How Mobile Technologies Are Leap-Frogging Infrastructure in Emerging Insurance Markets

Panel Discussion – IIS 48th Annual Seminar, Rio De Janeiro20 June 2012

Stephen PackardDeloitte Consulting LLP

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Emerging markets are the new drivers of organic growth

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-10%

-5%

0%

5%

10%

15%

20%

Total Real Premium Growth in Indus-trialized Countries and

in Emerging Markets

Industrialized Countries (INC) Emerging Markets (EMM)

INC CAGR 2001-2010 EMM CAGR 2001-2011

Sources:Swiss Re, World Bank/IFC

Low penetration in emerging markets: Insurance premium as % of GDP is low – up to 3% of GDP (versus 5% to 10%

for industrial countries) The market density for life insurance (premium per capita) is on average less

than $50 compared to about $2,000 in industrial countries

Premium growth in emerging markets is more than 5X that of developed markets, with the trend likely to continue

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However, they face systemic challenges . . .

Emerging markets often lack critical business infrastructure

The number of developing countries with new infrastructure PPP2 projects in the first half of 2011 was the lowest since the early 1990s

–World Bank

1: World Economic Forum Infrastructure ranking, Global Competitiveness Report 2011-2012, covers transport, telephony & energy2: Public-private Partnership

Country Infrastructure Rank1/142

Brazil 64

China 44

India 89

Mexico 66

Russia 48

US 16

The economic downturn has exacerbated shortfalls in vital infrastructure investments

Firms may have to wait many years before local infrastructure is ready to support a complete rollout of services

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. . . including a lack of consumer understanding and proper distribution channels . . .

It is ignorance of, and not opposition to, insurance that creates the biggest risks for the industry’s future development

- The Geneva AssociationKn

ow

led

ge Perceptions of

Insurance

Source:Finmark Trust, CIFP, Deloitte Analysis

Understanding of Insurance

Experience with Insurance

HNW/Affluent

Middle Market

Mass MarketDis

trib

uti

on

Tie

rs

by

We

alt

h

Wealth ManagersLawyers and CAs

BanksAgents/BrokersWorksite

Call CenterOnlineMail

A lack of established distribution networks impede new players in emerging markets, with most channels (agents, through banks or post offices) controlled by public sector entities

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. . . with each market having its own unique set of barriers.

INDIA FDI Limits Opaque Regulations

BRAZIL Foreign Re-insurer Limits

MENA Political Instability Islamic compliant

offerings

Source:Deloitte Analysis

CHINA Inflation Aging Population

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New models are required to succeed in these markets

AXA, New York Life and Sun Life have cut or disposed off their stakes in Chinese joint ventures – China People’s Daily, Dec 2011

After New York Life, HSBC may exit the Life Insurance business in India- Insurance Times, India, May 2012

Existing models cannot be successfully transplanted: Regulations limit foreign

insurers by restricting organic growth and local acquisitions

Government-owned domestic players have wide networks and enjoy well-established brand reputations

Local competitors successfully mimic and leverage expertise and capabilities

Source:Insurance & Pensions, Knowledge @ Wharton

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Mobile technologies can go a long way in serving emerging markets . . .

Country

Percent of consumers using mobile wallet in YoY increase

2010 2011

China 9 21 133%

Brazil 9 20 122%

Kenya 10 25 150%

US 6 8 33%

Percent increase in mobile wallet usage from 2010 to 2011

Source:ITU (* 2011 numbers are estimates), TNS

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*0

102030405060708090

100DevelopedWorldDeveloping

Pe

r 1

00

inh

ab

itan

ts

Mobile Subscriptions per 100 inhabitants

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Accept payments through mobile payment systems, either at the agent or customer level (UAP Insurance/Kenya –farmers can insure crops via mobile payment

Data MiningAnalyze users’ mobile and mobile payment habits to identify eligible insurance customers

Monitoring

Payment Mechanism

Advertising/SalesSell insurance policies via SMS and push advertisements (Metropolitan/S Africa – using mobile insurance vouchers to advance sales)

Use mobile technologies to monitor usage and claims (HDFC/India – RFID sensors tagged to cattle to counter cattle insurance fraud)

Source:Zurich Financial, Financial Times, Mobile Commerce Daily

. . . with innovative firms using mobility solutions to leap over traditional infrastructure bottlenecks.

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NotesEmerging markets (using IMF classification): Asia excluding Japan and the newly industrialized Asian economies (referred to as Emerging Asia). Latin America and the Caribbean (referred to as Latin America). Central and Eastern Europe (referred to as Eastern Europe). the Middle East. Central Asia and Turkey (referred to as Middle East) and Africa.

The developed/developing country classifications are based on the UN M49, see:http://www.itu.int/ITU-D/ict/definitions/regions/index.htmlSource: ITU World Telecommunication /ICT Indicators database