Insurance Asia (May - October 2017) by Charlton Media Group

Display to October 31 2017

SINGAPORE’S

US$330B PROTECTION PROBLEM EXCLUSIVE INTERVIEW WITH PATRICK TEOW, PRESIDENT OF THE LIFE INSURANCE ASSOCIATION OF SINGAPORE

WHERE ARE THE DRONES IN INSURANCE?

WHAT’S KEEPING INSURANCE CEOS BUSY? HONG KONG’S NEW REGULATORY REGIME WHY ARE INSURANCE INNOVATION LABS A FAILED EXPERIMENT? SEVEN TECHNOLOGIES DISRUPTING INSURANCE

GS N I K CE RAN URAN

S ORE ST IN AP E G R N I A S G N I 50 LR S ANCE R FI M U S G ST INNG KON E G R O A IN H 50 LR S FI M

FROM THE EDITOR Publisher & EDITOR-IN-CHIEF production editor GRAPHIC ARTIST

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Tim Charlton Roxanne Primo Uy Elizabeth Indoy

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In this issue of Insurance Asia, we feature an exclusive interview with the newly elected president of the Life Insurance Association of Singapore, Patrick Teow. He revealed that the US$330b underinsurance gap in Singapore means that the average protection gap of a working adult was 3.7 times his/her annual income, a coverage that is significantly less than the recommended coverage amount of 10 times one’s annual salary to meet one’s protection needs. Teow also talked about the digital push in insurance, his outlook for the industry, his three key goals, and more.

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Insurers in Hong Kong are in for an exciting year as they welcome a new regulatory regime. The Office of the Commissioner of Insurance in Hong Kong will be replaced by the Independent Insurance Authority from June 26, so in this issue’s Country Report, we delved into the expected focus areas of the government in 2017 and a review of the market performance in 2016. We also looked into insurtech investments, and how insurance firms are looking at the powerful collaborations banks have forged in the fintech space, hoping to harness similar competitive advantages through stronger insurtech alliances. Analysts are expecting insurtech investments to soar in the next three years. Artificial intelligence is also beginning to transform critical insurance processes in Asia and we are seeing more insurers jumping on the bandwagon. They have entered the early stages of enhancing and personalising the customer experience by exploiting social data to understand customer needs and sentiments. You will also find a list of the top 50 largest insurance companies in Singapore and Hong Kong by total assets in our exclusive Rankings included in this issue. I hope you enjoy the read and we welcome your feedback by email to tim@charltonmedia.com.

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MICA (P) 249/07/2011 No. 67

INSURANCE ASIA 1

CONTENTS

CEO INTERVIEW LIA Singapore’s president Patrick Teow talks of the worrisome protection gap in the city

FIRST 04 How AI is changing 05 Insurtech investment set to skyrocket in Asia Pacific till 2019

16 Insurance firms play catch up

06 Where are the drones in insurance? 08 Seven tech trends in insurance 10 Breaking the analytics code in insurance

Published by Charlton Media Group Pte Ltd 101 Cecil St. #17-09 Tong Eng Building Singapore 069533

with digital disruptors

18 Hong Kong rides the insurtech

ANALYSIS What’s keeping insurance CEOs busy?

COMMENTARY

RANKINGS

the insurance industry

COUNTRY REPORT Hong Kong insurers brace for a new regulatory regime from this year

wave amidst ageing population

28 Can insurers deliver more value to customers?

29 Driving insurance transformation with strategy-aligned M&A

30 Insurance innovation labs,

ANALYSIS

a failed experiment

26 Life insurance: Ready for the digital spotlight

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

FIRST going digital

Talks of digitalisation has dominated the financial services industry, and the insurance sector is no exception. A survey by Willis Towers Watson reveals that an increasing number of insurers now regard investment in digitalisation a priority, especially after the sector has lagged behind its financial services peers in adopting digital technologies due to regulations, reluctance, and cost. Insurers are finding smarter ways to grow their business through M&As beyond traditional acquisition targets. According to the survey, almost three-quarters of global insurers (74%) believe their sector has failed to show leadership in digital innovation. “Insurers recognise the importance of building a sustainable digital infrastructure to improve customer engagement and as an essential distribution channel, which is likely to be addressed through a combination of internally driven innovation, joint ventures, and M&A activity,” said Nicholas Chen, head of digital solutions at Willis Towers Watson in Asia Pacific. More acquisitions to come Almost half of the survey respondents (49%) expect to make an acquisition over the next three years, directly driven by the desire to acquire digital technologies, including 14% who intend to make more than one acquisition. Nearly all respondents (94%) expect distribution to be the area where digital technologies have the greatest impact over the next five years. Distribution is a recurring theme for insurers surveying the digital landscape, as it offers opportunities to find new ways to market, and to build closer relationships with consumers of their products and services. 4 INSURANCE ASIA

Insurers welcome artificial intelligence

How AI is changing the insurance industry

hen Ant Financial was weighing its options to dramatically increase its claims efficiency for Alipay account cash theft insurance, it placed its bets on the latest artificial intelligence (AI) and biometric technology. The gambit to launch self-claim services powered by AI has been paying off for the firm with 83% of its claims completed within 24 hours, the fastest of which are finished in 3 seconds. AI is already transforming critical insurance processes from customer experience to risk management by bringing higher levels of efficiency and effectiveness, and future applications promise even more impressive boons. But analysts warn insurers not to get too blinded by the promise of AI or they may risk falling into painful planning and implementation traps. The power of AI Nowadays, insurers are beginning to explore the use of AI primarily to improve customer experience, distribution, risk management, and operations, says PwC. Many firms have entered the early stages of enhancing and personalising the customer experience by exploiting social data to understand customer needs and sentiments.

Because AI capabilities can potentially displace humans or require talent upskilling, insurers need an effective and thoughtful human resources strategy.

Others are also automating their underwriting and claims processes. In the coming years, insurers are expected to use AI to power their machine learning and reality mining techniques, predict what customers will need and do, and tailor customer interactions and offers to match their preferences. Firms are also starting to salivate at the idea of using AI to fuel their trend forecasting which can lead to new sources of revenue, as well as spot emerging risks before they have a chance to threaten the bottom line. “Given the extraordinary possibilities of AI, it’s no wonder that many insurers are jumping on the bandwagon,” concurs Srinivasan Somasundaram, director, insurance practice at Cognizant Business Consulting. But he points out that, as with any technological investment, there are a handful of clear and present dangers that could undermine AI planning and implementation. This includes feeding a wide variety of customer query and data to AI solutions. A future with AI PwC foresees a future where AI systems, fed with a mountain of relevant data, can become so accurate and powerful that they reduce the need for human advisors, underwriters, call center representatives, and claims adjusters. “AI systems learn from their interactions with the environment and with their human masters. They are likely to become more effective than humans and replace them,” adds PwC. When AI solutions scale up this way and threaten human jobs, insurers will need to carefully manage how to transition their workforce to reduce resistance.

Topic areas within artficial intelligence (non-exhaustive)

Source: PwC

FIRST Incumbent insurers who are currently focussed on catching up with their competitors around customer centricity and other current trends are missing the opportunity to become proactive.

Expect more insurtech incubator and accelerator programmes

Insurtech investment set to skyrocket in Asia Pacific till 2019

hen Tokio Marine Life Insurance Singapore Ltd. (TMLS) launched TOMI, the first self-learning chatbot for insurance advisors in Singapore, it was part of a strategy to accelerate its insurance technology (insurtech) implementation — an area that will largely drive the Asia Pacific insurance investment playbook until 2019. Baker & McKenzie analysts reckon Asia Pacific-based insurance companies are ramping up their acquisition of and partnerships with non-insurance technology players to mine the opportunities in insurtech space. Insurance firms are looking at the powerful collaborations banks have forged in the financial technology (fintech) space, hoping to harness similar competitive advantages through stronger insurtech alliances. “Insurance companies are playing catch-up. They are lagging behind their financial services peers in technology implementation,” says Stephanie Magnus, a principal at Baker McKenzie Wong & Leow, and a Singapore-based fintech and insurtech adviser. “We expect to see insurtech incubator and accelerator programmes to produce key acquisition and joint venture (JV) targets for our big insurance clients,

and expect this to remain an exciting space for business tie-ups over the next 18 to 24 months,” she adds. Walking the talk This forecasted acceleration comes as a large chunk of insurers still do not walk the talk when pushing out their insurtech plans. Whilst 43% of industry players claim they have fintech — in which insurtech is a sub-segment — at the heart of their corporate strategies, only 28% explore partnerships with fintech companies and even less than 14% actively participate in ventures and/or incubator programmes, a PwC global survey reveals. “Incumbent insurers who are currently focussed on catching up with their competitors around customer centricity and other current trends are missing the opportunity to become proactive,” says Stephen O’Hearn, global leader, insurance partner at PwC. “They need to create a clear and consistent message that will demonstrate their willingness to play in the new insurtech space and act accordingly — only such an approach will position incumbents to be front-runners in the new insurance era.” Brian Chia, head of corporate and commercial practice at Wong & Partners, member firm of Baker

& McKenzie in Malaysia, says rising margin pressure will compel insurance companies to join the insurtech race. Insurers will look to harness insurtech to explore new distribution channels, product offerings, as well as risk assessment and management capabilities. Enhancing efficiency In the case of TMLS, the launch of TOMI represents an investment to increase human resource efficiency as the self-learning chatbot fields simpler client queries, freeing up advisors to deal with more complex queries. The insurer is looking to upgrade it soon with more robust features geared towards directly improving the client experience. Together with TOMI, the Singapore-based insurer also launched TM Wave, an inhouse initiative that streamlines administrative processes for advisers. The app allows outstanding documents to be submitted via smart phones, reducing turnaround times. “TOMI and the TM Wave app set the tone for our technological transformation as we innovate and advance our digital capabilities by implementing new sales tools, customer service portals and data analytics,” says James Tan, chief executive officer of TMLS. As TMLS and more insurance companies in Asia Pacific invest more resources into InsurTech, they must be prepared to face a “labyrinth” of regulations in the region. Firms will also have to address concerns relating to data privacy, cross-border data transfer and intellectual property protection, especially when investing heavily in areas such as telematics, biometrics, and big data.

Highlights from the PwC Global Fintech Report 2016

Source: PwC Global Fintech Survey 2016

INSURANCE ASIA 5

FIRST

Where are the drones in insurance?

High protection gap in emerging Asia

lthough the insurance industry is quite well-known for being heavily steeped in tradition, the life insurance subsector is notorious for being a consistent slowpoke in terms of innovation. Life insurers have somehow become content with the way things are, and their inflexible mindset has hindered great opportunities for growth. Tom Scales, research director at Celent, says that for decades, life insurers have only been able to make different variations of their products, but have not introduced any groundbreaking ideas. They have transformed their products by adding more complexities, but have not produced a simple yet innovative offering. Life insurance is ‘stuck’ According to Scales, the industry is caught in a “that’s the way we have always done it” vortex, and it is difficult to break out of this trap. “TThe closes thing to drones that we have is wearables and wellness programmes. In these programmes, customers are awarded both points and discounts for health living,” he says. Products in life insurance such as term and whole life were already available for decades, if not centuries.

