Transforming & Disrupting the Insurance Landscape:

InsurTech, RegTech & SupTech

Dr. Nasser Saidi27 February 2019

@ Institut Supérieur des Sciences de l'AssuranceUSJ

Agenda

ØGlobal Insurance market:

Characteristics, Trends & Outlook

ØFactors Affecting the Insurance Industry

ØTechnology-led disruption: what are

InsurTech,RegTech & SupTech? Impact on the industry?

ØKey Takeaways & Recommendations2

Emerging Asia the largest source of growth in global insurance markets since 2010; penetration levels rising globally

Life and non-life insurancepenetration in %, 1960‒2017 Regional market shares, 1960‒2017

Source: “Premium developments since 1960”, Swiss Re, sigma No. 3/2018

Insurance penetration rates show wide variance across countries, low in ME

Source: Swiss Re

Premiums as % of GDP (2017)

Insurance Outlook 2020• Non-life & life premiums to

increase by ~3% annually over 2019/20, driven by emerging markets

• Marine & Trade Credit insurance lines to suffer most from higher tariffs & US-China trade wars

• Non-life underwriting slightly more positive

• Life: emerging market premiums to accelerate, led by China. Low interest rates to weigh on profitability

Global non-life insurance premiumgrowth in real terms, actual &forecasts (2018 in brackets)

Source: “Global economic and insurance outlook 2020”, Swiss Re sigma No 5/2018

Global life insurance premiumgrowth in real terms, actual andforecast (2018 in brackets)

Slow development of the Insurance Industry (inclu. Takaful) in the Middle East

Legal & Regulatory issues • Absence of mandatory

insurance in key areas

• Regulatory & supervisory gaps

• Fragmented market structures

• Heavy dependence on reinsurer players

• Sustainability of pension schemes, retirement planning

Economic/ Cultural/ Social aspects• Entitlement programs e.g. in GCC

• Underdeveloped pension systems

• Govt ownership in many countries => no innovation, competition

• Lack of expertise & suitably skilled people

• Absence of products that conform to cultural / religious preferences e.g. life

• Pressure on profitability of general Takaful business due to competition

Life & Non-Life premiums, as well as assets, are very low relative to expected levels given income, wealth & demographics

Agenda

ØGlobal Insurance market:

Characteristics, Trends & Outlook

ØFactors Affecting the Insurance Industry

ØTechnology-led disruption: what are

InsurTech,RegTech & SupTech? Impact on the industry?

ØKey Takeaways & Recommendations7

Factors affecting the Insurance industry

• Demographics: Uneven demographic growth - an aging crisis in Japan while half the population of India is younger than 25

• Regulatory changes: new accounting changes (IFRS 17), implement data protection program (GDPR) and refine qualitative disclosures as follow-up to major changes introduced in recent years such as Solvency II Pillar 3 in EU

• Climate Change: impact of global warming, rising natural disasters

• Data revolution (Big Data): large data pools where data analytics can be applied to extract business intelligence

• Digital transformation: From wearables to autonomous vehicles => impact of InsurTech

Demographics: large divergence between Emerging & Advanced EconomiesPopulation shift: by 2030, two-thirds of global middle class will be in Asia; Europe & North America to account for 20%

MENA characterized by younger population, increasing life expectancy & high proportion of expats buying insurance; population to almost double to

628mn by 2050

In Advanced Economies:• Longer life expectancy + aging populations w/ lifestyle & health concerns

• ~53% of US workers age 60+ not financially prepared for retirement

In Emerging economies:

• Growing affluent and mass-affluent markets (China, India) => opportunity for life insurance carriers to tailor offerings to those consumers

• Savvier consumers: consumers getting more financially savvy => aware of & open to new life insurance products

• Tech savvy consumers => digital innovation + lower distribution costs

Climate Change & Decarbonisation Risks are growing, but are underpriced I

What are the risks related to climate change? Physical risks (extreme weather events); Decarbonisation & transition risks (changes in policy & technology); re-pricing of fossil fuel assets (stranded assets risk)

Insured & uninsured losses from natural catastrophes

Climate Change & Decarbonisation Risks

are growing but are underpriced II

• Globally, an estimated $4tn has been lost over the past 40 years to extreme natural disaster events:ü $2.9trn caused by climate-related events (windstorm, flood, drought, hail,

etc.); $1.1trn by other natural catastrophes (earthquake and tsunami) ü Only $1.1tn recovered thru insurance & ~$2.9tn remained uninsured. On

average only some 30% of economic disaster losses are insured.

• BoE bank survey results: 60% consider climate change as a short-term financial risk, but only 10% take a long-term view of climate change risks

• Expect guidelines and changes in accounting standards to manage

and report on risks from climate change

• Some 500 companies (responsible for more than $100trn worth assets) have signed up for voluntary disclosure regimes through the Task Force

on Climate-related Financial Disclosures

=> Decarbonisation and Climate Change can lead to a Minsky Moment!

