Direct to Consumers Challenges in the Asian Market Adrian Cheung 8/10/2014
Agenda 1. Overview of motor insurance market and distribution... 3 2. Customers.... 8 3. Products/pricing..15 2
Agenda 1. Overview of motor insurance market and distribution 3
Motor insurance market dominated by agents but growing direct sales - Motor insurance market in Asia except South Korea is predominantly distributed by agents, brokers and car dealerships South Korea with an internet penetration of 80% generates more than 20% of premium online China has embarked in its direct revolution with internet penetration growing following initial successful outbound call centre In Singapore, Direct Asia started in 2010 following AVIVA, a few companies like NTUC have developed online selling capabilities (multi-channel) and emergence of aggregators like Compareexpress.com In HK, Pingan launched its online business in 2011 followed by Direct Asia in 2012 In other markets, direct sales are not material due to low internet penetration, motor insurance not compulsory (Indonesia) 47.0 2010 Motor Premium (USD$Billion) 14.5 5.3 4.0 2.5 2.0 1.0 0.9 0.4 0.4 China South Korea Taiw an India Thailand Malaysia Indones ia Singapore Vietnam Hong Kong 4
UK distribution of motor insurance: Dramatic evolution to direct/online Dominated by brokers up until 1991 Gradual reduction in market share by brokers to about 28% of GWP by 2009 1985 Direct Line first direct insurer 1995 Admiral first direct insurer with internet presence, Direct line (market share =10%) 2008: Distribution of motor insurance sales Source: EMB Pricing perspectives on an aggregated future 2002 Confused.com first aggregator 2006 Sharp uplift of online purchase 2008 Direct: 40% Aggregators: 40% - Based on Datamonitor reports, By 2010 Private motor insurance are sold mostly online except for older consumers More than 60% of customers will make use of an aggregator before buying Aggregator accounts for more than 40% of sales (about 15% are from broker/affinity via an aggregator website) The rise of aggregators has also seen a significant reduction in profitability 5
Other developed markets: less dramatic revolution to direct/online - In US, the direct revolution has been less dramatic than in UK. Based on comscore reports, In 2008, the direct market accounts for about 28% of the personal motor insurance market (compared to 4% in 2004) with an estimated 15% brought online Based on a survey, it was noted that there was a significant growth in number of quotes submitted online in 2009 21% increase compared to 2008 and this has remained fairly stable until 2011 However policies brought online continues to grow Year-on-year percentage change 2008 2009 2010 2011 Quotes submitted -1% 21% -3% 5% Policies purchased 8% 22% 1% 6% - Similarly in Europe, the direct revolution was less dramatic 6
What about Asia? - It took UK more than 15 years to move from an intermediary-dominated to a direct/aggregators-dominated market - It requires less than 10 years for South Korea to follow a similar evolution in the distribution of motor insurance - With increased accessibility to internet and other mobile technology, it is likely that it would take less time in Asia to follow similar evolutionary process HK: In 2013, Direct Asia has generated 0.7% of motor premium (1.4% of personal motor) China: Direct sales are booming either through online platform or third party price comparison websites Taiwan: Encouragement by regulators for online platform but limited penetration to date with insurers selling mostly non-comprehensive policies online SG: Aviva and Direct Asia have generated about 4.3% of motor premium Thailand: Emergence of aggregators such as GluayGluay 7
Agenda 2. Customers 8
Customers Buys Cross sells How much do we really know about our customers? 9
Agents/brokers can provide great customers insight but for direct??? Agents/brokers Direct??? - Information sharing particularly qualitative information & providing customer insights - Data quality may be poor policy & claims bordereau - Restricted ability to collect data need to be agent friendly - Right incentives critical to bring the right customer - We don t necessarily have a one to one chat with customers - But greater ability to collect more data and of different nature NEED TO BUILD THESE CUSTOMERS INSIGHTS 10
Customers source Marketing Strategy Online (new school) Offline (old school) Increasingly new ways to reach customers including social media & increasing new ways customers can buy insurance (omni-channel) What this means is more DATA, DATA & DATA to analyse 11
