the intelligent insurer: creating value from opportunities in a changing world

The Intelligent Insurer:

KPMG, Toronto, December 2012

Creating value fromopportunities ina changing world

Demographics Technology

EnvironmentSocial values

and ethics

KEY

Components of the insurance

business model

Mega-trends

Coloredtext

Insurance business issues

Political and economic outlook

PRODUCTS &

MARKETS

GOVERNANCE &

PEOPLE

REGULATION

& CAPITAL

MANAGEMENT

DISTRIBUTIO

N &

OPERATIONS

Demographics

Technology

Social valuesand ethics

Environment

KEY


business model

Mega-trends

Coloredtext



Opportunities arisingfrom the roll back

of state provisions

Innovative models are needed to insure new

technologies and emerging risks

Products need to keep pacewith shifts in lifestyle and

retirement needs

Demand for insurance is growing as people become wealthier

and more urbanized

PRODUCTS &

MARKETS

Crowd Sourcing

Online platform allows customers to interact Customers promote or demote ideas

The bank already rewarded a customer with $10,000 for a new purchase receipt service on its e-banking platform

Collaborate with customers Help shape and create the future of banking

Objective

Description

Results

Commonwealth Bank IdeaBank

Credit or debit card donations online in under a minute

“Fast community building” and easy follow-up for donors

32-year-old Jenny Adams raised $10K in a couple of days for Sandy Storm relief in her neighborhood

Quick-response fund raising Reach a community of givers in an efficient way

Disaster relief crowdfunding

Objective

Description

Results


business model

Mega-trends

Coloredtext



Aligning customer interaction withevolving preferences requiresgreater use of mobile technology

Social media facilitates enhanced interaction with customers and other constituencies

Cloud computing affordsopportunities to enhanceagility and efficiency

DISTRIBUTIO

N &

OPERATIONS

KEY

Kilimo Salama Safe Agriculture


This 'pay as you plant' type of insurance allows farmers to 'try out' insurance, a product they have never bought before and which has a negative reputation in Kenya. Experience shows that as farmers learn to trust insurance, they expand their coverage and are comfortable investing more in their farm, raising their productivity and increasing their food security

Syngenta Foundation


Offer a solution to address the problem of unsafe driving by young drivers (aged 16 to 24 years old)

Change incentives scheme: collaboration vs. coercion

Objective

Drivers pay monthly fee based on driving behaviour Good behaviour is rewarded by savings, as much as 25%, and vice versa

Drivers can review their driving habits online and get personalized tips to improve their driving

Characteristics

IAAH trying to drive the right behaviours

Mobiliz

KEY


business model

Mega-trends

Coloredtext



The regulatory agendahas already changed

Historically lowinvestment yields andvolatile markets aredriving a search fornew investments

Increasingly wealthy Urban areas are exposed to natural catastrophes and emerging risks such as climate change and pandemics

Is insurance investable?

REGULATION

& CAPITAL

MANAGEMENT

Regulation and capital management

KEY


business model

Mega-trends

Coloredtext



Good governance and responsibility are of

mounting importance

Trust in financial services is among the lowest of any industry

GOVERNANCE &

PEOPLE

Optimize Portfolio by: Using capital efficiently ensuring that it

is targeted at those areas that offer the best return and strongest growth

Reducing exposure to fluctuations in financial markets, and release more capital for reinvestment in the business

Enhance Customer Loyalty by: Building new distribution

capabilities Offering simple easy to

understand products that strengthen trust and inspire loyalty among customers

Governance and People - AEGON

Deliver Operational Excellence by: Reducing costs while further

improving customer services Encouraging greater efficiency in

leveraging resources and capabilities

Empower Employees by: Creating a culture of innovation

and accountability Using greater employee

engagement and drive improvements in efficiency and customer service

Our business is changing…

In response, we have set four strategic objectives…

Source: Transforming Tomorrow

Source: AEGON Q3 results announcement

Focus on delivering on targetsGovernance and People - AEGON

Trust in Canadian businesses has gone up in 2012 & financial institutions are also benefiting from this trust growth

In the U.S., Insurance companies are among the least trusted

Source: Edelman Trust Barometer Annual Global Study

Canada Trust Indicator by industry2011 – 2012 , % of respondents (informed publics ages 24-65) that admit to trust businesses (top 4 grades on a 9-point scale)

Banks56%

52%

Financial Services

56%

43%

Business Average

56%

50%

20122011

+ 6

+ 13

+ 4

Fin

anci

al in

stitu

tions

A

vera

ge

49%

Priv

ate

equi

ty fi

rms

32%

Inve

stm

ent b

anks

35%

Pro

per

ty/C

asu

alty

in

sura

nce

co

mp

anie

s

37%

Lif

e in

sura

nce

co

mp

anie

s

42%

Bro

kera

ge fi

rms

43%

Larg

e na

tiona

l ban

ks

45%

Mut

ual f

und

com

pani

es

55%

Com

mun

ity/

regi

onal

Ban

ks

67%

U.S. Trust Indicator in Financial institutions2011, % of respondents (informed publics ages 24-65) that admit to trust financial institutions

The Trust Factor

What does this mean for me?

