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CEO’s message

Blockchain and innovation

Digitization and the Indian

insurance industry

Other news and insights

Marsh events

CONTENT

NEWS&VIEWS Q4 2016

Dear all,

As we begin 2017, amid far-reaching changes in India and the world, I am happy to introduce the latest issue of our newsletter, News&Views.

In a world of interconnected lives and systems, societal changes and polarization, and demographic change, collaboration among all the stakeholders of the economy has become an important element in driving growth.

In this issue, we bring to you an analysis of a new technology, blockchain, which if it finds wide use, will link systems, institutions, and consumers across national boundaries, regulatory jurisdictions, and legal frameworks.

The blockchain technology also can potentially transform India’s insurance industry. Transparency, collaboration, and linkages among different stakeholders in the insurance industry will substantially improve.

Despite the prevailing trend toward nationalism in the world, especially in the Western countries, competition and globalization have increased the living standard of many in the developing countries.

Another change in India’s economy in recent months was demonetization.

The government’s advance estimates show that India’s economy grew 7.1% in 2016-17, lower than last year’s 7.6%. This data may be again revised downward as the impact of demonetization on the economy was not taken into account.

Although, the short-term impact of demonetization may be slow growth, it could boost digitization of the economy. Anecdotal evidence points to this, with people as diverse as grocers and house wives using cards to make small purchases.

The Indian insurance industry is already facing the effect of digitization, and our other feature in this newsletter tries to analyze this issue, especially given demonetization.

In the end, I would like to take the opportunity to wish everyone a fruitful 2017. Also, as always your feedback is valuable, please write to us at contact.India@marsh.com.

Regards,

SANJAY KEDIA Country Head and CEO Marsh India

News&ViewsMessage from the CEO

INDIA

NEWS&VIEWS Q4 2016

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BLOCKCHAIN AND INNOVATIONThe traditional insurance maxim is that insurance is bought, not sold. However, as the internet, mobility, and social media transforms economies and the way we relate to each other, consumers may well buy insurance policies depending on the speed, transparency, and ease of the process.

Trust is also a vital ingredient that powers all insurance solutions, especially because such transactions are characterized by multiple stakeholders at different stages of the transaction.

In a globalized world, maintaining institutionalized trust between multiple organizations and people spread in different cities and towns, countries, and organizations entails complex bureaucracy, multiple and different levels of regulations, and processes.

BLOCKCHAIN AND CUSTOMER CENTRICITY

A new technology, the “blockchain”, has the potential to provide the different stakeholders of the insurance industry an institutional means of trusting each other to carry out a transaction.

Given its unique characteristics, this technology may also lead to an improvement in transparency, reduction in the time lag between the different processes of an insurance chain, and shorten the claims process.

In an insurance transaction, contract certainty is an important factor for policy holders and prospective customers. The blockchain may enable contract certainty for policy holders for insurances that are parametric in nature, i.e., which are based on underlying factors. Such claims can in fact be credited automatically to the policy holder’s account if a particular event occurs.

For instance, claims for crop insurance can be paid automatically to a policy holders account if there is a shortage of rainfall in a particular year or season, depending on the terms and conditions of the contract.

The blockchain technology by connecting the end customer to the other stakeholders, including insurance companies, may help in the mitigation of niche risks and improve customization. In a world of ever changing and complex risks, the provision for customized risk solutions, which is also flexible, fast, efficient, and cost effective, is vital.

WHAT IS BLOCKCHAIN?

Blockchain is a public ledger open to the entire world if desired or to a closed group of people. According to the Celent and Oliver Wyman report, “Blockchain in Insurance: Use cases”, a block is a record distributed across a group where data or information once added cannot be deleted. The ledger offers an unchangeable, transparent, and efficient record of information and transactions visible to everyone in the block.

It is unique, because it does not need a central authority, whether a regulator or a commercial entity, to safeguard the security and authenticity of any information added to the ledger.

Frauds are also minimized, as transactions are secured with mathematics or a means of identification, such as biometric parameters; although, the means of identification for the stakeholder to gain access to the block are still being developed.

As the internet of things becomes a reality, with many connected devices, data will become ubiquitous and information sharing will reach new heights. Blockchain can provide the connectivity that is needed to make data more useful.

“Blockchain”, has the potential to provide the different stakeholders of the insurance industry an institutional

means of trusting each other to carry out a transaction.

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NEWS&VIEWS Q4 2016

BLOCKCHAIN CAN TRANSFORM THE INSURANCE INDUSTRY

The blockchain technology has the ability to change the insurance industry, just as the internet changed the information and communication industry, and made possible the instantaneous flow of information around the world.

