kpmg digital disruption in insurance · digital disruption in insurance: the contradictions of...

Digital Disruption in Insurance:The Contradictions of Threat and Opportunities

Joseph TegbePartner & Head, technology Advisory & Markets,KPMG in Nigeria

September 2019

Insurance Professional Forum 2019

kpmg

2

Outline

1. Digital Disruption “A Global Context”

2. Digital Trends in Insurance Business

3. Repositioning for the Digital Era

© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 9

01Digital Disruption “A Global Context”

© 2019 KPMG Advisory Services, a partnership registered in Nigeria 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.

Digital is the enabler of the changing industry landscapeDigital Disruption “A Global Context”

Disrupting Norms & Creating Value

Connecting People

Connecting Things

Transforming Processes


80% of the world’s most valuable businesses are digital businesses compared to 10% in 2010Digital Disruption “A Global Context”

Source: Wikipedia and Bloomberg – Sunday Sept 22nd 2019

9th

8th

7th

6th

5th

4th

3rd

2nd

1st

10th

329

316

256

246

213

210

209

200

194

192

1,065

984

852

887

541

408

511

475

347

305

Quoted values are in Billions of USD2010

20192010


Digital technology: here and nowDigital Disruption “A Global Context”

Fukoku Mutual Life Insurance

60,000

Packagesprocessedevery hour200k

Using robotic unloading systems, barcode scanning, automated vans and even drone deliveries

300KHours of legal word reviewing financial deals

after

Contract Intelligence AI system

1

500 Previously

employedwhere

Workers replaced

500k FTE’s to be replaced by 1 Million robots

30%Increased productivity

Jobs of 34 humans were replaced by IBM Watson Artificial Intelligence system


Source: Uber & Amazon valuation based on Bloomberg data as at 22 September 2019. Airbnb valuation based on vox.com 19/03/2019

Digital disruption across industriesDigital Disruption “A Global Context”

Founded: 1994

$887 billion

>95 million prime members

$55 billion

>91 million active users

Founded: 2009

$38 billion

>150 million users

Founded: 2008

Valued at: $43 billion

Founded: 1927

Founded: 1897

Valued at: $16.6 billion

Founded: 1962

Valued at: $336 billion


What do Global CEOs think about disruption ?Digital Disruption “A Global Context”

Source: KPMG’s CEO Outlook Survey 2019

67%

44%

54%

believe that acting with agility is the new currency of business

say they are upskilling at least half of the workforce in new digital capabilities over the next 3 years

of CEO’s say they are either modernizing the workforce or reimagining internal function as services in order to ensure their organization is future-ready


Digitalization forces executives across industries to answer essential questions from strategy to transformation

Digital Disruption “A Global Context”

How do I make better and faster

business decisions?

How can I enhance my business model to be more competitive?

How do I improve my spending and reduce

costs?

How can I best utilize technology to be proactive

and predict potential business issues?

How do I differentiate the business and connect

to my customers in a digital world?

How can I create value for my

shareholders?

How can I ensure collaboration across all

aspects of my business?

How can data help me look at my business in

new and innovative ways?

How do I optimize my distribution?

How do I improve user and

customer experience?


02Digital Trends in Insurance Business


Digital Technology is transforming the insurance value chainDigital Trends in Insurance Business

Product Design/ Development

Pricing/ Underwriting

Marketing DistributionPolicy Claims/ Management

• Robotics/ Telematics/ Internet-of-Things (IoT)/ wearables offer usage-based insurance opportunities

• Emerging risks such as cyber

• Social network insurance groups

• Use of Big Data/ analytics to identify new claim drivers

• Predictive/ Prescriptive underwriting techniques

• Artificial intelligence to hone risk assessment

• Position insurance as more customer-centric

• Increase frequency of interaction

• Use Big Data/ analytics for market segmentation & personalization

• Customers prefer multi-touch omni-channel interaction

• Less face-to-face engagement

• Scope for gains in efficiency in offline channels

• AI-driven Robo-advisors

• Use of Big Data to reduce fraud and improve claims processes

• Self-service apps to improve customer post sales experience

• Blockchain applications for smart contracts and claims administration

Dig

itis

atio

n


Some global players are already differentiating using digital technologiesDigital Trends in Insurance Business

Product Design & Development

Pricing / Underwriting Marketing Distribution Policy/ Claims Management

Glo

bal

Fizzy• Automated parametric insurance platform for delayed

flights using smart contract • Connects to global air traffic databases to monitor flight

status.• Policy pricing depends directly on the risk of delay and

cancellation, calculated independently for each flight by a custom pricing algorithm

Aviva Drive App• Aviva Dash Cam captures the road ahead• Smart collision detection for automatic detection of

collision• Discounts on insurance cover earned based on safety

score assigned from tracking the customer’s driving

Measure how you drive using the GPS

Receive driving score between 0-10

Get discounts on driving scores >3.1

Impact: Increased customer base

Impact:

Improved customer experience

1

1



Political

• Real-time risk analysis solution, to enhanceunderwriting processes for life insurances.

