Craig Ford is Chief Executive Officer SCOR Global Life Asia Pacific. SCOR has been pursuing an innovation agenda to actively support its clients as the industry enters a period of unprecedented change.
Stationed in Singapore, the Fintech hub of Asia, Craig is well-positioned to give a (re) insurers view of the advances made in China and the ever-expanding use of Data. Craig’s insights come backed by a global study of 8,000 insurance consumers across 14 markets commissioned by SCOR’s subsidiary, Remark (a world leader in alternative and direct distribution) called “Life Is a Rollercoaster”.
Customer expectations are rising based on their interactions with other industries - reinforced by the growth and power of communication and data aggregators. In China, Tencent’s WeChat is used by a high proportion of the population as part of daily life (889 million daily users!) for social media, instant messaging and payment services. WeChat now has access to the data of hundreds of millions of consumers and insights into their daily behaviours. More importantly for insurers, WeChat has a much deeper insight into what it is that drives those behaviours.
The issue for insurers is how to gain access to understanding how consumer attitudes and behaviours work. The challenge from there is in designing and adapting products that fit these new requirements. The ability to gain these insights is increasingly falling into a smaller number of company’s hands. The global tech players have insights that insurers can currently only dream about.
Increasingly innovation is coming out of China where everyday life has bypassed email and mobile phones. China has moved straight to smartphones and WeChat, driving a completely different customer mindset as to how they want to interact.
The barriers to entering the insurance industry in the past were high - access to distribution, capital, product design, experience and data etc. Potential new entrants no longer need these, as data, or more specifically access to consumer attitudes and buying behaviours is the new currency.
The sheer scale of the new generation of businesses is mind-blowing. Zhong An (formed as a combination of Ping An, Tencent and Alibaba in 2013) has to date, digitally sold over 7bn policies to some 500 million customers. We are witnessing a huge shift as consumers see how easy and effective this method of distribution is. Businesses with huge data sources are prepared to partner with insurers and figure out ways to optimise the use of their data to create better experiences for their customers.
Courtesy of KPMG Fintech100
We think we can support our clients by experimenting in areas like Artificial Intelligence, Robotics and Genetic Testing to ensure we and they become increasingly relevant in the light of these new paradigms. Some of the most successful “innovations” are relatively incremental. As an example, we are exploring how genetic testing can drive better outcomes for customers at the point of a claim by optimizing and focusing the treatments they receive.
We are also helping clients with text mining on claims to better analyse their data using robotics. This gives our clients greater insight into their claims experience and history which in turn drives better focused propositions. In Korea, we are working with an AI partner and a specialist hospital to develop a data base which can be used to develop future products covering important conditions not currently covered.
In the US we have developed an underwriting algorithm based on the use of multiple data sources replacing traditional underwriting methods. All have been developed in conjunction with and in support of our insurer clients. The industry really is leading the charge and demonstrating that it is determined to stay relevant – and doing a good job at it too.
Of all the countries I visit, China is the stand out regarding innovation. It doesn't have the insurer infrastructure and history of other established countries. China does have young, bright and capable people coming into an industry with data and digital distribution in abundance and a huge drive for consumer engagement. They are happy to trial and develop products (e.g. freight insurance for the on-line sellers like Alibaba, and flight delay insurance) as simple examples with which to engage customers.
Moving specifically to Australia, there is a clear hunger from the industry to be at the front of the change. As a result, there is a desire for global insights and experience that can be adapted and adopted in Australia to make insurers more relevant and effective with their customers. The industry has come from a position where it has some of the most advanced products in the world and has been a clear leader in areas such as disability income that remain in their infancy elsewhere.
The media is laying bare the relationship the insurance industry has with consumers. The industry is responding, and I believe will ultimately be successful given the attention and focus we see being applied. There is no doubting the desire!
I welcome Mitch Doust, Global Head of Business Development with Trov, an innovative insurance on demand product and one of the most talked about Insurtechs on the planet.
