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Non-Traditional Actuarial Paths, Innovation and the Transformation to Digital
Kevin PledgeCEO and Founder
Acceptiv Inc.
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Question
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How much personal protection life insurance will be sold online 5 years from now?
0 – 9% 20 – 29% 40 – 49% 60 – 69% 80 – 89%
10 – 19% 30 – 39% 50 – 59% 70 – 79% 90 – 100%
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About Me – Early Career
Actuarial Exams Several “traditional” actuarial roles,
including Chief Actuary Less traditional roles
such as compliance and marketing
“Intrepreneur”
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About me – post Y2K
Entrepreneur Served on Microsoft Advisory Board Volunteered for SOA
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Agenda
1. What is innovation?
2. More about me
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What is Innovation?
Dr. Anjan Thakor
SOA Annual Meeting 2012, 2013
Successful Innovation
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Two Pillars of Successful Innovation
Challenges in the
operating
environment
generate trends
whose intersection
creates a
discontinuous
opportunity for
innovation
Changing a key
assumption of the
current paradigm
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Example Pillar 1: Intersection of Trends
1984 PC manufacturing costs
decreasing PC distribution costs level Consumer preferences
moving to cheaper PCs Working capital is
expensive due to high interest rates
Challenges in the
operating
environment
generate trends
whose intersection
creates a
discontinuous
opportunity for
innovation
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Example Pillar 2: Change paradigm
PCs must be sold through retail distribution channel to consumers
Changing a key
assumption of the
current paradigm Consumers will buy PC’s through mail order channel
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Example Pillar 1: Intersection of Trends
1985 Growing wealth and
willingness to pay for fashionable brands
More dual-career couples, more time spent at work
Growing awareness of European cappuccino culture in North America
Challenges in the
operating
environment
generate trends
whose intersection
creates a
discontinuous
opportunity for
innovation
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Example Pillar 2: Change paradigm
Coffee is a commodity that consumers will never pay a premium for
Changing a key
assumption of the
current paradigm High-quality (Arabica beans) coffee offered
close to places of work is an affordable luxury!
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What trends are affecting the insurance industry?
What paradigm can be questioned?
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What is Innovation?
Dr. Samuel Chun SOA Annual Meeting 2014Disruptive Innovation
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What is disruptive innovation?
1/2 as good at 1/20 the price
or 20x better at 2x the cost
or 20x better at 1/2 the cost
A:
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The problem with continuous improvement
Margin on a roll of film – a $5bn global business in 1995
Cost of Goods $0.85
Point of Sale $3.50
Price to Dealer $2.70 $0.70
$1.95
$0.85
Dealer Margin
Kodak Margin
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George Fisher in 1995
70% share in film, but down from 76%
70% gross margin in film
Commanding share in paper in chemicals
Increasingly competitive new entrants into
film business
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Their solution – make it better
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Blockbuster vs. Netflix
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How did Netflix do it?
website
DVDs
Red envelopes
Postal service
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What makes disruptive innovation difficult
You actually have to do it
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How do you come up with this?
1. Know your customer
2. Know your value proposition(s)
3. Ask the right questionhow would I obsolete myself?
4. The go do it to yourself first
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20/20 Hindsight
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"I know it when I see it.” Supreme Court Justice Potter Stewart
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Innovation?
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http://youtu.be/NugRZGDbPFU
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Steven Johnson
Ideas can take a while to form Often lots of small ideas make up a big
idea Sum of the whole is greater than the parts
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Founding a company based on great idea
Founded in 2000 based on project I had led at Foresters
Cheaper data management and reporting Several components made this possible,
but the value of the whole was greater than the individual parts
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Trends and Paradigm
Trends:
1. More complex financial reporting
2. Lower cost of data storage
3. Increased use of standalone applications requiring large data feeds (valuation, ALM, experience studies)
Paradigm:
IT (not business areas) has to manage data
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What did I do well?
1. I knew my customer(in fact I defined my customer to be me)
2. I knew my value proposition (for a mid sized company)
3. What would make my business obsolete?
Big Data
R
Inclusive solution with other applications
4. BUT we didn’t do it – why not?
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What went wrong?
Concept, first client and capital from me Poor equity decision – 50/50 both taking
risk
Inability to make big decisions Failure to grow and mature When self-supporting – 100% of a slightly
smaller business is better than 50% of the whole business
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Lessons Learnt
Be prepared to change Address difficult equity questions up front Never do a 50/50 split
Not all is lost
“What was the biggest problem our clients were really facing?”
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It was not reporting or analytics
What was the biggest problem our clients were really facing?
It was a real operating issue
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Distribution“It takes too long to issue business”
“It’s too expensive”
“Our agents need to increase their productivity”
“We need more agents”
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These questions…
Are based on the current paradigm Look for an incremental improvement From the perspective of the current
incumbent – the agent
Time for a fresh look at this…let’s look at it from the perspective of the customer
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The Customer Journey
Gather Information Get Advice Purchase
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Where do you go for information?
Gather Information
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Get Advice
Where do you go for advice?
Get Advice
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Get Advice
Where do you go for advice?
Get Advice
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Get Advice
Where do you go for advice?
Get Advice
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Should you pay more to purchase online?
Purchase
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Metrics for purchase process:
Purchase
Cost $500 - $747*
Time to Issue 42 – 47 days**
Sources: * SOA 2010 Expense Study Average Per Policy $500 weighted, $747 unweighted** 2009 LOMA Service Turnaround Times Survey – Term Products: 47 days
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Indicative Quote
Underwrite
IssueOfferAdd’l Q’s
Modify Application
Apply
Underwrite evidence
Further Questions
Purchase
How is this possible?
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A recent announcement…
minutes not days
Is this innovation?Purchase
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Indicative Quote
Underwrite
IssueOfferAdd’l Q’s
Modify Application
Apply
Underwrite evidence
Further Questions
Purchasen x better
x% of the cost
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Purchase
Indicative Quote
Apply (UW) and Buy
>5,000 x faster
∞ scalable (80% of the time)
7% of the cost
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Desire to issue business faster Increasing cost to issue business Increase in online shopping Aging distribution force
Life insurance is sold not bought
Life insurance can be bought and does not need advice
Challenges in
the operating
environment
generate trends
whose
intersection
creates a
discontinuous
opportunity for
innovationChanging a key
assumption of
the current
paradigm
48 4848
How is this working?
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10 – 30 year term insurance, up to $500k Coverage age range 18 - 70 Applied UK experience and P&C lessons Simpler, yet more flexible than current
products No medical evidence referrals• Online, with offline support if needed
• On cover in 15 minutes or less
Full UW + Lower cost = Lower premium
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T10 - $19.10Online Quote and ApplicationBasic auto and Manual Underwriting
T10 - $20.00T20 - $26.04
Online Quote and ApplicationBasic auto and Manual Underwriting
T10 - $20.10Online Quote and ApplicationBasic auto and Manual Underwriting
T10 - $20.30T20 - $30.69
Online QuoteManual Application and Underwriting
Where did this put Teachers Life?
MNS Age 40 $150K. Term Life Monthly Premium* Based on Acceptiv product design and pricing at May 2014
Insurance
T10 - $13.42T20 - $21.08
Online Quote, Application and BuyAutomated underwriting immediate decision including rating if applicable
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Lessons from the UK
Term insurance is a commodity Customers want the opportunity to buy
online without an advisor Don’t need to be significantly cheaper Online underwriting – same mortality,
better lapse experience
Beagle Street – new entrant launched in 2012 (not really a life insurance company)
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http://youtu.be/HWF09ya1o5I
