Technology Innovation Trends in Insurance- Navdeep Arora

Technology Innovation Trends in Insurance Navdeep Arora 8 April 2020

7 themes are reshaping supply & demand of insurance globally 1.

Growing expectations & demands from customers (value, omni-channel) and regulators (solvency)

2.

Emerging risks & developing markets necessitating digital architecture and solutions

3.

Downward pressure on pricing from excess underwriting capacity (alternative capital) and decreasing demand for traditional reinsurance; shift in focus from ‘protection’ to ‘risk prevention, mitigation and diversification’

4.

Improved transparency of data on the buyer & seller side, stressing current distribution & broking models, especially in mature markets

5.

External data, contextual intelligence & sensory feeds becoming more ‘predictive’ than historical loss data, and enabling personalisation of insurance

6.

Ability to manage high velocity transactions and delivering at customer moments of truth becoming source of competitive advantage as lines of business (life, health, P&C) disappear; cross-sector partnerships, non-native capabilities and flexible technology architecture emerging as ‘table-stakes’

7.

Large scale migration of premium & profit pools across the value chain, customer segments, products & sectors

Premium & profit pools are migrating across the insurance value chain

Aggregators / Price comparison

 

Commoditising in mature markets as incumbents are building their own price comparison and direct capabilities.

Growth opportunity for nascent and developing markets

Online Brokers



Online brokers are carving out new ‘direct to consumer’ capabilities in personal as well as commercial lines, especially SME (Insureon, Simply Business, etc)

Traditional Brokers/ Agents



Traditional brokers are losing business, commissions, and margins, especially in mature lines of business such as property and liability, as well as geographies



Technology and digital capabilities are enabling MGAs to carve our new underwriting classes, go direct, and take on more risk on their balance sheets; Growing numbers in mature markets; Not yet a large phenomenon in developing markets but expected to grow



Continuing downward pressure on pricing and margins in standard lines of business, while unmet and under-met risk needs offer growth potential



Reinsurance rates have declined for 18 consecutive quarters, as alternative capital continues to grow, and premiums ceded fall

MGAs/ Digital MGAs

Insurers

Reinsurers

Value creation opportunities are different across mature & developing markets

Aggregators / Price comparison

Premium share Trends (aggregated % Mature per $ of premium) markets

Developing markets

Profitability Margins

0.5 to 1 %

15 to 20 %

8 to 30%

30 to 50 %

0 to 20%

18 to 25 %

Online Brokers

Traditional Brokers/ Agents

MGAs/ Digital MGAs

Insurers

10 to 15 % Reinsurers

60 to 70% 8 to 12 %

Trends Mature markets

Developing markets

Technology & digital capabilities that target value chain effectiveness (not just scale efficiencies) offer compelling investment opportunities Non Life Insurance (Medical, P&C) 1 Indemnity

Lost ratio 2

A

LAE

Profitability

UW results

(1-COR)

Expense ratio Net income AUM (Invested/asset/NEP)

3 Distribution

B Volume

Investments results

(NPE)

4 Penetration

Investment Yield P&C Valuation

Cash flow to equity

5 UW and pricing

C Capital required (Capital/NPE)

6 Reinsurance & Cap mgt Long term grow 7

Cost of equity

Acquisition, retention & servicing

InsurTech levers and start-up examples in non-life Insurance (1/2) Driver A

InsurTech levers 1 Indemity

Profitability

2 LAE

B

3 Distribution

Volume

C

4 Capital

Penetration

Potential impact

→ Empowering the customer to self manage their claims experience → Delivering on the claims promise, leading to fair and accurate claims payments, lower cost of claims & higher customer NPS scores → Satellite and UAV imagery for CAT and large loss claims → Automated claims settlement and payment through distributed networks

→ Claims cost reduction by 50% → Claims indemnity (leakage) improvement by 20-50%

→ AI/ML to review submissions & recommend new business/cross sell prospects → Micro-insurance distribution and servicing → 360 degree sales funnel optimisation → Robo-broking

→ 20% improvement in quote to bind rates → 30% increase in direct sales

→ Customer acquisition and conversion optimisation through social media data AI → Customer journey analytics → Improving customer acquisition through digital asset catalogues

→ Customer acquisition/ conversion increase by 25% and retention up 50%

Examples

InsurTech levers and start-up examples in non-life Insurance (2/2) Driver A

InsurTech levers → Automated risk data capture through IOT sensors → Usage based on demand risk transfer → AI/ML driven underwriting insights → Underwriting without claims history

→ UW cost per policy reduction by 50% → Pricing leakage reduction by 30%

6 Reinsurance and Cap mgt.

→ Real time risk mitigation and capital allocation → Replace actuarial services with AI → Liquid reinsurance platforms → Reinsurance data analytics and integration

→ Cedant premiums reduction by 20% and reinsurance costs by 10%

7

→ Auto claims settling based on triggers → Machine Learning for policy language optimisation → Fraud management → CRM and policy automation → Blockchain and smart contracts

→ Cost per inforce policy reduction by 50%

5 Profitability

B Volume

C Capital

Potential impact

UW and pricing

Acquisition & Retention

Examples

Technology & digital capabilities that target value chain effectiveness (not just scale efficiencies) offer compelling investment opportunities Life Insurance 1

Acquisition (cost, conversion)

2

A New business Profitability Value of new business (VNB)

Policy)

3

B

Pricing (UW margins

New business volume

Franchise Value

Underwriting (STP, Cost,

)

4 Long term growth

Policy servicing (cost/PIF)

C In-force profitability

Life Valuation

5

Size of book

Embedded Value (EV)

Retention (lapse rate)

Net Income

6 Penetration

Duration Capitalization

(cross sale)

(EV/net income)

7

Claims (% conversion)

InsurTech levers and start-up examples in life Insurance (1/2) Driver A Value of new business

InsurTech levers 1

Acquisition and distribution

2

B

Underwriting

New business volume

2 Pricing

C In-force profitability

4

Policy servicing

→ Turning social media data into insurance insights to improve conversion → Customer journey analytics → Digital asset cataloguing → Online direct distribution → Life aggregator → Facebook based life insurance concierge

→ Predictive analytics platform for actuarial and risk management → Predictive scoring and data analytics → Facial analytics and bio-demographic info for UW → Forward looking UW using context, sensory and genomics → Online direct UW for term life → → → →

CRM and policy automation Blockchain and smart contracts Automation and use of AI Online platform to manage life and disability insurance

Potential impact → 4x increase in conversion rates → NPS scores up 20 points → Commission ratio improvement

→ Increase in STP by up to a third → Instant underwriting

→ Expense ratio improvement

Examples

InsurTech levers and start-up examples in life Insurance (2/2) Driver A

Value of new business

InsurTech levers 5 Retention (lapse rate) 6 Penetratio n (cross sell)

B

New business volume

C In-force profitability

7 Claims (% conversion )

Potential impact

→ Life in-force analytics and → Increased optimisation cross sell → Monitor and mine life in-force books → 25-50% → AI and data analytics based on cross improvement selling for disability insurance in lapse rates → Lifetime platform for optimising retention and cross sell for in-force → Web based portfolio management and placement → Fraud management → Convert analogue process to digital → AI to drive smarter/quicker settlement

→ Reduction in claims fraud → Settlement period from weeks to days

Examples

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