• Leverages Artificial Intelligence to analyse largeamounts of unstructured data (client photos) andassesses the risk associated to a client’ssubscription by predicting life events (mortality,morbidity, etc.) in real time



• Uses Big data for customer segmentation and calculation of customer lifetime value

• Allstate is continuing to develop machine learning and natural language processing capabilities which use this data to deliver an enhanced customer experience

Impact:

Trend analysisOn blocks of insured population

10 minutesto buy life insurance

1

2

4/5 star ratingcustomer satisfaction

Precise predictionof customers’ needs

1

2



Glo

bal

• An online assistant for self service queries on policy issuance, cancellation and renewals

• Offers a web interface that allows clients to customize their own insurance policies from modules offered by the companys

• Uses mobile technology to provide insurance services in developing and emerging markets. This the technology permits with the lower entry costs

• Premium payment is collected via automatic deduction of prepaid airtime credit.

Glo

bal

• Fukoku’s Watson system can analyze and interpret claim data including unstructured text, images, audio and video

• Checks customers’ cases against their insurance contracts to find any special coverage clauses – a measure expected to prevent payment oversights



30%Increased

productivity

1


Only few digital players have surfaced in the Local Insurance SectorDigital Trends in Insurance Business



Runs a comparison website which allows users get quotes for healthcare, life, travel and fire insurance.

Insurance cover to subscribers who recharge their phones with a minimum of 1000 Naira every month.

Casava leverages Artificial Intelligence to provide digital-only micro-insurance services

Allows users to compare and buy insurance policy online.

Allows user to buy auto insurance online currently work with traditional insurance companies.

Ctrl is an independent car and household insurance advice app. They have partnerships and offer end-to-end digital experiences

Incumbent Insurance organisations have begun to look into digitization of their business processes and channels. However, some players are exploring a complete rethink of their business models.


03Repositioning for the Digital Era


While Nigeria’s key digital indicators have continued to show a steady increase in digital penetrationRepositioning for the Digital Era

The number is expected to rise to 143millionpeople by 2025

49%of mobile connections

are broadband (3G & 4G)

92 millionNigerians now use the internetat least monthly; estimated to rise to 188 million by2023

~16 MBPSAverage internet speed via mobile connections

Smartphone owners/users

~36m

>105 million Nigerians are estimated to have access to mobile phone and use it at least once a month.

0.3%Nigeria

2.8%Kenya

16.9%South Africa

3.7% India

Insurance penetration in Nigeria compared to other countries

1.5 millionNigerians hold an insurance policy

Based on these same digital indicators, the banking industry in Nigeria has been able to achieve 39.7% banked adult population as at 2018

2019 Nigeria Insurance Industry Report


Nigeria’s Insurance penetration has remained historically low compared to other sub-Saharan African Countries

Repositioning for the Digital Era

Source: Ready and Willing African insurance industry poised for growth

16.99

6.69

4.764.18 4.09

2.83 2.441.98

0.30 0.29 0.29 0.210.

2.

4.

6.

8.

10.

12.

14.

16.

18.

SouthAfrica

Namibia Lesotho Mauritius Zimbabwe Kenya Swaziland Togo Nigeria CentralAfrican

Republic

DemocraticRepublic of

Congo

EquatorialGuinea

% Insurance penetration in Sub-Saharan Africa in 2017


A significantly large young population is shaping experience expectationsRepositioning for the Digital Era

Gen Z1996 - 2003

I am the change!

The generation reaching adulthood in the early 21st century. They are also hailed as “the first tribeof true digital natives” or “screenagers”.

Millennials1980 - 1995

I will inspirechange

Also know as Generation Y, they have been shaped by the technology revolution that saw computers, tablets and the web become centralto workand life.

Gen X1965 - 1979

The voice of many will inspirechange

Gen X are now becoming the “helicopter parents” ofGen Z.

Baby Boomers1946 - 1964

Work hard for the changes you want to see

Born in the years before and just after independence. Baby Boomers enjoyed free student grants, low house prices and they now hold the reins of power and have the most economic clout.

Traditionalists1920s - 1945

Work hard today for a better tomorrow

Significant influences from the colonial era

9.5m21m39.5m38.5m

107mAdults

191mTotal

~2mWell-served

~65mFinancially

Underserved

~40mFinancially Unserved 0

10 000

20 000

30 000

0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+

Age Range

2017 2030Population by Age (2018 and 2030)

2.7m

Sources: NBS, Euromonitor, EFInA, KPMG Analysis


A tale of two ‘countries’ - The Nigerian storyRepositioning for the Digital Era

Less educated with limited education of technology

High mobile penetration

Low income

Largely unbanked/ underbanked

Cash-reliant; low digital banking adoption

Mostly resident in rural or suburban communities

Educated and tech savvy

High mobile penetration

Middle-high income

Largely banked

High digital banking adoption

Mostly resident in urban areas


Digital has shifted from a focus on the front to the whole value chain and executionRepositioning for the Digital Era

Digital BusinessStrategy

Enterprise Digital

Transformation

Customer Connected (End-to-End) Enterprise

Digital Customer

Engagement

Digital Marketing

Mobile

Digital Supply Chain

Disruptive Business Models

1st Transformation Wave: Digital First 2nd Transformation Wave: Digital Operations Next Wave: Efficient Execution

Brands will build holistic customer experiences that

transcend touch points.

