Trends in Insurance - Wieger Wagenaar

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

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T

Trust Growth and culture Online Dynamic Pricing Telematics Wrap-up

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Trust and confidence are important elements in insurance. How do you feel about insurance yourself?

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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 ?’

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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

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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

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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

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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

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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


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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


1%

2%

3%

10 15 20 25 30 35

2009 2013

2012

2010

2011

2008 2007

2006

2005 2004 2003 2002 2001

2000 1999

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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


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

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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

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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

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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

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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

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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

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Why pay for car insurance when on holiday by plane?

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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

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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

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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

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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 …

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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…

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Technological solutions to the insurance industry can offer risk mitigation and product differentiation

Source: Baselinetelematics.com

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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

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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

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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

Economy & Finance

Trends in Insurance - Wieger Wagenaar