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The New Future of Insurance: Online/Digitalization and Dynamic Pricing will be the future of Insurance. An overview will present what the new drivers will be for Personalizing Insurance in a sector which is lacking trust and rapidly developing across the world.
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Trends in Insurance SAP Financial Services Forum
London, September 9th, 2014
CONFIDENTIAL
Wieger Wagenaar
|
Owner of BEWONE (Inspiration & Management)
CFO of Eureko Sigorta (part of Achmea), Turkey
Group Director at Achmea Holding, Netherlands
CFO of division Occupational Health at Achmea, Netherlands
Manager Control & IT, division Pensions at Achmea, Netherlands
Auditor at Ernst&Young and Van der Veen & Kromhout, Netherlands
MSc in Business Economics at Groningen University
§ 2011-2014
§ 2008-2011
§ 2002-2008
§ 1993-2002
§ 1985
Introduction to Wieger Wagenaar
§ 1985-1993
1
§ Current
| 2
T
Trust Growth and culture Online Dynamic Pricing Telematics Wrap-up
| 3
Trust and confidence are important elements in insurance. How do you feel about insurance yourself?
| 4
Global trust in insurance is among the lowest of all sectors
46%47%52%51%55%59%59%60%63%64%65%65%66%70%75%79%
Insurance Banks Media Chemicals Pharmaceuticals Energy Consumer Health Telecommunications Brewing & Spirits Entertainment Consumer Packaged Goods Food & Beverage Automotive Consumer Electronics Technology
Financial Advisory
Trust in industries Global, 2013
Source: 2014 Edelman Trust Barometer. Indication of trust is based on the question ‘How much do you trust businesses in each industry to do what is right ?’
| 5
Trust in Financial Services is especially low in the European Union Trust in Financial Services Global, 2013
Source: 2014 Edelman Trust Barometer. Indication of trust is based on the question ‘How much do you trust businesses in each industry to do what is right ?’
23%23%24%25%31%31%32%
36%37%39%40%42%46%
50%56%57%
63%66%68%70%71%
76%
Pol
and
Sw
eden
Italy
Net
herla
nds
UK
Turk
ey
Rus
sia
Ger
man
y
Fran
ce
Japa
n
Irela
nd
Spa
in
Chi
na
Aus
tralia
US
A
Bra
zil
Can
ada
Mex
ico
Sin
gapo
re
UA
E
Indi
a
Indo
nesi
a
Global average
| 6
Trust and customer centricity are often defined in the mission statements of insurance companies, indicating a substantial gap between goal and reality
“…delivering products and services that our clients recommend, being a great company to work for and achieving the best combination of profit and growth. We aim to achieve this by putting the customer at the heart of everything we do…”
“…AXA's mission is to help customers live their lives with more peace of mind…we are committed to redefining the standards of our business so that we truly differentiate ourselves and earn the trust of our key stakeholders”
“…be the trustworthy global insurance company…that works to constantly improve our services and develop the best relationship with our clients, distributors, suppliers, shareholders and society at large…”
“…our purpose is to actively protect and enhance people’ s lives…we deeply care about our clients’ and our people’s future and lives…”
Source: corporate websites, annual reports
| 7
Trust is built by multiple attributes such as engagement and integrity, which appear to be challenging for the financial industry
39%42%45%45%48%49%49%
54%59%62%63%63%64%64%65%67%
Partners with organizations to address societal issues Ranks on global list of top companies Is an innovator of new products, services, or ideas Has highly-regarded and widely admired top leadership Works to protect and improve the environment Creates positive impact on local community Delivers consistent financial returns to investors Addresses society’s needs in its every day business Treats employees well Communicates frequently and honestly on state of business Has ethical business practices Offers high quality products or services Has transparant and open business practices Places customers ahead of profits Takes responsible actions to address issues/crises Listens to customer needs and feedback
Importance of trust building attributes Financial Services, Global, 2013
Source: 2013 Edelman Trust Barometer. Indication of attribute is based on the question ‘How important is each of the following actions in building trust in business?’