Mitch has a unique background. When we first in 2008, he was an auditor with EY. It was very clear, even back then, that Mitch had a lot more to offer the world than reviewing financial statements! A move to Suncorp gave Mitch his first glimpse of Insurtech, as part of the Suncorp Ventures team. What followed is a global adventure and Mitch making a big contribution in the startup and Insurtech scene.
MD - People know us for our insurance on-demand mobile app. It gives customers the power and capability to insure individual assets, one item at a time, in any time increment or fashion that they want.
So simply go to the app, select an item you wish to insure and turn protection on and off as and when you want. The app allows us to track the time insured all the way down to the second. Customers can, in real time, initiate, manage and cancel policies, as and when they want.
MD - Trov didn't start out with a mission to provide an on-demand insurance product. When we started five years ago, the central thesis was very much around cataloguing information about the assets people owned. Then figure out ways in which to use that information to empower our user base.
From the concept of creating value for our users, we created the mobile app. Then, started to think about how we could use that information to deliver even more value to customers. One of the things we discovered was a need from people to protect, on a small scale, physical things.
We also noticed a big shift in lifestyle and behaviours. The way emerging generations engage with insurance is different to older generations. Young people are not buying houses or cars as they used to. However, they are spending their money on things that are important to them. Today, young people tend to live a more mobile and global lifestyle.
Upon realising this shift, we set out to create a product that fits into the millennial lifestyle. Thus, the Trov product was born. Trov is live in Australia and the UK. We are about to go live in the US. The plan is to go live in Canada and Japan next year and then Germany after that.
It's an amazing product and will disrupt the major insurers.
Or,
Great marketing but no different to any other insurer.
MD - Trov is often talked of in the same breath as Lemonade. We love what they are doing from a user experience perspective.
Both Trov and Lemonade are designing a product for a younger generation, providing access to better insurance experiences. However, Trov are approaching the problem from a different angle. Lemonade is taking a high-level view on change in the insurance business model and creating a fantastic customer experience, which is a great thing to do.
Trov has taken a different approach. Instead of using an existing insurance product we decided to create an insurance product from scratch and design it on behalf of the customer. We began by atomising an insurance product down to the smallest possible part. Our intention being to create a product that could be flexible, dynamic and relevant to customers. We wanted to design a product where we could recreate other insurance products from a fundamental version. Our theory being that once you break the insurance value chain down to the smallest possible unit, you can rebuild it in whatever form you want.
A better user Experience.
An underlying software platform that enables us to price and deploy risk products in real time, down to a very small unit of time.
People assume the on-demand product delivered by our mobile app is the innovation. However, the back-end platform is as much of an innovation as the product.
MD - When Trov launch in a new market, we always require underwriting capacity as we are not a licensed insurance company. Suncorp is the inaugural insurance partner for the Australian market. And were instrumental early on in helping us to think about how we should design an insurance product and experience for customers.
Trov partner with AXA in the UK market. We have a broader strategic partnership with Munich Re which has opened the door to the USA. Munich Re support Trov in other markets and on other products.
The appetite is there. Since Trov started, the whole Insurtech scene has exploded. It's now a massive industry, separate from the insurance industry. We have spoken with every major insurer globally. And every one of them has a desire to be innovative.
Where the rubber hits the road is in committing the resources and showing the risk appetite to innovate. Insurers are more than happy to get into a conversation about innovation, execution is far tougher. Many Insurers become constrained by their internal processes and IT systems. It takes a certain amount of will from key decision makers within these organisations to get things across the line. At certain times, you need highly respected people to put their reputation on the line.
That's probably the biggest challenge right now. But that is symptomatic of many industries, not just insurance.
MD - There are huge implications for machine learning and AI that will eventuate in the next couple of years. Without a doubt, they will have a big impact on how insurers run their business.
The prevalence and advancement of AI and Machine Learning technologies will only exacerbate some of these issues. There are obviously huge opportunities for these technologies to supercharge the analytical tasks that insurers already perform. However, I think the biggest threat will come from outside the insurance industry. As I mentioned before, the insurance industry and insurance companies have a strong bias towards their own data.