Currently, the internet of things enables machines to talk to each other and helps to harvest mountains of data. This data can be analyzed and used in innumerable ways from customized playlists to parameter- driven motor insurance in certain parts of the world.

The blockchain technology, especially when taken together with smart contracts, which are digitally-enabled agreements that enforce terms and conditions automatically, can probably transform the insurance industry to suit the needs of a post-digital world.

Take for instance, a smart contract to buy a car on a loan. If the buyer reneges on his contractual agreement to pay regular installments for his loan, he may potentially lose access to his car, as the doors may become locked automatically.

BLOCKCHAIN AND TAILORED RISK SOLUTIONS

As the insurance industry changes, and regulators and other authorities reemphasize the need for customer centricity, the blockchain technology, if it finds wide acceptance, can play a pivotal role. However, it is still early to foresee the path that blockchain technology will take. The technology, process, and regulatory issues that will allow an immutable public ledger to operate across communities and nations will have to become operational and be fool proof.

The blockchain technology can, however, lead to an improvement in customer centricity through many factors, including by:

• Improving valuation of assets and provenance, especially helpful for high-valued items, such as property:The technology will help establish the origin of an item and track its custody and ownership throughout its existence. Result: This will help reduce costs of ascertaining and acquiring proof of ownership, including historical ownership as well as establish an audit trail. The transparency thus obtained will substantially lower frauds in property transactions and insurance claims.

• Helping in the settlement of claims for reinsurance and multi-layer participation policies: A shared central ledger helps in keeping track of the stakeholders and also enables improved settlement of claims. Results: Decreased time required for settlement and reconciliation across all participants. Greater capital efficiency resulting from decreased time to settlement and resultant release of unrequired reserves; Decreased likelihood of fraud through ability to identify multiple claims for the same loss.

• Providing an alternative marketplace: Blockchain technology provides a shared environment for placing insurance risk, which is transparent and visible to all stakeholders, and for all aspects of the transaction, including exposure, risk share, and policy conditions. Smart contracts are then used to ensure collection and disbursement of premium. Results: This lowers processing costs and time required to check coverage and participants. Also premium collection is faster for all the participants, besides being transparent.

Source: Celent and Oliver Wyman (Blockchain in Insurance: Use cases)

CONCLUSION

As consumers’ demand for fast, transparent, and efficient transactions increase in tandem with the rapid use of mobile and internet applications, a possible solution is the blockchain technology, which if effectively used can propel the Indian insurance industry to the post-digital era.

As we come to the end of 2016, the insurance story is again about policy holders. In India, the insurance industry is changing, given new regulations, consolidation, and entrants in the market, and perhaps most important, the nascent efforts to digitize the market and reach new customers. In such a scenario, the blockchain technology, if it develops further, has the potential to make the insurance industry more aligned with customer needs.

ANGANA BHARALI DAS Marsh India communications team

References:

1. Blockchain in Insurance: Use cases, Celent and Oliver Wyman.

2. Blockchain: Democratized Trust, Eric Piscini, Joe Guastella, Alex Rojman, and Tom Nassim, Deloitte, also available at https://dupress.deloitte.com/dup-us-en/focus/tech-trends/2016/blockchain-applications-and-trust-in-a-global-economy.html

3. Blockchain: More than just Bitcoins, Munich Re, Blockchain – More than just bitcoins | Topics Online 2016 | Munich Re

NEWS&VIEWS Q4 2016

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DEMONETIZATION AND DIGITIZATION OF THE INDIAN ECONOMYThe government’s decision to ban Rs. 500 and Rs. 1,000 notes on November 8, 2016, to curb black money and terrorism financing through counterfeit notes has evoked mixed reactions. Demonetization has affected the daily lives of millions, especially those in what is called the informal sector—domestic workers, small traders, and farmers—but what its impact will be in the long term remains to be seen.

In the short term, demonetization has led to the rapid adoption of e-wallets, and credit and debit cards as a means of payment. Such digital payments have in a large way replaced cash transactions at least in urban areas.

Many economists and socio-political researchers also believe that the country’s path to digitization was smoothened and the time to achieve a cashless society has been compressed.

INDIA AND A CASHLESS ECONOMY

The path toward digitization in India started with the e-commerce start-ups, such as FlipKart, Jabong, SnapDeal etc. These e-tailers helped begin the process of weaning customers to online channels in the country. Most of these e-tailers conduct the major proportion of their business through cash, but what they did do and is continuing to do is familiarize people with the convenience of online channels and cash less transactions.