Developing customer insights Customer segmentation an example Geographical Demographic Internet & purchasing behaviour KPI Customer HK Islands 20% Kowloon 30% Male, aged < 25 20%. Male, aged >60 5% Price only, < 10 mins, single quote, monthly payments. All pages, >60 mins, multiple quotes, annual payment -Number of visitors -Number of quotes -Number of policies -Conversion ratio New Territories 50% - Key challenge: Building the IT infrastructure and the tools to analyse customers data - Long term: Move toward predictive modelling using GLM and other statistical techniques to assist marketing - Going forward, the coming generation might not be as willing to work as part of the agency business 12
Customers insights Improving customers experience The insights the actuary can develop in analysing new data can add significant value to Marketing -Web page designs -Effectiveness of marketing policy -Are we attracting the targeted segments? - Ultimately actuary can play a significant role in improving customer experience when buying insurance 13
Lifecycle of motor products Moving from intermediaries to direct Intermediaries centricity (commission) Shift towards Customers centricity (price and value proposition) Source: The Changing Landscape in Motor Insurance Business in Asia - A Snapshot of Innovations and Developments Adrian Cheung & Jack Jiang 14
Agenda 3. Products/Pricing 15
Intermediaries: product/pricing strongly influenced by intermediaries - In an intermediary context, Products are designed and pricing constructed with intermediaries in mind This places significant limit on questions that can be asked to customers and hence information that can be collected Actuaries are less involved with the price customer will face and generally tend to be restricted to technical pricing and/or assessment of price changes on top and bottom line Retention analysis are to some extent dependent on relationship with intermediaries Source: The Changing Landscape in Motor Insurance Business in Asia - A Snapshot of Innovations and Developments Adrian Cheung & Jack Jiang 16
Direct: reflecting your customers insights into your product/pricing Source: The Changing Landscape in Motor Insurance Business in Asia - A Snapshot of Innovations and Developments Adrian Cheung & Jack Jiang 17
Customer value/price proposition and willingness to shop Brand Conscious Customers Value proposition Highly price sensitive Customers behaviour: Consider only insurers that meet their criteria very limited range Significant price differences needed to switch Customers behaviour: May consider a fairly broad range of insurers Switch only if the price difference is substantial Customers behaviour: Consider insurers that generally meet their criteria But may consider alternative value proposition Will switch if alternative proposition is reasonable for the right price Customers behaviour: Will consider the broadest range of insurers Switch for small price difference Low Willingness to shop High 18
Customers willingness to try new technology and price sensitivity Relationship conscious Willingness to try new technology Technology driven Customers behaviour: Be unprepared to try online or new technology Will be prepared to stick with existing agents even if price difference is significant or the process is simple Customers behaviour: Will try online quotation Switch only if the price difference is substantial and the process is simple Customers behaviour: Unprepared to try online But may consider calling the insurer or any agents able to obtain similar price Will switch only if the process is easy and there is a contact person Customers behaviour: Will try online quotation or any new technology Switch for small price difference even if the process is fairly complex Low Price sensitivity High 19
Customer lifetime value - Investing in good customers Example - I will spend on average HKD60 per visit twice a week, which means that I will spend yearly HKD 6,240 - If I represent an average customer and an average customer will stick around for 20 years with 15% leaving each year, my lifetime expenditure is HKD 40K - If the net profit margin is 20%, Pacific coffee would have made HKD 8,000 - Reducing leaving rate from 15% to10% per year would increase the lifetime profit to HKD 11K 38% increase - Attracting the right customer initially can save significant marketing money with higher retention ratio - Initial challenge is the absence of data but price sensitivity and quality of service are key to retaining customer Over time customers tend to buy more and also more expensive products (cross selling) and referred more customers Cost of servicing customer is generally higher in the initial phase (acquisition period) Customer lifetime value Insurer Price & value proposition Significant marketing effort Insurer Limited marketing expenditure Insurer Price proposition Insurer Price proposition Limited marketing expenditure Propensity to buy 20
More data yes definitely but. Online competition is harder and the switching cost for customer is close to 0 Slow webpages, to many questions, unclear questions will get your visitors to immediately switch to another webpage SO THINK ABOUT YOUR CUSTOMERS & THEIR JOURNEY 21