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$: Future of Insurance 2020€¦ · Indeed, as the market for usage-based insurance grows, insurers on t\൨e outside will face adverse customer selection and declining profitability,$
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




and Customer

Revolution


Fast’


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’




and Customer

Revolution


Fast’


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

Presenter

Presentation Notes

20% reduction in fatalities from motor vehicle collisions Telematics has potential annual savings on US claim payouts up to $20B Automotive technology advances could reduce most accidents caused by human error - 90% of all auto accidents are due to human error

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

Presenter

Presentation Notes

Number of connected industrial and medical devices is projected to reach 16 billion by 2015

PwC

Evolving Business Models – ‘Big and Fast’




and Customer

Revolution


Fast’


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

Presenter

Presentation Notes

A successful Telematics strategy is dependent on recognizing the marco economic opportunities, selecting the opportunities that match your abilities and aligning your Business Model to the opportunity. A comparison of the key strategic success drivers relative to the organization and competitor’s capabilities provides an overview of strength of the strategy The value proposition for each carrier can differ. How should Insurers prioritize what aspects of the value chain have the most impact? Where does the monetization come from? (Example: selling aggregated customer data to third parties) "Following the leader" The idea that telematics is a niche or specialty area within insurance is being proven wrong. The success of Progressive is proving that telematics can be scaled, and that it has mass-market appeal. Indeed, as the market for usage-based insurance grows, insurers on the outside will face adverse customer selection and declining profitability, meaning they will have to enter the market over the long term New business models will yield new customer value propositions, a new customer experience and new revenue streams. The traditional auto insurance model—buy a policy, and interact only on periodic payments and accident claims—will be replaced by a new, interactive model in which insurers offer insurance along with a lot more that customers value

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

Presenter

Presentation Notes

1.3 million people die each year from traffic accidents - predicted to go up to 1.9 million by 2020. Over 90% of the world's fatalities on the roads occur in low-income and middle-income countries. 46% of the deaths are “vulnerable road users”: pedestrians, cyclists and motorcyclists.

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: [email protected]

future of insurance 2020€¦ · indeed, as the market for usage-based insurance grows, insurers on...

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