While there is no evidence of e-tailers benefiting after about 86 percent of the currency in circulation by value in India was withdrawn, business at large fintech companies, popularly called e-wallet firms, have grown. According to media reports, including in the Economic Times, transactions in e-wallet companies had increased by more than 700% in the first few days after demonetization.

Slowly, but surely, digital transaction are becoming popular. Not just in India, but in other countries as well; although, the rate of adoption varies. In countries, such as the US and Netherlands, a large proportion of the transactions are through digital modes of payment, while in others, such as Italy, cash retains its paramount position.

In India, many people in rural areas and the informal sector do not have bank accounts. About 40% lack access, according to different reports, despite the government’s efforts to improve financial inclusion. Even those who have bank accounts may not have easy access to a physical branch or may hesitate before using a bank account because of a lack of familiarity and apprehension about usage.

However, the internet and the sharing economy cannot be wished away in our country or overseas. As internet penetration and connectivity increase, the digitization of the economy is a natural progression.

According to a Google and The Boston Consulting Group report, Digital Payments 2020, the total payments made through digital payment instruments in India are likely to be about US$500 billion by 2020, which is 10 times the current level. The report also estimates that non-cash transactions, which currently constitute about 22% of all consumer payments, will overtake cash transactions by 2023.

Also, as the number of 3G and 4G internet connections rises and the price of mobile devices decreases, the number of internet users will increase at a fast rate. A Deloitte and Associated Chambers of Commerce & Industry of India (ASSOCHAM) study forecasts that India will have 600 million internet users by 2020.

Although, spectrum availability in metro cities in India is a small proportion of what is available in cities in other developed markets, internet penetration is likely to increase in the future.

In India, the government is committed to a digital transformation of the economy and government. This push has led to the rise of a new category of fintech service providers, payment wallet companies, and more recently payment banks.

Total payments made through digital payment instruments in India are likely to be about US$500 billion by 2020, which is 10 times the current level.

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NEWS&VIEWS Q4 2016

DIGITIZATION AND THE INDIAN INSURANCE INDUSTRY

The insurance industry in India is on the brink of a digitally enabled transformation. As the use of smart, digital products and services increases, customers’ demand for fast, efficient, seamless, and intuitive products and services are increasing.

To enable and provide such services and products, all the stakeholders—insurance companies, distribution channels, customers, technology providers, etc.—will need to collaborate and network. In other words, an ecosystem of multiple stakeholders will power the next spurt of growth in the insurance industry, and the role of digital payments in facilitating the growth of such ecosystems is vital.

At the same time, digitization and the development of an ecosystem will make all stakeholders more vulnerable to data loss and theft. The increase in the use of virtual networks and intranets, and “aggregation” of cyber risk due to concentration of virtual supply chains will make cyber risk and security important enterprise-level risks that will need to be addressed.

There is also the risk of business interruption loss due to interconnected digital data supply chains.

Also, mobile wallet companies’ and payment banks’ reliance on technology, online connectivity, and requirement for high volume of remittance transactions to offset the low margin per transaction will make them vulnerable. From our observations, these companies are becoming increasingly concerned about such cyber frauds.

The complex supply chains, operational risk inherent in interconnected supply chains, and cross border partnerships will likely drive stringent insurance coverage requirements for participating companies.

In 2016, the vulnerability of different organization was exposed by a slew of cyberattacks and hacking incidents in India. These enterprise-wide risks are important, given that the 154-crore Indian e-wallet market is likely to grow to Rs. 30,000 crore by the end of 2022, according to a report by ASSOCHAM.

CONCLUSION

Cash continues to be an attractive means of payment because the payer and the payee do not have to pay any additional charges and is anonymous. The reason why digital payment has not become popular with small merchants in India is cost and poor infrastructure. At the least, merchants have to pay for a POS machine.

Nonetheless, the World Payments Report, prepared by Capgemini and BNP Paribas, estimates that global non-cash volumes will increase 10.1% to 426.3 billion in 2015. The highest growth is likely to be in Emerging Asia (31.9%), Central Europe, the Middle East and Africa (15.7%) and mature Asia-Pacific (11.6%).

For digitization to grow and to include all sections of the people in all areas of the country, there is a need for more value added services, better internet connectivity, regulatory support, and market education.

However, as the popularity of the internet and social media forums continue to rise, and people, especially Gen Y, become more and more attuned to digital interaction, digital means of payment will become an integral part of the daily lives of people and organizations.

THE FINPRO TEAM

References:

1. Future of Money, Mint, Leslie D’Monte, also available at http://www.livemint.com/Industry/asnVex3sF8Ca8l8I0zESYO/The-future-of-money.html.