Product innovation has stagnated

“In the 1980s, there was a flurry of innovation, which resulted in the introduction of universal life policies, initially with a single interest-bearing fund. Product innovation since then has stagnated, resulting in variations of existing products,” says Scales. As technology takes the reins of various insurance products, life insurers are finally seeing the need to overhaul their model and invest more of their resources in order to catch up. According to a report by Celent, almost 80% of life CIOs see a need for significant or moderate innovation, while only 50% of P&C or general CIOs see the same need. Scales adds that in order for life insurers to become major players in the innovation game, they have to bring in fresh blood to the company and more importantly, rethink the place of agents in their operations.

The closes thing to drones that we have is earablesand wellness programmes.

people

Asia’s insurance companies name new top executives Fabrice Benard was named Generali Asia’s regional head of property & casualty (P&C), retail for Asia. He reports directly to Roberto Leonardi, regional officer for Asia. Based in the regional hub in Hong Kong, Benard has an extensive background in P&C having spent more than 15 years across areas such as retail, risk management, finance, bancassurance and M&A in Europe and the Middle East. Sun Life Hong Kong appointed Fabien Jeudy as its new chief executive officer. Jeudy has over 27 years of experience across Sun Life’s businesses in Hong Kong, Canada, the United States, Indonesia, the Philippines, India and Vietnam. Aviva Asia also named its new regional chief executive officer for China, Indonesia and Vietnam, Randy Lianggara, effective 1 April 2017. Randy will continue to report to Chris Wei, executive chairman of Aviva Asia. 6 INSURANCE ASIA

Randy Lianggara

Fabien Jeudy

The world was devastated by 327 disasters in 2016, 191 of which were natural catastrophes and 136 man-made ones. According to a recent report by Swiss Re, economic losses from these disasters totalled US$175b, almost double the level in 2015. Asia’s economic losses of US$83b in 2016 was the highest in the world. Swiss Re further notes that the most destructive event in Asia was the magnitude 7.0 earthquake that hit Kyushu Island in southern Japan, close to the city of Kumamoto on 16 April 2016. The quake claimed 137 lives and close to 2,000 people were injured. More than 8,500 buildings were destroyed, and an estimated 160,000 buildings were damaged. Economic losses were estimated to be between US$25b and US$30b, of which US$4.9b were insured. Insured losses “In Asia, total economic losses from all disasters more than doubled to US$83b or 48% of worldwide losses) in 2016, from US$38.5b (or 41% of worldwide losses) in 2015. Insured losses in Asia, however, increased by less than 20% year-on-year to US$8.8b, taking the total protection gap in the region to close to around US$74b (or 89% of economic losses, up from around 80% in 2015),” reports Swiss Re. China suffered many damaging floods in 2016, but with low insurance penetration, insured losses from the 2016 floods were just US$0.4b. In China, total economic losses from all disasters stood at roughly US$40b in 2016, with close to 97% uninsured. In India, uninsured losses from all the catastrophes and man-made disasters stood at US$4.5b.

HON G

NCE RA

NG ASSU LEO

Malaysia

Thank You to all our customers, agency force and staff for supporting us. Special thanks to all our customers for entrusting us with your financial needs.

INSURANCE ASIA 7

FIRST

Seven tech trends in insurance

f property & casualty (P&C) insurers want to dominate the industry in the coming years, then part of their game plan should involve becoming a trailblazer in digital technology. Bain & Company believes a billion-dollar opportunity exists in digital innovations, but only firms that lead the pack will likely reap the full benefits while laggards will be left to pick up the crumbs. With the dizzying array of digital innovations flooding the market, which should P&C insurers focus on? Bain & Company and Google identified seven key technologies that are already disrupting the industry and whose impact will accelerate in the next three to five years: Infrastructure and productivity, online sales technologies, advanced analytics, machine learning, the Internet of Things, distributed ledger, and virtual reality. “These new technologies are likely to be a boon for consumers, bringing more choice, better service and lower prices,” says Henrik Naujoks, a partner at Bain & Company. For firms, these key technologies can create an “enormous” impact on revenues and costs. An analysis by Bain and Google show that a prototypical P&C insurer in Germany that implemented these technologies could increase revenues by up to 28% within five years, reduce claims payouts by as much as 19%, and lower policy Survey

Policy holders of risk and life insurance unsatisfied

In the year 2016, satisfaction amongst risk and life insurance policy holders was 67.4%, down from 68.8% in 2015, and still lower than that of all other major insurance types. Less than one in four (23.9%) risk and life policyholders were “very satisfied” with their insurance companies. These are the latest findings from Roy Morgan’s Single Source survey of over 50,000 consumers, which includes detailed coverage of over 9,000 risk and life insurance policy holders. Holders of risk and life insurance who purchased their insurance in person from an insurance company branch have a much higher level of satisfaction (76.4%) than those using all other methods. Purchasing directly from an insurance company online (74.9%) or by telephone (71.9%) also boosts satisfaction levels. In contrast, satisfaction with risk and life insurance purchased through insurance brokers is below average, at just 67.1%.

8 INSURANCE ASIA

administration costs by as much as 72%. “Pioneers in digital technology can gain an edge over their rivals by becoming more effective and efficient,” says Naujoks. “The digital laggards, by contrast, will find themselves fighting an intensified price war and scrambling to protect their competitive positions.” Making the most of digital investments Senior partner in McKinsey’s Boston office Tanguy Catlin concurs that speed is of the essence for insurers that want to maximise the returns of their digital technology investments. “Companies that move swiftly and decisively are likely to be those that flourish. Those that do not will find it increasingly challenging to generate attractive returns,” says Catlin. Insurance firms that strike while the digital iron is hot stand to win the coveted triple prize: More satisfied customers, lower costs, and higher growth. It has become a disrupt-or-be-disrupted world, so the challenge is clear for insurers: Aggressively transform and scale in digital. “The winners will be those that move decisively,” says Catlin, citing the success of first movers globally like HUK24, Direct Line, and Progressive. “These companies made big bets — to innovate products or reshape the value chain, for example —

Which digital innovations should insurers focus on?

rather than following in others’ wake.” McKinsey’s interviews with 30 executives in incumbent and attacking companies revealed that the single message most constantly repeated was the need for incumbents to accelerate their response. “Incumbents need to move quickly to compete with digital competitors that have the agility to keep pace with evolving technology and customer needs,” says Catlin.

Customer satisfaction with insurance by type

Source: Roy Morgan Single Source (Australia). 12 months ended December 2015, n=50,276; 12 months ended December 2016, n=50,144

Satisfaction with risk and life insurance by method purchased

Source: Roy Morgan Single Source (Australia). 12 months ended December 2016, n=9,436 with risk and life insurance

NUMBERS

Chinese lifers recorded strong underlying VNB growth in 2016 amid strong agency sales and improved margins

INTERNATIONAL HEALTH INSURANCE FOR EXPATRIATES

Sources: Company data, Maybank Kim Eng. Underlying growth rates are extimated by Maybank Kim Eng, excluding the impacts from C-ROSS, EV assumptions & FX *PICC Group incl. PICC Life and PICC Health

NUMBERS ... and our preferred names (Ping An/CPIC/CTICH) have continued to achieve strong momentum in 2017 YTD

TALKING ABOUT TAKING A JOB ABROAD? THEN TALK TO CIGNA GLOBAL.

Sources: CIRC, Maybank Kim Eng *PICC Group incl. PICC Life and PICC Health

NUMBERS Most emerging insurers experienced sales contraction (GWP + deposits) in 2M17 due to CIRC’s regulatory curbs

Sources: CIRC, Maybank Kim Eng

If a great career opportunity includes a move to a different country, reach out to Cigna Global. We understand the needs of expatriates because we’ve been helping them for years. Our flexible plans provide access to over 1 million hospitals and medical professionals worldwide, 24/7 phone support from healthcare providers, fast claims reimbursement and much more. Start the conversation. Visit www.cignaglobal.com/IPMI/SG Or, if you prefer, call +65 68275678 to learn more and to find insurance brokers near you.

NUMBERS ... and they actively reduced their sales exposure to universal life policies (in terms of GWP + deposits)

The Cigna name, logo and other Cigna marks are owned by Cigna Intellectual Property, Inc. licensed for use by Cigna Corporation and its operating subsidiaries. “Cigna” refers to Cigna Corporation and/or its subsidiaries and affiliates. Products and services are provided by, or through such operating subsidiaries and not by Cigna Corporation, including Cigna Europe Insurance Company S.A. – N.V. – Singapore Branch, which is regulated by the Monetary Authority of Singapore and subject to the prudential supervision of the National Bank of Belgium. Products and services may not be available in all jurisdictions and are expressly excluded where prohibited by applicable law. Nothing in this communication constitutes legal, tax, financial planning or health or medical advice. Sources: CIRC, Maybank Kim Eng

FIRST NUMBERS

What’s replacing the feedback forms?

Breaking the analytics code in insurance

ith rapid and revolutionary transformations in business-customer interaction across the globe, private customer data is now considered the insurer’s digital goldmine. Asian insurers, traditional they may be, are finally catching up to the analytics game. Enhanced online customer engagement is slowly eliminating countless piles of feedback forms as businesses make it their primary aim to digitally collect and manage private and precious customer data. According to Celent, an intuitive customer experience requires understanding what customers want and how they want to receive information. The survey revealed that customers and insurers are mostly on board on what they expect from each other, with customers prioritising the speed to get relevant information and also the intuitiveness of tools and interfaces offered by insurers. Collecting customer data Celent defines three approaches in collecting customer data: the manual “just in time” approach, a method that is mostly insurer-led and relies on existing business processes; the consumer-led data harvesting approach, where the insurer banks on the digital footprint of the customer; and the insurer-generated sensing and awareness approach, which relies on data harvesting for the purpose of 10 INSURANCE ASIA

predictive analytics. Meanwhile, Ari Chester, principal at McKinsey & Company, refers to the latter approaches as “advanced analytics” or “data science.” For insurers, advanced analytics has resulted in sophisticated fraud identification in various kinds of insurance as well as the use of claims modeling in compensation, among others. According to them, adopting analytics requires passing through four stages: building insights, capturing value, achieving scale, and becoming an analytics-driven organisation. Furthermore, for analytics to be truly a success, CEOs, together with the rest of the senior leaders, must make it their priority, adds Chester. Not only that, success in analytics takes time and a lot of effort, hence executives must commit whatever the short-term costs.

Enhanced online customer engagement is slowly eliminating countless piles of feedback forms.

Driver to invest in smart technologies (percentage of respondents, multiple answers possible)

Source: Bain & Company Source: Celent survey, N=116

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I believe in the importance of integrity and courage to do the right things the right way, and for the right reasons.

