Session 75 IF, Disruption of Insurance Product Distribution. Moderator: David Schraub, FSA, CERA, AQ, MAAA

Transcription

1 Session 75 IF, Disruption of Insurance Product Distribution Moderator: David Schraub, FSA, CERA, AQ, MAAA Presenters: Kevin J. Pledge, FSA, FIA Sim Segal, FSA, CERA

2 Session 75: Disruption of Insurance Product Distribution Kevin Pledge FIA, FSA David Schraub, FSA, MAAA, CERA, AQ Sim Segal, FSA, CERA Tuesday May 5 th :45 PM

3 Presenters and Moderators Kevin Pledge is an actuary specializing in technology and business solutions for insurance companies. Pledge is currently CEO and Founder of Acceptiv, a company that helps North American insurers reach the under-served middle market with online life insurance solutions. Pledge has also held senior positions at insurance companies in the UK and Canada, and in addition to being responsible for the actuarial function, he has managed marketing, compliance and administrative functions. Pledge spent five years on Microsoft s Partner Advisory Council, advising Microsoft on strategy and partner relationships. Pledge is a Fellow of both the UK Institute and Faculty of Actuaries and the Society of Actuaries. David Schraub is the Staff Fellow for Risk Management and Investment at the Society of Actuaries (SOA) working to develop and support better risk management and investment effort of the actuaries, directing volunteer activities in these two areas. In addition, he provides risk expertise to the SOA s education (including both basic and continuing education programs) and research functions. He also serves as a liaison between the SOA and other organizations in the risk arena and works to facilitate the intellectual capital development of risk manager and investment actuaries. Prior to joining the SOA, Schraub worked for life insurance and consulting companies in various risk positions, focusing on Solvency II, NAIC ORSA and risk reporting in general. Schraub is a Fellow of the Society of Actuaries, a Chartered Enterprise Risk Analyst of the Society of Actuaries, an Actuaire Qualifie of the Institut des Actuaires (France) and a Member of the American Academy of Actuaries. He graduated from the École Nationale de la Statistique et de l'administration Économique, one of the French Grandes Ecoles focused on economics, statistics and actuarial sciences. Sim Segal is the President of SimErgy, a consulting firm specializing exclusively in enterprise risk management (ERM). He is author of Corporate Value of Enterprise Risk Management, published by Wiley, which is required reading on the syllabi of the SOA and leading universities around the world. Segal is Director of ERM Programs at Columbia University. He is also host of Risk Radio, a weekly radio program featuring interviews and discussions on ERM related topics. Segal is a past vice president of the SOA board of directors and served as inaugural chair of their risk committee. He is a Fellow of Society of Actuaries (FSA) and Chartered Enterprise Risk Analyst (CERA). 2

4 What is disruption? Wikipedia, 1/12/2015 Disruption in the context of radical change due to the introduction of a new idea driving a different way of doing things is a revolutionary change as opposed to an evolutionary change. For example: Dick Fosbury was a high jump athlete, who went over the bar backwards as opposed to the forwards style practiced up to that time. As a result, he broke records and permanently changed the world-wide approach to high jump. Other examples are the Google search engine, Sony Walkman, the Apple ipod, Apple Mac, Apple iphone, etc. Businesses thrive on Disruptive innovation, because it gives them a competitive advantage in their market, which in turn assures greater margins and the opportunity to increase profits. This speaks to the importance of entrepreneurship and innovation in business: When you realise you have to change its too late. 3

5 Winners, Losers and Adapters Disruptors are usually winners: Sonny Walkman, Apple ipod, Mac, iphone, Uber, AirBnB Disrupted are usually losers: Kodak, phone book, Barns & Nobel, horse carriage Adapters are staying in the game: Starbucks allows wireless charging, free downloads and manage to stay relevant. Box House Hotel lists on AirBnB. 4