Digital enterprises will accelerate work to break down their silos between

customers’ digital and offline engagement.

They will also break down the silos between functions and created a Connected

Customer Enterprise

Activity was centered on front office and

customer experience via digital channels (internet

and mobile)

A digital focus on just thefront office will not provide

sustainable competitive advantage

Organisations focus on restructuring operations beyond

customer-facing functions to enable enterprise-wide digital

transformation

Organisations spend more on digitizing operations in the middle

and back office

Moving from experience to operations, emphasising the need to connect front to back offices


The insurer of the digital era must offer what the “customer” expectsRepositioning for the Digital Era

Effortless Experiences

High Trust Standards

Value

Simplicity even with the most complex products

Personalized Services

Telcos and the Media continue to struggle with disrupted business models as they look for ways to improve customer experience

Consumer Goods businesses are trying to understand new direct to consumer business models while Retailers continue to wrestle against online e-commerce

Banks face huge challenges with regulations and regaining customer trust; this is impacting their ability to provide suitable needs-based products and services

Insurance companies are considering how to use big data to personalize customer solutions; and wrestle with the increasing power of brokers and intermediaries


Challenges on the Journey to Digital Repositioning for the Digital Era

65 percent of insurers agree skills shortage prevents their organisation from keeping with the pace of change, with 70 percent looking at acquiring small companies to bring in the right expertise and

capabilities. “”

Harnessing the power of

data

Addressing disruption from the market

and customer

Empowering Legacy

Technology

1

2

3

Organisation, people and

culture

5

Staying in Business

4

Responding to industry consolidation and accelerating growth with customer demands increasingly moving to an omni-channel model capable of anticipating customer needs and delivering frictionless experiences

Insurance organisations are data rich. But harnessing the potential power of that data is incredibly challenging.

Years of legacy technology hinders majority of global insurers digital transformation. Insurers are increasingly looking to replace or empower their legacy technology by considering cloud, APIs etc.

Managing the inherent complexity and increasing fallibility of the legacy technology, whilst also meeting demands for change, along with regulatory and statutory requirements

Need to consider fundamental change to the way technology is incorporated into thebusiness model. Many insurers have to deal with issues of skills, capabilities and ways of working required to support thejourney to digital

2018 KPMG Global CIO Survey


To stay competitive, incumbents’ strategic focus should shift from digitizing the existing business model to disrupting it as digital technology takes hold

Repositioning for the Digital Era

Basic Innovation

Using digital means to replace or simplify existing processes

1

Transformative Innovation

Shifting from product-centric to customer-centric approach to

insurance

2

Disruptive Innovation

Creating a vision for a new insurance business

model, supported by technology

3

AI, big data and analytics are used to

understand customers and

provide data to allow decision makers to

act quickly

Process automation, chatbots, cloud

computing, and AI triaging high volume

low-value claims

Insurer being at the front end of a

customer’s daily transactions, such as

new purchases, travel or trips to the

doctor


Digital for insurance will impact every area of the insurance businessRepositioning for the Digital Era

01 Your Customers01

Your People04

Your Underwriters05

Your Products02

Your Actuaries06

Your Operation03

— Buy what they need, when they need it, on the go 24/7— Buy one product that will suit all their needs and evolve with their lives— Access insurance products and claims via simple, easy-to-use channels (mobile, USSD, etc.)

— More distinctive and created through behavioural analytics from new sources of data — Will reach more customers as part of a distribution eco-system such as lifestyle apps, ecommerce partnerships,

etc.— Get to market faster with a fast flexible insurance platform that has AI and machine learning at its core

— Improved customer servicing and response times through the use of self-serve options and automated back-office processing

— Reduced cost to serve (10-40%), as standard tasks are handled by new automation and AI capabilities

— Will focus on highly specialised cases or products as automation will provide pricing for more standard cases— Use instant, real time data from IoT, Telematics and social media to provide fast, tailored pricing for customers— Will focus more on business development as automation reduces the need to complete time consuming

administrative and servicing tasks

— Will focus more on product development as models are automated and continuously updated— Work closely with data scientists to take advantage of a vast new sources of data from IoT, Telematics and

social media to create new products

— Will work in small, agile, cross functional and multi-disciplinary teams that include data scientists, customer demand experts, service operations experts and developers as well as actuaries and underwriters.

— Will be mobile, flexible and can work from any location


How can insurance businesses adequately capture the potential opportunities in Nigeria?Repositioning for the Digital Era

Invest in digitization

Allocate funds for investment in modern technologies

Skill up

Develop in house tech talent or employ skilled tech labour to provide digital solutions

Collaborate with digital solutions providers

Establish Digital Partnership

Be Data driven

Proactive approach in generating value from existing data i.e. data analytics

Interaction with tech natives either through online platforms or tech communities.

Engage with the tech savvy demography

1

2

5

3 4


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