General Insurance Update 2017 - Major forces and influences shaping our world and industry
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General Insurance Update 2017 Major forces and influences shaping our world and industry November 2017 kpmg.com/nz
i | KPMG | General Insurance Update 2017
To prosper and fuel New Zealand’s
economy, insurers must continue to adapt
their business strategies to respond to
changing customer needs, technology
advances and regulatory demands.
General Insurance Update 2017 | KPMG | ii
Contents
General Insurance Update 2017
1 3 7
Foreword Major forces and influences: Major forces and influences:
Shaping our world and the Preparing to disrupt and grow
general insurance sector
13 17 19
The best pathway to future Productivity is a strategic Augmented and virtual reality:
success explores new solutions imperative for New seizing the opportunity
and embraces failure Zealand insurers
23 27 33
Digital Labour in insurance Seizing the cyber The rise of digital ecosystem
insurance opportunity insurance products
35 45 47
Are you prepared? Our authors Our thought leadership
1 | KPMG | General Insurance Update 2017
Foreword
Jamie Munro – Partner, Head of Insurance
Major forces and international
‘mega trends’ are shaping the
Kiwi insurance industry. The way
everyday New Zealanders will buy,
manage, and use insurance could
become dramatically different.
Emerging technologies like artificial
intelligence, robotics and machine Augmented and virtual reality
learning, the Internet of Things Augmented and virtual reality are
and blockchain, are redefining expected to become multi-billion-
insurers’ operating models. Other dollar industries in the next few
major forces shaping the industry years and should create a multitude
include demographic change, ever- of new risks for individuals and
changing customer expectations and businesses. On page 19, Tuhi
preferences, the sharing economy, Isaachsen explains why this matters
and other innovation and productivity and how to seize the opportunity.
initiatives. In our first article, on
page 3, Nick Moss highlights these
The latest edition of major forces shaping our world.
our annual KPMG Our next article on page 7 draws
out the themes from our latest
publication, the KPMG Global CEO Outlook Survey of
nearly 1300 CEOs. Particular focus is
General Insurance provided on the views of insurance
sector leaders internationally, and
Update 2017, local perspectives from the New
Digital labour
highlights the major Zealand CEOs surveyed. We tested
those themes with the CEOs of the Next up on page 23, our resident
forces shaping three largest insurance companies
in New Zealand, and we share some
KPMG expert on cognitive technology
and robotic process automation, Karl
our world and the of their insights in this article. Arndt, explores what ‘digital labour’
might look like for the insurance
insurance industry. There is no doubt that innovation is
a top concern for insurance CEOs.
industry. Automation of manual
processing tasks across the value
In today’s market that means doing
Contributors to our publication have chain and optimisation of internal
things differently than in the past.
this year explored productivity, functions has the potential to deliver
We explore themes of innovation,
innovation and technology change better business outcomes and a
mindset, divergent thinking and
in the sector. For New Zealand’s better experience to customers.
productivity in our next two articles
economy to prosper, insurers will on page 13 and 17, from
need to adapt and innovate in Steven Graham and Dylan Marsh.
response to changing customer
needs, technology advances and The next four articles in our publication
regulatory demandschanging all highlight new opportunities
customer needs, technology for insurers, through innovation
advances and regulatory demands. and emerging technology:
General Insurance Update 2017 | KPMG | 2
Legislative and regulatory reform is There is change too, on the
also abound in the changing landscape. accounting front. The long-
Our previous annual publications anticipated insurance contracts
considered the reform of two major standard – IFRS 17 Insurance
New Zealand Crown entities with Contract – has finally been
fundamental connections to the published, heralding fundamental
general insurance industry: Fire and changes to international insurance
Emergency New Zealand and the accounting. The new standard
Cyber insurance
Earthquake Commission (the EQC). brings both benefits and challenges
New technology also brings a new The latter EQC reforms are anticipated for insurers. The date the new
range of cyber threats to both to come into effect in 2020. standard comes into effect
tangible and intangible assets, is 1 January 2021. That may
The International Monetary Fund
many of which are not covered seem a long way off, but the
released findings from its Financial
by established insurance policies, implementation effort required will
Sector Assessment Programme
leaving organisations of all types be significant, and insurers should
in July of this year. Their report
dangerously exposed to the impact get started now. We close on
declared the New Zealand financial
of cyber perils. On page 27, page 35 with our comprehensive
services sector to be resilient, but
Phil Whitmore addresses the assessment of the new insurance
also recommended ways to improve
cyber insurance opportunity. accounting standard, and pose
the strength of the country’s financial
the question, are you prepared?
sector, the regulatory framework, and
the intensity of supervision for both On behalf of KPMG, we
the banking and insurance sectors. hope you enjoy the read.
The Reserve Bank of New Zealand Please do not hesitate to contact
(the RBNZ) has since embarked on one of the team at KPMG to
a legislative review of the Insurance assist your organisation in
(Prudential Supervision) Act 2010. addressing any of the matters
Through the release of an issues paper raised in this publication.
and an industry consultation process,
the RBNZ received extensive feedback
The digital ecosystem
from insurers and market participants.