6 But life is not so simple Disrupted still relevant: VHS, DVD, MP4, Streaming didn t kill movie theaters Air transport didn t kill cargo ship UPS, DHL didn t kill traditional postal services like USPS Disruptors not always winner: Amazon Prime is still loosing money Aereo, technology company streaming live and timeshifted streams of over-the-air television on Internetconnected devices, filed for bankruptcy 5

7 What is disruption? Starts with an unfulfilled need Lock a segment of the consumer market Alter the balance in the market 6

8 What is disruption? 10 x better, 2 x the price Computer vs. typewriter 10 x cheaper, ½ as good Casio music keyboard vs. Steinway grand piano New need Walkman, iphone 7

9 Is the financial industry next? Some are saying YES ready to sell auto insurance and maybe buycoverhound industries are ripefor disruption/ 8

10 What next Offense and Defense Disrupt yourself: The financial industry tried to fill the customers needs Response mechanism within the ERM framework 9

11 Thank you Kevin Pledge Acceptiv Sim Segal SimErgy Consulting David Schraub SOA

12 Session 75: Disruption of Insurance Product Distribution Kevin Pledge CEO and Founder Acceptiv Inc.

13 How much personal protection life insurance (by policy count) will be sold online 5 years from now? a) 0 9% 25% b) 10 19% c) 20 29% 19% d) 30 39% e) 40 49% f) 50 59% 13% 13% 13% 13% g) 60 69% h) 70 79% 6% i) 80 89% j) % 0% 0% 0% a) b) c) d) e) f) g) h) i) j) 12

14 Do you believe that online distribution could disrupt your business? Size of Company: Small Medium Large NA Yes 7 14 No 78% agreed that online distribution could disrupt their business 13

15 Agenda 1. Trends 2. Innovation in Insurance Distribution 3. Case studies 14

16 Digital Disruption Other Industries 15 years ago Travel Agents would claim that you cannot book vacations online it needs a personal touch and experience 10 years ago you would not dream of banking online it s not safe 5 years ago few people would buy groceries online 15

17 Online Retail Sales 16

18 Life Insurance Industry - Barriers to Entry Highly Regulated Prudential oversight of insurance companies Capital adequacy Policyholder protection Complex Infrastructure Systems Processes Brand Reputation LIFE INSURANCE IS SOLD NOT BOUGHT 17

19 Trend Life Insurance Sold in US 18

20 Trend - Uninsured households 57% of families with children will have immediate financial trouble if the primary wage earner died 50% of households believe they are underinsured 30% of households have no life insurance Insurance Gap - $20T in US, 1T in Canada 19

21 Trend - Agents 85% of consumers research insurance online Most consumers happy doing business online Disconnect to consumers average age of agents now 57 20

22 Can innovation address these issues? 21

23 Innovation Is possible due to trends creating a discontinuous opportunity Will question an existing paradigm Often involve looking at the bigger picture or from another perspective Timing is critical Disruptive Innovation will be: n times better, at 1/x of the cost 22

24 Paradigm INSURANCE IS SOLD NOT BOUGHT a) Yes, this is true b) No, insurance may be bought 53% 47% a) b) 23

25 Perspective Look at the bigger picture..from the customer perspective Issue is NOT agent productivity Customers want choice 24

26 Timing 25

27 N times better at 1/x of the cost Metrics to beat: Time to Issue Capacity Cost days* Depends on number of agents $500 - $747** + commission Sources: * 2009 LOMA Service Turnaround Times Survey Term Products: 47 days **SOA 2010 Expense Study Average Per Policy $500 weighted, $747 unweighted 26

28 What makes disruptive innovation difficult? You actually have to do it 27

29 Life Insurance Industry - Barriers to Entry Highly Regulated Prudential oversight of insurance companies Capital adequacy Policyholder protection Complex Infrastructure Systems Processes Brand Reputation LIFE INSURANCE IS SOLD NOT BOUGHT 28

30 Case Studies The future is here, it s just not very evenly distributed 29

31 Beagle Street UK New entrant not really an insurance company Not encumbered by existing distribution Online only No advertising for first two years 30

