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1© 2016 Deloitte Consulting (Pty) Ltd

INSURANCE DISRUPTEDDirk Kotze

Partner – Financial ServicesOctober 2016


WHAT ARE INSURERS UP AGAINST 3

• TELEMATICS 4

• PEER-TO-PEER INSURANCE 5

• SELF-DRIVING CARS 6

• BLOCKCHAIN 7

• SHARING-ECONOMY INSURANCE 8

• SOCIAL BROKERS 9

GLOBALLY, OTHER INDUSTRIES ARE DISRUPTING INSURANCE 10

HOW CAN INSURERS RESPOND? 11

HOW INSURTECH COMPANIES GLOBALLY HAVE RESPONDED 12

CONTENTS


WHAT ARE INSURERS UP AGAINST?

3

TELEMATICS

PEER-TO-PEER INSURANCE

SELF-DRIVING CARS

BLOCKCHAIN

SHARING ECONOMY

SOCIAL BROKERS

New connected services delivered through telematics are a huge opportunity for insurers. They represent a chance for insurers to become more relevant in a world of digital technology where, in contrast to insurance, popular services provide frequent and tangible benefits, for example mobile navigation apps.

In the long-term, self-driving cars could shrink the motor insurance market by reducing accidents and therefore premiums. However, in the short-term, the introduction of self-driving cars and increasing complexity of the risksassociated with them is an opportunity for certain insurers.

Were P2Pto win many customers it would threaten incumbent insurers: customers would switch from buying insurance from incumbents to insuring themselves in P2P networks. In addition to shrinking the short-term insurancemarket, this switch would commoditise the market for traditional short-term insurance, which incumbents provide. It would lead to a reduction in demand for traditional insurance without an equivalent reduction in supply, with lower prices the outcome.

Social brokers have the potential to be a threat to insurance companies. At present, social brokers are intermediaries and do not carry risk. However, it could be possible for social brokers to use their customer insight to become successful underwriters. Social brokers hold the relationship with customers, not insurers, making it harder for insurers to gain customer insight and build loyalty.

Ultimately, insurance could move from insuring people as owners of assets, as currently, to insuring people as users of assetsrequiring development of new and unique products and capabilities

There is great potential for insurers to use blockchain technology to streamline payments of premiums and claims. In addition, blockchain technologies could support the significant digital transformation underway in the industry because much of this transformation relies on data.


TELEMATICS

Telematics technology enables telematics-based insurance and is showing potential for increased adoption across customer segments. It allows a flow of data from connected devices to insurers who use this data for risk assessment and pricing. This further enables the customer to receive premium discounts through good driving behaviour and other benefits, such as assistance in an emergency.

TELEMATICS OVERVIEW THE CASE FOR TELEMATICS

Delivery of services through loyalty and pro-active risk managementLocation based services and telematics data can be used for the insurer to provide meaningful customer engagement through relevant value added services and pro-active management of risk. Refer to the next slide for in-depth details

Claims assessment and management Telematics data collected during accidents can be used to enhance the claims assessment process and fast track the claims handling process by pre-populating claims data

Improved risk rating and underwriting dataData collected through real-time driving behaviour enables tailored risk rating and pricing

Creating loyalty through gamification Telematics enhances the opportunity to use gamification to create customer loyalty and build brand affinity

Proportion of customers who would like a service that detects potential issues or problems and provides assistance by ageshow higher adoption across younger segments`

33%

35%

42%Health

Home

Motor

22%

16%

29%

25 - 34 All Customers

When driving

When in accident

When car is parked

Driving tips

Emergency assist

Stolen vehicle recovery


PEER-TO-PEER INSURANCE

5

P2P insurance platforms are based on a simple and innovative model wherein policyholders, by pooling their resources together, can make better plans with access to information. The model can be extended to include life, property, pension, health, accident, and all other types of insurance.

P2P INSURANCE BENEFITSP2P INSURANCE MODEL

Hybrid ModelSmall amount of risk is insured via a P2P platform and the rest of the business is ceded to traditional insurers from a given threshold upwards.

Policy holders are covered to the full value of the goods insured.

