Digital disruption and the erosion of disruption and the erosion of value ... Industry Performance 11 November 2016 . Digital ... Travel 2% Other 14%

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  • 2016 Finity Consulting Pty Limited

    Digital disruption and the

    erosion of value Graeme Adams and Luke Cassar

    ANZIIF Briefing: Industry Performance 11 November 2016

  • Digital disruption and the erosion of value

    2

    1. Why insurance is ripe for disruption

    2. The rise of InsurTech

    3. The sharing economy

    4. The erosion of value

  • Digital disruption and the erosion of value

    3

    1. Why insurance is ripe for disruption

    2. The rise of InsurTech

    3. The sharing economy

    4. The erosion of value

  • Premium growth is anaemic

    4

    GWP J2016: $40.95 billion (up from $39.96 billion in J2015)

    Motor, Home, CTP account for 54% of the market

    Domestic Motor 22%

    Home 21%

    CTP 10%

    Commercial 16%

    Long Tail 15%

    Travel 2%

    Other 14%

    Source: APRA Source: APRA

    0%

    2%

    4%

    6%

    8%

    10%

    15

    20

    25

    30

    35

    40

    45

    GW

    P G

    row

    th

    ($ b

    illi

    on

    s)

    GWP Growth

  • Motor and Home underwriting profitability

    under pressure

    5

    Motor Home

    0%

    20%

    40%

    60%

    80%

    100%

    120%

    Sep

    Dec

    Ma

    r

    Jun

    Sep

    Dec

    Ma

    r

    Jun

    Sep

    Dec

    Ma

    r

    Jun

    Sep

    Dec

    Ma

    r

    Jun

    Sep

    Dec

    Ma

    r

    Jun

    Sep

    Dec

    Ma

    r

    Jun

    2010 2011 2012 2013 2014 2015 2016

    Net Loss Ratio UW Expense Ratio CORSource: APRA

    0%

    20%

    40%

    60%

    80%

    100%

    120%

    140%

    160%

    180%

    200%

    SepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJun

    2010 2011 2012 2013 2014 2015 2016

    Net Loss Ratio UW Expense Ratio CORSource: APRA

  • Markets are becoming fragmented (eg. Motor)

    6

    Allianz 8%

    Challengers (excl. Coles)

    7%

    IAG 32%

    Motor Club 13%

    Others 13%

    Suncorp 27%

    Suncorp & IAG make up 59% in 2015; 71% in 2010

    Source: Roy Morgan, Finity

    10%

    12%

    10%

    5% 5%

    8%

    2%

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    NSW VIC QLD WA SA TAS NT

    Motor - Challenger's market share across states

    Challengers: Youi, A&G, Coles, Hollard

  • The insurance industry is facing several

    headwinds

    New entrants and price

    competition has

    fragmented the market

    Technological change has

    paved the way for

    disruption

    The community places a

    greater value on trust,

    changing their view on

    insurance 7

    Pressure

    Anaemic growth and profitability

    Market fragmentation

    Technology

    Community change

  • Digital disruption and the erosion of value

    8

    1. Why insurance is ripe for disruption

    2. The rise of InsurTech

    3. The sharing economy

    4. The erosion of value

  • Insurtech examples

    Customer experience

    Brolly www.heybrolly.com

    Fendamenda

    www.fendamenda.com

    New eco-systems

    Friendsurance

    www.friendsurance.com

    Lemonade

    www.lemonade.com

    Insurance on demand

    Trov www.trov.com

    Metromile www.metromile.com

    http://www.heybrolly.com/http://www.fendamenda.com/http://www.friendsurance.com/http://www.lemonade.com/http://www.trov.com/http://www.metromile.com/

  • Insurtech examples

    Customer experience

    Brolly www.heybrolly.com

    Fendamenda

    www.fendamenda.com

    New eco-systems

    Friendsurance

    www.friendsurance.com

    Lemonade

    www.lemonade.com

    Insurance on demand

    Trov www.trov.com

    Metromile www.metromile.com

    http://www.heybrolly.com/http://www.fendamenda.com/http://www.friendsurance.com/http://www.lemonade.com/http://www.trov.com/http://www.metromile.com/

  • Lemonade: The future of home insurance?

    11

    Lemonade in 60 seconds The science behind Lemonade

    Videos available at Lemonade.com

  • Some thoughts on InsurTech

    12

    Insurers should re-examine business models to test vulnerability

    to disruption

    Does an insurers culture allow innovation, fast fail and taking of

    calculated risks?

    Insurers could consider investing in InsurTech if capital and risk

    appetite allows it.

    Risk transfer? How to price it? Reserving?