Predee Daochai Patrick Teow President President Kasikornbank LIA Singapore 12 INSURANCE ASIA

INTERVIEW

LIA Singapore’s president Patrick Teow talks of the worrisome protection gap in the city Teow eyes bridging the US$330b protection gap and increasing collaborations amongst stakeholders.

s the new president of the Life Insurance Association, Singapore (LIA Singapore) elected in March 2017, Patrick Teow already has a lot on his plate. He acknowledges that there are awareness and perception issues that need to be addressed in order to get more Singaporeans adequately insured and financially independent. He notes that as of end-2011, the total protection gap in Singapore was S$462.1b (US$330b). With Singapore’s rapidly ageing population, bridging this gap is of utmost priority for industry players like Teow. He notes that the number of those aged 65 and above will nearly double from 220,000 in 2000 to approximately 900,000 in 2030. Teow is the chief executive officer of AIA Singapore. He joined AIA in July 2013 as CEO of AIA Group Agency Distribution. He has been driving the company’s success across multiple markets by boosting productivity levels and creating a strong Premier Agency culture focused on quality and professionalism. Before making his move to AIA, Teow spent close to 28 years at Prudential, having taken on the role of regional chief agency officer for Asia, EVP and chief distribution officer-Prudential Singapore as well as group financial services director. He holds professional Chartered Life Underwriter and Chartered Financial Consultant qualifications. In this exclusive interview with Insurance Asia, Teow shares his thoughts on the current state of the insurance sector in Singapore, his plans and goals for LIA Singapore, his business philosophies, and more. What are the latest trends and challenges in Singapore’s insurance industry? Despite the maturity of our market today, the protection gap in Singapore still persists. The total protection gap in Singapore was S$462.1b (US$330b), as of end of 2011. This means that people have not been effective in their personal financial planning and will become increasingly more reliant on others for financial support. In this respect, we recognise that there is segment of society who may not recognise the true value provided by professional financial advisers — which include tied agents, and independent financial firms — or they are being more cautious about getting help to better manage their finances. It is both an awareness and a perception issue that need to be addressed for us to get more people adequately insured and financially independent. This is especially critical because of Singapore’s rapidly ageing population which, if not effectively managed, will increase the financial burden placed on our smaller economically active workforce and the government. Singapore has the highest proportion of older residents and the fastest ageing population in Southeast Asia, according to the World Bank. In fact, the number of those

aged 65 and above will nearly double from 220,000 in 2000 to approximately 900,000 in 2030. Tied to this is the pressing need for Singaporeans to keep healthy to avoid suffering from chronic diseases, and for all relevant parties in the healthcare ecosystem to better manage healthcare costs to ensure the affordability of medical treatments and sustainability of medical insurance. Today, approximately one in four Singaporeans aged 40 years and above suffer from at least one chronic disease such as diabetes, high blood pressure, high blood cholesterol and stroke. In fact, in 2010 alone, diabetes cost the government more than $1 billion — a figure that is expected to exceed $2.5b by 2050. Healthcare costs in Singapore will soon become unsustainable if left unchecked, a conclusion that the Health Insurance Taskforce (HITF) had in their recommendation paper launched in October 2016. In the report, HITF highlighted that, for the ten-year period from 2005 to 2015, the Consumer Purchase Index (CPI) for healthcare, which includes cost of medical treatment and health insurance, increased by 30.6%. This is significantly higher than the 21.7% on prices of consumer goods and services, as measured by the Monetary Authority of Singapore (MAS) Core Inflation. How does the rise of digital impact Singapore’s insurance industry? The rise of digitalisation has vastly changed the way we live, work, and play, and disrupted traditional business models. In keeping with the changing times, the insurance industry is taking steps to rethink the way we do business. Leveraging the benefits of digitalisation will help us in the pursuit of sustainable progress in meeting the savings, protection, and investment needs of the community. Globally, the insurance industry has already been called out for lagging behind other industries when it comes to innovation and customer-friendly digital experiences. There is much that we can do as an industry, and there are three key areas which offer immense potential for us to explore, namely: Data analytics to drive innovation Data-driven innovations come from effectively coaxing treasures out of enormous amounts of data to uncover deep consumer insights to steer business strategies, product development, and sales efforts. Numerous members of the Association are already investing in innovation centres with research and development efforts and data analytics focused on innovations to improve risk management and provide greater value to customers. Digitalisation to enhance customer experiences Digitalisation offers a way for us to provide customers INSURANCE ASIA 13

INTERVIEW greater convenience, quicker response to their concerns, and more options in the way they choose to engage with insurers — whether it’s how they purchase insurance and submit claims, or getting more information and seeking financial advice. Initiatives such as digital underwriting systems and integrated financial advisory platforms are examples of how life insurers in Singapore continue to improve customer experiences as well as productivity and efficiency levels. Information-sharing and integrated digital platforms for greater collaboration within our ecosystem including insurers, healthcare providers, and policyholders. Life insurers in Singapore are collaborating to share and consolidate health insurance claims data, making it easier to identify outliers overprescribing and/or overcharging for healthcare services. What is your outlook for the insurance industry for the next 3-5 years? We are cautiously optimistic of the life insurance industry’s opportunities for growth and contribution to Singapore’s ongoing progress, just as how the industry rose above to increase the level of protection in Singapore and record a healthy growth of 10% compared to a modest 1.8% growth in our nation’s GDP last year. Whilst we expect uncertainty in the global economy from 2016 to persist into the year ahead, the Association’s priority is to implement our plan for 2017 focused on ensuring the sustainable growth of the industry and safeguarding interests of consumers. Our top priorities and commitment for the year are in the areas of: managing the affordability of healthcare in Singapore, bridging the underinsurance gap, and prioritising consumer interests. What makes you excited about your new position? It is inspiring to be driving the industry’s transformation at a time of massive change. We are evolving rapidly and expanding our role beyond providing protection as it has been traditionally defined. Today, Singapore’s life insurance industry is redefining “protection” with people-centric initiatives that include championing preventive healthcare for a healthier population, and facilitating greater collaboration amongst multiple stakeholders to address the national issue of escalating healthcare costs. And, in this era of the Internet of Things (IoT), it is our time to embrace digital disruption and introduce more innovations to truly make a difference in the lives of customers and the community at large. What three goals are you focused on? LIA Singapore’s vision of providing security, stability, and peace of mind for the community continues to be our true north. Accordingly, our focus now is to be the catalyst for change, empowering organisations, communities, and individuals to proactively make a difference to their lives, and that of others around them. Managing the affordability of healthcare in Singapore 14 INSURANCE ASIA

Having sufficient insurance coverage is especially important in a time of uncertainty, which is what we are facing today.

LIA Singapore’s work group is tirelessly putting together a plan with clear actions on what our industry can do to mitigate the challenge of rising healthcare costs following the LIA Study in 2015, and the recommendations put forth by the Health Insurance Task Force (HITF) in October 2016. We hope that our efforts will be the first of many initiatives by all parties to take ownership of their role in keeping healthcare affordable and accessible because it can only be achieved through the collective efforts of all stakeholders within the ecosystem. This was also concluded by the HITF — which had representation from numerous parties including insurers, healthcare professionals, and regulators — in their recommendation paper last year. Bridging the underinsurance gap This year, LIA Singapore is commissioning a fresh protection gap study as an update to the last study which we conducted in 2011 and subsequently released in 2012. The updated study will not only give us a sense of how much progress Singapore has made in bridging the underinsurance gap here, but it also provides a basis for us to prioritise our efforts to provide the community better security and peace of mind. Having sufficient insurance coverage is especially important in a time of uncertainty, which is what we are facing today. In our last protection gap study, we identified a significant S$462b protection gap in Singapore, indicating that the average protection gap of a working adult then was 3.7 times his/her annual income — that level of coverage is significantly less than the recommended coverage amount of 10 times one’s annual salary to meet one’s protection needs. Prioritising consumer interests This is an ongoing effort for the industry, and our initiatives in 2017 include the introduction of new disclosure initiatives under the Financial Advisory Industry Review (FAIR), and exploring digital

The average protection gap of a working adult then was 3.7 times his/her annual income

INTERVIEW innovations to increase choice and improve customer experience for consumers What will you do differently as president of LIA Singapore? I appreciate that each leader has his unique leadership style and brings something different to the table. As the newly elected president of LIA Singapore, it is my commitment and that of the Management Committee’s, to build on the strong foundations laid down over the years by my predecessors and see the industry continue scaling new heights. I would like to see, at the end of my term, success in narrowing Singapore’s protection gap, and greater collaboration amongst stakeholders for the benefit of society. What are your key business philosophies? I believe in the importance of integrity and courage to do the right things the right way, and for the right reasons. These philosophies do also apply to life insurance which really is all about people, and having their trust that we will safeguard their well-being and that of their loved ones. In keeping with this, one of the industry’s initiatives in 2017 is to step up on consumer education efforts to help individuals better understand the value and importance of health insurance coverage, as well as the complementary nature of Integrated Shield Plans (IPs) vis-à-vis MediShield Life. What previous positions prepared you for this one? It is the sum of our experiences that help shape who we are and how we choose to move forward into the future. Three decades of experience in the life insurance industry across the region and in numerous functions are assets I will certainly tap on. Beyond that, I also believe that my personal experiences and interactions with people — be it family and friends, regulators, colleagues, and other Singaporeans — ensures that our initiatives are relevant and provide value for the community.

I would like to see, at the end of my term, success in narrowing Singapore’s protection gap, and greater collaboration amongst stakeholders for the benefit of society.

report from lia singapore

Strong growth in 2016 amidst challenging economic environment Early this year, LIA Singapore announced industry results for the period January to December 2016. Total weighted new business premiums for YTD 4Q16 year-to-date saw healthy growth of a 10% increase compared to the same period in 2015, with increased interest in non-participating products. Compared to the national GDP’s 1.8% growth, the industry’s 10% improvement is more than five times the rate at which the economy expanded. Total weighted new business premiums amounted to S$3.3b (US$2.3)for the year. With long-term consumer interests in mind, the industry undertook proactive action to address Singaporeans’ concern with escalating healthcare costs through the formation of the Health Insurance Task Force (HITF). Resilient community Compared to the same period in 2015, the total sum assured for new business rose strongly by 15%, totalling S$117b (US$83.9b) as the industry continues to help individuals better meet their protection needs. In all, new health insurance premiums totalled S$241m (US$172m) for 4Q16, of which Integrated Shield Plans (IP) premiums and IP riders accounted for 8% (S$208m or US$149m). The remaining S$33m (US$23m) was contributed by other medical plans and riders. In 2016, more than 50,000 Singapore residents took up health insurance coverage primarily through IPs and IP riders. As at 31 December 2016, 2.89m lives, approximately one in two individuals in Singapore, were covered with total premiums amounting to S$1.42b (US$1.01b). Resilient economy In the face of Singapore’s employment growth in 2016 hitting a 13-year low, the life insurance industry however experienced an expansion in headcount. As at 31 December 2016, 6,663 individuals were employed by member companies, representing a five per cent increase from 6,371 staff in the previous year. 14,420 representatives held exclusive contracts with companies that operate a tied agency force. Contributing to Singapore as a leading insurance hub in Asia, the life insurance industry manages assets of approximately S$173.1b (US$124.1b), up 11% compared with a year ago. Assets of noninvestment linked business accounted for S$143.8b (US$103.1b), while the remaining S$29.3b (US$20b) were assets held for investment-linked business. Resilient future Looking ahead, industry initiatives in 2017 are likely to include consumer education and strengthening the sustainability of the healthcare financing system. Industry players continue to work on digital innovation to increase choice and lower costs for consumers. LIA Singapore, along with stakeholders such as the Monetary Authority of Singapore (MAS), signed the Statement of Intent to pledge their support. INSURANCE ASIA 15

RANKING: INSURANCE FIRMS in singapore insurance wallet, social insurance, and health insurance for expats. In terms of hiring, highly innovative and technology savvy employees are sought after. In a 2017 quarterly report, Hays recruitment says a customer-centric industry today will need talents who are eloquent in the languages of the digital world. Insurance companies will need to increase their investment in data analytics by hiring professionals who have been trained to understand consumer behaviour, thereby enabling insurers to tailor-fit their services to more specific client demands.