Standalone Model

Prevention of fraud

Prevention of misconduct (through social control and reduced moral hazard)

Reduces acquisition costs

Lowers administration costs

Discourages claims for small damages


SELF-DRIVING CARS

6

DRIVERLESS CARSVehicles with assisted driving features are already available on the mass market, and connected car technology is quickly reaching a tipping point.Fully driverless vehicles are not far behind, as car manufacturers and tech giants — including Google, Uber, Tesla and GM — push prototypes through thousands of miles of testing with the promise to enter production

IMPLICATIONS FOR INSURANCE CARRIERS

`Liability will be with car manufacturer, not owner/driver

Underwriting will decline in importance

In the long term, no more auto insurance for personal injury

Automakers could embrace increase in product liability by “bundling” insurance with vehicle sales

Increased threat of cyber risk, due to large amounts of connected data, results in growth in cyber risk insurance products


BLOCKCHAIN

7

WHAT IS A BLOCKCHAIN?

A blockchain can be defined as a digital, chronologically updated, distributed and cryptographically sealed record, of all data transfer activity.It may be thought of as a cloud-based ledger that is shared among a network of users (the “participants”), recording all data being transferred between them.

HOW IS BLOCKCHAIN LEVERAGED IN AN INSURER

A centralized registry within the regulated Insurance industry whereby client KYC ID information comes from a validated source

Blockchain Technology has the power to create digital history of assets, which can eliminate insurance fraud and theft.

Digital identity management system whereby users store all their biometric information on a blockchain platform.

Using the blockchain to act as a database for a clients insurance history. The customers past insurance history can be stored and shared (with customers permission) among multiple insurers

Rule based claim processing that relies on external data that automatically triggers and approves claims

P2P insurance platforms are based on a simple and innovative model wherein policyholders, by pooling their resources together, can make better plans with access to information

Using smart contracts on a blockchain to alert an insuer should a customer need insurance on a per use basis

Time stamped and hashed information on a blockchain can support reinsurers debt calculation on a authoritative immutable ledger

Using smart contracts on a blockchain and IoT, Micro insurance can become more accessible to its target market

System that rewards customers for demonstrating desired behaviour. Using blockchain technology to facilitate reward earning and sharing

CLIENT ON-BOARDING

FRAUD PREVENTION

IDENTITY MANAGEMENT

CLIENT EVENT CATALOGUE

CLAIMS PROCESSING

INNOVATIVE PRODUCTS P2P

INNOVATIVE PRODUCTS USAGE BASED

REINSURANCE MICRO INSURANCE

LOYALTY PROGRAMME


SHARING-ECONOMY INSURANCE

8

Traditional economy insurance needs

Sharing economy insurance needs

OVERVIEW OF MODELS

Insurance consumers are owners of assets and insure the items that they own

Insurance consumers are not necessarily the owners of the assets, but are rather users of assets. They therefore need cover for events (Uber rides, Airbnb stays) as opposed to items

IMPLICATIONS FOR INSURANCE CARRIERS

Policies that protect people from all risks (both short-term and long-term) could emerge. Composite insurers would be better placed than other insurers as they offer a broader range of cover

Insurance carriers will have to cater for shorter durational insurance cover. This could translate into cover that is “micro-durational”, which is used by consumers for short periods of time as and when they require it

Underwriting and pricing models will have to be updated for the new needs of the sharing economy consumers


SOCIAL BROKERS

9

Client

Client

Client

Agent

Agent

Agent

Carrier

Carrier

Client

Carrier

Carrier

Client

Current model: Agent/Individual Client

New model: Social broker/affinity groups

A new type of intermediary that creates affinity groups with similar risk profiles, then negotiates discounted coverage with one or more insurance carriers on their behalf

A traditional intermediary that negotiates with insurance carriers on behalf of individual clients with varying risk profiles

ulletD

u -

Client Client

ClientClient

Social broker

Carrier

Client

Client

SOCIAL BROKER MODEL BENEFITSOVERVIEW OF MODELS

Bulk acquisition of policies for insurance carriers reduce acquisition costs

Increased group bargaining power results in premium discounts

Increased policy quantities and associated risk pooling allow insurance companies to write new product lines which were not feasible previously

Premium discounts achieved through the group increases retention of individual customers


GLOBALLY, OTHER INDUSTRIES ARE DISRUPTING INSURANCE

e- AggregatorsOnline aggregators that allow customers to compare prices and purchase insurance products online may displace traditional distributional channels as customers preferences change and more insurance products are commoditised

Entry tech playersTechnology providers with brand recognition and trust surpassing financial institutions may enter the insurance distribution market, leveraging their extensive data and distribution capability

SecuritisationInsurance linked securities such as catastrophe bonds are introducing new pools of capital providing fully collateralised coverage to insurers, outside of traditional re-insurance and insurance pools.

