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Future of Insurance 2020 Dr. Anand S. Rao Partner, US FS Advisory PwC September, 2012
www.pwc.com
Agenda
01. STEEP Drivers
02. Implications for Insurance 03. Preparing for the Future
1
PwC
“The future isn’t what it used to be”
2
The environment in which executives have spent most, if not all, of their careers is changing
PwC
STEEP Drivers
3
PwC
32 STEEP Drivers
4
Social Customer Behaviors
– Social Networking
– Customer Expectations
– Risk Awareness
– Health
Talent Drain
Stakeholder Trust
Corporate Social Responsibility
Demographic Shifts
– Changing Middle Class
– New Family Structure
– Dependency Ratio
– Aging
Technology Information & Analytics
Devices & Sensors
Software & Applications
Medical Advances
Economic Urbanization
New Growth Opportunities
Fiscal Pressure
Inflation/Deflation
Risk Sharing & Transfer
Social Security & Benefits
Distributor Shift
Partnerships
Environmental Climate Change & Catastrophes
Sustainability
Pollution
Political Regulatory Reform
Geo-political Risk
Rise of State-Directed Capitalism
Terrorism
Tax Treatment
Sharia Compliance (Takaful)
PwC
Future Scenarios by Sector
5
PwC
Global Mega-Trends in Insurance
6
PwC
Two-Speed Global Growth
Information Advantage
through ‘Big Data’
Distribution Disruption
and Customer
Revolution
Evolving Business Models ‘Big and
Fast’
‘Two-Speed’ Global
Growth
1
2 3
4
7
• Changing Global demographics
• Rising middle class in developing countries; shrinking middle class in developed countries
Developed economies: • Shrinking life insurance & auto
insurance
• Growth in Retirement Income Developing economies: • Huge potential for personal and
commercial
• Growth in life insurance, disability, retirement savings
1
PwC
‘Two-Speed’ Global Growth Increasing Share of Developing Countries
1
Comparative Forecast Highlights “Two-Speed” Growth Across the Globe
• Economic and unemployment impact
• Shrinking middle class
• Fight for market share
• Margin extension
• Large working population
• Rising middle class
• Top-line growth
• Market expansion 9,6
8,5
4,7
4,4
3
2,3
1,9
1,4
0,5
China
India
Brazil
Turkey
US
Germany
UK
France
Spain
GDP Growth Forecast (2011) %
Sources: OECD projections. Apply long-term growth projections to historical PPP-based estimates for 29 O.E.C.D member countries and 129 non-member economies.
PwC
Distribution Disruption & Customer Revolution
Information Advantage
through ‘Big Data’
Distribution Disruption
and Customer
Revolution
Evolving Business Models ‘Big and
Fast’
‘Two-Speed’ Global
Growth
1
2 3
4
9
P& C Insurance: • Growing direct channel and
aggregators
• Self-forming affinity groups
• Customer transparency, ease of use and speed of fulfillment
Life Insurance & Retirement: • Simplicity, advice, and transparency
• Holistic income solutions - Insurers, Asset managers, Banks
2
PwC
Distributor Destruction and Customer Revolution From Product-centric to Customer-Centric Models
10
2
PwC
Distributor Destruction and Customer Revolution Changing Role of Advice
11
2
Delegated Assisted Self-Directed
PwC
Distributor Destruction and Customer Revolution Holistic Income Solutions – Life & Retirement
1
The Customer Life-Cycle – Managing Wealth, Health and Standard-of-Living
Dependents Single & ‘Rich’ Growing Family Pre-Retiree Retiree 1
Customer Life-Cycle Stages
Advice
Asset Depletion
Asset Creation Asset Creation
Asset Protection
Asset Preservation
Asset Depletion
Product Portfolio Mix
Asset Cycle
New Generation
Asset Transfer
Debt 20%
Savings
60%
Insurance 20%
Debt 30%
Savings
30%
Insurance 40%
Debt 75%
Savings
20%
Insurance 5%
Debt 50% Savin
gs 30%
Insurance 20%
PwC
Information Advantage through ‘Big Data’ and ‘Smart Analytics’
Information Advantage
through ‘Big Data’
Distribution Disruption
and Customer
Revolution
Evolving Business Models ‘Big and
Fast’
‘Two-Speed’ Global
Growth
1
2 3
4
13
• Sophisticated ‘unstructured’ data capture for real-time insights
• More sophisticated predictive modeling and “interpretive intelligence”
• Advanced use of mobile and sensor devices
• Automation of advice (i.e., TurboTax of investment advice)
3
PwC
Information Advantage through ‘Big Data’ Big Data, Smart Analytics and Sensor Devices
14
3
Source: Property & Casualty Predictive Modeling Survey — Results and Implications." Towers Perin Predictive Modeling, PwC Analysis
80’s-90’s
Multivariate Analysis
00’s-10’s
90’s-00’s
Data driven predictive modeling
Com
puta
tion
al P
ower
Type
s of
Dat
a
Analytic Techniques and Data Sources – Increasing Sophistication
Interpretation, Simulation & Visualization
Database
Websites
Audio
Video
Sensors
Social Media
Structured Data and Solutions
Unstructured Data and Insights
PwC
Information advantage through ‘Big Data’ Real-time data from sensors - Reactive to proactive model
15
3
Crop Insurance to Yield Management
Vehicle Telematics
PwC
Information advantage through ‘Big Data’ Advances in medical technology, devices and preventative care
16
3
Pricing Granularity
Product Design
Simplicity
Body Area Networks & Embedded Devices
PwC
Evolving Business Models – ‘Big and Fast’
Information Advantage
through ‘Big Data’
Distribution Disruption
and Customer
Revolution
Evolving Business Models ‘Big and
Fast’
‘Two-Speed’ Global
Growth
1
2 3
4
17
• Reactive to preventative models
• Product-centric to customer-centric business models
• Automate and ‘Informate’ models
• Balancing economies of scale, local flexibility and innovation
4
PwC 18
Evolving Business Models ‘Big and Fast’ Third Wave of Capitalism
4
Scale
Speed
1st Wave
2nd Wave
3rd Wave Competitors
PwC
Evolving Business Models ‘Big and Fast’ Structural and Disruptive Innovation
Product/Service Innovation -
Op
erat
ion
al I
nn
ovat
ion
Structural Innovation
Product/Service Innovation
Operational Innovation
Best Practice
4
PwC
Evolving Business Models ‘Big and Fast’ Disruptive Innovation – Short-term Scenario
4
V2V Communications
…increased safety
SARTRE Vehicle Platooning
…increased capacity
Self-Parking Cars
…convenience
PwC
Evolving Business Models ‘Big and Fast’ Disruptive Innovation – ‘End-game’ Scenario
4
Driverless Cars Implications
• Liability: ‘Driver’ to ‘Product’
• Distribution: Consumers to Manufacturers
• Ownership: Owning to sharing/renting
• Death Spiral: Lower claims, lower premiums and eventually the …
…death of the auto insurance industry
PwC 22
The Future may be hard to ‘predict’ but not impossible to
prepare for!!
PwC
Call to action
23
PwC
Summary
• Outside-in not Inside-Out
• Automate & Informate
• Sense & Predict
• Preventative model
• Big & Fast
24
PwC
Confidential Information for the sole benefit and use of PwC's Client.
© 2012 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
For Additional Information Contact: Anand Rao Email: anand.s.rao@us.pwc.com
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