Insurers are now able to tailor-fit their services to more specific client demands

Insurance firms play catch up with digital disruptors

Traditional business models are transformed to address emerging needs.

he fintech revolution has been changing the global financial services landscape, pushing insurance firms to step up to the digital dare. Executives are challenged to transform traditional business models and offer dynamic solutions to emerging needs, ranging from standalone apps to integrated services on social media. George Kesselman, CEO and founder of Insurtech Asia, says insurers are changing their attitude to digital innovation. Such a direction has also led these companies to collaborate with startups, with NTUC and Raxel, and AXA and MyDoc as some of the recent examples of insurer-startup collaborations. Raxel’s arrival in Singapore in 2016 began with a partnership with NTUC Income, with the former providing analytics services so that NTUC may come up with more down-to-earth and customised insurance schemes. 16 INSURANCE ASIA

With the rise in the number of digital disruptions and innovations, Singapore’s insurance industry also saw the emergence of insurtech companies.

In 2016, Singapore was introduced to its first fully-direct and online life and general insurer, FWD Insurance. In September 2016, FWD announced the launch of its direct term life insurance product with a 100% direct and digital approach that will enable people to select their cover, online or using their mobile, and receive a simplified quote in under 60 seconds. Online health insurance brokerage CXA also broke some records when it raised US$25m in a US$100m valuation. Emergence of insurtech With the rise in the number of digital disruptions and innovations, Singapore’s insurance industry also saw the emergence of insurtech companies such as ConneXions, Shift Technology, BIMA, PolicyPal, InsBee, and UEX. These startups provide expertise and services in digital employee benefits brokerage, fraud detection, micro-insurance, digital

Who made it to our list? AIA Singapore clinches the top spot with total assets of S$37.8b (US$27.2b). NTUC Income Insurance Cooperative Limited came in second, with total assets amounting to S$30.5b (US$21.9b). Transamerica Life (Bermuda) Limited made it to the top 10, trumping, Swiss Life Limited. AIA Singapore has introduced AIA Quality Healthcare Partners as a way to manage rising healthcare costs and ensure affordability of insurance premiums. The platform is composed of a network of over 100 trusted medical professionals, who will provide customers access to affordable, quality healthcare services. AIA Singapore has sought to make this service available through a website, an app, and appointment services for greater customer convenience. “As a leading life insurer in Singapore, we play a vital role in addressing national issues through efforts aimed at mitigating healthcare cost inflation, keeping insurance premiums affordable, curtailing the economic burden of lifestyle diseases of an ageing population, and facilitating improvements in employee productivity levels amongst others,” says Ho Lee Yen, chief marketing officer at AIA Singapore. For individuals, AIA Singapore also launched its AIA Vitality Weekly Challenge app to encourage clients to boost their productivity and remain active.

RANKING: INSURANCE FIRMS in singapore Insurance FIRM

2015 Overall Ranking

Total Assets 2015 (in sgd)

Total Assets 2014 (in sgd)

General/Life

AIA SINGAPORE PRIVATE LIMITED

$37,839,527,353

$35,371,886,441

General/Life

NTUC INCOME INSURANCE CO-OPERATIVE LIMITED

$30,504,022,022

$30,880,406,566

Life

PRUDENTIAL ASSURANCE CO. SINGAPORE (PTE) LTD

$29,298,663,781

$28,643,271,548

Life

GREAT EASTERN LIFE ASSURANCE COMPANY LIMITED

$29,155,492,269

$28,111,703,499

Life

MANULIFE (SINGAPORE) PTE. LTD.

$6,572,316,259

$5,927,480,876

General/Life

AVIVA LTD

$6,182,611,883

$5,519,093,619

General/Life

OVERSEAS ASSURANCE CORPORATION LIMITED

$5,742,571,772

$4,852,414,817

Life

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD

$5,056,107,876

$4,610,419,476

Life

HSBC INSURANCE (SINGAPORE) PTE. LIMITED

$4,352,838,661

$3,714,125,569

Life

TRANSAMERICA LIFE (BERMUDA) LTD. (SINGAPORE BRANCH)

$2,865,132,882

$2,018,326,026

General/Life

ALLIANZ SE, SINGAPORE BRANCH

$2,757,029,569

$2,277,480,987

Life

SWISS LIFE (SINGAPORE) PTE. LTD.

$2,608,932,053

$2,892,170,834

Life

AXA LIFE INSURANCE SINGAPORE PRIVATE LIMITED

$2,076,233,377

$1,877,838,101

General/Life

SWISS REINSURANCE COMPANY LIMITED

$1,871,018,603

$1,844,646,351

General/Life

MUENCHENER RUECKVERSICHERUNGS GESELLSCHAFT

$1,672,279,116

$1,510,034,032

General

IAG RE SINGAPORE PTE LTD

$1,664,329,935

$1,406,864,426

General/Life

ASIA CAPITAL REINSURANCE GROUP PTE LTD

$1,598,469,347

$1,673,535,283

General

FIRST CAPITAL INSURANCE LTD

$1,229,154,899

$1,116,760,277

Life

OLD MUTUAL INTERNATIONAL ISLE OF MAN LIMITED SINGAPORE BRANCH

$1,097,485,976

$887,238,018

General

ODYSSEY REINSURANCE COMPANY

$956,782,371

$878,129,087

General

AXA INSURANCE SINGAPORE PTE LTD

$955,421,350

$953,561,515

General

EVEREST REINSURANCE COMPANY

$908,790,749

$865,579,254

General

AIG ASIA PACIFIC INSURANCE PTE. LTD.

$893,050,316

$861,907,560

Life

ZURICH INTERNATIONAL LIFE LIMITED (SINGAPORE BRANCH)

$840,001,931

$690,631,680

General

INDIA INTERNATIONAL INSURANCE PTE LTD

$792,077,432

$799,631,732

Life

FRIENDS PROVIDENT INTERNATIONAL LTD (SINGAPORE BRANCH)

$771,371,433

$525,214,733

General

PARTNER REINSURANCE ASIA PTE. LTD.

$717,169,394

$264,471,229

Life

SCOR GLOBAL LIFE SE SINGAPORE BRANCH

$642,678,801

$532,133,949

General

ALLIANZ GLOBAL CORPORATE & SPECIALTY AG, SINGAPORE BRANCH

$630,408,823

$589,982,475

General

MSIG INSURANCE (SINGAPORE) PTE. LTD.

$626,372,666

$632,139,170

General

TOKIO MARINE INSURANCE SINGAPORE LTD

$529,044,004

$500,459,575

General

ALLIED WORLD ASSURANCE COMPANY, LTD, SINGAPORE BRANCH

$500,452,892

General

SOMPO INSURANCE SINGAPORE PTE. LTD.

$479,574,338

$476,562,549

General

QBE INSURANCE (SINGAPORE) PTE. LTD.

$441,420,880

$396,081,167

General

THE TOA REINSURANCE COMPANY LIMITED

$435,316,729

$458,839,678

General

LIBERTY INSURANCE PTE LTD

$404,777,807

$384,546,363

General

ROYAL & SUN ALLIANCE INSURANCE PLC, SINGAPORE BRANCH

$404,232,775

General/Life

SCOR REINSURANCE ASIA-PACIFIC PTE LTD

$397,822,919

$411,227,936

General

XL RE LTD

$360,689,165

$342,797,744

General

CHINA TAIPING INSURANCE (SINGAPORE) PTE. LTD.

$328,674,850

$311,833,786

General

AXIS SPECIALTY LIMITED (SINGAPORE BRANCH)

$326,658,467

General

SWISS RE INTERNATIONAL SE, SINGAPORE BRANCH

$318,702,667

$178,187,890

General

SINGAPORE REINSURANCE CORPORATION LTD

$307,609,089

$328,534,161

General

FEDERAL INSURANCE COMPANY

$284,869,471

$295,637,218

General

BERKSHIRE HATHAWAY SPECIALTY INSURANCE COMPANY

$282,625,368

General

UNITED OVERSEAS INSURANCE LTD

$272,559,322

$266,747,693

General

ENDURANCE SPECIALTY INSURANCE LTD, SINGAPORE BRANCH

$254,006,490

$207,611,894

General

AXA CORPORATE SOLUTIONS ASSURANCE SINGAPORE BRANCH

$251,646,915

$217,355,026

General

SIRIUS INTERNATIONAL INSURANCE CORPORATION

$247,678,931

$218,062,134

General

XL INSURANCE COMPANY PLC, SINGAPORE BRANCH

$227,508,348

$200,667,909

2016 Overall Ranking

Classification

1 2

DATA COMPILED FROM MONETARY AUTHORITY OF SINGAPORE: NOVEMBER 9, 2016

INSURANCE ASIA 17

RANKING: INSURANCE FIRMS in hong kong Company (Group) of China (PICC). Lee also says the region has seen the growth in multi-channel distribution for insurance products. Traditionally, these products were primarily distributed by insurance agents. However, there has been a rapid growth in bancassurance penetration, where the distributors of insurance products are banks.

Insurance firms are going beyond offering digital platforms for client engagement

HK rides the insurtech wave amidst ageing population

FWD Hong Kong, for instance, has committed to invest HK$500m in the development of proprietary insurtech solutions.

hen the banking industry started embracing the fintech revolution, the insurance industry thought twice about going all out for insurtech product diversity enables the banking industry to reach out to almost all age levels, but the insurance industry’s traditional business models are proving it more challenging to hop on the digital bandwagon. After all, there’s an age-old stereotype that insurance, especially life, is for the elderly. However, with the growing number of insurance products and the increasing wealth of the Hong Kong population, insurance has become a primary option for professionals, young or old. The city has one of the most developed insurance industries in the region and has for years attracted the world’s top insurance companies. HKTDC Research economist Kenix Lee 18 INSURANCE ASIA

As for insurtech, insurance companies have been exploring the varied distribution channels that are available in the digital dimension.

cites Hong Kong as amongst those with the most developed insurance markets, with the per capita insurance premium standing at high levels. Mainland connection Hong Kong’s connection to China is a welcome factor, as global insurers and reinsurers are particularly attracted to China and the many opportunities for insurance in the mainland. HKTDC Research reports that the Chinese mainland recorded a year-on-year growth of 32.18% in premiums income to about US$32.3b from 1Q16 to 3Q16, with long-term insurance business and general insurance business growing by 37% and 7.8% over the year respectively. Major mainland insurers which have been listed in Hong Kong include China Life Insurance the largest commercial insurance group in mainland, Ping An Insurance of China, and The People’s Insurance

Insurtech’s role As for insurtech, insurance companies have been exploring the varied distribution channels that are available in the digital dimension. FWD Hong Kong believes that insurtech will be the buzzword for 2017 and has committed to invest HK$500m (US$64.3m) in the development of proprietary insurtech solutions, more than five times the investment in this area over the past three years. After launching iFWD, its digital commerce platform, the company has become the market leader in direct sales of life insurance products in Hong Kong as of 3Q16. Beyond offering digital platforms for customer engagement and sales, insurance companies have been exploring mobile services, the Internet of Things (IoT) as well as big data analytics. For mobile services, insurance companies are looking at integrating their services into social media like Facebook and Instagram. Several of these companies have already gone out of the box and introduced mobile applications customers can use to access their policies, pay their premiums, and engage with customer relations. AIA International takes the lead in our list of the 50 largest insurance companies in Hong Kong with a gross premium of HK$71.4b (US$9.2b), an increase from its gross premium of HK$64.4b (US$8.3b) the previous year. Prudential (HK) Life nabs the second spot with HK$68.6b (US$8.8b) in gross premiums after accumulating only HK$49b (US$6.3b) in 2015. HSBC Life clinches the third spot with gross premiums of HK$61.9b (US$8b).