AI and Machine Learning will enable other companies, with access to large datasets, to find causal or correlated relationships between seemingly abstract factors and risk. It will create more effective and efficient risk measurement and pricing capabilities. Think telematics in cars. Could Tesla, as an example, provide a more effective car insurance solution than a traditional insurer.
Machine Learning techniques enable someone to extract inference from huge amounts of data without an initial hypothesis. Anyone with a big data set could theoretically unearth a better model for insurance pricing, for both old and new products.
Emerging technologies will create threats to insurers outside of the traditional competitive sphere. Insurers should be wary of companies that have access to data about how their customers behave.
MD - Insurance is a data business and always has been. What's changing is the breadth and type of data that is becoming available to insurance companies.
Insurance companies have a great capacity to analyse data and crunch numbers. Where I think Insurers are at most risk is the models used, and the skill sets are becoming outdated.
Let’s consider how an insurance company approaches underwriting and pricing. They collect a huge, historical data set and then analyse the data to create a product. Companies like Trov are very different. We collect real-time information on how customers interact with the product. And we can pull in data from multiple different data sources.
So, the question we ask ourselves is 'How can we use dynamic and real-time data to deliver better products and pricing.’
I am yet to see a large Insurer with decent capability in this area. Many Insurers have closely held biases towards the historical data they collect. Sometimes they struggle to wrap their head around how they should price new products that haven’t existed before and don’t have a significant historical data set behind them.
MD - Insurance markets are structured very differently in almost every country. However, the two countries that stand out for me are Australia and the UK. Both are predominantly direct markets, and both have a favourable regulatory framework. The USA is very heavily regulated with a very strong broker distribution model. Making it more difficult to get your product in front of potential customers.
London is the place that stands out for me. Mainly because of the open regulatory framework, and a long history with the insurance industry. If you intend to build a new insurance product, London is perhaps the most favorable and advanced place to do it.
In London, you have access to all the major insurance companies and reinsurers. Part of the reason Trov went with Munich Re is their large balance sheet. We partner closely with the digital division of Munich Re and they have a very flexible, entrepreneurial mindset towards deploying capital.
MD - Over the last couple of years, we have witnessed a huge surge of capital flowing into insurance technologies. Every major insurer has a venture fund. But I still don't think that the entrepreneurial community has figured it all out yet.
The clear majority of innovation by startups focuses on user experience. It makes sense as that's where most insurance entrepreneurs experience the pain point. From my perspective, having come from the insurance industry, I’d like to see tech companies innovating product.
The user acquisition issue is only the tip of the iceberg. There is a propensity to focus the effort, energy and intellect spent on innovation, on one thing, in isolation. Whether that is deploying capital, managing risk, customer experience, distribution. If all innovation focuses on customer experience for an existing product, where is the impetus for the rest of the industry to change?
The real question is not;
Will Insurtech replace Insurers?
But
What role does a technology startup play in the insurance ecosystem?
Many people talk about disruption. Will Lemonade or Trov supplant the insurance companies? I don't think that's ever going to happen.
However, disruption of the value chain will happen. Insurance companies have traditionally owned the entire value chain. Now technology companies can take parts of the value chain and do a better job of it.
User experience, pricing, data, even claims management are all up for grabs. It could be any individual activity across the whole spectrum of insurance.
In conclusion, I don't think Insurtech will replace insurance companies.
MD - Insurance companies must ask themselves; What in the insurance value chain are we really good at?
There are very clear examples, such as regulatory licensing, access to capital, risk management and balance sheet management. Insurance companies own this space. But in most cases, they're not the best at customer experience and they probably shouldn't be.
The insurers who will thrive in the future are those honest with themselves and focused on their core strength. It is crucial for insurers to interact and partner with other companies providing a better solution.
By using this approach, insurers can create multiple pathways, from balance sheet capital right through to the customer. The Insurers who do this will be super successful. Nonetheless, it's a difficult thing to do for companies who have an emotional attachment to their brand.
