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Insurance talksInsights around the world

17 June 2020

Insurance talks | Insights around the worldCopyright © 2020 Deloitte Consultores S.A.. All rights reserved. 2

1. Welcome & Introduction

2. Insights from Portugal

3. Insights from China

4. Insights from United Kingdom

5. Insights from Poland

6. Q&A

7. Wrap up

Agenda


1. Welcome & Introduction


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S O C I A L A N D E C O N O M I C S O U T L O O K

Covid-19 crisis management led to severe containment measures implemented by Governmental authorities

COVID-19 MAIN EVENTS WORLDWIDE

K E Y T A K E A W A Y S

• Portugal reacted rapidly to Covid-19 outbreak and adopted severe measures aimed at controlling new cases’ evolution.

• China imposed a 2,5-month lockdown period in Wuhan, the longest lockdown period in all countries analyzed.

• Hong Kong declared emergency state before first confirmed death and did not impose a complete lockdown.

• UK did not declared formally an emergency state, although introduced legislation on March 19th to strengthen the response to the COVID-19.

• Poland declared emergency state as soon as first death confirmed and imposed a 5-week lockdown, the shortest of all countries analyzed.

Nov/19 Dec/19 Jan/20 Feb/20 Mar/20 Apr/20 May/20 Jun/20

1) Emergency State and lockdown period dates presented correspond to Wuhan (measures were implemented differently depending on China’s provinces and cities)

Legend: First case confirmed State of Emergency declared Lockdown period (1st phase)1k cases confirmed 10k cases confirmed

PORTUGAL

CHINA1)

HONG KONG

UK

POLAND

Although not introducing a complete lockdown, Hong Kong imposed

restrictive measures (e.g. closed borders and social

gatherings limited to 4 persons)

Source: National authorities and Oxford University (Covid-19 tracker)


Who are we?

Meet us

Cristina leads the Insurance Sector at Deloitte Portugal. With over 20 years of experience in Financial Services, she has been working with insurers in Portugal, Nordics and Angola.

She has assisted a number of organizations in their IT strategic planning, IT operations effectiveness, digital transformation and core transformation to drive efficiency and profitable growth.

Tim Pagett is Deloitte Asia Pacific's Financial Services Industry Leader and also the Sector Leader for Insurance across Asia Pacific. He is responsible for leading the development of the firm’s capabilities on the provision of full-range professional and advisory services to the financial services sector.

Tim’s 33 years of experience spans the full spectrum of audit and risk management in financial and non-financial institutions, from both the practitioner and service provider perspective. He has been based in China for the past 14 years and has provided services to the leading players across the financial services markets.

Mark Patterson is a Partner at Deloitte where he leads the Global General Insurance sector. He has conceived, designed, and executed some of the largest and most ambitious transformations in the industry across North America, Europe, and Asia. He works with insurers and insurance service providers to develop strategies to drive growth and profitability leveraging digital models.

Marcin has over 20 years of professional experience working for leading European and global financial institutions. He has a successful track record in strategy definition and execution, digital transformation, product development and implementation, sales channels development and management, customer excellence, IT and operations management. Before joining Deloitte Digital Marcin held C-level managerial positions in Liberty, Axa and Allianz.

CRISTINA GAMITO| PARTNER | INSURANCE LEADER | PORTUGAL

TIM PAGETT| PARTNER | FS LEADER | ASIA PACIFIC

MARK PATTERSON| PARTNERINSURANCE CONSULTING| UK

MARCIN WARSZEWSKI| PARTNER | POLAND


2. Insights from Portugal



Covid-19’s impact led to the deterioration of the main macroeconomic indicators in Portugal, also affecting negatively future projections

GDP GROWTH GOV. NET LENDING/BORROWING

Source: INE, Bank of Portugal and European Commission

1,7%2,2%

-9,5%-8,0%

2019 2020

5,9%

6,5% 10,1%

13,9%

2019 2020

YoY, in % in %

Source: INE, Bank of Portugal and IMFSource: INE, Bank of Portugal and IMF

In % of GDP

-7,1%

0,2%

-6,5%

-9,3%2019 2020

Value in 2020 1Q

-2,4%

Value in 2020 1Q

6,2%

UNEMPLOYMENT RATE

Projection European Commission (May/20)