Self- driving carsFully or partially self- driving cars are emerging leveraging smart sensors, connectivity and machine-to-machine communications. This will considerably reduce the risks associated with driving and may shift the principal of insurance from drivers to manufacturers.

Sharing economyAs sharing economies emerge from pay-as-you-go rentals to shared vehicles andhouses, the concept of ownership mayradically change, challenging traditionalinsurance models developed based onone-to-one ownership structure

Entry of hedge fundsDriven by a low interest rateenvironment and access topremiums, hedge funds andalternative sources of capital aremoving closer to the insurance valuechain by setting up re-insurers,providing additional funding optionsfor insurers

Impact on all insurers

Impact on P&C insurers

R&D/ Product Manufacturing Distribution Underwriting Claims

Risk Capital & Investment

Mgmt.,


HOW CAN INSURERS RESPOND?Develop new telematics-based servicesDigital technology gives insurers the chance to address one of the major drawbacks of GI for customers, that it is intangible absent a claim. Insurers that take this opportunity stand to win many customers. This report has outlined two examples of potentially popular new telematics-based services; there are many others that remain unexplored. Insurers can provide telematics-based services more effectively in partnership with players from other sectors than on their own. For example, home insurers can partner with utilities to obtain data for telematics-based home insurance. This can be more cost efficient than investing in telematics technology to obtain this data directly.

Work with new types of intermediariesInsurers that partner with social brokers stand to gain access to high-value niche customers who can help diversify risk. In addition, social brokers' customers could prove more loyal than customers in other distribution channels as they engage with each other in online communities.

Prepare now for self-driving carsInsurers must step up their preparations for a connected world in which motor risk is more complicated: this is the likely short-to-medium-term impact of self-driving cars. Insurers should capture and analyse data that allows them to understand the potential impact of self-driving carson motor insurance. Telematics-based insurance could therefore serve an important dual purpose: as a means to win customers now, but also, a means to understand future risks better.

Embrace peer-to-peerinsurers could participate by backstopping peer-to-peer groups with coverage above a certain loss benchmark, as well as by providing fee-producingadministrative services. Insurers could also initiate and manage their own peer-to-peer groups, generating subsidiary revenue by again providing both a backstop and administrative services.

BlockchainA common claims-handling platform would still make it possible for individual insurers to compete for customers, offering a range of products and prices by virtue of the smart contracts they set up. Moreover, a blockchain could allow the industry as a whole to streamline its processing and offer a better user experience for customers who have to make a claim. Simultaneously, storing claims and customer information on a blockchain would cut down fraudulent activity .


• Online aggregator to provide multiple quotes

• Bulk leads generation through P2P business model

• Gamification to generate leads

• Online aggregator to obtain quotes using existing policy

• Uses machine learning to identify coverage gaps

• App for agents and brokers to have access to all products in one

• Using mobile app to snap and submit photos for claims

• Uses machine learning and predictive analytics to manage insurance claim operations

• Real-time “on-and-off” micro-durational insurance and underwriting

• Underwriting using social media data

• Using drones and aerial photography to underwrite crop insurance

• Drone services on demand for early-stage risk detection

• Insurance agent in your pocket for queries via app

• Find and consult doctors for prescriptions using mobile app

• Use of drones and aerial imagery for claims assessment

• Online tool for collaboration, sharing and communication during claims management

• Uses telematics to deliver value-added services

• Behaviour-linked, gamified loyalty program to reduce lapse rates

• Provision of value-added and assistance services during non-insurance events using mobile app

• Provision of location-based value-added services through mobile app

• Uses social media and search data to group together people with similar insurance needs

• Allows for driving behaviour analytics to optimise trip planning and reduce fuel consumption

• Digitises the insurance policy management process by way of a mobile app

HOW INSURTECH COMPANIES GLOBALLY HAVE RESPONDED AND RE-IMAGINED THE TRADITIONAL INSURANCE VALUE CHAIN

MARKETING, LEADS GENERATION AND SALES

UNDERWRITING AND RISK-RATING

CUSTOMER SERVICING

CLAIMS MANAGEMENT

CUSTOMER RETENTION

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