32 The Problem The new business process is not customer friendly Modify Application Further Questions Indicative Quote Apply Add l Q s Offer Issue Underwrite Underwrite evidence multiple hand-offs lack overall process control 31

33 The Solution North America Indicative Quote Apply! UW at claim or Modify Application Further Questions Indicative Quote Apply Add l Q s Offer Issue Underwrite Underwrite evidence 32

34 The Solution Beagle Street Buy Indicative Quote Apply and UW Fully Underwritten No fluids or additional evidence Cover up to 750k Better lapse experience Ave issue time 12 mins > 5,000x faster scalable (85% of the time) 1/10 of the cost 33

35 What about barriers to entry? Not an insurance company Focus on distribution Partnerships Reinsurer, Traditional Insurer No complex systems Focus on distribution outsource the rest Fresh approach to branding 34

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37 Can this be applied in North America? Market research tested Customers go to Google for information Facebook and Google for advice Disconnect with agents 36

38 10 30 year term insurance, up to $500k Coverage age range 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 37

39 Where did this put Teachers Life? T10 - $13.42 T20 - $21.08 T10 - $18.65 T20 - $24.80 T10 - $20.00 T20 - $26.04 Online Quote, Application and Buy Automated underwriting immediate decision including rating if applicable Online Quote and Application Simplified and Manual Underwriting Online Quote and Application Basic auto and Manual Underwriting T10 - $20.10 Online Quote and Application Basic auto and Manual Underwriting Insurance T10 - $20.30 T20 - $30.69 Online Quote Manual Application and Underwriting 38

40 Do we need to innovate? 39

41 $20T uninsured New Entrants? Synergy $2.7 b term market $14.5 b protection market 40

42 Plans for Online Distribution a) My company is not interested in online distribution b) My company is looking at online distribution only to support existing distribution c) My company is looking at online distribution as a primary method of distribution d) My company expects online distribution will replace other distribution methods 13% 44% 38% 6% a) b) c) d) 41

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44 Thank You Kevin Pledge CEO and Founder, Acceptiv

45 ERM Defenses Against Disruption Life & Annuity Symposium Tuesday, May 5, 2015 Sim Segal, FSA, CERA President, SimErgy Consulting Author, Corporate Value of Enterprise Risk Management

46 Agenda Identifying potential disruptions Prioritizing disruption scenarios Informing decision making 45 Copyright SimErgy. All rights reserved.

47 Identifying potential disruptions QRA participants: Broad inclusion Multiple perspectives; buy-in Scope of risks: Include all sources Most disruption corresponds to strategy formulation risk (product, distribution, market, value proposition) Clarify metrics Severity: Company value / Likelihood: Define CWC scenario Process: Advance communication: RCD prompt Individual interviews (case study: Is disruption credible?) Consensus scoring (tentative) ranking 46 Copyright SimErgy. All rights reserved.

48 Prioritizing disruption scenarios Develop risk scenarios: FMEA interviews with SMEs More informed (SME) Range of scenarios (case studies: moderate > CWC) Quantitative Clarifies impacts Which products/channels/markets? How much? For how long? Identifies most likely management response(s) Enhances risk culture (assumption-vetting process) Shifts focus to key credible threats Escalate monitoring / evaluate decision alternatives 47 Copyright SimErgy. All rights reserved.

49 Informing decision making Evaluate risk-reward impact of: Mitigation options Compare cost-benefit tradeoffs of various reactive (e.g., fastfollower, partnering, shifting strategy, etc.) and proactive (e.g., develop ready-to-go action plan) mitigation alternatives Strategic proposals Robust risk-reward landscape illustrates proposals in a different light (e.g., proposals previously seen as potentially cannibalizing) 48 Copyright SimErgy. All rights reserved.

50 Contact information Sim Segal, FSA, CERA President SimErgy Consulting Chrysler Building 405 Lexington Ave., 26 th Flr New York, NY (646) Office (917) Mobile (347) Fax 49 Copyright SimErgy. All rights reserved.