Concurrent Session 2C: Taking a deeper look – helping independent board members navigate change...

Taking a Deeper Look

Taking a deeper look – helping independent board members navigate change and add value through constructive challenge

2© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

With you today…

Robert LewisPartner, Financial Services

+1 416 777 3929 [email protected]

Nazir ValaniPartner, Actuarial


Bill PremdasSenior Manager, Actuarial


Silvia Gonzalez-ZamoraDirector, People and Change for Financial Services +1 416 777 8123 [email protected]


How Ready is Your Company?


D

Product Design

Strategic Management

Capital

Reinsurance

Reserving

Risk selection &

pricing

Distribution

Claims Admin

Policy Admin

Investment Management

Back Office

Elements of an Insurance Company

Examples of new insurers


Lemonade and trōv

https://www.youtube.com/shared?ci=o4r_B5_tX1M





Example Case Study - LemonadeOffering A rated Peer to Peer insurer

Product Home and Renters Insurance for New Yorkers

Speed • 90 Seconds to obtain insurance coverage• 3 minutes for claim payment

Economics • A 20% administration fee charged by Lemonade• Lemonade carrier, together with reinsurance partners, use

remaining 80% to settle claims• Any surplus donated to charitable cause selected by

policyholders

Legal structure

Public Benefit Corporation

Novel feature

Using behavioral science to break distrust between policyholder and insurer


Example Case Study - trōvOffering • Pay as used insurance coverage for the “Things You Love”

Product • Treasured specified objects e.g. phones, computers, cameras, musical instruments etc.

Speed • All driven by mobile phone at a swipe of button

Economics • $10 billion of insured value• 1 million insured items

Legal structure

Backed by trusted insurance carriers

Novel feature

Focuses on specified products insured for required time fromaccidental loss and damage and theft

Links nicely with sharing economy with fewer treasured possessions and customers who focus on experiences

Implications for the ORSA


What is your TOM for five years time?Possible responses• Revisit strategy regularly in light of

developing market trends including regulatory changes

• Does business have deep understanding of the drivers of value and what could adversely impact the viability of the current business model?

• Does it have the right KPIs and KRIs for a rapidly changing world?

• Does business understand what the customers really value?

• What will distinguish insurer from its rivals other than simply price?

Issues• Is strategy for each element of the

insurers value chain clearly understood?

• Is the intention to be a trend setter or a rapid and agile follower?

• Does the company have a transition plan to move from current structure to intended future Target Operating Model?

• Build broad transition plan for how insurer intends to move from current structure to intended future state?


Do you have appropriate resources?Possible Responses• Realign Board roles e.g. Chief Digital

Officers, Social Media Teams etc.• Seek to broaden mix of Board skills

• Seek Director roles with Fintech firms

• Partner with Fintech and other disruptors to improve knowledge

• Board education programs and alliances with fellow insurers via trade bodies

• Strategic partnerships in areas where in-house expertise is lacking

Issues• Board Structure and Composition

issues – relevant skill sets for new world

• Directors require sufficient knowledge to provide robust challenge on strategy – how do you educate yourself and keep up to date

• Need to understand the key drivers of the business, how these are likely to change and what key metrics will need to monitored for the future


Does ORSA reflect TOM risks and challenges?Responses• Regular review of ORSA and Risk

Management Framework to ensure emerging risks are identified and responded to

• Ensuring emerging key metrics are identified, monitored and reported to the Board on a regular basis, and updated regularly as appropriate

• Formalized Data governance policies and procedures

Issues• Ensuring these emerging risks are

captured in Risk Management Framework and ORSA

• Respond to challenges of Big Data e.g. capturing, analyzing and storing data, and using it to generate meaningful outputs

Implications for P&C reserving


Case Study – Major Auto Insurer Case Auto insurer with a strong track record of profitability instigated a

number of changes to its claims process and management team.

Management asserted these changes had targeted an apparent increase in the speed of claims settlement and a strengthening in case reserving philosophy.Management asserted that an incurred projection would, because of these factors, overstate required IBNR.

Subsequently transpired that although speed of settlement had increased the mix of business had deteriorated with increased proportion of higher risk drivers

Outcome Significant strengthening required to technical provisions amid allegations of fraud by certain of management team members

Learning point

• How good is management information around book of business?• Skepticism of non executives in accepting management rationale?• Consideration of wider market trends?