BoP Projection (Dec/19)

BoP Projection (Jun/20)Legend: Projection IMF (Apr/20)

Projection Public Finance Council (Mai/20) – adverse scenario

-11,8%

13,2%



The lockdown has led to several changes in Portuguese business outlook and consumers’ concerns and behaviors

Source: (by order of appearance) Portuguese government, INE/Bank of Portugal, AIP, Boutique Research/Netquest, Public Health National School, Católica University, Portuguese government, DGS and Boutique Research/ Netquest

B U S I N E S S O U T L O O K

39%of companies consider current economic recovery measures insufficient

>110kcompanies requested lay-off since Covid-19 outbreak in Portugal

8%of companies remained closed on May 31st

C O N S U M E RC O N C E R N S

~50%will not spend holidays away from home

45%don’t want to go to a shopping center after lockdown

22%cancelled medical appointments by their own initiative

C O N S U M E R B E H A V I O R S

24%performed the first online purchase or acquired products that they have never bought before online

-70%reduction in traffic road accidents between March and May

+49%telemedicine appointments in April in Public Health System Units


C O V I D - 1 9 I M P A C T O N P O R T U G U E S E I N S U R A N C E S E C T O R

Covid-19 has impacted Portuguese insurance sector, providing operativeand business challenges …

O P E R A T I V E I M P A C T S

Adoption of teleworking Restriction to in-person interactions

Adoption of new products features and services

B U S I N E S S I M P A C T S

New business strong reduction

Decrease in churn in Non-Life business

-24%business drop in Q1

- 44%reduction in life business

+ 6,3%growth in non-life Insurance

Reduction of claims (mainly Health and P&C)

Premium return with different approaches

Source: ASF


C O V I D - 1 9 I M P A C T O N P O R T U G U E S E I N S U R A N C E S E C T O R

In the future, we predict a set of 5 forces that will impact insurance companies

#1

#2

#3

#4

#5

Customers increasing digital adoption will create a higher demand for solutions and iterations provided through digital platforms, affecting

distribution traditional channel management

New operating models, recently viewed as unachievable, have proved to work even if with some challenges. As result, Insurance companies

will re-evaluate the operating model to incorporate flexibility and resilience

Insurance companies will adjust their products to be more flexible in adjusting to client needs, new opportunities such as business

interruption and cyber-risk products will be considered and turning permanent the temporary adjustments offered during Covid19 outbreak

Insurance companies will prioritize new revenue streams creation by expanding their non-financial offering through ecosystems (e.g.

healthcare, home solutions) in order to increase value proposition and differentiate future offer

Since interest rates are expected to remain at low levels, insurance companies will offer less products with guaranteed capital, thus

development of innovative life & savings solutions and increasing customer’s financial literacy are critical for the future


3. Insights from China


• Societal responsibility – focused on the vulnerable & front line responders

• Building on digital investment

o On-line engagement for Claims

o On-line & direct underwriting

o Agency engagement

• Regulatory engagement

o Policy holder protection

o Product simplification

o Terms & conditions

• Ecosystem connectivity

Where we are on the journey ….