2. World Payments Report 2016, Capgemini and BNP Paribas.

3. World Insurance Report 2016, Capgemini and Efma.

4. Internet users in India to reach 600 million by 2020: Assocham-Deloitte study.

5. Safety first in cashless drive, Jayati Ghose, The Telegraph, available at https://www.telegraphindia.com/1161219/jsp/business/story_125458.jsp#.WFfU62c0M2w.

6. E-wallets used to siphon off money, V Narayani, Times of India, available at http://timesofindia.indiatimes.com/city/mumbai/e-wallets-used-to-siphon-off-money/articleshow/56112481.cms.

7. After demonetization, e-wallets strike it rich, while India runs out of cash, Javed Anwer, India Today, available at http://indiatoday.intoday.in/technology/story/after-demonetisation-e-wallets-strike-it-rich-while-india-runs-out-of-cash/1/817932.html.

8. Demonetisation in India: Driving a digital treasure hunt, Yogesh K Dwivedi, Brink Asia, available at http://www.brinknews.com/asia/demonetization-in-india-driving-a-digital-treasure-hunt

9. Can India really provide bank accounts to 1.2 billion people, Jungkiu Choi, BBC, available at http://www.bbc.com/news/world-asia-india-29074310.

10. Indian m-wallet market to reach Rs. 30K crore by FY22, India Infoline News Service, available at Indian m-wallet market to reach Rs. 30K crore by FY22

World Payments Report, prepared by Capgemini and BNP Paribas, estimates that global non-cash volumes will increase 10.1% to 426.3 billion in 2015.

NEWS&VIEWS Q4 2016

6 News&Views

OTHER NEWS AND INSIGHTS

DEMONETIZATION HELPS INSURANCE AND OTHER INDUSTRIES

As the demonetization leads to dislocation in a few industries, insurance companies and mutual fund houses have likely benefited. Premium collection of life insurance companies has surged in November 2016, while investment in mutual funds grew by three-fourths.

India’s currency crisis is also boosting the growth of online delivery firms, restaurants, and taxi aggregators. These on-demand service providers are making the most of the cash crunch caused by the currency recall, by using novel methods to lure cash-starved customers.

However, the impact of demonetization in the overall economy may be more nuanced, and the decision to withdraw the Rs. 500 and Rs. 1000 notes on November

8, 2016, may affect growth in the short term, according to reports in different media channels.

A recent report in the Economic Times, which quoted a report by Nomura Holdings, for instance, said that although India’s economy will benefit from the demonetization as the government will have more money to spend due to a wider tax base and higher taxes in 2018, growth will slow in the short term.

The report added that India’s GDP is likely to grow at 7.1%, down from 7.8% before demonetization, in 2016. The GDP is also forecast to rise 7.1% in 2017, lower than the previous estimate of 7.6%. However, the economy is forecast to grow at 7.7% in 2018.

Read more at:

http://economictimes.indiatimes.com/wealth/personal-finance-news/investors-rush-to-put-money-in-insurance-mf-as-deposit-rates-fall/articleshow/55944769.cms

http://economictimes.indiatimes.com/small-biz/policy-trends/demonetisation-sets-the-cash-registers-ringing-for-e-tailers-aggregators/articleshow/55932720.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

http://economictimes.indiatimes.com/markets/stocks/news/nomura-cuts-indias-growth-estimates-to-7-1/articleshow/55993075.cms

INSURERS

NOVEMBER APRIL-NOVEMBERMARKET SHARE

UPTO NOVEMBER 2016

GROWTH OVER THE

CORRESPONDING PERIOD OF

PREVIOUS YEAR

2016-17 2015-16* 2016-17 2015-16*

PRIVATE TOTAL 4678.331 3244.538 37175.96 27749.09 45.46375 33.97179

PUBLIC TOTAL 4484.484 3859.884 44594.6 34349.74 54.53625 29.82514

GRAND TOTAL 9162.814 7104.422 81770.55 62098.83 100 31.67809

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY FLASH FIGURES -- NON LIFE INSURERS GROSS DIRECT PREMIUM UNDERWRITTEN FOR AND UPTO THE MONTH OF NOVEMBER, 2016

NOTE: COMPILED ON THE BASIS OF DATA SUBMITTED BY THE INSURANCE COMPANIES * FIGURES REVISED BY INSURANCE COMPANIES # COMMENCED OPERATIONS IN DEC 2015 ** COMMENCED OPERATIONS IN OCTOBER 2016

CYBER SECURITY EMERGES AS A KEY CONCERN AFTER DEMONETIZATION

The government has set up a committee to review the information technology (IT) act to strengthen its cyber security infrastructure, as there is increasing concern about the safety of digital or cashless transactions.