Implications for life industry


Case Study – Medical underwritingCase Over time a UK based company developed a sophisticated

medically underwritten guaranteed income for life product

The product provides a higher income depending on the severity of the health conditions of the policyholder collected at the point of underwritingThis resulted in adverse selection for other providers of the same product which were rating on less sophisticated metrics

As the other providers re-rated their products to cope at a portfolio level it increased the attractiveness of the medically rated productto consumers

Outcome The incumbent players suffered a loss of market share and also lacked the same detailed life expectancy database built up by the new entrant making it hard to compete

Learning points

How will your company respond to such developments as new technology drives more specific pricing in your product space?


Case Study – VitalityCase A South African insurer has partnered with other insurers to launch

its Vitality product in a number of different territories including Canada.The product uses data and analytics and real time feedback to create a differentiated product from a standard term life product.

The product moves insurance beyond a simple transactional level by providing real time feedback and rewards to policyholders.

It also creates an alignment of interest between policyholder and insurer and by nature of offering is aligned to better profile risks for term life insurers.

Outcome In other markets where the Vitality product has been launched it has shown strong growth against traditional competitors.

Learning points

How can you reinvent your products to encourage greater alignment of interest and interaction with your policyholders.

The role of data analytics


Why Analytics? Emerging Tech Disrupts the Insurance Industry

A la Carte Content

New Products and Sharing Economy

New products emerge for which the provider takes on the collective risk, instead of the end-user (e.g. autonomous products; sharing economy)

Repositioning

BlockchainTechnology

Blockchain technology may be used to automatically pay-out on pre-determined conditions, authenticate identities or enable actual-time-used coverage

Disruptive

Behaviour-driven Models

The use of new technologies (e.g. Internet of things; social media; wearables) enables usage based insurance, dynamic pricing and improves risk-assessments and prevention

Improving margins

Data Analytics

With new technologies, including data analytics, wearables, socio-metrics, insurers innovate their risk pricing, portfolio management, analysis of claims and consumer experience

Improving margins

Peer-to-peer Insurance

Individuals create a shared platform to pool their premiums from which they pay out claims

Disruptive

Source: KPMG Analysis

http://etherscripter.com/what_is_ethereum.html

http://etherscripter.com/what_is_ethereum.html


How are insurers reacting?Shift to insight and foresight, but still primarily focused on hindsight

In our research study: Transforming Insurance

KPMG International saw that insurers are trying to make the best use of the vast amounts of data now available, and despite best intentions, nearly two thirds of respondents said they are still focused on the past, challenging ability to predict future outcomes and drive action.

We asked our clients:

Descriptive AnalyticsWhat happened?

Diagnostic AnalyticsWhy did it happen?

Comparative AnalyticsTo whom it happened?

Predictive AnalyticsWhat will happen?

Prescriptive AnalyticsHow can we

make it happen?

Hindsight Insight Foresight

+ +

What type of data analytics capabilities do you currently use?

69% 41% 51% 29%

The majority of insurers are still using descriptive analytics as their main approach

The majority of insurers are still using predictive and prescriptive analytics as their main approach

Role-based performance Metrics

Exceptions and alerts

Slice and dice queries and drill downs

Management reporting

Enterprise data management

DescriptivePredictive

and Prescriptive

Optimization algorithms

Simulation and modelling

Quantitative analyses


Case Study: Non traditional Operating ModelThis operating model uses a holistic view to Analytics including the Business Process and People Development:

Business Partners Council

Customer Insights and Analytics

Multi-Channel Campaign Management

Analytics Influenced Sales and Service Processes

External Partnership with Customer Insights and

Analytics

Customer Value

Insight Effectiveness Measurement

Marketing University Skill-set Development

Analytics Data Warehouse

Analytics Insight Training and Adoption

Specialized Roles (Info Mgmt., Delivery, Behaviour

Analytics, etc.)

Information Management & Analytic Insight Delivery

Business Process/Change Management

People Development

IT/ MDM

Data GovernanceData Collection Influenced

Sales and Service Processes

Analytic Skill Set and Education Requirements

kpmg.ca

© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Thank you

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Concurrent Session 2C: Taking a deeper look – helping independent board members navigate change...

Economy & Finance

Transcript of Concurrent Session 2C: Taking a deeper look – helping independent board members navigate change...