This presentation has been prepared for the 2016 General Insurance Seminar. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.
Building the world s biggest insurer (without capital) Weihao Choo, Vincent Chen This presentation has been prepared for the 2016 General Insurance Seminar. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.
Agenda Recent disruptions What if insurance worked differently? Pre-requisites Final remarks
RECENT DISRUPTIONS
You would have seen these disruptions World s largest hotel chain which does not own property >2 million listings in 34,000 cities over 191 countries as of 2016 Reference: http://blog.airbnb.com/airbnbandchina/ World s largest taxi company which does not own taxis 1 million trips daily in >250 cities across 53 countries as of 2014 Reference: http://www.forbes.com/sites/ellenhuet/2014/12/17/uber-says-its-doing-1-million-rides-per-day-140-millionin-last-year/#4a6ac1907a68 World s largest professional network without hiring professionals (excluding developers of the platform) 467 million members in over 200 countries as at 2016 Reference: https://press.linkedin.com/about-linkedin
These companies have leveraged on third party or collective resources without owning or controlling them Technology was an important enabler for these companies to implement their operating model and to grow These companies have successfully introduced an innovative operating model in traditional industries
Innovations in insurance New coverage Add-on features Product Robotics / AI Machine learning Supply chains Policy and claim ops Distribution Digitisation Aggregators
What about InsureTech? Group policies / P2P Insurance on demand Other
Observations: Insurance product is (generally) fundamentally unchanged Money is pooled from policyholders and shareholders An insurer manages and invests the money pooled Set of processes, governance, and regulations are imposed Current gaps: Resources in insurance networks are still not utilised optimally Technology has not been applied or adapted to its fullest potential Operating model of insurance has largely remained unchanged
WHAT IF INSURANCE WORKED DIFFERENTLY?
What if insurance worked like this Homes, cars, skills and other resources Resources are drawn from the network in an accident Car repairs Medical support Temporary transport A member has a car accident Replacement cars Money (residual) Members contribute resources according to their strengths Assets Property Capital Actuarial Assets Property Capital Actuarial Motor vehicle IT Motor vehicle IT form a network Medical skills Mechanical skills Legal Skills Medical skills Mechanical skills Legal Skills
Concept of economic value Resources and skills Diverse + homogenous networks Resource transfers are facilitated seamlessly Money Assist in determining level of economic value contribution Driving Property Skills Reliability Members and resources rated in an automated and decentralised way Claimants select services based on ratings Money has a secondary role when there s a claim and balances the network after the end of each period
What are the benefits? Increased participation members in the network participate and share resources even when they do not have an accident Improved transparency members have visibility in amount and type of resources being consumed within the network Increases penetration the economically or socially disadvantaged are able to leverage on their individual strengths Economically efficient direct resource transfers between members Beyond insurance resources can be efficiently utilised or shared based on this platform
Implementing sharing economy concepts into insurance How it works Characteristics Implications Pools nonmonetary resources Creates networks Sharing economy principles Matches resources optimally Scalable Decentralised Economically optimal World s largest Without capital
Pre-requisites 1. Shift in consumer preferences away from centralised institutions and towards sharing economy 2. Increase online capturing and sharing of individual attributes and asset details 3. Developed technologies enabling and/or enhancing human and asset connectivity 4. Establish infrastructure facilitating seamless resource transactions
1. Shift in consumer preferences away from centralised institutions and towards a shared economy Attitude towards existing institutions: EY s Global Consumer Insurance Survey 2014 shows that banks are trusted more than insurers surprising especially given banking s reputation after the financial crisis! Changing consumer preferences: Almost 80% of companies say their customers are changing how they access goods and services Increasing reliance and trust in user based reviews: EY s consumer on board report: 172,000 blogs are created every day, 34% of bloggers post opinions about products and brands, 90% of consumers trust peer recommendations, while only 14% trust advertisement. By 2014, 88% have read reviews to determine the quality of a local business (in US) and 85% of consumers said they read up to 10 reviews
