EY activities and solutions for insurers focusing on the emerging consumers

EY activities and solutions for insurers focusing on the emerging consumers February 2014

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Section one Market overview

EY activities and solutions for insurers focusing on the emerging consumers

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4% -0.50% -11.10% -5.60% -3.80%

10.70%

-8.20%

6.30% 7.30% 10.40%

18.60%

10.60%

17.90%

25.10%

8.18% 11.27%

8.92% 6.74%

9.57%

2.96% 3.96% 1.77% 4.80%

1.98% 1.40% 1.42% 0.68% 3.05%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Growth in GWP, penetration and density

Growth Penetration Density

Overview: insurance sector in emerging markets

Density (USD) GWP growth and penetration (%)

► The growth in total premiums is dominated by emerging markets, such as China, India, Indonesia, Malaysia, UAE, Philippines, Vietnam, Nigeria, Kenya when compared to developed markets in the West – most of which have shown negative growth

► However, if we compare the insurance penetration or density it is extremely low compared to the developed markets ► This highlights the potential of focusing on under-penetrated customer segments in these high-growth economies for global

insurers

Source: “World insurance in 2012," Swiss Re Sigma

(1) GWP growth – change in total insurance premium change in 2012 vs. 2011 – nominal; penetration – total premiums as % of GDP in 2012; density – total premiums per capita in USD in 2012

Sample of emerging markets

(1) India has been an exception and shown a de-growth in FY12 on the back of regulatory changes and other macroeconomic factors


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Conventional insurance vs. insurance for low-income segment

Upper middle class and above

Global middle class

Emerging consumer (low-income sector)

Below poverty line (BPL) segment

USD 2 – USD 9 per day

Less than USD 2 per day

USD 10 – USD 100 per day

Income-based customer segment pyramid

Source: EY Analysis

Conventional insurance target segment

Low-income insurance

Social/Government sponsored insurance

Conventional insurance Insurance for low income segment

Target customer segment ► Urban/Educated/Mid to high income ► Rural, semi-urban, low income

Products ► Apart from conventional pure-risk products, unit-linked products, pension products

► Motor/health insurance – non-life ► Typically higher ticket-size products

► Credit life/term insurance/critical illness/personal accident

► Cattle/weather insurance – non-life ► Low ticket size products

Distribution ► Agents, banks, brokers, online sales ► Usually works on third-party partnerships (e.g., MFIs) or direct sale (e.g., mobile sales)

► Typically the same insurance company focuses on the various customer segments

► Conventional insurance – Usually targeted at the mid to high income customers, educated and living in urban centers

► Microinsurance – Targeted at the emerging consumers or low-income consumers living in rural/semi-urban areas

► Social/Government sponsored insurance – Government subsidized insurance for the below poverty line (BPL) segment

USD 100 and above per day


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Insurance services for low-income customers need to overcome multiple common challenges Common challenges faced by the emerging consumer

Inconsistent cash flows

Dependence on single source of income

Mobile segment

Unaware of concept of insurance

Lack of trust

Lack of consistent monthly cash flows; require flexibility in premium payment options

Customers are mobile for employment and need servicing/ claim payments across the country

Customers may not completely understand the concept of risk pooling and the advantages it offers.

Lack of trust in private institutions for buying an intangible product like insurance

Dependence on the single bread-earner; may not be able to afford large premium payments

Improving awareness about insurance

Make insurance accessible

Guiding pillars for success in this market:

► Educate customers ► Drive awareness about

insurance ► Explain/showcase benefits

Make insurance affordable

► Appropriately priced ► Simple products with clear value ► Flexibility in payment options

► Trustworthy distribution channels ► Portability in purchase/servicing


Dependence on single source of income

Mobile segment

Unaware of insurance concept

Lack of trust

Inconsistent cash flows

Common challenges

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Insurers are increasingly focusing on drivers across the three guiding pillars

Making insurance accessible

Use of mobile as a distribution channel ► Significant increase in the use of the

mobile phone to sell simple, retail life and health benefit policies to low-income customers in Africa.

► Embedded insurance – insurance offered as a “value-add” along with telecom subscriptions as a loyalty program.

Alternate distribution channels ► Retailers, churches and other

distribution channels considered trustworthy by customers are being leveraged by insurers

Convenience of paying premium ► Ease of payments by tying up with utility

companies to pay insurance premium through existing bill payments.

Low cost outsourced servicing models ► Outsourcing new business processing/

customer servicing/claims management to third-party intermediaries.

Making insurance affordable

Working with local partners for distribution and back-office processing ► Globally, insurers have started to

partner with third-party intermediaries to reduce their overall operating model expenses.

► This has cut down on overall operating expenses and has helped in reducing the premium.

Technology backed models ► Technology-backed distribution

models have helped in reducing the cost of distribution and processing, thus allowing for affordable products.

► Technology has helped in improving quality of data for analysis, which has helped in reducing reinsurance premiums and led to more affordable products

Improving awareness

Educative multimedia materials ► Regulators in various countries have

developed social marketing/educative materials, such as movies, information leaflets, radio messages which are disseminated via various partner organizations.