Insight from China

Respond & Recover

Jan-Apr 2020

Jan-Apr 2019

YOY Change

Jan-Mar 2020

Jan-Mar 2019

YOY Change

CNY Bn CNY Bn

Total Premiums 1,988.6 1,905.9 4.3% 1,669.5 1,632.2 2.3%

P&C 401.6 388.7 3.3% 296.1 295.3 0.3%

Life & Health 1,587.0 1,517.2 4.6% 1,373.4 1,336.9 2.7%

Life 1,218.3 1,200.5 1.5% 1,079.8 1,086.3 -0.6%

Health 329.3 273.2 20.5% 264.1 217.2 21.6%

Accident 39.4 43.5 -9.4% 29.5 33.4 -11.7%

Total Claims 410.9 429.7 -4.4% 303.1 331.8 -8.6%

P&C 183.2 195.4 -6.2% 126.1 142.7 -11.6%

Life & Health 227.7 234.3 -2.8% 177.0 189.1 -6.4%

Life 143.1 157.1 -8.9% 116.5 131.5 -11.4%

Health 75.5 67.6 11.7% 54.1 50.4 7.3%

Accident 9.1 9.6 -5.2% 6.4 7.2 -11.1%


Where to next…

Insight from China

Moving to Thrive

Agency Enablement

Enhancing professional management approach

Enhanced tooling and use of social media

Remote management & supervision

Ecosystems

Vertical alignment and connectivity in Health

Drive in big tech & social media connectivity

Product development & launch - online

Market Entry & Development

Foreign Insurers & Opening Up Measures

Greater Bay Area – InsureConnect

Health & Cost Effective Protection

On-line engagement

Government policy on P&C

Infrastructure investment on connectivity

Regulatory guidelines on simplification

Upgrade sales AI, service AI and Management AI

What will be the near term prospects?


4. Insights from UK


In the UK the vast majority of travel was driven, this has been consistent over the past 10 years

How did people travel in the UK prior to COVID-19?

Percentage of average annual travelled miles by type of transportation:

78%Driving

17%Bus & Rail

3%Walking

<1%Taxi &

Minicab

1%Cycling

<1%Other (Air,

Ferries)

Source: UK Department for Transport, July 2019, NTS0303, https://www.gov.uk/government/statistical-data-sets/nts03-modal-comparisons#trips-stages-distance-and-time-spent-travellingNote: Walking & Cycling numbers exclude trips taken for non-trips (e.g. walking dog, leisure walk through park)


Reduction in mobility may result in a 10% to 13% decline in average miles travelled / year / person

Individuals will travel less post COVID-19 lockdown

-20% to -30%

Work

Change in Trips Regardless of Method

-5% to +5%

-15% to -5%

Continued work from driven by preference, company policy, and gov’t encouragement. In Lockdown c. 45%1

of people were working from home, assuming overall only half return (note: expect some to return but be in the office 50% of the time)

Small increase of people spending their leisure time in the country due to less foreign travel been allowed and recessionary conditions decreasing interest in spending on air travel

The method may change, but overall the same number of trips to education related facilities will remain the same

Education

Increase in consumers comfort and desire to shop and handle personal admin digitally, and desire to avoid crowded places, therefore result in an overall decrease. As reference Internet sales as a proportion of retail sales increased by 50% during lockdown compared to the preceding months in 20202

Shopping & Personal Admin

Leisure

-15% to -25%

6,500Miles / Person / Year

5,275 to 5,915

Miles / Person / Year

Results in a Decline of Average Miles Travelled / Person / Year

8% to 18% decline

1) YouGov, Who are the Britons working from home?, 7 April, 2020 https://yougov.co.uk/topics/politics/articles-reports/2020/04/07/who-are-britons-working-from-home2) ONS, Retail Sales Index time series, 22 May, 2020, https://www.ons.gov.uk/businessindustryandtrade/retailindustry/datasets/retailsales

Note: Excludes mini-cab and other modes as they are immaterial and not expected to change