The Ministry of Electronics and Information Technology (MeitY) is likely to issue advisories to all digital payment agencies, including banks and e-wallet providers, to “strengthen their security walls”, officials were quoted as saying in the Telegraph.

There is a spurt in the number of complaints of fraudulent withdrawals from ATMs and unauthorized online transactions received by Ghaziabad’s cyber security cell since the demonetization of higher value notes was announced.

Officials said that they received nearly 25 cyber security complaints since November 8, 2016, in addition to eight complaints related to fraudulent withdrawals from ATMs. This is in contrast to a total of 85 complaints filed in 2015 and 60 complaints filed between January 1 and November 8, 2016.

Govt. To Review IT Act To Tackle Cyber Crime - CXOtoday.com

http://www.hindustantimes.com/noida/ghaziabad-sees-spurt-in-online-fraud-since-demonetisation/story-5ExPYfvN3paPJeBXGOoAMN.html

https://www.telegraphindia.com/1161219/jsp/business/story_125458.jsp#.WFfWPGc0Npw

NEWS&VIEWS Q4 2016

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MARSH EVENTS

CYBER CRIME AND TRADE CREDIT RISK SEMINAR FOCUSED ON TWO IMPORTANT RISKS

As cybercrimes continue to affect organizations, government agencies, and people alike, Marsh India helped facilitate a discussion of this issue among different stakeholders by holding a seminar on Cyber Crime in Vadodara on October 18, 2016. The event was attended by 30 thought leaders and professionals from diverse industries and sectors.

In same event, there was a panel discussion on trade credit risk. Many organizations face trade credit risk, and the prevention of counterparty non-payment risk is important. This risk has become more important as many Indian organizations are rapidly expanding overseas to tap new markets.

Marsh India’s Anup Dhingra, senior vice president & FINPRO practice leader, addressed the participants. Other leaders who spoke on the occasion were Akshay Bhardwaj, vice president & trade credit practice leader, and Nitin Mehta, vice president & branch leader.

HEALTH CARE INNOVATION CONFERENCE SPOTLIGHTS INNOVATIVE HEALTH PRACTICES AND INSURANCE

As healthcare cost increases and innovation in healthcare advances, Marsh India held a conference, The Health Care Innovation and Insurance Inclusions: Employee Benefits Perspective conference, on September 23, 2016, in Gurgaon.

Innovation in healthcare, including minimally invasive surgery and the use of robots in surgery, has improved beyond our imagination in recent years. However, the cost and financing this healthcare treatment is an issue in India, and is a cause for concern for many people.

The conference was attended by about 95 representatives from the healthcare industry, including doctors, insurance companies, and other industry experts.

Leaders who spoke in the conference were Krishnan Ramachandran, deputy chief executive officer, Apollo Munich Health Insurance Company Ltd; Faisal Nadeem Saiyed, director human resource, Expedia India; Lipika Verma, director rewards, Schneider Electric India And Pacific; Praveen Bhatia, chairman, Institute Of Minimal Access Metabolic & Bariatric Surgery, Institute Of Robotic Surgery, Sir Ganga Ram Hospital; and Arvind Kumar, Director Institute of Robotic Surgery and Chairman, Center for Chest Surgery & Lung transplantation, Sir Ganga Ram Hospital.

Joan Collar, managing director and regional leader, Employee Health & Benefits, Mercer Marsh benefits, also spoke on the occasion, and the panel discussion was moderated by Manish Lalwani, managing director and practice leader, Employee Health & Benefits, at Marsh India.

Marsh India Communications Team.

For any information, please contact: ANGANA BHARALI DAS angana.das@marsh.com

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The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such. Insured should consult their insurance, legal and other advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Statements concerning financial, regulatory or legal matters should be understood to be general observations based solely on our experience as risk consultants and may not be relied upon as financial, regulatory or legal advice, which we are not authorized to provide. All such matters should be reviewed with appropriately qualified advisors in these areas. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.

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Marsh is a global leader in insurance broking and risk management. Marsh helps clients succeed by defining, designing, and delivering innovative industry-specific solutions that help them effectively manage risk. Marsh’s approximately 30,000 colleagues work together to serve clients in more than 130 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy, and people. With annual revenue of US$13 billion and approximately 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a leader in providing risk and reinsurance intermediary services; Mercer, a leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a leader in management consulting. Follow Marsh on Twitter, @MarshGlobal; LinkedIn; Facebook; and YouTube.