RANKING: INSURANCE FIRMS in hong kong 2016 Overall Ranking

Classification

Insurance Company

2015 Overall Ranking

Gross Premium (HK$’000) 2015

Gross Premium (HK$’000) 2014

1 2

Life or Long Term Business

AIA International

71,368,836

64,422,448

Life or Long Term Business

Prudential (HK) Life

68,609,458

49,027,667

Life or Long Term Business

HSBC Life

61,919,115

66,166,888

Life or Long Term Business

China Life

48,132,519

42,174,910

Life or Long Term Business

BOC Life

38,548,887

26,667,064

Life or Long Term Business

Manulife (Int’l)

27,452,354

25,081,198

Life or Long Term Business

AXA China (Bermuda)

25,583,693

23,711,588

Life or Long Term Business

Hang Seng Insurance

18,187,190

16,530,700

Life or Long Term Business

FWD Life

17,742,866

15,523,904

Life or Long Term Business

Transamerica Life (Bermuda)

13,735,093

10,052,955

Life or Long Term Business

Sun Life Hong Kong

10,421,816

9,793,696

Life or Long Term Business

MassMutual Asia

8,479,034

7,750,650

Life or Long Term Business

Ageas (FTLife)

6,475,162

7,173,117

Life or Long Term Business

AXA China (HK)

5,293,031

5,494,056

Life or Long Term Business

Hong Kong Life

4,166,907

2,230,360

General - Direct and Reinsurance Inward Business

AXA General

3,797,649

3,650,920

Life or Long Term Business

Chubb Life (Ace Life)

3,484,158

3,347,229

Life or Long Term Business

Generali Worldwide

3,446,374

4,228,546

Life or Long Term Business

MetLife

3,320,354

2,288,712

General - Direct and Reinsurance Inward Business

CTPI(HK)

3,280,194

2,043,633

Life or Long Term Business

Old Mutual International

3,099,167

3,468,132

Life or Long Term Business

Zurich International

2,917,423

4,036,936

General - Direct and Reinsurance Inward Business

Bupa

2,606,624

2,351,697

Life or Long Term Business

BEA Life

2,549,986

2,243,342

General - Direct and Reinsurance Inward Business

Zurich Insurance

2,411,909

2,656,973

Life or Long Term Business

Friends Provident Int’l

2,218,001

3,051,885

Life or Long Term Business

Dah Sing Life

2,170,756

2,014,681

Life or Long Term Business

Aviva

2,066,258

2,191,235

General - Direct and Reinsurance Inward Business

BOC Group Insurance

2,020,326

1,842,610

General - Direct and Reinsurance Inward Business

QBE HKSI

1,715,919

1,763,152

General - Direct and Reinsurance Inward Business

AIG Insurance HK

1,637,569

1,551,169

Life or Long Term Business

Standard Life Asia

1,609,590

3,342,607

General - Direct and Reinsurance Inward Business

Blue Cross

1,242,231

1,129,945

General - Direct and Reinsurance Inward Business

Chubb Insurance (Ace)

1,216,117

1,089,261

General - Direct and Reinsurance Inward Business

AXA China (HK)

1,184,549

1,161,252

General - Direct and Reinsurance Inward Business

MSIG Insurance

1,171,357

1,133,110

General - Direct and Reinsurance Inward Business

Asia Insurance

1,149,278

1,254,681

Life or Long Term Business

CIGNA Worldwide Life

1,116,606

1,112,373

Life or Long Term Business

AIA (HK)

1,105,257

1,041,450

General - Direct and Reinsurance Inward Business

CNOOC Insurance

1,081,942

1,452,387

General - Direct and Reinsurance Inward Business

Generali

847,358

667,238

General - Direct and Reinsurance Inward Business

AGCS SE

804,620

705,885

General - Direct and Reinsurance Inward Business

Allied World

800,234

Life or Long Term Business

AXA Wealth Mgt (HK)

791,391

924,650

General - Direct and Reinsurance Inward Business

Lloyd’s

761,944

793,761

General - Direct and Reinsurance Inward Business

Prudential (HK) General

700,160

619,922

General - Direct and Reinsurance Inward Business

Liberty Int’l

691,676

649,042

General - Direct and Reinsurance Inward Business

Wing Lung

684,369

737,090

General - Direct and Reinsurance Inward Business

AIA International

658,689

Life or Long Term Business

Principal

632,710

DATA COMPILED FROM THE OFFICE OF THE COMMISSIONER OF INSURANCE: NOVEMBER 11, 2016

INSURANCE ASIA 19

Country report: Hong KOng

Hong Kong welcomes a new insurance regulator

Hong Kong insurers brace for a new regulatory regime from this year

The Office of the Commissioner of Insurance in Hong Kong will be replaced by the Independent Insurance Authority from June 26 . What changes can the insurance industry expect ?

f one looks at the work calendars of Hong Kong insurers for the next couple of months, it will likely be jampacked with preparatory tasks for the momentous regulatory shift on June 26 when the Independent Insurance Authority (IIA) replaces the Office of the Commissioner of Insurance (OCI). Firms will be bracing for the new provisions that will be implemented when the authority takes over the statutory functions of the office, and the government collection of authorization fees and user fees on specific services. Legal experts advise insurers to start preparing for the new regulatory regime that is moving away from self-regulation. Peter Cashin, partner at Kennedys Law LLP (Hong Kong) reckons insurers should consider implementing revised compliance policies and internal controls to facilitate compliance with the new 20 INSURANCE ASIA

Total gross premiums of the Hong Kong insurance industry in 2016 amounted to HK$448.8b (US$57.7b).

requirements including, for example, the “fit and proper” assessments of relevant officers. These revisions will also improve their ability to respond to the IA’s news powers. Firms should also focus on completing their planning to finalise new resources needs, draft necessary additional policy disclosure statements, and set up liability exposure mitigation measures including insurance coverage. The IIA has expressed its intent to strictly monitor compliance by life insurers to ensure that markets, which continue to grow rapidly, are developed and marketed with the fair treatment of customers in mind. Total gross premiums of the Hong Kong insurance industry in 2016 amounted to HK$448.8b (US$57.7b), representing an increase of 22.7% over 2015, according to provisional statistics released by OCI in March. The total amount

of revenue premiums of long term in-force business increased by 26.1% to HK$403.2b (US$51.8b) in 2016 compared with 2015; while new office premiums of long term business, excluding the retirement scheme business, increased by 41.3% to HK$185.5b (US$23.9b) compared with 2015. “These are the most significant regulatory reforms to the insurance industry in Hong Kong for 20 years,” says Cashin, and insurers are being advised to set up the proper compliance systems to avoid painful fines. A slew of changes In June, when IA replaces OCI, most provisions of the ICAO2015 will be implemented, excluding provisions concerning insurance intermediaries. ICAO2015 provides for the regulation of certain individuals as key persons in control functions. Cashin says these are persons holding

Country report: Hong Kong positions that are likely to exercise a significant influence on the insurer’s business, namely those performing risk management, financial control, compliance, internal audit, actuarial and intermediary management functions. “An authorised insurer will only be able to appoint an individual as a key person in a control function if that individual is fit and proper and approved by the IA. That approval can also be revoked,” says Cashin. ICAO2015 will also provide for levying of pecuniary penalties for the misconduct of directors and controllers of an insurer when the IA transition takes effect. Penalties can amount to as much as the greater of HK$10m (US$1.3m) or three times the amount of the profit gained or loss avoided by the insurer or the intermediary. For insurers that breach the law, Cashin says the IA could require the insurer to provide details on the breach in the course of determining and imposing the pecuniary penalties. The IA will inquire about the severity the nature, severity and impact of the relevant misconduct or failure, as well as any prior instance of such relevant breach. It will also consider the insurer’s conduct in response to the relevant breach -- whether remediation or concealment -- and the financial consequences of the relevant breach in question. The Insurance Appeals Tribunal Another ICAO2015 provision that will be implemented in June is the establishment of the Insurance Appeals Tribunal (IAT), a quasijudicial body independent of the IA set up to ensure “adequate” checks and balances on the IA’s exercise of its powers, says Cashin. The IAT will review specified decisions of the IA, including those on authorisation, licensing and disciplinary actions. The tribunal will also determine questions or issues arising out of or in connection with a review. An application to the IAT for a review of a decision of the IA must be brought in writing within 21 days after that decision. The tribunal will be given power to confirm, vary or set aside the decision; or remit the matter to the IA with such directions as it considers appropriate. It also

has the discretion to award costs. A notable provision relating to IAT is a flexibility for the tribunal, with the consent of both parties to the review, to determine that review based only on written submissions. “This procedure allows appellants to choose a less expensive and cumbersome alternative,” says Cashin. New and adjusted fees In addition to setting up processes to accommodate the provisions on the pecuniary penalties and IAT, Cashin notes that insurers will need to accommodate an array of new fees and adjustments to existing ones after the June transition. The application fee for approval of the appointment of a controller such as a managing director or a chief executive officer, a director, or a key person in control functions will be HK$18,000 (US$2,300) per appointment, while the notification fee for such appointments will be HK$5,000 (US$640) per appointment. There is a new notification fee to propose a person to become a controller – a person who alone or with any associate has 15% or more of the voting power at any general meeting of the insurer, says Cashin – either HK$100,000 (US$12,800) if the person has 50% or more of the voting power at any general meeting, or HK$50,000 (US$6,400) if the persona has less than 50% voting power. Finally, the initial authorisation fee to conduct either long term or general insurance business will now be the sum of a fixed amount at HK$300,000 – with different fixed fees for composite and captive insurers – and a variable fee derived from multiplying the insurance liabilities by a variable fee rate capped at HK$7m (US$900,000). Insurers will need to shoulder yearly incremental increases to the variable fee rate to a maximum of 0.0039% for the year 2022/2023 onwards. After IIA takes over the work of the OCI, the next stage for regulatory change will involve the new licensing regime for insurance intermediaries which will be introduced likely in late 2017 or 2018. “Preparations have commenced for the transition to a statutory licensing regime,” says Lloyd’s in Hong Kong. “Local

Insurers will need to accommodate an array of new fees and adjustments to existing ones after the June transition.

coverholders should be aware of this change and prepare in advance for the change in regime.” Currently, insurance intermediaries are regulated by the three local selfregulatory organisations, namely the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association for brokers, and the Insurance Agents Registration Board for agents. In taking over the statutory functions of the OIC and, eventually, the regulation of insurance intermediaries, IIA hopes to create a “new, independent, more holistic and effective regulatory regime to facilitate the sustainable development of the industry and to better protect the interests of policyholders.” “The establishment of the IIA is a big step forward for the insurance industry of Hong Kong. We look forward to collaborating with all stakeholders, including industry practitioners, to build the Authority and grow the insurance industry in Hong Kong,” says Dr Moses Cheng, chairman of the IIA. “At this stage, our priority is to engineer a smooth transition from the current regulatory regime to the new one, and get ready to meet the regulatory challenges and rising public expectations.” The next several months will also determine the new funding mechanism for the IIA. Lloyd’s says that the long-term target is for the IIA to be financially independent of the government. About 70% of its expenditure will be met by the policyholder levy on premiums for all insurance policies written by a Hong Kong coverholder or service company. The remaining 30% will be met by the various authorisation/ licence and user fees.