Operations Purpose Products/Services Integrity Engagement
| 8
T
Trust Growth and culture Online Dynamic Pricing Telematics Wrap-up
| 9
The working assumption is that the insurance spend per capita increases when people get more wealthy over time
Insu
ranc
e pe
netr
atio
n P
rem
ium
s %
GD
P, 2
013
GDP per capita Nominal GDP per capita in USD thousands, 2013
Source: Swiss Re, IMF WEO (April 2014) Insurance penetration includes both life and non-life insurance premium
0%1%2%3%4%5%6%7%8%9%10%11%12%13%14%15%
120,000 100,000 80,000 60,000 40,000 20,000 0
Russia
Turkey UAE Bahrain
China
Poland
India
Brazil Norway
Luxembourg Israel Australia
Spain Singapore Germany
Canada
Kuwait
USA Sweden Italy
France Switzerland Denmark
Belgium
Japan UK
Netherlands Hong Kong
Qatar Saudi Arabia
Finland
Emerging markets, with low, but
improving insurance penetration
Small and wealthy countries, with limited
perspective for insurance
Large and relatively developed countries, with strong insurance
penetration
| 10
Beware of differences between countries
Source: IMF WEO (April 2014)
363636353536353331302929282626 1.4x
222226262931272422211813121213 1.7x
1111131189765433343 3.3x
11111010910987654344
2012 2008 2002 2003 2009 2004 2013 2001 2006 2010 2011 2005 1999 2007 2000
2.7x
GDP per capita Nominal GDP per capita in USD thousands, 2013
| 11
Beware of differences between countries: 2 examples from the EU
8%
9%
10%
11%
12%
13%
14%
25 30 35 40
1999 2002 2003
2007 2008
2006 2005
2004
2011
2001 2000
2012
2010
2009
2013
Source: Swiss Re, IMF WEO (April 2014)
Insu
ranc
e pe
netr
atio
n P
rem
ium
s %
GD
P, 2
013
GDP per capita Nominal GDP per capita in USD thousands, 2013
1%
2%
3%
10 15 20 25 30 35
2009 2013
2012
2010
2011
2008 2007
2006
2005 2004 2003 2002 2001
2000 1999
| 12
Beware of differences between countries: 2 examples of developing countries
1%
2%
3%
4%
2 4 6 8 10 12 14
2002
2001 2000
2006
1999
2009 2010
2013
2012
2011
2008 2007 2005
2004 2003
Source: Swiss Re, IMF WEO (April 2014)
Insu
ranc
e pe
netr
atio
n P
rem
ium
s %
GD
P, 2
013
GDP per capita Nominal GDP per capita in USD thousands, 2013
1%
2%
3%
4%
2 4 6 8 10 12 14
2013 2012 2011
2010 2009 2008
2007 2006
2005 2004
1999
2000
2002 2001 2003
| 13
T
Trust Growth and culture Online Dynamic Pricing Telematics Wrap-up
| 14
Insurance markets show differences in distribution, driven by economic and cultural differences
Source: BCG
34
62 58
25
68
40
18
1717
50
72
12
8
11
14 10 1314
5237
19 11 15 156
Poland
100
2
France
100
Netherlands
100 100 100
Turkey Brazil
100
Mexico Portugal
100
Premium share Per distribution channel
Agency Broker Bank Other
| 15
Insurance brands need to operate within a new digital reality
Evolution from ownership to access
Potential of data and tracking
Social empowerment
Simplicity and transparency
Self service and control
|
A multichannel approach includes Online presence
Branch RMs
Tele-marketing
Remote RMs
Internet
Bi-directional
Mailing
ATM
SMS
Branch advertising
Uni-directional
1st contact Reminder Client Contact Simulation Purchase Client service
Pre-sale / Raising interest Sale Post-sale
16
| 17
The digital reality provides opportunity to offer personal insurance coverage, tailored to personal needs and embedded in digital lifestyle
Motor
Travel
Fire
Liability
Assistance
The cloud 1 insurance for everything
Always on Just add what you need
| 18
Simple and transparent subscription models are being developed
Choose premium cap
§ Choose the maximum premium you are willing to pay
§ The premium amount defines the size of your cloud
§ Choose payment intervals
§ Use credit card billing § Adapt premium
whenever you want
Pick coverage
§ Choose a start coverage for your lifestyle
§ Based on profiles § Family § Student § Traveler § Etc.
