Andesa Client Forum March, 2018 Proprietary and Confidential to Novarica, Inc. Proprietary and Confidential to Novarica, Inc. May not be used or distributed without our written permission. May not be used or distributed without our written permission.
Insurance and Technology in 2018 and Beyond Robert Mcisaac, FLMI, LLIF SVP, Research and Consulting rmcisaac@novarica.com Proprietary and Confidential to Novarica, Inc. May not be used or distributed without our written permission.
Preparing for change… The Gates Principle of Future Disruption “We always over -estimate the change that will occur in the next two years, and underestimate the change that will occur in the next ten.” - Bill Gates Proprietary and Confidential to Novarica, Inc. 3
Preparing for change… Looking back ten years to April 2007… Things that didn’t exist: • • iPad, iPhone, Mobile apps Direct online sales of commercial insurance as a viable concept • Hadoop, NoSQL • The idea of persistent low interest • Viable driverless cars rates in the United States • • “The Internet of Things” Widespread use of catastrophe bonds • More things than people connected to • Silicon Valley VCs who could spell the Internet insurance • Social Media (Facebook and Twitter barely a year old) • AI outside of the lab Proprietary and Confidential to Novarica, Inc. 4
Preparing for change… Insurers are flipping the Gates Principle Most insurers believe the industry will be radically different in ten years. But few believe it will be radically different in the short term. Likelihood of Real Change in 2017 High Probability Possible Low Probability Product changes driven by market or tech 23% 55% 22% Predictive analytics create material effects 18% 65% 17% Cyber-Security "Day Zero" Event 8% 73% 20% Digital competitors affect distribution 6% 58% 36% Regulatory changes affect operating model 55% 42% 3% 0% 25% 50% 75% 100% Proprietary and Confidential to Novarica, Inc. 5
Preparing for change… IT budgets and transformation investments remain low On average, insurers are devoting 0.81 cents of each premium dollar to IT transformation in a time of unprecedented change being driven by technology. Average Run/Grow/Transform Split Average IT Spending Ratios 2017 2011-2017 5% 3.8% 3.7% 4% 3.6% 3.6% 3.6% 3.5% 3.5% Transform, 22% 3% Run, 2% 52% Grow, 26% 1% 0% 2011 2012 2013 2014 2015 2016 2017 Proprietary and Confidential to Novarica, Inc. 6
Novarica Nine for 2018 “Novarica Nine” Internal External Factors Technology Capabilities IT Management Unbundling Data Security InsureTech Digital Talent Innovation Core Alignment Proprietary and Confidential to Novarica, Inc. 7
Unbundling Insurance is a simple industry. The insurance industry has one mission: use information technology to facilitate the transfer of risk from buyers to pools of capital. Pools of Capital Willing to Take On Risk People or Organizations For Profit or Self-Perpetuation with More Risk Than Capital Facilitate communication $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Package and analyze risk RISK $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Enable transfer of risk and money $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Distributors Primaries Reinsurers $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ These are all intermediaries Proprietary and Confidential to Novarica, Inc. 8
Unbundling Technology is enabling new information flows and disrupting the model. Each intermediary in the value chain is under increased pressure to justify its existence. Cat Bonds and Other Derivatives Distributor $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Programs $$$$$$$$$$$$$$$$$$$$$$$$$$$$ RISK $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Distributors Primaries Reinsurers $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Alternative $$$$$$$$$$$$$$$$$$$$$$$$$$$$ Distribution Start-Up/ Reengineered Carriers Reinsurer-Funded InsureTechs Proprietary and Confidential to Novarica, Inc. 9
Unbundling New questions can now be asked about the structure of the product and delivery • Is there a reason all these things need to come from the same provider? • Are there market segments that want Minimum some but not all of these capabilities? Required Risk Coverage Management • Are there easier, technology-enabled ways to deliver some of these capabilities? Additional Service Coverage • Are there other ways to monetize some of these capabilities? Advice Proprietary and Confidential to Novarica, Inc. 10
Unbundling New questions may yield new opportunities Easy- purchase “compliance” products Commercialized risk tools Minimum Required Risk Coverage Management Premium service levels Additional Service Stand- alone “add - ons” Coverage like umbrella or life product riders Advice Fee-only risk management like IFAs Proprietary and Confidential to Novarica, Inc. 11
InsureTech Predicting the Future of InsureTech InsureTechs will not… InsureTechs will… • • Put major insurers out of Raise the bar on: business • Customer experience and process efficiency • • Usage of analytics to drive product and Radically transform the market in the next two years processes • • All be in business two years Show how to expand the market by profitably from now serving underserved segments • Demonstrate how to incorporate emerging technology into key business processes • Be acquired by major insurers or services providers Proprietary and Confidential to Novarica, Inc. 12
InsureTech Examples from Previously Overhyped FinTech Categories Decade Trend Examples What the Industry Learned What Happened? Start-ups acquired by tech People like the convenience of online “Internet - Security First, providers or re-absorbed 1990’s banking, but online- only banks don’t Only Banks” Wingspan into major banks that have mass appeal. funded them. Some sold their tech, some People like online trading, bigger merged, some stayed Online E-Trade, 1990’s segment than previously understood independent and went Trading Ameritrade willing to trade advice for low prices. head-to-head with existing discount brokers. It’s possible to price loans using It’s still hard to sell loans. Innovative 2000’s OnDeck additional data/analytics beyond Some banks partnered to Lending credit scores. use models. Mobile-Only Mobile/Social banking has niche 2010 Simple Bought by major bank. banks appeal Proprietary and Confidential to Novarica, Inc. 13
InsureTech The ABCs of “InsureTech” “InsureTech” isn’t really a single category of thing. There are four main categories that serve very different purposes. Insurers should understand the potential values and threats of each different class of players Proprietary and Confidential to Novarica, Inc. 14
InsureTech Analytics Arms Dealers Big data analytics tools, AI start-ups, and data aggregators offer insurers new ways to access and analyze information. • Competing with traditional software Carpe Data (http://carpe.io), predictive and data vendors scoring for life, personal, and small commercial based on third-party and big • Likely to be acquired by them if they data. show traction Praedicat (http://praedicat.com), data mining and modeling to improve catastrophe liability modeling. Tyche (http://tycherisk.co), a 2015 Global Insurance Accelerator company focused on modeling litigation risk using big data. Proprietary and Confidential to Novarica, Inc. 15
InsureTech Beneficial Bots Drones, IoT, blockchain, and other new technology tools or platforms that can be leveraged to improve insurance processes and products. • May change the cost basis of some key Human Condition Safety dramatically, e.g.: (http://hpsafety.com), wearable technology to reduce worker injury. AIG is • Drones and offshore oil rig inspections a strategic partner. • IoT and equipment monitoring • Blockchain and… (TBD) Meshify (http://meshify.com), industrial Internet of Things, acquired by Hartford • Change in cost basis can change viability Steam Boiler/Munich RE. of pricing and products PrecisionHawk (http://precisionhawk.com), drone surveying company with insurance applications, USAA is series C investor. Proprietary and Confidential to Novarica, Inc. 16
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