Premiums in Hong Kong

Source: Office of the Commissioner of Insurance 2016 Annual Report INSURANCE ASIA 21

analysis: pwc survey

Three in 10 CEOs are very confident that they will achieve revenue growth

What’s keeping insurance CEOs busy? Find out from PwC’s 20th CEO Survey, where 95 insurance CEOs in 39 countries participated.

espite soft premium rates, low interest rates, and subdued economic growth in many developed markets, insurance CEOs are optimistic about their own companies’ prospects. Over a third (35%) are very confident that they can achieve revenue growth over the next year and more than 80% are at least somewhat confident. However, insurance CEOs are acutely aware of the disruption and change facing their industry, the transformational impact of which is now evident in areas ranging from robo-advice to pay-as-you-go and sensorbased coverage. Concerns over regulation, the pace of technological change, shifting customer behaviour, and competition from new market entrants have continued to rise from their already high levels. When the impact is put Five most disrupted sectors

Source: PwC’s 20th CEO Survey

22 INSURANCE ASIA

Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace.

together, no other sector is facing as much disruption in these four areas. Keeping pace with these changes isn’t just a matter of new technology, but also how to be innovative and develop the customer intimacy needed to meet fastshifting market expectations, while continuing to drive down costs. And the pressure is heightened by competition from lean and agile InsurTech entrants, which can get closer to customers while still being able to undercut more established businesses on cost and price. Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace. The good news is that many insurers are rising to the challenge. Their readiness to embrace the new possibilities opening up in the marketplace is evident in the fact that 67% of industry leaders see creativity and innovation as very important to their organisations, ahead of other financial services (FS) sectors. Insurance CEOs are also ahead of the curve in exploring the benefits of humans and machines working together (61%) and considering the impact of artificial intelligence (AI) on future skills needs (49%). These developments and the capabilities that support them are key elements of the ‘fit for growth’ platform that will enable them to compete on cost, innovation and customer intimacy. Drawing on the CEO Survey findings, this report looks at how insurers can emerge stronger from another pivotal

analysis: pwc survey Economic policy, social and environmental health threats to growth

Source: Insurance CEO’s participating in PwC’s 20th CEO Survey

year in the strategic and operational transformation of the industry. What typifies the leaders is not how much they invest, but the culture of innovation that permeates the organisation. The front-runners also recognise that ‘customer intelligence’, along with the quality of the client insights and interactions that underpin it, is their most valuable asset and surest foundation for profitability and growth. Confidence, upheaval and competitive relevance Insurance CEOs’ optimism about their growth prospects remains strong, though they’re less buoyant than last year. Thirty five per cent are very confident that revenues will improve over the next 12 months (compared to 38% last year) and 39% are very confident they’ll see an increase over the next three years (compared to 52% last year). Apart from the market in which their organisation is based, the US is the country insurance CEOs are most likely to be targeting for growth, followed by China. While London and New York remain the most important commercial centres within their growth plans, Hong Kong has seen a notable rise up the rankings to third place. But insurance CEOs’ concerns over potential barriers to market entry and development are growing. Sixty per cent believe that it’s becoming harder to balance competing in an open global marketplace with trends toward more protectionist national policies. The cost and disruption of regulation continue to be industry leaders’ paramount concern. A massive 95% are at least somewhat concerned about the potential impact of over-regulation on their growth prospects, and 67% are very concerned, more than any other sector in the CEO Survey, including banking and capital markets. The need to implement so many regulatory reforms across so many areas has inevitably tied up management’s time and has made reporting more cumbersome. Compliance demands and costs also continue to rise, straining operational infrastructure and holding back returns. However, these are the unavoidable realities of today’s marketplace. Insurers that are able to build the changes into business as usual can gain a critical edge. And,

Industry leaders favour organic growth and joint ventures over riskier M&A as they look to boost returns, though more than a third are still planning some form of deal activity in 2017.

pressure on returns means there can no longer be a blank cheque for compliance costs. The ‘second line’ has to pay its way as part of an approach that shifts the focus beyond compliance to sharpening competitive advantage. Economic headwinds are another clear concern, along with the related impact of social instability and geopolitical uncertainty, all of which are likely to influence strategic growth decisions over the coming year. Industry leaders favour organic growth and joint ventures over riskier M&A as they look to boost returns, though more than a third are still planning some form of deal activity in 2017. And, while cost reduction is clearly critical, it’s no longer a route to profitability in itself. If the question were “are you planning to cut costs”, rather than “are you planning to cut costs to drive growth”, the likely response would be 100% as the margin pressures within the sector continue to intensify. The pace of technological change and related shifts in customer behaviour are prominent on insurance CEOs’ list of business threats to growth, though they also represent huge opportunities at a time when customer intelligence is emerging as of the main predictors of profitability and growth. Even if a business has a dominant market share, it will still need to get closer to customers and be able to customise products and services to their individual preferences. Rethinking disruption and innovation Cutting edge customer interaction and data analytics have enabled InsurTech businesses to set the pace in the marketplace, especially in relation to customer intelligence. Insurance CEOs’ concerns about competition from new entrants are notably higher than other FS sectors facing similar incursions from FinTech firms. The threat has been heightened by a fivefold increase in annual investments in InsurTech start-ups in the three years up to 2016, with cumulative funding since 2010 reaching $3.4 billion. We expect this to have increased significantly when we publish follow-up research later in the year. However, rather than being just a threat, the growing presence of InsurTech companies could open up valuable

Business threats to growth

Source: Insurance CEO’s participating in PwC’s 20th CEO Survey

INSURANCE ASIA 23

analysis: pwc survey Data and trust

Source: Insurance CEO’s participating in PwC’s 20th CEO Survey

opportunities for insurers and enable them to make the leap from incremental to breakthrough innovation. InsurTech partnerships can help insurers improve their processes and thereby strengthen efficiency and reduce costs. They also can help insurers improve their analysis of the huge amounts of data at their disposal, which can lead to better customer understanding, higher win-rates, and more informed underwriting. Customer intelligence is essential in realising these opportunities. It enables insurers to judge where customer expectations are heading and the kinds of innovations that can meet them. From an innovation perspective, this intelligence draws on scenario analysis of emerging trends and their potential impact on the one side, and close monitoring of the InsurTech and wider innovation landscape on the other. Armed with these insights, insurers can begin to forge an enterprise innovation model that looks at how to take advantage of the latest developments and bring in the talent and connections with innovators who can make this possible. So, how are insurers equipping themselves to compete? When insurance CEOs were asked what would be the one area they would most like to strengthen to capitalise on growth opportunities, digital and technological capabilities came out on top, followed by customer experience, reflecting the interconnectedness of the two. Most insurance CEOs are keen to stress the vital importance of creativity and innovation to their organisations. Our research shows that differences in management and culture are among the biggest impediments to closer ties between established insurers and InsurTech startups, but it is eminently possible for them to forge closer relationships. Rather than seeing the contrasting cultures as unbridgeable, there are opportunities to complement the long-term mindset of incumbent players with the creativity and agility of their InsurTech peers to create market shaping alliances. Data, digitisation and trust While digitisation and data proliferation are now central elements of insurance business, they bring increased cyber risk. Eighty one per cent of insurance CEOs are somewhat or extremely concerned about the impact on their growth prospects, on a par with banking and capital markets (82%). Given the volume of medical, financial 24 INSURANCE ASIA

More than 70% of survey respondents believe that it’s harder to sustain trust in this digitised world, but there is also a strong sense that the management of data is a potential differentiator.

and other sensitive policyholder information insurers hold, breaches could lead to a loss of trust that would be extremely difficult to restore. More than 70% of survey respondents believe that it’s harder to sustain trust in this digitised world, but there is also a strong sense that the management of data is a potential differentiator. Trust is central to the ‘promise’ at the heart of insurance business, which is why any erosion of trust is of such a concern to industry leaders. Regulatory developments such as the US Department of Labor’s new Fiduciary Rule on investment advice and advisor compensation provide an important opportunity to strengthen trust, as has been the case with comparable demands such as the UK’s Retail Distribution Review. The impact of the new Fiduciary Rule goes beyond immediate compliance by providing a catalyst for wider operational and structural changes in areas ranging from product rationalisation to data capture and protection. Accordingly, a compliance-oriented approach isn’t enough. Successful insurers recognise the importance of a strong corporate purpose and underlying culture that seeks to understand customer needs and put their interests first. Fit for growth – more for less Squeezing a few percentage point savings from slow, stretched and unfocused operations isn’t going to be enough to sustain competitive relevance in this disrupted marketplace. Growth comes from better capabilities, customer-focus and products – all of which require ongoing investment. The problem is that after all of the energy companies exert to reduce expenses, there is often little left over to spend on strategic initiatives. If cutting costs can’t in itself sustain growth over the long-term, then what’s needed is a much more fundamental transformation in strategy, innovative capacity and operational capabilities. The key aim would be to enable insurers to compete on price, while still keeping pace with the disruptive developments in the marketplace – in other words, being ‘fit for growth’. This includes the digital transformation that sharpens the precision of risk selection and pricing, and delivers more tailored and targeted client solutions at a fraction of the cost. So, how can insurers reduce costs, while

A diverse and efficient workforce is moving up the CEOs agenda

analysis: pwc survey strengthening productivity and boosting their growth potential? Productivity, price monitoring, tax efficiency and curbing claims leakage continue to be vital. The underlying trend is towards greater automation of routine tasks, which can not only reduce costs and improve efficiency, but also free up staff to devote more time to customers and higher value growth areas such as cyber risk insurance. Promising technologically enabled solutions include: • Using machine learning, advanced analytics, and sensor technologies to target clients, evaluate their needs, develop customised solutions, and price risk in real-time. The benefits include more focused sales and marketing investments, and more favourable outcomes for policyholders. • Automation and AI are already cutting costs by speeding up routine underwriting and providing a more informed basis for pricing and loss evaluation. The emerging opportunities range from equipment sensors to cognitive computing as insurance moves from compensating client losses to anticipating what will happen and when (predictive analytics) and proactively shaping the outcome (prescriptive analytics). • Robotics is rapidly reshaping the back office and reducing costs. Prominent examples include finance, where previously disjointed systems are being connected through simple new software. Advantages include allowing data to flow more easily around the business without the need for endless re-keying. Ensuring your workforce is fit for the future With a hybrid human and machine workforce set to be a key element of the fit for growth model, many insurance CEOs are keen to explore the benefits of humans and machines working together. Yet, less than half use HR analytics, even though this would improve their ability to anticipate changing circumstances and respond proactively. Diversity and inclusion are moving up the agenda as insurance CEOs look to broaden their talent pool and bring in the fresh ideas and experiences needed to foster innovation. Ninety four per cent of insurance CEOs are keen to promote talent diversity and inclusiveness,

Rethinking people strategies

Source: Insurance CEO’s participating in PwC’s 20th CEO Survey

Many insurance CEOs are keen to explore the benefits of humans and machines working together.

more than those in any other industry PwC surveyed. Yet, many women and other groups of people who are under-represented in senior management still face barriers to promotion. Policies alone won’t overcome them. What’s needed is a change of mindset that stretches from more agile ways of working to how targets are met and performance and potential are judged. Marking out the front-runners So how can insurers square the circle of innovation, cost control and customer intelligence and intimacy? Innovating to grow. The insurers that are turning disruption into opportunity aren’t looking at how to combat InsurTech, they’re playing an active part in its development. They’re developing enterprise innovation models capable of closely monitoring the latest trends in innovation and customer expectations. They’re actively partnering with start-ups, not just by funding them, but also by sharing insights from their market experience and providing a testing ground and access to market for new ideas and ventures. Aligning costs to strategy. The crucial priority isn’t costs that are cut, rather where to focus resources to stimulate growth and differentiation. The starting point is differentiating the capabilities that fuel profitable growth (‘good costs’ targeted for investment) versus lowperforming activities and inefficient operations (‘bad costs’ targeted for overhaul or elimination). Rethinking human capital strategies. Insurance is being transformed, and with it the talent insurers need to succeed, where they come from and what they want from their careers. Forward-looking insurers are developing new human capital strategies as they seek to develop more creative, adaptable and digitally-savvy workforces. The sources of talent will continue to broaden as industry boundaries blur, insurers enter new markets, and diversity is recognised as a competitive imperative. The way talent is deployed and managed will also continue to change as organisations strive to move closer to customers and working alongside AI becomes routine. From PwC’s 20th CEO Survey: Insurance findings report 2017 INSURANCE ASIA 25

analysis: Life insurance

More than 70% of consumers start the life-insurance information-gathering process online...