In our final article of the series on Those industry submissions
page 33, Martin Blake from our are currently under review.
Australian practice considers the
rise of digital ecosystem insurance
products. Alliances with technology
partners are creating opportunities
for insurers to improve distribution
and reach through partner
technologies, methodologies
and distribution channels.
3 | KPMG | General Insurance Update 2017
Major forces and influences:
Shaping our world and the
general insurance sector
Nicholas Moss – Director, Audit
Geographically isolated? Perhaps. In
every other sense, we are undoubtedly
connected to the global community.
On a people level, we see this in
both emigration and immigration
statistics. A 2016 study by Statista1
identified New Zealand as having
14.1% of its citizens living overseas, Rise of the individual – advances
ranking it second only to Ireland in global education, health and
at 17.5%. Looking at this from the technology have helped empower
other way, more than one million individuals like never before, leading to
of us currently living here in New increased demands for transparency.
Zealand were born overseas.2 Eighty percent of Kiwis are worried
about the future and whether or not
What about global megatrends enough is being done to ensure that
– forces that impact everyone on New Zealand remains a safe and
the planet? Even in New Zealand? healthy place to live. Interestingly,
And, if New Zealand, what about despite the fact that Kiwis are
New Zealand – the general insurance sector?
Let’s first take a look at some of
becoming increasingly committed to
green and sustainable lifestyles, only
2,155 kilometres the megatrends and how we see 31% of us will buy more fair trade or
them playing out in New Zealand. ethically, socially and environmentally
from Sydney, friendly products over the next year.3
9,145 kilometres One would expect this percentage
to grow if we act on how we feel.
from Hong Kong,
14,185 kilometres
from New York and
18,325 kilometres
from London.
1 https://www.statista.com 5 http://www.stats.govt.nz 9 http://www.radionz.co.nz
2 http://www.stats.govt.nz 6 Natalie Jackson, Massey University 10 http://www.icnz.org.nz
3 Colmar Brunton, 2016 Better Futures Report 7 Natalie Jackson, Massey University
4 https://www.nbr.co.nz 8 http://www.icnz.org.nz
General Insurance Update 2017 | KPMG | 4
The sharing economy – this economic Urbanisation – almost two-thirds The environment – rising greenhouse
system takes unused assets and of the world’s population will reside gas emissions are causing climate
unlocks value by matching ‘needs’ in cities by 2030. Over this time, change and driving a complex mix
and ‘haves’ in ways that create greater Auckland is expected to grow by 52%. of unpredictable changes to the
efficiency and access. This is not new to How does this compare to the growth environment. Whilst not scientific,
New Zealand – local examples include expected in some of our regions? a simple analysis of the natural
BookaBach (2000), Holiday Houses Bay of Plenty – 22%, Waikato – 28%, disasters published on the ICNZ
(2003), Holiday Homes (2004), Look Taranaki – 19%, Otago – 19% and website over the last three decades
After Me (2011) and Harmoney (2014). Southland – 8%.6 indicates New Zealand experienced
30 natural disasters between 1988
and 1997, 51 between 1998 and 2007,
and 66 between 2008 and 2017.8
New Zealand is also not immune
to the impact of rising sea levels.
A 2015 report to the Parliamentary
Commissioner for the Environment
reported that New Zealand has 43,683
houses within 1.5 metres of the high
tide level and 8,806 houses within
Enabling technology – information Demographics – higher life
0.5 metres of it.9 In September 2017,
and communications technology (ICT) expectancy and falling birth rates are
the ICNZ warned that up to 70,000
led primary sector revenue growth in increasing the proportion of elderly
New Zealand properties may be
2016 (up by 17.3%). Financial services people in populations across the
uninsurable within 20 to 30 years.10
technology recorded the highest world. What are we seeing in New
percentage gain (31.2%).4 Zealand? In the 65+ age bracket,
expected growth to 2033 is 33% in
Auckland, 61% in Wellington, 69% in
Christchurch and more than 100% in So, we can see that New Zealand is
many of our regions.7 not isolated from global megatrends.
Now let’s take a look at how some
of these trends are playing out in
the insurance sector – particularly
personal lines. We’ll do this by
breaking down the insurance value
chain into four basic components:
Economic power shift – New Distribution, Product design and
Zealand’s trade relationship with China underwriting, Claims, and Capital
has nearly tripled over the past decade, and investment management.
with two-way trade rising from $8.2
billion in 2007 to $23.0 billion in 2016.5
5 | KPMG | General Insurance Update 2017
Distribution Product design and underwriting
The notion that insurance is a low- —— Cross-industry collaboration: 98% Product design ultimately needs to
engagement industry in which of New Zealand CEOs surveyed focus on what the customer wants and
customer relationships can be in KPMG’s Global CEO Outlook respond to evolving customer needs.
delegated to brokers is becoming Survey agreed that they’re more
open to new influences and Take the expansion of the sharing
increasingly obsolete. Distribution
new collaborations than they economy. An article by the BBC
models are changing to focus on
have been at any other points in forecasts that the sharing economy
understanding the customer better
their careers. In New Zealand, will be worth NZ$465 billion globally
and improving the quality of customer
we are now seeing the likes of by 2025, with NZ$5 trillion of idle
interactions through technology.
