© CELENT

DELIBERATE INSURANCE INNOVATION

Placing the right technology bets to succeed in hypercompetitive times

Craig WeberCEO

cweber@celent.com

1© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

Pressure on financial results

April 15, 2013

9.63%

4.33%

118

92

80

90

100

110

120

0%

2%

4%

6%

8%

10%

12%

1980 1990 2000 2010

Combine

d Ra

tios (P/C)

Return on Invested

 Assets (LH

)Hu

ndreds 30+ Years of Insurer Performance

Source: National Association of Insurance Commissioners (NAIC)

2© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

But at least our volume is good?

April 15, 2013

0

20

40

60

80

100

120

140

160

180

Individual Group Credit Individual Group Credit

New Purchases In Force

Thou

sand

sLife Insurer Policy Counts

2001 2011

‐3%‐4%

‐1%

‐4%

‐4%

‐7%

Source: National Association of Insurance Commissioners (NAIC)

3© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

Why look to technology?

April 15, 2013

High Performance

Investment Results

Underwriting

Operational Excellence

Scale (Cost &

Capabilities)

Customer Quality

4© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

The bar is delightfully low

April 15, 2013

7.40

7.12

6.48

6.43

6.37

5.41

4.82

4.17

4.14

2.65

Government…

Traditional Retailers Without Web Sites…

Insurance Companies…

Securities & Investments Firms…

Healthcare Providers…

Utilities…

Telecommunications…

Banks…

Traditional Retailers With Web Sites…

Online Retailers…

Please rank the following industries in terms of their ability to deliver a great shopping or service experience by smart use of technology.

5© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

Insurance innovation examples

• Self-service (e.g., FNOL reporting)

• Multi-tiered pricing

• Mobile check deposits

• Direct/internet selling

• Predictive modeling

• Usage-based insurance

April 15, 2013

6© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

Three technology themes driving innovation

1 Ubiquitous data

2 User expectations that match technology capabilities

3 Industrialisation of IT at scale

7© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

#1: Ubiquitous data: Sources

Fashion

Sports

Fashion

Sports

Fashion

Sports

Fashion

Sports

8© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

#1: Ubiquitous data: Opportunities

The opportunity?Potential action?New world of data

• Check coverage• Evaluate adequacy• Understand propensity to buy

• Up-sell • Cross-sell

• Evaluate patterns of use• Understand interactions • Match cover to use/interactions

• Risk mitigation• Retention

• Timely, relevant risk advice• Influence behaviors• Incentivize an active healthy

attitude to risk

• Risk avoidance• Service • Reputation/fostering

loyalty

9© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

#2: User expectations

Understand and respond to what is said

Perform image

recognition on videos

and pictures

Allow applications to augment their vocabulary

and services

Understand what is said

in the context of what is

visible

Technology will do more of the work

10© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

1970-1995 1995-2012 2013-2017

• Custom, vertical applications • Transaction oriented• Single channel• Internal user focused• Hosted internally

• Multiple distributed applications• Package and custom build• Service oriented/open• Multi-channel• External and internal user

focused

• Business processes are orchestrated across heterogeneous services

• All applications are treated as external services

• Service selection is a joint business/IT responsibility

“All-in-one”application

Data

Orchestration

Enterprise Systems

Channel Systems

Product Systems

Data

#3: Industrialization of IT

11© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL April 15, 2013April 15, 2013

Case Studies

12© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

• Short term, simple insurance sold via mobile phone in Japan to cover potential risks from sporadic and short-term events

• Lines: sport, travel insurance, and one day auto

• NTT Docomo handles sales and premium payments, Tokio Marine & Nichido responsible for u/w policies and dealing with claims procedures

• System automatically fills information about its subscribers from Docomo’sdatabase

• Customer only specifies the insurance type and time period. Premium is included in the subscriber's phone bill

Case Study: One-Time Insurance

Business logic Comments

• Coverage tend to be for short periods, and usually around a few hundred yen in price (US$4.00)

• Demonstrates consistent philosophy in action (product simplicity, customer-focused delivery, ease of use)

13© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

• Friends provide mutual coverage for deductibles

• The more friends, the larger the coverage

• All friends advance their minimum commitment

• Every individual gets a bonus for fixed cost savings – the more friends, the bigger the bonus

• A traditional insurance company acts as a “reinsurer” to cover tail events

Business logic

• Exploits insurance deficits:

• Only 30% of premium for tail events, rest for fraud, sales, administration, small claims

• Idea: mutual cover of small claims, reinsure the real risk

• Build on current trends

• Social networks

• Free service

• Darwinist approach: trust among friends prevents fraud

Comments

Case Study: Managing the Risk Pool

14© 2012 CELENT, a Division of OLIVER WYMAN CONFIDENTIAL

Case Study: Pay As You Drive

• Targeted at 17-25 year old drivers

• Researched in 2010, piloted in 2011, launched in 2012

• Developed with Cranfield University and Williams Formula 1

• Rapid growth - $80MM GWP in 2013

• Loss ratio under 70

• Partnered with RSA

Business logic Comments

• Real-time feedback, used to condition behavior

• Delivery tools that match real-world behaviors of target market

• Willing to rethink product parameters, e.g. canceling policies for certain behaviors