1. Shift in consumer preferences away from centralised institutions and towards a shared economy Rise of the sharing economy: A survey carried out in Dec 2014 shows that around 44% of Americans are familiar with sharing economy Technology has reduced transaction costs, making sharing assets cheaper and easier than ever The trend has been disaggregating physical assets and consumed as services Changing demographics: 25 YEARS FROM NOW, CAR SHARING WILL BE THE NORM, AND CAR OWNERSHIP AN ANOMALY. - Jeremy Rifkin, Author and Economist
2. Increasing online capture and sharing of individual attributes and asset details Increase in internet usage: Around 40% of the world population has an internet connection today. In 1995, it was less than 1%. The number of internet users has increased tenfold from 1999 to 2013. The first billion was reached in 2005. The second billion in 2010. The third billion in 2014. Rise of the social media: Almost 50% of consumers now access social media every day 1.8 billion Facebook users, 317 million twitter users, 500 million Instagram users Facebook is home to more than 40 billion photos LinkedIn memberships
2. Increasing online capture and sharing of individual attributes and asset details Digitisation of information ehealth - centralised digital health records Integrated digital hospital - Automatic feeds which transfer key elements of patient data directly from monitoring systems to the electronic medical record (EMR). National Health Service (NHS) in England is working towards digitising health records by 2020 MyGov integration of government services and data Launched in 2013 as a portal to access Centrelink, Medicare, Child Support, Department of Veteran Affairs, e-health, and DisabilityCare accounts Other : Digitisation of criminal records, legal records, driving records, Digitised ownership records property, motor vehicles, valuables Information repositories Brolly - collecting historical and real-time content on social media (Facebook, Twitter, YouTube and Instagram)
3. Developed technology enabling and/or enhancing human and asset connectivity Enhanced sensors and gadgets Between 2007 and 2012, mobile sensor consumption grew from 10M units to 3.5B units. Current applications supported by large number of sensors: Advanced cars have close to 100 sensors. Smart homes use up to100s of sensors. Smart phones use now up to 18 sensors. Medical diagnostics uses 10s of different sensors, which will be migrating to personal use Further integration of digital world into daily lives Connected cars and smart homes Smart clothing Internet of things By 2022, a typical family home could contain >500 smart devices - Gartner Sensors and gadgets are digitising lots of information that was previously unavailable Information captured has gone from scare to superabundant
4. Infrastructure facilitating seamless and optimal resource transactions between people Digital transactions are fast becoming the norm: The global growth rate for non-cash payments should rise from 7.6 per cent in 2013 - the latest year for which data is available - to 9 per cent in 2014, according to Capgemini and Royal Bank of Scotland. Aussie consumers make more than 300 non-cash transactions a year per person Resource transactions are on the rise: Hospitality and Dining: CouchSurfing, Airbnb, Feastly, LeftoverSwap Automotive and Transportation: RelayRides, Hitch, Uber, Lyft, Getaround, Sidecar Retail and Consumer Goods: Neighborgoods, SnapGoods, Poshmark, Tradesy Media and Entertainment: Amazon Family Library, Wix, Spotify, SoundCloud, Earbits Micro-skills Airtasker
4. Infrastructure facilitating seamless and optimal resource transactions between people Development of blockchain based smart contracts: In a nut shell: Automatically implementing terms of multiparty agreements, executed by a computer network that uses consensus protocols to agree upon the sequence of actions resulting from the contract s code Recent developments: Smart contract VC-related deals totalled $116 million in Q1 of 2016, more than twice as much as the prior three quarters combined and accounting for 86 percent of total blockchain venture funding The Australian Securities Exchange is developing a blockchain-based post-trade solution to replace its current system Five global banks are building proof-of-concept systems with a trade finance and supply chain platform that uses smart contracts An Ethereum-based organization has raised over $150 million to experiment with and develop smart contract-driven applications
Final remarks
Other considerations Which products can be covered? How to determine an equitable approach in the level of economic value required per person? If capital is allowed to be reduced, how do you determine an equitable approach? What happens if there is a catastrophe? How is labour allocated? Should there be competitive bids? How to regulate such an organisation? How about the non-working population (children, retired)?
How much are you willing to share?