to become more customer-centric; c) Expanding beyond traditional insurance services by refocusing their internal business units insurers will uncover new opportunities for expanding customer relationships. 2. Build business through health market innovation The demand for private health coverage will increase due to greater regulatory pressures and consumer awareness. Asia Pacific insurers will want to take advantage of this opportunity to expand their private health insurance business and generate new premium growth. Key priorities include: a) Moving from a product to a service orientation as insurers will want to change their roles from sellers of insurance products to active health risk managers and advisors; b) Leveraging partnerships to provide a stronger value proposition– this could be new strategic partnerships with other healthcare services or via non-traditional partners; c) Embracing wearable technology - wearables will likely help health insurers to promote wellness and measure risks more accurately. 3. Identify M&A and alliance opportunities Asia Pacific insurers will want to put particular emphasis on careful partner selection and post-merger integration to confirm their M&A activities succeed. Key priorities include: a) Building an effective
Jonathan Zhao Asia Pacific Insurance Sector Leader, EY
post-merger integration plan, especially where M&A activity crosses borders or regulations change during an acquisition; b) Exploring alternatives to M&A– strategic goals can be accomplished through acquisition alternatives; c) Being on the lookout for opportunities in emerging markets. 4. Transform underwriting and pricing analytics Asia Pacific insurers will need to respond to changes in the insurance risk landscape and customer expectations. In order to achieve this, insurers may prioritize: a) Staying on top of risk patterns and alternative risk management solutions; b) Leveraging new sources of data and analytics, such as pay-as-you-go and pay-how-you-drive insurance products, the trend toward usage-based insurance and custom-tailored products is expected to grow rapidly in Asia; c) Capitalizing on regulatory changes–such as the liberalization of insurance pricing seen in Malaysia and South Korea. 5. Reinvent operations to reduce costs and drive growth Top-performing Asia Pacific insurers will need to transform their operations to provide an integrated customer experience across all channels and customer touch points. Key priorities include: a) Speed transformation through shared services and outsourcing; b) Enhanced efficiencies through digital technology - Asia Pacific insurers have access to a growing array of technological solutions for improving processing efficiencies; c) Transform operations to address both changes in regulatory and customer requirements. 6. Set corporate governance as a strategic imperative Governance plays a pivotal role in helping to identify hidden risks and finding solutions, as customer expectations continue to increase, demonstrating strong governance will be a competitive advantage to attract new customers. Key priorities include: a) Strengthening corporate governance; b) Building better governance through people by attracting, developing and retaining people with requisite skills for implementing and managing new governance systems. To read more EY insights, please visit ey.com. INSURANCE ASIA 29
Raj Juta and Matthew Ives
The future of insurance in a digital world
Raj Juta Insurance Sector Leader Deloitte Southeast Asia
Matthew Ives Senior Manager Deloitte Southeast Asia
isruptive innovation is amongst the most referenced but least predictable trends to impact the insurance industry in a generation and it remains a pervasive challenge for many in this regulated industry. When surveying the insurance landscape across Asia, three key trends continue to play a significant role, leading innovations in the insurerâ€™s value chain. Digital is here to stay A digital revolution is coming. Some would argue that it has already arrived but what remains to be seen is how quickly insurers across Asia will move away from traditional business models and how effectively they can persuade customers to share more and more personal data, trusting that it will be safe. Spurred on by a wave of new technology, and buoyed by the success in other industries, insurers are exploring new, differentiated distribution channels as well as creating opportunities to streamline the insurance value chain. This will continue to provide established insurers and new players with a route away from the traditional advisor led model. In Asia, digital revolution has the potential to change the industry dynamic further, acting as a differentiator for direct business with a large, young and technology savvy population demanding easier access to insurance products and a more holistic relationship with insurers. The digital revolution presents significant opportunities for insurers seeking growth; however, at the same time, it presents a potential risk, as insurers attempt to offer new products for which they have little claims experience. Regulation: change on the horizon One of the key challenges facing the insurers as they look to maximise the benefits derived from disruptive technologies is that regulators are trying to guard against offerings that include involuntary or even hidden features whilst seeking to welcome the consumerâ€™s right to choose. Giving consumers the option to save money or improve their awareness of their driving habits, for example, by allowing auto insurance consumers to pay for only what they use by voluntarily having their driving monitored with in-car devices that track critical metrics such as speed and mileage represents a consumer-led decision. However, this warrants sensitive discussion as insurers leverage the power of big data and predictive analytics to write policies. Setting rates based on lifestyle factors such as diet, exercise habits and daily activity which can then be used to more accurately price policies poses important questions about privacy and discrimination. Another growing trend that will lead to a fundamental shift in the way insurers operate are the requirements laid out in IFRS4 Phase II. The pace with which insurers build their