Use of technology in transmission of

information ► Continuous transmission of

information related to product (e.g., life insurance cover) to the customer via SMS

► Products sold via the mobile phone offer USSD short-codes to receive and convey information related to the policy, for example, update on cover, making a claim, etc.

Dedicated microinsurance awareness programs by the regulators ► Regulators in Ghana and the

Philippines have started dedicated microinsurance-focused programs.


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Insurers need to focus on various aspects to effectively serve the low-income customer segment

“External” drivers

Product

Distribution

Customer servicing

Marketing/ Promotion

“Internal” drivers

Standardized processes

Focused risk management

Robust governance

“Core” drivers

Operating model and

organizational strategy

Performance management

and leadership focus

Skills Mindset and culture

The emerging consumer/ low-income consumer

► Insurers need to focus on various drivers in order to effectively serve low-income customer segment.

► External drivers – Relating to product aspects, distribution, marketing/promotion, awareness generation (essentially all aspects related to direct customer interactions)

► Internal drivers – Ensuring standardization of processes, focused risk management, supported by a robust governance structure

► Core drivers – This includes core corporate drivers, such as leadership and management which is supported by the operating model and performance management structure. The main driver of innovation and change is the culture and mindset.

Insurance company


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Key challenges and focus areas for supporting activities

Focus areas

Missing growth opportunity

Risk management and internal controls

Process standardization

Steer business by performance management

Corporate culture/mindset

Identify investment opportunities in rapid-growth markets

► Organization structure does not support the governance requirements ► Internal governance does not support local requirements and business needs

► Lack of standardization in processes and integrated IT solutions ► Presence of core process design and process differentiation in channels

and segments ► Identification of value drivers and elimination of “not value adding” activities

► Identification of issues and problem solving at an early stage ► Living a performance management cascade supported by a defined structure and

operational KPIs

► Resistance to change in cultural mindset required for operating in a nimble and ever-changing environment

► Leadership and role modeling

Developing a strong governance and risk management framework

Transforming existing businesses to create sustainable growth

► Limitations and low experience to evaluate opportunities and risks in rapid-growth markets

► Lack of local knowledge to operationalize investments and market potential in rapid-growth markets

A

B

C

Skill development ► Secure quality and customer focus in the defined business segment ► Skill building and knowledge sharing not in place ► Lack of flexibility in workforce management

Governance structure

► Risk management is underdeveloped or does not focus on the key risks ► Critical internal controls are absent leading to fraud increasing cost of operations


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Section two EY services and solutions

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Waves of change: the shifting insurance landscape in rapid-growth markets


► This publication focuses on the risks and opportunities across 21 rapid-growth markets, highlighting the global rebalancing taking place across the world, as once flourishing BRIC economies expand at a slower pace than many RGMs. It weighs the opportunities against the risks of doing business in individual economies, and the analysis reflects a variety of indicators and forecasts

► Key elements of the report: ► A matrix that ranks opportunities and risks in 21 RGMs on the

basis of market opportunities, risk and volatility ► An analysis of the key opportunities arising across RGMs ► The regulatory trend affecting insurance in RGMs ► An evaluation of key risks that can affect insurance markets

across these markets

► As a result, we believe that insurance executives must regularly evaluate and refresh their strategies to identify which international markets are most likely to offer the best prospects for focus and investment.

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The market maturity for insurance business in emerging markets is developing, and investors are seeking for new growth potential

Composite index: 33.3% weighted regulatory risk rating+33.3% weighted ease of doing business rank +33.3% corruption perceptions index; countries with GDP per capita $500-$10.000; color-coded

Composite index: 50% weighted GDP per capita and 50% weighted insurance penetration rate; color-coded

Which future market entries are you are considering?

Heatmap insurance penetration – EM

Heatmap business environment – EM


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Operational excellence for insurers focusing on emerging consumers: one of the potential solutions for insurers in this market segment


► As initial marketing activity an EY publication has been developed in close cooperation with LeapFrog Investments, a leading private equity investor in this market segment globally

► Key highlights of the report:

► Today’s low-income customer (earning USD 2 – USD 10 per

day) is tomorrow’s middle class. ► This global middle class will fuel growth over the coming years. ► Insurance is a critical enabling tool for this segment. ► However, global insurers need to target this segment differently. ► Operational focus can provide robust returns for investors. ► A differentiated operational strategy backed by a dedicated

organization, skilled manpower and robust performance management systems is critical for success; hence the importance of “operational excellence”.

