© 2016 Finity Consulting Pty Limited
Digital disruption and the
erosion of value Graeme Adams and Luke Cassar
ANZIIF Briefing: Industry Performance 11 November 2016
Digital disruption and the erosion of value
2
1. Why insurance is ripe for disruption
2. The rise of InsurTech
3. The sharing economy
4. The erosion of value
Digital disruption and the erosion of value
3
1. Why insurance is ripe for disruption
2. The rise of InsurTech
3. The sharing economy
4. The erosion of value
Premium growth is anaemic
4
• GWP J2016: $40.95 billion (up from $39.96 billion in J2015)
• Motor, Home, CTP account for 54% of the market
Domestic Motor 22%
Home 21%
CTP 10%
Commercial 16%
Long Tail 15%
Travel 2%
Other 14%
Source: APRA Source: APRA
0%
2%
4%
6%
8%
10%
15
20
25
30
35
40
45
GW
P G
row
th
($ b
illi
on
s)
GWP Growth
Motor and Home underwriting profitability
under pressure
5
Motor Home
0%
20%
40%
60%
80%
100%
120%
Sep
Dec
Ma
r
Jun
Sep
Dec
Ma
r
Jun
Sep
Dec
Ma
r
Jun
Sep
Dec
Ma
r
Jun
Sep
Dec
Ma
r
Jun
Sep
Dec
Ma
r
Jun
2010 2011 2012 2013 2014 2015 2016
Net Loss Ratio UW Expense Ratio CORSource: APRA
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
SepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJun
2010 2011 2012 2013 2014 2015 2016
Net Loss Ratio UW Expense Ratio CORSource: APRA
Markets are becoming fragmented (eg. Motor)
6
Allianz 8%
Challengers (excl. Coles)
7%
IAG 32%
Motor Club 13%
Others 13%
Suncorp 27%
Suncorp & IAG make up 59% in 2015; 71% in 2010
Source: Roy Morgan, Finity
10%
12%
10%
5% 5%
8%
2%
0%
2%
4%
6%
8%
10%
12%
14%
NSW VIC QLD WA SA TAS NT
Motor - Challenger's market share across states
Challengers: Youi, A&G, Coles, Hollard
The insurance industry is facing several
headwinds
New entrants and price
competition has
fragmented the market
Technological change has
paved the way for
disruption
The community places a
greater value on trust,
changing their view on
insurance 7
Pressure
Anaemic growth and profitability
Market fragmentation
Technology
Community change
Digital disruption and the erosion of value
8
1. Why insurance is ripe for disruption
2. The rise of InsurTech
3. The sharing economy
4. The erosion of value
Insurtech examples
Customer experience
Brolly www.heybrolly.com
Fendamenda
www.fendamenda.com
New eco-systems
Friendsurance
www.friendsurance.com
Lemonade
www.lemonade.com
Insurance on demand
Trov www.trov.com
Metromile www.metromile.com
Insurtech examples
Customer experience
Brolly www.heybrolly.com
Fendamenda
www.fendamenda.com
New eco-systems
Friendsurance
www.friendsurance.com
Lemonade
www.lemonade.com
Insurance on demand
Trov www.trov.com
Metromile www.metromile.com
Lemonade: The future of home insurance?
11
Lemonade in 60 seconds The science behind Lemonade
Videos available at Lemonade.com
Some thoughts on InsurTech
12
Insurers should re-examine business models to test vulnerability
to disruption
Does an insurer’s culture allow innovation, ‘fast fail’ and taking of
calculated risks?
Insurers could consider investing in InsurTech if capital and risk
appetite allows it.
Risk transfer? How to price it? Reserving?
There could be a need to improve Board and C-suite technology
related strategy discussions
Digital disruption and the erosion of value
13
1. Why insurance is ripe for disruption
2. The rise of InsurTech
3. The sharing economy
4. The erosion of value
14
Now over 800 active sharing economies globally.
Projected global revenue of $335bn by 2025 (big but small).
The shared economy unlocks the value of unused or
under-utilised assets
Enablers of the Sharing Economy
15
Technology platform
Smart devices, and
Star rating and review
• 2,000 vehicles , 65,000 members. • 600,000 members, income $40M
per year.
• 262,000 guests in Sydney
26,000 listings in NSW
• Average $5,400 per year
The “trust leap”
The impacts of the shared economy on insurance
16
Issues
Changes to Liability
• New operating models creating new liabilities (product gaps?)
Slower growth of assets to insure
• Less insurance or different insurance?
Disconnect between
ownership and usage
Diminished value of traditional
insurance models
Opportunities
New product designs
• Products to suit users, not just owners? Eg liability extensions.
New technologies present opportunities
• Group insurance
New ways to connect with customers
• Eg, to assist with claims.
• Pay as you go insurance
Hitch yourself to the trust wagon
• change your business model
Digital disruption and the erosion of value
17
1. Why insurance is ripe for disruption
2. The rise of InsurTech
3. The sharing economy
4. The erosion of value
Fewer assets to insure…
18
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Co
un
t ('000)
Projected Number of Vehicles
Car Numbers Population
Note the change
between personal
and shared
vehicles
2016 2020 2025 2030 2035 2040 2045 2050 2055
Car Usage
Personal driven cars Personal autonomous cars
Shared driven cars Shared autonomous cars
A change in the way cars are used will reduce
premiums…
19
90% of road
accidents caused by
human error
-100%
0%
100%
200%
2020 2025 2030 2035 2040 2045 2050 2055
Ch
an
ge
re
lati
ve
to
2016
Change in Collision Risk
Frequency Severity (Current $)
-60%
-40%
-20%
0%
20%
2020 2025 2030 2035 2040 2045 2050 2055
Ch
an
ge
re
lati
ve
to
2016
Change in Collision Average Premium
Avg Premium
Therefore, the passenger premium pool will
drop from 2025
20
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
GW
P (
$m
)Premium Pool
Personal Cars
Shared Cars
Premium will be split
between car owners
(personal lines) and “auto
makers” (product liability)
The erosion of value
21
Changes to customer
preferences and use of assets
Displacement
More competition
• Less value placed on traditional brands
• Loyalty less valued
• Shared assets means fewer assets, pricing and liability issues
• Investment in traditional models and the need to invest in new models
(some will fail)
• Erosion of loyalty
• Transfer from profitable Personal Lines to less profitable Commercial
Lines
• New risk carriers and the competition for customers
• More focus on efficiency and pricing to stay competitive
• Shared assets means fewer assets
We conclude..
22
Insurers live in turbulent times (and do OK!)
Insurers will continue to live in (more) turbulent
times, and do OK!
Questions?
Contacts
Graeme Adams
Principal
Tel: +61 2 8252 3314
Mobile: 0411 012 646
Luke Cassar
Consultant
Tel: +61 2 8252 3418
Mobile: 0400 098 247
www.finity.com.au
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