Tracking macroeconomic impact of natural disasters on financial sector

Source: Sandra Batten, Rhiannon Sowerbutts, and Misa Tanaka, “Let's talk about the weather: The impact of climate change on central banks,” Bank of England Staff Working Paper No. 603, May 20, 2016.

Big Data & the Insurance Industry

• Increased digitalisation has facilitated the capture, storage and management of large quantities of data about customers

• Big Data analytics extract business intelligence from data• Offers opportunity to assess their customers’ needs,

target products & services to individuals and businesses, and support underwriting decisions & risk analysis

• Data Protection and Privacy issues: risks related to the permissible & appropriate use and management of customers’ data

• Cyber risks are growing

Insurance Industry has wide access to data, by type and source

Using Big Data: shaping the future of insurance

• Data types available are:ü Activity-based data (website tracking info, vehicle telematics about

customer driving behaviour, purchase histories, call centre & mobile data)ü Social network profiles (e.g. work history, group membership)ü Social influence & sentiment data: product & company associations (‘likes’

and ‘follows’), online comments & reviews, customer service records• Insurers are using big data to:ü Identify missing insurance markets; web & social profiling to identify

uninsuredü Combine info on customers’ retail shopping habits with claims histories to

target prospective customers ü Employ telematics to improve auto underwriting & customer engagement ü Predictive modelling: to target customers, personalise insurance products

and services, and anticipate customer needs and their likely actions

Palantir knows everything about you (well, if you are in US, that is…)

Source: https://www.bloomberg.com/features/2018-palantir-peter-thiel/

Agenda

ØGlobal Insurance market:

Characteristics, Trends & Outlook

ØFactors Affecting the Insurance Industry

ØTechnology-led disruption: what are

InsurTech, RegTech & SupTech? Impact on the industry?

ØKey Takeaways & Recommendations17

New financial services/products & business models:• Payment solutions• Digital currencies• Financial Markets:

trading, custody, registries• Crowd-finance• Robo-advisers• Trade finance• Fund & Asset mgt.• Tax mgt.• Cybersecurity

Key

tech

nolo

gies

Application ProgramInterface (API)

Internet of Things

Machine Learning

Artificial Intelligence

Big Data Analytics

Distributed Ledger Tech

Smart Contracts

Cloud computing

Cryptography

Biometrics

FinTech

RegTech

SupTech

New Technologies are disrupting & transforming banking/financial sector

InsurTech

What is an InsurTech Firm? Insurance + Technology

Emerging Technologies leveraged by InsurTech firms

Source: World InsurTech Report 2018, Capgemini

Source: Venture Scannerhttps://www.venturescanner.com/blog/tags/insurance%20technology

InsurTech attracting investment, lowering costs & leading to disintermediation • InsurTech accounted for two-thirds of all new FinTechs in 2017• InsurTechs are active in all major insurance products & business lines:

concentrations in property & casualty (P&C) business• InsurTech investments: $869mn in H1 2018 vs. $1.83bn in funds raised in 2017,

which was the industry’s second-highest level of financing

InsurTech investments on track to at least match 2017InsurTech funding by category in $mn

Source: Venture Scanner data, Deloitte Center for Financial Services analysis.

Technology-led disruption will continue for the insurance sector

Source: “Global insurance trends analysis 2018”, EY

Future trends in the InsurTech space• Collaborations of traditional insurers with InsurTechs

• Big tech firms (Amazon, Alphabet, Apple, Alibaba) make inroads into insurance

• InsurTech will enable businesses to target customers with new offerings such as ‘microinsurance’ (for small-scale assets like livestock/ land/ crops or short-term policies valid for few days or weeks

• Explosion of data from connected devices: a wearable device can calculate a consumer’s personal risk score based on daily activities + probability & severity of potential events

• Greater prevalence of physical robotics: 3D printing, self-driving cars

What is “RegTech” & SupTech?• UK FCA: “RegTech is a sub-set of FinTech that focuses on

technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities”

• BIS: “RegTech is defined as any range of FinTech applications for regulatory reporting and compliance purposes by regulated financial institutions. This can also refer to firms that offer such applications”.

• BIS: “SupTech: application of FinTech by supervisory authorities”

RegTech is harnessing new Tech

• Regulatory intelligence: Modeling, scenario & forecasting

• Dynamic compliance & governance• Regulatory reporting; eventually, real-time

reporting

Regulatory Compliance

• Market risk• Conduct risk• Cyber risk• Real-time trading tasks/ financial markets

trading

Risk Management

• Real-time payments monitoring + Financial fraud

• Money laundering & terrorist financing• Market abuse• Tax compliance

Financial Crime

• KYC for identity verification• KYC for onboarding• KYC for AML/CFT checks• Fraud detection

Identity Management

Tech for Supervisors: SupTech

• Move from retroactive reporting and monitoring to dynamic compliance, monitoring & reporting