Driving and Rail & Bus usage will decline, while walking and cycling increases

Individuals will change their preferred method of travel post lockdown

• 200mi/year of driving replaced with biking or walking

• 75mi/year from bus/rail users switching to driving

• 50mi/year of bus/rail usage replaced with biking or walking

• 75mi/year of bus/rail usage replaced with driving

• No reduction in current cycling or walking from switching to other forms

• 200 miles / year from drivers switching

• 75 miles / year from bus/rail users switching

4,150

4,025

975

850

150

400

909 889161 158

1073 1032

2013 1954

0

2000

4000

Pre MethodChanges

Post Lockdown

Leisure

Shopping & PersonalAdminEducation

Work

348 31393 84

121 103

408 347

0

500

1000

Pre MethodChanges

Post Lockdown

Leisure

Shopping & PersonalAdminEducation

Work

27 8228 4138

9753

174

-00

200

400

Pre MethodChanges

Post Lockdown

Leisure

Shopping & PersonalAdmin

Education

Work

Driving – Change Based on Method Switching

Rail & Bus – Change Based on Method Switching

Walking & Cycling – Change Based on Method Switching

+170%

-13%

-3%

Average Miles Per Person Per Year Change by Type


There is a material change in cycles hires early in the lockdown and an overall increase on weekends in lockdown from previous years, this trend remains when adjusting for seasonality

How has cycle usage changed during the lockdown?

1) TFL Cycle hires, https://data.london.gov.uk/dataset/number-bicycle-hires

Changes in Cycling Hires in Lockdown (pre-lockdown averages vs. post lockdown)

Weekday Cycle Hires

35%

54%Weekend

Cycle Hires

89%

Duration of Cycle Hire (Minutes)

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

6 Jan 20 Jan 3 Feb 17 Feb 2 Mar 16 Mar 30 Mar 13 Apr

Nu

mb

er

of

cycl

e h

ire

s

Comparison of cycle hires between weekdays and weekends1

Weekdays Weekends

Work From Home Announced (Mar 16)

Full Lockdown of all non-essential services (Mar 25)


In the UK, on average, theft claims have reduced while damage claims have increased

How has the change in bike usage impacted claims?

1) Data from Metropolitan Police Department, representing 33 boroughs of Greater London, comparing February, March, & April 2020 to average for those months in the 3 preceding years, https://data.police.uk/2) UK Google Trends 5 June, 2020 - https://trends.google.com/trends/explore?geo=GB&q=Used%20Bike

Bicycle Theft’s Reported to Police1

-6%

-21%

-33%

Feb Mar AprReduction in bike theft claims since lockdown compared to the previous time period

Increase in damage claims for April and May compared to pre-lockdownBicycle Damage

Claims

14%

There is a clear increase in demand for Used Bikes. The graph shows an increase online in interest in used bikes, similar trends can be observed globally

www.laka.co.uk

Analysis and commentary completed in collaboration with Bike Insurer Laka

Bicycle Theft Claims

30%-50%

25

50

75

100

5 Jan 19 Jan 2 Feb 16 Feb 1 Mar 15 Mar 29 Mar 12 Apr 26 Apr 10 May 24 May

UK Search Trends for “Used Bike”3 in 2020

Work From Home Announced (Mar 16)

Full Lockdown of all non-essential services (Mar 25)

https://data.police.uk/

https://www.laka.co.uk/


The lock downs has resulted in a material decrease in thefts and most crime types impacting insurance. The figures below highlight the decrease in March and April in London compared to historical 3 year average for those months

Impact of COVID-19 on Personal Lines Household Insurance in the UK

Reports of Theft: Other Crimes:

Data from Metropolitan Police Department, representing 33 boroughs of Greater London, comparing February, March, & April 2020 to average for those months in the 3 preceding years where the data is available URL: https://data.police.uk/

Bicycle Theft Anti Social Behaviour

Burglary Criminal Damage & Arson

Other TheftRobbery

Shoplifting

Theft from Person

Drugs

-6%-21%

-33%

Feb Mar Apr

-6%-19%

-40%

Feb Mar Apr

+15%

-3%

-61%

Feb

Mar Apr

+12%

-22%

-83%

Feb

Mar Apr

+8%

-23%

-55%

Feb

Mar Apr

+2.6%

-24%

-60%

Feb

Mar Apr

+10%

+28%

Feb Mar Apr

-2%-11%

Feb Mar Apr

-29%

+31%+15%

Feb Mar Apr

+58%

N/A


Prior to COVID-19, about 15% of the UK regularly worked from home. This was generally consistent across regions with Northern Ireland having the lowest at 9.4% and the South West with the highest at 18.3%. London was aligned with the average at 14.9%