The digital spotlight is on life insurance Life insurers have been latecomers to the digital era, but that will have to change.

n the mid-1970s, 38-year old entrepreneur Charles Schwab started a revolution. He built a new kind of brokerage firm that offered discounted commissions and telephone self-service that gave customers the ability to buy their own stocks and bonds. He computerized the entire operation years before the big Wall Street firms, changing how the brokerage industry operates and how customers manage their investments. A similar upheaval is on the way in life insurance, which so far has been slow to embrace digital change. Life-insurance companies are still selling the old-fashioned way, broker to customer, instead of empowering people to make their own decisions and participate in the process. Moreover, insurance-policy sales are still laden with excessive face-to-face interaction and mountains of paper. But consumers in every sector now demand speed, relevance, and convenience, no matter what channel they use or what product they’re shopping for—and insurance is no exception. Every month there are more than a million Google searches for terms related to life insurance and seven million total visits to the websites of the top ten carriers—a sign of considerable online interest in life insurance. But consumers can’t search, evaluate, and purchase policies online as easily as they’d like to. While more than 70 percent start the life-insurance informationgathering process online, fewer than a third complete their purchase there. 26 INSURANCE ASIA

Insurancepolicy sales are still laden with excessive face-to-face interaction and mountains of paper.

To stay ahead of the digital revolution, carriers must take an omnichannel approach, providing compelling and relevant customer experiences no matter where their customers choose to interact. That takes a lot more than simply creating a mobile app. It requires a fundamental change in an organization’s operations and mind-set, affecting everything from the role of the agent to new, advanced, data-analytic capabilities. We see three distinct horizons along which carriers will have to execute: (1) modernization of all channels of customer interaction; (2) interconnection of channels to deliver an unbroken customer experience; and (3) creation of personalized products via analysis of the vast and everexpanding body of digital customer data. Horizon 1. Digitization—modernize existing channels We see several broad opportunities to modernize existing channels. First, the ability to insert life insurance into people’s daily lives and to use life events as triggers for purchase should be one of every carrier’s top priorities. Fortunately, opportunities already exist. People post about life events on social media and search for information about life insurance. Carriers simply need to utilize tools such as social-media listening platforms to identify touchpoints and launch initiatives to reach out proactively to potential customers. The second opportunity is in redesigning and

analysis: Life insurance automating interactions so that customers don’t wait 30 days for responses or abandon carrier websites because they are outdated or difficult to navigate. Carriers should apply technologies such as click-to-call, cobrowsing, and live video chats that allow customers to interact on their own terms. E-signature can remove some of the hassle of paperwork. Such innovations will not only improve the customer experience but create opportunities to achieve greater operational efficiencies. QNB Finansbank redesigned its loan-application process to service existing customers through the company’s mobile application. This overhaul of what had been a paperbased process allowed customers to go from “discovery to approved loan” in less than a minute, a benefit for both the company and the customer. Finally, carriers can use existing technology to digitize agents’ daily lives. Customer information and interactions can be managed digitally through CRM tools, and advanced analytics can translate the resulting data into insights into how agents can improve their sales techniques. Horizon 2: Differentiation—deliver a great customer experience Exceptional customer experience can create a powerful competitive advantage. To deliver it, carriers need to develop a deeper understanding of their customers beyond just basic demographic information and web habits. They need to make use of quantitative and qualitative insights into customer behaviors, pain points, motivations, and aspirations, based on individual customers or through the development of “target personas,” i.e., a hypothetical amalgam of qualities and behaviors that represents a given customer segment. Such customer intelligence should be brought together in an “insights repository” that links, for example, activity on social media, purchase transactions, online behavior, household financial details, and demographics. Technologies to do this already exist. Companies such as Pega Systems and ClickFox offer applications that track

... but fewer than a third complete their purchase there

But while some customers can be served with bots and online self-services, many will prefer to rely on advisors to help them with complicated financial planning and to sort through their best individual options.

customers across many online and offline channels, blending data from multiple sources to create a unified view of varied customer segments. Once a unified view of customer segments is in place, carriers can more accurately assess customer needs and appropriately personalize interactions in a way that will delight. Certain customers, for instance, will appreciate being able to use remote and/or robo-advisory models (e.g., online chat features). Leading financial-services institutions are embracing chat-bots such as Facebook Messenger or scheduling solutions such as appointy. com, which allow customers to schedule meetings with advisors. But while some customers can be served with bots and online self-services, many will prefer to rely on advisors to help them with complicated financial planning and to sort through their best individual options. Here, digital tools can work on the back end to help the advisors, allowing them to sift through policy options easily, combine various offerings, and quickly match them to customer profiles. Ideally, an insights-based profile will include a given consumer’s prior relationship with the company—whether they have had other kinds of policies, have registered for information, or made initial inquiries, etc. Horizon 3: Disruption—use data to create personalized products and services In the next five to seven years, the most disruptive and successful life insurers will be those that excel in developing products, services, and consumer-facing digital experiences that are driven by customer needs and preferences. There are four ways that such products and services can be personalized. The first is risk coverage. The choices will no longer be between term life, universal life, or whole life but a selection of the products that best reflect a customer’s current life stage and risk appetite. Secondly, offerings can be personalized through the touchpoints that can best reach a customer at a specific moment. For instance, new parents who are searching online for nursery furniture could be offered a dynamic policy that enables short-term savings for specific goals, such as health emergencies or college savings, and then converts to a retirement-savings vehicle. The banking and retail industries have already started down this more personalized opportunity path. Thirdly, the messages themselves can be customized based on a customer’s needs and aspirations. Life insurance is fundamentally about the trust customers have in a carrier. Marketing messages should build upon this emotional connection and enhance the sense of the carrier’s empathy with its customers. Finally, personalized pricing can be tailored to a customer’s behavior, usage patterns, and loss-mitigation needs. This is already happening in the pricing of personal auto policies in the US. To enable such a sophisticated tailoring of offerings, carriers will need to invest in several new capabilities: first, the ability to use data capture and analytical tools to flag customer life-stage changes and events; then, a customerinteraction engine capable of pinpointing touchpoints and INSURANCE ASIA 27

analysis: Life insurance

Advisors must be involved in the development of digital tools

responding in real time to what companies learn about prospective customers as they go through their buying journey; and finally, a product factory that creates custom offerings and bundles based on customer behaviors, usage patterns, and pricing preferences. Overcoming three main challenges Any company in any industry that wants to succeed at digital innovation and omnichannel mastery must have a laserlike focus on the customer rather than the channel, the organizational agility that arises from smaller teams, and a test-and-learn approach with real customers. They must also commit to dropping ideas that aren’t working, investing in those that do, and creating key performance indicators that will drive value. Insurers, however, confront three additional challenges. The first is a lack of conviction that change is imminent and they must get ready to respond to it. It’s understandable, given the slow pace of innovation within the industry, that even executives who acknowledge change is coming feel they will have ample time to react once it starts. But the reality is that development of the capabilities for a successful digital transformation can take significant time, and savvy leaders will start building them in advance. For instance, there is already a war for talent. Insurers should be investing substantial resources in developing an organizational culture with digital knowhow and a mind-set that will attract people who are able to execute a transformation when the time is right. Allianz, for example, is investing—€650 million—in developing next-generation digital capabilities to support more than 85 million customers. Carriers need to ask themselves: If we’re not investing like Allianz, will we be competitive in the future? The second organizational challenge is advisors’ resistance to company efforts at customer-relationship management (CRM). Customers are advisors’ lifeblood, and reluctance to share them with the company is understandable. For this reason, leadership needs to continually and clearly articulate the reasons for—and the 28 INSURANCE ASIA

Any company in any industry that wants to succeed at digital innovation and omnichannel mastery must have a laserlike focus on the customer rather than the channel.

benefits that accrue from—any change or new technology, particularly its time-saving value and its potential for adding customers and increasing income. Even more important, every company initiative should take into consideration the behavior and motivations of advisors in the field. Indeed, the advisors should be thought of as “internal consumers.” It is crucial to involve them, for instance, in the development of digital tools. They are the ones who will be using them or interacting with the customers using them, and they can provide valuable feedback on whether they are useful or how they might be improved. The third and final challenge for insurers is the existence of legacy IT systems that don’t translate particularly well to an omnichannel and digital world. We recommend a staged approach to accelerate IT integration and foster the development of omnichannel solutions. It starts with a pilot program whose goal is testing and learning. It may require manual input of data by IT staff. Next, a minimum viable product is evolved to a more scalable level, eliminating the manual effort. Throughout the process, a programming interface is used to move more and more data from legacy systems to strategic and reusable components, ultimately leading to a service-based strategic solution. Although legacy systems may never go away, they can be wrapped in new front-end and intermediate systems that communicate with older technology in a way that enables the new and improved omnichannel customer experience. Just as consumers have fundamentally changed, so too will the life-insurance business. Carriers who do not act to transform their interactions with consumers and put customer experience at the heart of their organization will find themselves relegated to selling undifferentiated products that not many customers are eager to buy. In the end, digital life insurance is less about technology and channels than about embracing a new way of thinking and working. This article was originally published in McKinsey Quarterly, www.mckinsey.com/quarterly. Copyright (c) 2017 McKinsey & Company. All rights reserved. Reprinted by permission.