Using the Intelligent Insurer

PRODUCTS &

MARKETS

GOVERNANCE &

PEOPLE

REGULATION

& CAPITAL

MANAGEMENT

DISTRIBUTIO

N &

OPERATIONS

Demographics

Technology

Social valuesand ethics

Environment

Board away days

Corporate alignment

Team building and

buy in for change

Stress and scenario testing

Analysing unmodeled

risk

Reverse stress testingInternal audit

planning

Preparation for budget setting

Developing the ORSA

Audience polling

17

18

A Historically low interest rates and significant equity market volatility

B Increasing impact of natural catastrophes

C Regulation

D Consumers becoming better informed and shopping for lowest prices

Q1. Which of the following do you consider poses the biggest threat to insurers’ profitability over the next 10 years?

Toronto US Latin America

Asia Pacific

Gen Y

54% 55% 41% 62% 21%

27% 16% 10% 0% 29%

7% 21% 15% 28% 17%

12% 8% 34% 10% 33%

19

A Greater use of data analytics

B Building collaborative partnerships with customers

C Working more closely with distributors and intermediaries

DMaking greater use of a range of experts from academics to branding consultancies and design ‘gurus’

Q2. In a rapidly changing world how will the insurance industry best ensure it understands the needs of its clients?


Asia Pacific

Gen Y

41% 45% 35% 22% 33%

45% 30% 45% 39% 50%

11% 20% 15% 37% 4%

4% 5% 5% 2% 13%

20

A Greater focus on their people and customers and rigorous enforcement of high ethical standards

B Insuring against a percentage reduction in profitability

C Insuring against a reduction in net promoter scores and other customer satisfaction metrics

D Working closely with branding advisers and consumer champions

Q3. In a world of increasing social inter-connectivity how will successful companies protect themselves from damage to their brand and reputation?


Asia Pacific

Gen Y

81% 71% 88% 89% 64%

3% 5% 5% 0% 9%

7% 7% 3% 3% 0%

8% 16% 5% 8% 27%

21

A Cloud computing

B Mobile communications and payments

C Social media

D Data mining and analytics

Q4. Which of the following uses of technology do you expect to have the greatest long term impact for insurers?


Asia Pacific

Gen Y

5% 7% 12% 3% 21%

34% 38% 32% 37% 21%

20% 11% 29% 18% 17%

41% 44% 27% 42% 42%

22

A Very well placed – only minor tweaks will be needed

B Extensive changes will be needed to use of biometric data and customer profiling to select and price risks

C This is a big threat to the potential viability of personal lines insurance

D This could lead to wholesale restructuring of the industry and a return to tariffs

Q5. How well placed do you consider the insurance industry is to manage the potential conflict between greater use of data and analytics to price risk, and societal trends against discrimination ? Toronto US Latin

AmericaAsia Pacific

Gen Y

18% 24% 17% 6% 0%

51% 54% 61% 65% 79%

22% 16% 20% 18% 13%

9% 6% 2% 12% 8%

23

A Investors will demand a higher Return on Equity

B Investors will accept a lower Return on Equity

CInsurance becomes an even more complex sector to understand as compared with the rest of the investment universe

DGreater value will be attributed to those insurers who can demonstrate a superior ability to manage and price risk

Q6. How do you think investors will respond to greater transparency of the risks run by insurers?


Asia Pacific

Gen Y

8% 7% 5% 8% 5%

3% 6% 3% 5% 0%

17% 11% 3% 13% 0%

72% 76% 89% 74% 95%

24

A Yes – because of more rigorous ERM

B No – because regulatory oversight is imperfect

C No – because of inherent limitations of models

D Yes – because of more consistent insights into the pricing of risk

Q7. Do you consider that greater use of economic capital modelling will reduce or even eliminate the underwriting cycle?


Asia Pacific

Gen Y

6% 6% 13% 5% 0%

8% 11% 5% 19% 4%

72% 78% 58% 54% 79%

14% 6% 25% 22% 17%

Join the debateWe sincerely believe that insurance is a vital social and economic lubricant – and its role is becoming more important, not less. This role and the forces shaping its future must be clearly understood by governments, regulators, inter-governmental agencies, NGOs – and consumers.

Your views on these and other issues shaping the insurance industry of the future would be very welcome. You can join the conversation at:

Twitter: @kpmgglobal

LinkedIn: kpmg.com/socialmedia

Web: kpmg.com/intelligentinsurer

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

Clarence Darrow

Demographics Technology

EnvironmentSocial values

and ethics

This document is CONFIDENTIAL and its circulation and use are RESTRICTED.

© 2012 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. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

the intelligent insurer: creating value from opportunities in a changing world

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