§ Adapt coverage later whenever you want
Adapt on the go
§ Add, remove or replace coverage for what you need
§ Adjust your premium if you want or need to
§ Adapt your coverage as your lifestyle changes
§ All on the fly § All in real time
| 19
Why pay for car insurance when on holiday by plane?
| 20
T
Trust Growth and culture Online Dynamic Pricing Telematics Wrap-up
| 21
Best-practices in pricing through 5 perspectives
Price strategically to retain/grow customer value § Grow most profitable customer segments § Develop high potential segments § Grow segments leading to claim efficiency § Incentivize loyalty
1
Price risk accurately § Boost data sophistication § Boost modeling sophistication
2
Tailor offer to customer § Factor in customer willingness to pay § Cross/up-sell to high potential segments
3
Optimize position against competition § Dynamic pricing § Design products that differentiate from competition
4
Organize for pricing efficiency & effectiveness § Define processes, rules, responsibilities § Boost cross-BU collaboration § Improve execution efficiency § Ensure sustainability of pricing capabilities
5
| 22
Example: Gender and Marital status are relevant characteristics in the identification / segmentation of risks
Female customers pose a better risk
Married customers pose a better risk
18
51
0,951,00
Female Male factor # policies (in thousands)
1313
52
1,171,171,091,00
Widowed Single Divorced Married # policies (in thousands) factor
Gender Marital status
| 23
Age of customers as a relevant pricing variable
0
500
1.000
1.500
2.000
2.500
3.000
0,5
1,0
1,5
2,0
35 30 25 20 80+ 75 70 65 60 55 50 45 40
technical factor # policies
Num
ber o
f pol
icie
s Factor
Customer Age
Loss- making
I
Interesting target group
II
Impact of children
III
Stability
IV
| 24
Dynamic Pricing and Online presence can go hand-in-hand
Retrieve relevant quotes
Understand tariff
coefficients
Analyze competitive positioning
Retrieve quotes – … for the companies in panel … – … including relevant variables … – … in a semi-automated way
Understand competitors’ tariff – … by computing univariate coefficients – … considering most common interactions among variables … – … comparing spread and granularity Analyze competitive positioning – … on relevant profiles – … or a real portfolio … – … or a simulated portfolio representing the whole or a part of the market …
| 25
T
Trust Growth and culture Online Dynamic Pricing Telematics Wrap-up
| 26
In the current motor insurance market, safe drivers are paying for... dogs
Source: Ptolemus
On the internet, no one knows that you are a dog
In the car, neither…
| 27
Technological solutions to the insurance industry can offer risk mitigation and product differentiation
Source: Baselinetelematics.com
| 28
Telematics provides for a more dynamic approach in insurance
Source: Ptolemus
Basic Principles § Most underwriters currently use static /
statistical criteria to evaluate drivers' risks - Age - Gender - Vehicle make & age - Place - Business category - Occupation - Etcetera
§ The historical claims profile is also taken in account
§ Insurance telematics is a policy based on these criteria and 4 new dynamic parameters
Static criteria
Historical claims profile
Distance
Time
Place
Driving behavior
| 29
Technology can change the motor insurance industry
Source: Ptolemus
Cure § High claims ratio
- Fraud
- Theft
- Etcetera
Opaque and focused on the past § Limited understanding of actual risks, only of the past
Diverging interests
§ ‘Higher premiums, more profits for the insurer’
Today
Protect & prevent § High expense ratio
- Driving behavior advice
- Fuel management
- Remote diagnostics, etc.
Transparent and predictive § Real-time visibility on risks, crashes, thefts etc.
Aligned interests § ‘Lower premiums, lower claims, more profits for the insurer’
Future
| 30
T
Trust Growth and culture Online Dynamic Pricing Telematics Wrap-up
| 31
Wrap-up
§ Reason to exist for the sector, but is still relatively low § Appears to be challenging and difficult for insurers
Trust
Growth
Online
Pricing
Telematics
§ Markets range from being saturated to being emerging § Beware cultural differences between countries § Each market has its own distribution merits § Online seems promising, but beware cultural differences § Best practices through 5 dimensions § Dynamic pricing and online can go hand-in-hand § Technological solutions to the insurance industry can offer
risk mitigation and product differentiation