Manual input of data by IT staff might be necessary in a staged approach towards IT integration

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OPINION

singh and naujoks Can insurers deliver more value to customers?

rom tracking drivers’ braking behaviour, to installing wearable devices on factory workers, to funding medical advice mobile apps, many insurance companies are trying to become more present in their customers’ lives. They know that earning greater loyalty will require interacting more with their customers and delivering more value as well. Insurers are finally paying attention to this customer-centric approach as an alternative to the traditional internal focus on products, agents, and in-year financial considerations. Many insurance executives realise that a business built around customer advocacy can improve their economics. Customers who are loyal promoters of their insurers stay longer, buy more, recommend the company to friends and family, and usually cost less to serve, a Bain & Company analysis shows — with the mix of these forces dependent on the particular market and type of insurance. Bain’s recent survey of 164,421 consumers in 19 countries, through Research Now, sheds light on the dynamics behind loyalty in P&C and life. The survey analysis, together with our client work, suggest three important themes for insurers to keep in mind as they build out a customer-centric distribution and service model. Get closer to the customer Being in touch more frequently with consumers contributes to loyalty, in both the life and P&C sectors. Interactions that are complex and attract more multichannel behaviour, such as getting advice and a quote on a life insurance product, have the biggest potential to delight customers. But even raising the number of simple digital interactions can advance the cause of loyalty. As a bonus, each interaction enables an insurer to learn more about the individual consumer and sets the stage for customised future offerings. Digital tools, moreover, expand the universe of possible interactions, including services that extend well beyond traditional insurance coverage. A large group of consumers in our survey — 64% in the US — expressed interest in such services. An even larger group are willing to share personal financial, health, or other data with insurers. Some insurers are starting to create an ecosystem of services that customers value, with emerging initiatives taking many forms. For example, AIG has invested in Human Condition Safety, a technology start-up developing wearable devices, analytics, and systems to improve worker safety. These tools help workers, managers, and worksite owners prevent injuries in manufacturing and construction. Accelerate the mobile channel Customers want to use whatever channel is convenient to the moment, whether that’s via a website, an in-person meeting, phone call, or a mobile device. The share of consumers using digital channels to complement other channels keeps growing — between a third of consumers in Hong Kong and two-thirds in China now use digital channels when purchasing a P&C product. 30 INSURANCE ASIA

Harshveer Singh Partner Bain & Company

Henrik Naujoks Partner Bain & Company

Some of the most creative and promising mobile apps originated in China. Ping An, one of China’s largest insurers, launched the first online financial management service in China in 2009, linking customers to dozens of insurance, banking, payments, and airline sites. More recently, it built a mobile platform called Ping An Good Doctor that now has 77 million registered users and more than 50,000 doctors on board. Expand your share of wallet One of the most effective ways to retain more customers is to sell them more products that address their individual needs. Customer churn drops sharply as an insurer sells customers another one or two products, our survey finds. And many insurance firms have ample room to expand their share of the customer’s wallet. A large share of life insurance customers, particularly in Asia, expressed a need for more products or more coverage and would likely buy from their primary insurer. Finding profitable growth through current customers typically is less expensive, with a higher return on investment, than acquiring new ones. Consumer sovereignty has only grown stronger, with choices for less expensive insurance coverage just a few clicks away. But most consumers don’t want to defect. To the contrary, they often want to simplify their lives and do business with a single company that gives them reasons to stay. For most insurers, then, reigniting organic growth involves a heightened focus on earning customers’ loyalty by understanding their needs, interacting with them more intensely, and delivering more value in the core insurance offering and beyond. Harshveer Singh and Henrik Naujoks are partners in Bain’s Global Financial Services practice. They are based in Singapore and Zurich, respectively, and can be reached at harshveer.singh@bain.com and henrik.naujoks@bain.com. Customers would value a platform for services beyond insurance coverage

Customers would value a platform for services beyond insurance coverage

Share of customers saying they would value a platform for services in four areas

Share of customers saying they would value a platform for services in four areas 100% 80 60 40 20 0

Mexico

Brazil China

Indonesia US

Poland

Canada

Spain

Malaysia

France

Singapore

Switzerland Australia

Italy

Germany Hong Kong

Japan South Korea

Auto

Home

Health

Life

Such as monitoring driving behavior, platform to buy or sell cars, getting advice on auto repair shops, antitheft services

Such as advice and discounts on home monitoring systems, recommendations for repair providers, real estate sales, flood monitoring

Such as health advice and monitoring, fitness-plan provider, doctor recommendations

Such as health advice/monitoring, estate planning and legal advice

Source: Bain/Research Now NPS survey, 2016

OPINION

Simon Phipps

Driving insurance transformation with strategy-aligned M&A

isruption is shaking the fundamentals of the insurance industry. This is true structural change, not just a cycle. New technologies, new competitors, new markets, new regulations, and changing consumer behaviours are all creating tremendous opportunities, and posing significant risk to the legacy insurance business model. To succeed in this dynamic environment, organisations are reevaluating their portfolio of business and rationalising their global footprint to strategically determine “where to play” and “how to win” in the future. One of the immediate consequences of this trend is the expected rise in deal activity in the global insurance industry. Industry participants are increasingly getting more strategic about their inorganic growth initiatives. Traditional approaches to mergers and acquisitions (M&A) which have been largely reactive to immediate deal opportunities, are no longer sufficient. Insurance executives and their shareholders expect their investments to drive transformation within their organisation over the long-term, rather than deals that could be financially accretive in the short-term but are not sustainable. To find out how this shift towards strategy-aligned M&A is influencing deal activity in the insurance industry, KPMG commissioned Mergermarket to interview 200 insurance M&A decision-makers across all segments and regions. We asked about their M&A plans for 2017 and beyond, about their alignment with corporate strategy, and about their current capabilities and initiatives to successfully execute deals in this environment. What we heard suggests that organisations are recognising the need to reevaluate their business and operating models and, as a result, redefine their M&A ambitions and appetite. To get this right, however, insurers will first need to take pause, look at their overall strategic vision and objectives. They will need a deeper understanding of how they want to serve their customers and what propositions they want to offer. Only then should they consider what role their deal-making activities will play, balancing what they will need to buy or sell, against options to build, rent, or collaborate. In The New Deal, we explore the trends shaping today’s M&A insurance landscape, and the need for greater alignment between corporate development, M&A activities, and corporate strategy. As insurers formulate their M&A strategies for the year ahead, we believe the following trends will shape deal activity: Cross-border activity will increase as insurers worldwide seek to diversify their geographic risks and earnings profile. With stagnation in global economic growth and changing geopolitical risks across the mature and emerging markets, insurers will look beyond their domestic borders to buy or sell assets abroad. Portfolio rationalisation and strategic repositioning of businesses by larger insurers is expected to drive global M&A activity. Divestiture of non-core business segments in strategically non-core geographies is expected to be a key driver for increased deal activity. Greater alignment of corporate strategy and M&A objectives will

Simon Phipps Partner, Insurance KPMG China

provide an edge to buyers as competition for deals rises. Creating a robust, strategy-aligned M&A plan of action would provide rationale for pursuing strategic-fit targets with higher deal premiums. This will result in better deal outcomes over the long-term, versus a reactive approach to pursuing any or all deal opportunities that present themselves. The hunt for innovation will increasingly shape insurers’ rationale for doing deals. Companies with a strong digital model and startups with advanced technology will attract a multitude of willing suitors as legacy companies seek to transform their business models through acquisitions. Asia in the acquisition cross-hairs On a regional basis, our data suggests that insurers are much more focused on finding potential acquisitions in Asia Pacific. The emerging markets of Indonesia, India, China, and other countries remain largely untapped in terms of premium density — low levels of insurance premium per capita combined with large domestic populations present significant opportunity for additional scale in the medium to long-term. There are significant coverage gaps across the region, making these markets prime targets for insurers looking to diversify and grow. Given current expectations for regional urbanisation, poverty reduction, and innovation, many expect the region to become a hotbed for M&A activity over the next few years. Players from different Asian markets will respond to the new market dynamics in different ways. The more mature Asian economies, including China and Japan, will likely continue to bolster growth through outbound investments in North American and European markets. Japanese insurers, who are challenged with domestic growth, will continue to seek cross-border acquisition opportunities in order to diversify their earnings and risks. Chinese insurers continue to look to the US and other mature markets to gain access to know-how and capabilities in support of domestic expansion. It is becoming increasingly clear that, rather than simply jumping at opportunities, insurers are beginning to think far more strategically about the rationale behind the deals they make. These are interesting times, let’s see what the rest of the year brings. INSURANCE ASIA 31

OPINION

GEORGE KESSELMAN Insurance innovation labs, a failed experiment

espite significant investments made insurance innovation labs have largely failed to deliver impact beyond positive initial PR stories. Why is that the case and how can it be fixed? Recent years has seen insurance industry leaders globally waking up to reality that the dream of industry being insulated from the digital revolution sweeping across many other industries was just that, a dream. With a heavy baggage of legacy IT systems and rigid corporate cultures, incumbents found themselves in a tough situation. What’s the best way to prepare for upcoming disruption without meantime hurting your existing business. Innovation labs appeared, at least initially, like a perfect answer. In-house innovation that brings the right ingredients to allow for a safe digital experimentation without causing disruption to the existing businesses. The expectation was that innovation labs would become a quasi-startups that would allow insurers to build digital and innovation capabilities to safeguard against the coming digital disruption. What started off with MetLife setting up LumenLab in mid-2015 have now grown into 10 labs in Singapore alone. Having done an extensive exploration with the labs as well as in-depth dialogs with insurance business leaders, our conclusion is that most labs have managed to deliver only very limited digital innovation and are generally perceived as ineffective by their business leaders. Labs are stuck So why, despite hiring digital-native entrepreneurial talent and supporting them with substantial financial investments, have the labs not delivered on the innovation promise. The answer is simple: labs are stuck! Desperate the expectations placed on them, they are not given enough independence and ability to take risks. On one side labs have management of their local insurance businesses. The management focused on delivering business-as-usual targets and view labs as a “pet” project. A CMO mentioned to us that while he’s interested what innovation can do for the business, he has no idea what their innovation lab in the same city is working on… On the other side, labs do not carry a Profit and Loss (P&L) responsibility and are not allowed to freely compete by taking and scaling business concepts in an open market. This has resulted in a disconnect between labs and their businesses and a corresponding mutual frustration. To get the labs unstuck insurance industry needs to recognise that innovation is notat all a linear exercise and in fact involves a lot of risky fail-prone experimentation. The experimentation and corresponding failure that is native to startups. At the sametime its important to acknowledge that innovation currently goes against the very DNA of most insurance organisations and it will take some time for that to change. Tget the labs unstuck we need to start

32 INSURANCE ASIA

george kesselman CEO and Founder InsurTech Asia

Insurance Innovation Centres in Asia

Source: InsurTechAsia

to be fair to them and let them focus on their strengths: Step 1: Stop asking Labs to create digital innovation. While in its current setup labs struggle with creating innovation they have unique strengths of being close to both the world of InsurTech startups and world of insurance corporate. Therefore, its logical for them to take on a role of innovation bridge to startup ecosystem. A lab would mean a SWAT team of ﬁve innovation ninjas. Step 2: Engage Startup Ecosystem. Startups have a lot of complimentary strengths. Unlike vendors who deliver on business requirements, InsurTech startups can take on the risk of experimentation, failure and to some degree regulatory risks.Given an opportunity they do the heavy lifting of creating innovative concepts, iterating it to achieve product-market ﬁt and scaling those up rapidly. There’sunfortunately very little in a way of shortcuts with the ecosystem and cultivating a reputation of a fair contributor to an ecosystem is an important asset for an organization who is serious about innovation. Step 3: Start experimenting, on a smaller scale. Proof of concepts and rapid pilowith startups are a good way to start building an experimentation, collaboration and problem solving mindset within an organisation. Innovation is as much about grid as it is about creativity, risk tolerance and technology expertise. In summary, insurance innovation labs are an experiment that hasn’t yet delivered. This presents a clear opportunity to learn and redesign them based on the experience of past two years to leverage labs natural strengths to maximise their impact.

What needs to be done to get the labs unstuck?

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