    There could be a need to improve Board and C-suite technology

    related strategy discussions

  • Digital disruption and the erosion of value

    13

    1. Why insurance is ripe for disruption

    2. The rise of InsurTech

    3. The sharing economy

    4. The erosion of value

  • 14

    Now over 800 active sharing economies globally.

    Projected global revenue of $335bn by 2025 (big but small).

  • The shared economy unlocks the value of unused or

    under-utilised assets

    Enablers of the Sharing Economy

    15

    Technology platform

    Smart devices, and

    Star rating and review

    2,000 vehicles , 65,000 members. 600,000 members, income $40M

    per year.

    262,000 guests in Sydney

    26,000 listings in NSW

    Average $5,400 per year

    The trust leap

  • The impacts of the shared economy on insurance

    16

    Issues

    Changes to Liability

    New operating models creating new liabilities (product gaps?)

    Slower growth of assets to insure

    Less insurance or different insurance?

    Disconnect between

    ownership and usage

    Diminished value of traditional

    insurance models

    Opportunities

    New product designs

    Products to suit users, not just owners? Eg liability extensions.

    New technologies present opportunities

    Group insurance

    New ways to connect with customers

    Eg, to assist with claims.

    Pay as you go insurance

    Hitch yourself to the trust wagon

    change your business model

  • Digital disruption and the erosion of value

    17

    1. Why insurance is ripe for disruption

    2. The rise of InsurTech

    3. The sharing economy

    4. The erosion of value

  • Fewer assets to insure

    18

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    30,000

    35,000

    Co

    un

    t ('000)

    Projected Number of Vehicles

    Car Numbers Population

    Note the change

    between personal

    and shared

    vehicles

    2016 2020 2025 2030 2035 2040 2045 2050 2055

    Car Usage

    Personal driven cars Personal autonomous cars

    Shared driven cars Shared autonomous cars

  • A change in the way cars are used will reduce

    premiums

    19

    90% of road

    accidents caused by

    human error

    -100%

    0%

    100%

    200%

    2020 2025 2030 2035 2040 2045 2050 2055

    Ch

    an

    ge

    re

    lati

    ve

    to

    2016

    Change in Collision Risk

    Frequency Severity (Current $)

    -60%

    -40%

    -20%

    0%

    20%

    2020 2025 2030 2035 2040 2045 2050 2055

    Ch

    an

    ge

    re

    lati

    ve

    to

    2016

    Change in Collision Average Premium

    Avg Premium

  • Therefore, the passenger premium pool will

    drop from 2025

    20

    2,000

    4,000

    6,000

    8,000

    10,000

    12,000

    14,000

    2010 2015 2020 2025 2030 2035 2040 2045 2050 2055

    GW

    P (

    $m

    )Premium Pool

    Personal Cars

    Shared Cars

    Premium will be split

    between car owners

    (personal lines) and auto

    makers (product liability)

  • The erosion of value

    21

    Changes to customer

    preferences and use of assets

    Displacement

    More competition

    Less value placed on traditional brands

    Loyalty less valued

    Shared assets means fewer assets, pricing and liability issues

    Investment in traditional models and the need to invest in new models

    (some will fail)

    Erosion of loyalty

    Transfer from profitable Personal Lines to less profitable Commercial

    Lines

    New risk carriers and the competition for customers

    More focus on efficiency and pricing to stay competitive

    Shared assets means fewer assets

  • We conclude..

    22

    Insurers live in turbulent times (and do OK!)

    Insurers will continue to live in (more) turbulent

    times, and do OK!

  • Questions?

  • Contacts

    Graeme Adams

    Principal

    Tel: +61 2 8252 3314

    Mobile: 0411 012 646

    Luke Cassar

    Consultant

    Tel: +61 2 8252 3418

    Mobile: 0400 098 247

    www.finity.com.au

  • Distribution & use

    This presentation has been prepared for the ANZIIF APRA and Finity

    Performance Briefing, held on 11 November 2016. It is not intended, nor

    necessarily suitable, for any other purpose.

    Third parties should recognise that the furnishing of this presentation is not a

    substitute for their own due diligence and should place no reliance on this

    presentation or the data contained herein which would result in the creation

    of any duty or liability by Finity to the third party.

    Reliances & limitations

    Finity wishes it to be understood that the information presented at

    the Briefing is of a general nature and does not constitute actuarial

    advice or investment advice. While Finity has taken reasonable

    care in compiling the information presented, Finity does not warrant

    that the information provided is relevant to a particular readers

    situation, specific objectives or needs.

    Finity does not have any responsibility to any attendee at the

    conference or to any other party arising from the content of this

    presentation. Before acting on any information provided by Finity in

    this presentation, readers should consider their own circumstances

    and their need for advice on the subject Finity would be pleased to

    assist.

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