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understanding of the scale of impactthat IFRS 4 Phase II will have on their business is expected to accelerate in 2016. The proposals put forward by the International Accounting Standards Board (IASB) aim to improve financial reporting by providing more transparent, comparable information and will result in significant changes for insurance contracts. IFRS 4 Phase II represents many challenges and opportunities for insurers and early preparation will become an essential component for a successful transition into this brave new world. Do you feel threatened? Cyber security presents a threat to all industries and insurance is no different. Cyber-attacks against insurance companies are only likely to increase and have already proven costly for both brand and bottom line. Data held by insurers represents a trove of personal and sensitive data about their customers and the threat from would-be intruders is constantly evolving and difficult to manage. The future of insurance is moving towards creating a customercentric view which presents an underlying challenge to those charged with mitigating the risks posed by both internal and external cyber threats. Achieving the right balance between protecting themselves whilst, at the same time, making new and existing customers feel welcome will signal how well insurers are able to navigate the choppy waters ahead. Insurers can also look to the increasing demand for cyber-attack insurance, expanding their product offerings, to provide some protection against the storm. As insurance becomes more personalised, as policies and premiums become highly customised, it could become a key battleground for incumbents in the insurance market to transform their operating models, evolving from traditional organisational design, in order to keep up with the pace of change.
A digital revolution is coming
From hype to reality: Examining the industry’s ‘transformation’
ather than consider the many exciting, and often challenging, technology-enabled developments that lie ahead, I thought for this article I would take a slight different tack. So let’s instead take a look at the reality of our industry from the perspective of where most insurers are today, and against that backdrop, what insurers can do to change. Let’s be honest, insurers have been trying to ‘transform’ their organizations for decades. First it was to implement big enterprise systems. Then it was to respond to the internet. Now the industry is focused on digitization and customer-centricity. With so much time and effort put into transformation, why has so little changed? Transformation is difficult, disruptive and time consuming. And most of the time, transformation initiatives fail to achieve their objectives. But whether or not you call it a ‘transformation’, what is clear is that insurers understand the urgent need to reinvent themselves. The problem is that — for insurers to truly ‘reinvent’ their businesses — they need more fundamental change to their business and operating models than ever before. The insurers’ transformation journey KPMG International recently surveyed more than 70 global insurance executives. We asked about their recent transformation initiatives, their existing capabilities and, their biggest barriers and risks. What we found was that insurers are well aware of the challenges they face in reinventing their organizations. Many readily admit that they are failing to get the full value from their transformation initiatives. And most tell us that they lack at least some of the capabilities required to drive change on the scale now required. However, the data also indicates that insurers have significant capabilities and advantages that could be leveraged to improve the transformation journey. In addition, it shows that insurers are increasingly taking ideas, approaches and even talent from other sectors to help improve the transformation. According to our KPMG survey, insurers expect to face a range of highly disruptive pressures on both their business models (which impacts ‘where’ they play in the market) and their operating models (‘how’ they play in the market). More than a third said that government policy or enforcement agendas will disrupt their business models over the next 3 years. Another 30% said they will need to change their operating models in order to balance the pressure for
new growth against the reality of shrinking budgets. Interestingly, while many organizations seem to talk about the need to become more ‘customer-centric’, just less than one-quarter of respondents expect their operating model to be disrupted by changes in customer behaviour. We would argue that customer behaviour should actually be the inspiration behind insurers’ efforts to reinvent themselves. The fact that less than a quarter expect to be disrupted by changing demographics and preferences suggests that insurers may not have their eyes on the ultimate prize. Our experience suggests that, all too often, insurers either fail to properly assess what their future state should look like or, they fail to adjust their vision of the future state and the steps needed to get there, as the world around them changes. Problems are often compounded by companies being too focused on achieving specific outputs rather than targeted outcomes. Smarter companies benefit from spending more time early-on thinking through what they really want to become and what change outcomes they really need. This clarity makes it much easier to rationalize their change portfolio and reduce the huge opportunity cost of trying to do too many things, allowing them to de-clutter the noise and eradicate ‘pet projects’. These are exciting times. The global insurance market is facing a period of unprecedented change. The stakes for existing insurers have never been higher. This article is an extract from KPMG’s latest annual insurance sector report.