Change in work from home behaviour is the most material factor impacting changes in mobility

Previous Normal2019

LockdownMarch 25 to May 10

Lockdown Easing

May 11 to Aug 31 (estimated)

New NormalSept 1 and beyond

(estimated)

15%1

40-50%2

30-40%3

20-30%3

Working from Home

Driving

70%

30%

10-20%

Bus & Rail

90%

65%

18-27%

Walking & Cycling

60%

30%

122-150%

1) Office for National Statistics, March 2020, https://www.gov.uk/government/statistics/coronavirus-and-home-working-in-the-uk-labour-market-20192) National Travel Survey 2018, NTS0303, https://www.gov.uk/government/ collections/national-travel-survey-statistics3) Deloitte Analysis and Forecasts

Longer term, there will continue to be an increase of working from resulting in reduced driving, and reduced home claims due to more time at home. Walking and Cycling levels will stay elevated, however new travel modes like e-scooters may replace some of those miles travelled (assuming they become legal)


5. Insights from Poland


Short term impact on insurers in Poland

• Lockdown caused significant drop in new life business sales

• Stock market performance triggered another wave of investment products lapses

• Blocked healthcare system brought demand for health products and raised interest in telemedicine

12 Customer retention and new

sources of business

3 New remote way of working

Remote sales and claims processes


Respond (short term) Recover (mid term) Thrive (long term) Key opportunities

• Introduced remote workplace solutions, improved connectivity

• Launched remote sales processes (“quick and dirty” solutions)

• Control exposure in affected product lines – modify T&C & underwriting rules (life, travel, trade credit)

• Launched “corona care" products (e.g., telemedicine; diagnostic, hospital stay, medical assistance)

• Substitute lost new business with cross- and up-sell

• Launch anti-churn campaigns and manage shift from investment to pure protection products

• Implement remote sales and claims processes supported by workflow and CRM systems, with reduced physical contact with customer (video sales calls, remote authentication, underwriting, digital signature, remote damage assessment, telehealth)

• Customer shift to alternative channels - bancassurance, direct (web based and CC)

• Demand for health solution

• New commercial and retail products

• Digitalization of processes will enable their automation

• Shift to e-commerce – space for new insurance products

• Implement comprehensive health care / critical illness / life protection products; secure partnerships or investments into health-care providers

• Implement new commercial productsto reflect new operating models of customers (e.g. cybersecurity, business interruption)

• Change back-office processes to allow flexible work arrangements, AI/analytics to coordinate and control complex work (e.g., claims)

• Accelerate automation of processes, benefiting from their digitization

• Shift to cloud (e.g., actuarial tools)

1

2

3

1

2

3

1

2

3

4

5

1

2

3

4

54

We are entering „recovery” phase


Insurersdigitalization

• Emerging competition• ROI expectations• Cost pressure • Poor data availability (pricing / uw)• Outdated technology• Regulatory, compliance & security challenges

INSURERS

• Sales & service experience shaped by other industries

• Expecting service not a product • „Reverse ROPO” behaviour• Amplification of experience• NPS (really) matters

CUSTOMERSINTERMEDIARIES

EMPLOYEES

• Cloud• Robotics & AI• Advanced analytics• Usage based economy• Next-gen & big data

EMERGING TRENDS

• Shift towards non-tied channels• Expectations towards quality & speed of service• Productivity issues • Aging demographics• Recruitment, onboarding & retention challenges

• War for talent• Culture of siloes• Change resistance

COVID accelerated digitalization trends


6. Q&A


7. Wrap up

Member firms and DTTL: Deloitte Business Consulting, S.A.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities. DTTL (also referred to as “Deloitte Global”) and each of its member firms are legally separate and independent entities. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our network of member firms in more than 150 countries and territories serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 312,000 people make an impact that matters at www.deloitte.com.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

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