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EY has developed customized solutions for clients active in the market segment of insurance for emerging consumers

Market entry/transaction Business

transformation/performance improvement

Risk management and governance

A B C

► Many insurers/investors are evaluating investment opportunities in new markets ► e.g., Prudential (UK) has

recently bought LeapFrog’s stake in Express Life in Ghana

► Sanlam and Old Mutual looking to expand in Africa

► Business transformation/performance improvement for existing players ► e.g., insurers in Africa are

identifying new distribution channels, such as mobile

► Insurers focusing on new distribution partnerships, leveraging IT in processes and revamping organizational strategies

► Risk management and governance are critical topics for insurers/investors in this market ► e.g., focusing on building a

robust governance structure ► Regular process audits to

evaluate risks and performance ► Build a strong internal controls

framework

Cur

rent

mar

ket a

ctiv

ities

an

d ne

eds

► Commercial analysis with focus on customer and market, regulatory environment and infrastructure

► Due diligence support with additional focus on operational, IT and risk issues

► Integration and setup support with focus on local implementation of global policies and regulatory requirements C

usto

miz

ed E

Y so

lutio

ns ► Operational excellence approach

to support business transformation activities

► Bancassurance as integrated financial inclusion approach (in development)

► Customer conversion and segmentation (in development)

► Integrated controls framework for small business insurers

► Performance management structure to steer business and support internal and external governance


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Section three EY: your advisor in the emerging markets

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EY globally has the leading insurance consulting practice with global reach and strong emerging market focus

Access to a global EY network of 175,000 employees across 700+ offices in more than 150 countries

Experiences of 9,700 seasoned insurance professionals globally in one of EY´s largest sectors

Global availability and deep knowledge regarding insurance-related regulatory requirements and changes

EY has established an Emerging Markets Center that connects clients quickly and effectively to the world’s fastest-growing economies

EY structure that supports cross-border approaches, by our leading and highly integrated global organization.


Your value add

Kennedy Consulting Research & Advisory has recently named EY as the leading provider of insurance consulting services globally

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Our experience shows that it is critical to be global, yet local ...

Local experts Global special matter experts

Emerging market insurance experts

► Specialist in insurance business in emerging markets

► Best practice sharing regarding solutions in other markets

► Expert in specific topics, such as transformation, risk management

► Using knowledge, information and experiences from the global EY network

► Cultural fit with language skills

► Understanding of the local specifics: ► Market ► Culture ► Infrastructure ► Regulation

► Direct access to local information

► Usage of existing network of local EY practice

Cross-disciplinary and cross-border staffing will strengthen the knowledge and leverage the best benefit for our clients


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Overview of selected credentials

LeapFrog Investments’ stake acquisition in Mahindra brokers (India) ► Provided support in identifying

the investment, due diligence and closing the transaction

Operational restructuring support of Express Life (Ghana)/Leap Frog ► Operational restructuring

based on operational excellence approach to support sustainable growth

Market analysis and full due diligence for top 5 global insurance player (Columbia) ► Provided advice in market

entry strategy and full DD (CDD, ODD,IT DD, FDD)

Implementation of the Rashtriya Swasthya Bima Yojana in India ► Provided technical assistance

to GIZ in developing the world’s largest micro-health insurance program in India

Financial due diligence for Old Mutual (South Africa) ► Provided financial due

diligence services to Old Mutual on a Nigerian target in a similar industry

Restructuing of National Credit Fund for women in India ► Development of new operating

strategy to increase scale

Strong relationships with the local, regional and global regulators

Trusted advisor on M&A, transaction support, complex restructuring programmes and risk management

Cross disciplinary staffing with global experts and local support

Significant experience and capability across all continents (LatAm, EMEIA, Asia-Pac)

EY methodology and tools can provide an accelerated project success

1

3

2

4

5

Investment strategy/ transaction support

Business transformation

Roll out of the internal control approach for HDFC ERGO (India) ► Supported in development and

implementation of the approach covering all value chain components, entity level controls (ELC) and IT general controls (ITGC)

Implementation of internal control approach for First Takaful Insurance (Kuwait) ► Implementation of internal

control approach, including ELC and ITGC. Update of processes documents based on revised controls

Implementation of internal control approach for Gulf Takaful Insurance (Kuwait) ► Implementation of internal

control approach, including ELC and ITGC. Update of processes documents based on revised controls

Internal control small business


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Contact our Special Matter professionals

Dr. Andreas Freiling EMEIA Insurance Leader Tel: +49 6196 996 12587 Email: [email protected]

Jan-Erik Behrens EMEIA FSO – Transaction Advisory Services Mobile: +49 160 939 29804 Email: [email protected]

Focus areas: ► Operational Transaction Services ► Business Transformation/Operational Excellence ► Transaction Strategy

Rohan Sachdev Insurance – Performance Improvement (India) Mobile: +91 99207 76259 Email: [email protected]

Focus areas: ► Insurance performance improvement ► Insurance for emerging consumers

Martin Gehringer Insurance – Assurance (Germany) Tel: +49 6196 996 12427 Email: [email protected]

Focus areas: ► Internal controls with focus on emerging markets

in Eastern Europe and India ► Audit of insurance companies ► Insurance regulation

Prajeesh Mukundan Insurance – Risk Advisory (India) Mobile: +91 8879 070509 Email: [email protected]

Focus areas: ► Internal control advisory with special focus on medium and

small insurance companies ► Internal audit of insurance companies ► Risk management for insurance companies


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