Simon Phipps Partner, Insurance KPMG China
Why has so little changed in the industry?
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Emergence of the InsurTech ecosystem in Asia
y now, 2016 has been officially been declared the year of InsurTech. The marriage of insurance and technology infused with entrepreneurial energy, InsurTech is attracting significant investments from the likes of sophisticated VCs who founded the new economy players like AirBnB and Uber. Entrepreneurs and corporate insurers have all taken active notice and are exploring ways to learn and be part of this exciting wave of change. At the same time the banking related FinTech, consisting of payments, FX and investments are all seeing a cooling down of interest as the FinTech hype curve has reached its peak last year and funding is now generally seeing a decline in 2016. This article focuses on insights relating to the InsurTech Ecosystem in Asia. Four flavors of InsurTech First, let’s revisit the definition of InsurTech to make sure we are all on the same page. Similar to FinTech there is a multitude of areas in insurance that technology can enhance or disrupt. Essentially, there are three major camps of InsurTech: one that enhances existing insurance structures, another one that aims to disrupt by providing alternative digital risk transfer mechanisms, and the third type coming from existing insurance firms attempting to defend their existing market positions. The first and third types broadly can be broken into the following sub-types, while the second type attempts to drive an end-to-end structural innovation, either removing part of the structure or fully digitising it. – Product Sales / Distribution (Aggregators, Online Portals, Lead Generation Apps) – Risk Management (IoT, HealthTech, Blockchain) – Fraud Detection / Prevention (Big Data, Machine Learning) – Claims Management (Big Data, Machine Learning, Vendor Network Management Solutions) – Service Management (Chat Bots) – Investment Management (Portfolio Optimization, Asset Liability Management) Why Asia for InsurTech Asia is attractive from both, an insurer and an InsurTech perspective due to the size of its significantly underinsured population. The region has traditionally seen a large part of the risks self-insured through family and community networks. As the region experiences rapid growth in the affluence of its population, together with an aging population, the risk exposure is then becoming even more apparent and the need for alternative risk transfer mechanisms, including insurance, increase. InsurTech, alongside traditional insurance, can provide or enhance risk transfer need in the region. Further, strengthening the case of InsurTech in Asia, there is the clear presence of a near-perfect locations for the launch of a program. Singapore is one of these, which allows for sandboxed experimentation, regulatory support and advanced tech 32 INSURANCE ASIA
george kesselman CEO and Founder InsurTech Asia
Growth of insurtech investment
Source: PWC Denovo 2016, Bi Intelligence 2016, Peoples.com.cn, Citi and CB Insights 2016
infrastructure. From the demand side, limitations of traditional insurance distribution channels and the rapid increase of 4G mobile penetration means that insurers are also highly interested in exploring innovative partnerships that help them connect with potential customers. Asia being a diverse region and having a mix of developed and emerging countries. It is worth noting the locations in Asia that have the greatest potential to drive a prolific InsurTech ecosystem. So far the major push for InsurTech has come from China, India, and Singapore and most recently Hong Kong, while Japan, Korea, and emerging Vietnam, Cambodia, Taiwan, Philippines, Thailand, Indonesia, Malaysia, and Burma have so far have slightly lagged on the InsurTech front. Among them Korea, Thailand, Malaysia and Philippines have started experience a pickup in startup ecosystem activity which is a major pre-cursor to InsurTech. There’s China and then there’s everyone else when it comes to InsurTech. First, full stack (end-to-end) innovator Zhong An valued at a massive $8b and which raised $931m, accounts for more than a third of the global InsurTech funding in 2015. It is also worth mentioning TongJuBao (peer to peer) insurer and FWD (Asia’s second-richest family’s insurance venture that is re-positioning itself from traditional insurer to an agile digital insurance competitor). India is another vibrant Asian insurance market that has seen its InsurTech innovation focus mostly on distribution. Not surprisingly, two of the biggest insurance aggregators come from that market: Policy Bazaar and CoverFox have seen healthy level of customer take-up as well as VC funding. Interestingly and logically so, CoverFox has recently expanded its service proposition, now assisting customers with their insurance claims. Early days In summary, Asia is a region to watch when it comes to InsurTech. Whether it being the home-grown insurance innovation from China, India, and Singapore or innovation concepts imported from elsewhere and deployed in Asia, the region is likely to deliver a vibrant InsurTech ecosystem during the course of the next two to three years. And when the dust and excitement settles down five years down the road, we’ll have a fundamentally stronger set of competitors.
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