• Data input approach: package business data• Data-pull approach: raw data sourced directly from

businesses operating systems• Real-time access: supervisor “sees” operational data at

will• Reporting utilities: common database of reported data

but also as a repository of the interpretation of reporting rules; move towards machine readable regulations

• Gathering intelligence from unstructured data

Supervisory initiatives to facilitate innovation

Innovation facilitators

Innovation hub Accelerator Regulatory sandbox

A place to meet & exchange ideas

"Bootcamp for start-ups” culminating in a pitch

presentation

Testing in a controlled environment, with tailored

policy optionsAustralia ASIC ASIC ASICBelgium NBB/FSMAECB SSMFrance ACPR/AMF BDFGermany BaFinItaly BOIHong Kong HKMA HKMA HKMA/SFC/IAJapan BoJ/ FSAKorea FSC FSCLuxembourg CSSFNetherlands DNB/AFM DNB/AFMPoland FSASingapore MAS MAS MASSwitzerland Finma FinmaUK BoE/FCAUAE ADGM, DIFC ADGM

Source: “Implications of fintech developments for banks and bank supervisors”, BIS, Feb 2018

Guidelines for SupTech Regulation• Principle 1: Encourage entry and beware of a

narrow approach to level-playing-field that would stifle entry & innovation

• Principle 2: Promote low leverage of Fintech/SupTech from the beginning

• Principle 3: Keep incumbents in check with high equity ratios and be mindful of acquisitions

• Principle 4: Perfect is the enemy of good: avoid regulatory straitjackets discouraging innovation

Source: “The FinTech Opportunity”, BIS Working Paper,, 2017

Practice 1: Focus attention on technological innovation and undertake pro-active review of regulatory regimes. Practice 2: Creation/support of innovation facilitators such as hubs and sandboxes, incubators, acceleratorsPractice 3: Coordination, collaboration and communication between domestic regulators. Practice 4: Global cooperation with standard-setting bodies. Practice 5: Build staff capacity & knowledge of regulators & supervisors of the fast-evolving innovation landscape.

Recommended good practices for Policymakers, Regulators & Supervisors

Source: WEF, BIS

Agenda

ØGlobal Insurance market:

Characteristics, Trends & Outlook

ØFactors Affecting the Insurance Industry

ØTechnology-led disruption: what are

InsurTech,RegTech & SupTech? Impact on the industry?

ØKey Takeaways & Recommendations31

Recommendations / Key Takeaways • Global insurance landscape is rapidly evolving due to

demographics and shift of economic geography to emerging markets and being disrupted by new technologies

• Climate change and decarbonisation risks are underpriced

• New technologies, InsurTech, are disrupting the industry: automation and digitalisation simplify processes, minimise fraud risk, deliver considerable cost savings and lead to disintermediation

• Insurers and regulators/supervisors face growing pressure to adapt and reinvent themselves

• Mobile technology can be key to raise insurance penetration, but cyber risks can create unforeseen challenges

What can be done to transform Lebanon’s Insurance sector?

• Legal & regulatory reforms: – Facilitate & provide incentives for consolidation in insurance industry

through mergers & acquisition– Reinforce the independence and provide adequate resources to the

Insurance Control Commission– Introduce mandatory insurance for motor vehicles, reform for life

insurance (issues of taxation) and pension system (3 pillars)• Create incubators, accelerators, regulatory sandboxes• Adopt the Guidelines for SupTech Regulation• Implement the recommended good practices for Policymakers,

Regulators & Supervisors• Establish a Task Force or Committee: Insurance Control Commission,

insurance industry, InsurTech & FinTech, universities & tech companies focusing on transforming the industry

Select References• BIS(2018): “Implications of fintech developments for banks & bank supervisors”, Feb

• BIS (2017): “The FinTech Opportunity”, Working Paper

• Capgemini (2018): World InsurTech Report 2018

• CB Insights (2019): What’s Next In P&C Insurance

• Deloitte (2018): InsurTech entering its second wave

• Deloitte (2018): 2019 Insurance outlook

• EY (2018): Global insurance trends analysis 2018

• McKinsey (2017): Insurtech—the threat that inspires, March.• McKinsey (2018): “Insurance 2030: The impact of AI on the future of insurance”, April• Milliman Research Report (2017): Global Takaful Report 2017• OECD (2017): Technology and innovation in the insurance sector• Sandra Batten, Rhiannon Sowerbutts, and Misa Tanaka (2016): “Let's talk about the

weather: The impact of climate change on central banks,” Bank of England Staff Working Paper No. 603, May 20.

• Swiss Re (2018): “Global economic and insurance outlook 2020”, sigma 5/2018

• Swiss Re (2018): “Premium developments since 1960”, sigma No. 3/2018

Transforming & Disrupting the Insurance Landscape:

InsurTech, RegTech & SupTech

Dr. Nasser SaidiEmail: nsaidi@nassersaidi.comTwitter: @ Nasser_Saidi, @NSA_economicsWebsite: https://nassersaidi.com