Finity Director Forum Ian Chisholm | 10 August 2016

“InsurTech“ What Directors need to

know

Topics for today

1 Digital disruption across industries

2 Fintech’s impact within Banking

3 “InsurTech”: Level and growth of investment

4 Where is InsurTech evident in A/NZ? Examples

5 Where is the next frontier?

6 What does this mean for Directors?

2

Technologies shaping business today

60

Blockchain / Bitcoin

Network effects

Cloud

4

FinTech in Australia – too soon to see impacts Fintech puts customers first, instead of the banking business model

Technology is enabling new players (PayPal, Google and Apple) and start-ups to

disrupt the traditional banking business model

Large Australian banks are hiring digital skills to work in innovation ‘hubs’ and/or partner with entrepreneurs or start-ups, to produce new products and services

It’s a little too early to tell the actual impact on Australia’s Banking industry

7

CBA collaborated with On Deck Capital to provide business loans to its retail Small-Medium Enterprises with revenue <$1m. Streamlined application process, loan size of $10k-$150k, 6-24

month terms, decision in 1+ days, funding in 1+days, competitive rates and fees

On Deck

https://www.ondeck.com.au/au-landing/

$4b in loans globally since

OnDeck opened in 2008; a serious competitor to

large banks

Westpac have partnered with entrepreneurs to set up

‘Reinventure’, investing in new companies at the formation stage

SocietyOne was one of their first investments

http://reinventure.com.au/

SocietyOne

https://www.societyone.com.au/

$5m

iRobo Another Robo Adviser, providing Australian consumers with a free analysis

of their financial product needs, saves time searching multiple product sites, and returns products that suit a customer’s needs and budget

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Stockspot The first robo adviser in Australia, which is computer generated financial assistance, or automated investing. A customer completes questions around their financial needs,

and Stockspot provides product suggestions 65 https://www.stockspot.com.au/

What is InsurTech? Growth of Investment

First in Financial Services “FinTech”, now in insurance “InsurTech” - insurers are questioning, and in some cases changing, the direction and nature of insurance

technology investment.

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66 Source: CN Insights, Insurance Industry Ramps Up Start-up Investing, June 2015

Why is InsurTech attracting so much interest?

75% of US insurers* expect that they will have to redesign their business value chain over the next 5 years due to the impacts of technology change. InsurTech

provides the opportunity to get ahead of the game

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Specific reasons for InsurTech investments include:

Meeting customer expectations - new consumer technologies are have created new needs for and expectations of insurance solutions and interaction channels

The pace of innovation – the shared economy, usage based models and the internet of things are disrupting the insurers business model – incremental change is no longer enough

Access to personal data – policyholders are willing to trade some personal data in exchange for tailored lower cost coverage

* Source: Insurance Networking News, Insurers Investment in Tech Start-ups, John Cusano. Oct/Nov 2015

Brolly “Join the revolution!”

Brolly is developing a free personal insurance concierge that will be available online and on our mobile phone. Powered by artificial intelligence, Brolly promises to tell users if they’re over or under-insured, whether they have duplicate or missing cover, and whether they can get the cover they need at a better price.

The service will allow people to purchase new cover, manage policies in one place, and provide instant access to documents, prices, and contact numbers.

68 Source: www.heybrolly.com. April 2016.

69 © Copyright

Friendsurance “Make insurance easier and

more affordable”

Based on a “shareconomy” approach, policy owners with the same

insurance type form small groups. A part of their premiums is paid into a

cashback pool. If no claims are submitted, the members of the

group get some of their money back at the end of the year. In case of

claims, the cashback decreases for everyone. Small claims are settled

with the money in the pool. Source: www.friendsurance.com . April 2016.

Lemonade “Insurance that doesn’t suck”

Lemonade, yet to commence, is advertising as the world’s first peer to peer insurer to go back to basics for insurance and use behavioural economics within its business model /

data driven innovation

70 Source: http://www.lemonade.com/.

PeerCover Whether to prefund risk via insurance/savings or post fund losses via levies/borrowing?.

Many discretionary mutuals and government insurers use a 100% postfunding

Donation based crowdfunding fits in this category, like many insurers who use a number of postfunding options to complement their core prefunding model, such as deductibles, co-pays, burning cost ‘premium adjustments’ etc.

71 Source: http://www.peercover.co.nz/

Trōv “Save your stuff on trōv because it pays

to back up your stuff”

Protect just the things you want - exactly when you want - entirely from your phone.

Trōv is a new technology platform created by

an InsurTech start-up, designed to give consumers insurance for their individual

possessions whenever it's needed. Digitising the process from identification of what is to

be insured, through premium quote to payment and finalisation of the claim.

72 Source: www.trov.com. April 2016.

FendaMenda “Have a little crash without involving your insurance”

FendaMenda provides help to customers to recover from small incidents that are less than their excess – record incident details, obtain repairer quotes and negotiate settlements

73 Source: http://fendamenda.com/

Zurich DigitalResolve “join forces to resolve

cyber incidents”

Zurich DigitalResolve is a lateral move by Zurich into

another industry - the cyber response industry in

competition with cyber security companies

74 http://zurich.com.au/content/dam/australia/general_insurance/security_and_privacy_protection_insurance/20160608-ZU23166_DigitalResolveFactsheet_FINAL.pdf

How should we respond?

Depending on their size, scale and risk profile insurers will respond differently.

However, at minimum all insurers should maintain a “watching brief” as part of a balanced approach to technology investment.

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Re-examine business models to test its vulnerability to disruption

Improve Board and C-suite technology related strategy discussions

Adjust your culture to allow innovation, ‘fast fail’ and taking calculated risks

Keep your eyes firmly on your customers and their changing needs

Consider investing in InsurTechs if your capital and risk appetite allow it

Why and How much should we be investing?

There are no clear benchmarks for direct investment in InsurTech, it should be treated like any other strategic business investment. The benchmark range for overall spend on

operational insurance technology remains steady at 3% to 4% of revenue*.

76 * Source: Gartner, IT Key Metrics Data 2014

Global and large local insurers are getting directly involved through acquisition, direct financial investment . For small and mid-sized insurers access will be through partnerships

Investment is starts-ups or emerging technologies need to be based on specific needs or strategic objectives.

Understanding the change to the customer value proposition and business operating model is a critical part of any investment in technology.

Thank you for your attention

Steven Walker Director Consulting Level 15, St Martins Tower Sydney NSW 2000 Australia M 0412 412 712 | T 61 2 8220 8096 Steven.walker@frazerwalker.com www.frazerwalker.com

Ian Chisholm Director Consulting Level 15, St Martins Tower Sydney NSW 2000 Australia M 0401 316 004 | T 61 2 8220 8096 Ian.chisholm@frazerwalker.com www.frazerwalker.com