The Warehouse and Countdown assets across the world.11 The sharing
offering a range of both life and economy brings with it new types of
—— Channel digitisation: A growing
general insurance products, and business model and risk that general
number of New Zealand insurers
we expect this trend to increase. insurers may not have had to deal
have digital capabilities. For
with previously. These include the use
some, this remains limited to —— Role of the agent: As insurers
of personal property for commercial
the ability to provide online move to digitally enabled
purposes, high-frequency transactions
quotes. However, increasingly, distribution models, we should
(assuming that each transaction
capabilities are being expanded expect the role of the broker
has to be underwritten and priced
to include quotes, purchasing to change as well. Expect the
individually), low premium amounts
cover and lodging claims. broker of the future to be digitally
per transaction, less control over how
—— Insight-driven customer and social media savvy, and
assets are used (with a degree of
experiences: More and more, increasingly willing to cross-
variance between transactions) and
insurers are transitioning from a sell, provide more complex
significant reliance on external data for
product-focused sales process to advice and build stronger
underwriting, pricing and claims. The
one that is centred on the needs rapport with customers.
ability to insure new business models
of the customer. For example, —— The Internet of Things: The use efficiently may also require updates
Accuro Health Insurance, a New of telematics is not widespread to a country’s laws and regulations.
Zealand-owned health insurance in New Zealand. In contrast, in
provider, recently released a places like the UK, the use of In places like Australia and the UK, we
service called HUGO. This is an telematics is common in motor are seeing innovative new products
underwriting engine that guides products. Average motor premiums such as on-demand insurance.
users through a series of simple are comparatively cheap in New Companies like Trōv are looking to
questions determined by a Zealand because bodily injury address the issue of redundant/wasted
complex system which asks only losses are not part of the cover. As insurance cover – such as separate
the questions needed. The result a result, it can be hard to justify the cover taken out for a device, which
is that customers complete only additional expense of telematics may then remain at home and could
a simple, tailored questionnaire for marginal improvements to be covered by contents insurance.
and, in many cases, receive an loss ratios. Overseas, the focus Trōv’s on-demand insurance can
instant, fully underwritten and is turning increasingly to the be ‘turned on’ and ‘turned off’ all
personalised contract online. use of telematics and sensors from a personal phone. How long
in areas such as homes and will it be until we see this type of
buildings, and health and fitness. cover offered in New Zealand?
11 http://www.bbc.co.uk
12 http://www.mckinsey.com
13 http://www.oxfordmartin.ox.ac.uk
14 http://www.mckinsey.com
General Insurance Update 2017 | KPMG | 6
Claims Capital and investment management
Let’s consider an insurance policy that A recent McKinsey study12 noted that In July 2017, Swiss Re announced
pays out conditionally, based on the automation can reduce the cost of a that it is switching US$130 billion
quantity of rainfall in a given month. claims journey by as much as 30%. into ethical investments. Institutional
Does an insurer need the customer An Oxford Martin School13 study investors are increasingly looking
to notify them of a claim if all the forecasts that the traditional roles of at how companies perform on
required information is available from insurance appraiser and insurance environmental, social and governance
external sources? A smart insurance claims processing clerk have a 98% (ESG)-related issues, given the
contract stored on a blockchain waits chance of becoming computerised potential for poor behaviour to
until the predetermined time, retrieves within 20 years. Outside of the claims lead to share price hits. Increased
the weather report from an external process, the traditional role of an pressure on companies to be
service and behaves appropriately insurance sales agent was given a transparent about how they perform
based on the data received. Whilst the 92% likelihood of computerisation against ESG-related metrics is
concept of smart insurance contracts is within 20 years and, of an insurance being seen in New Zealand too.
still relatively new, it may well pave the underwriter, a 99% likelihood. In May 2017, the New Zealand Stock
way forward for the insurance industry.
If the use of robotics in the Exchange (NZX) released a new
Be it blockchain or some other form claims process is the future, Corporate Governance Code, which
of technology enablement, we expect let’s consider what the claims follows a three-tiered structure of
the insurance claims process of process might look like.14 principles, recommendations and
the future to be far slicker than the commentary. The Code is effective for
more traditional claims process. In What is striking about this example is reporting periods ending 31 December
October 2017, the FMA granted an that it is not particularly complex. One 2017. One such recommendation is that
exemption from our current financial would imagine that a new entrant, not issuers should provide non-financial
advice regime to allow personalised hindered by legacy systems, could set disclosure at least annually, including
robo-advice to foster innovation and up this kind of process relatively easily. consideration of material exposure to
improve customer access to advice. environmental, economic and social
This exemption was strongly supported sustainability risks. Issuers should explain
by industry participants following a how they plan to manage those risks
consultation process and is a sign that and how operational or non-financial
the use of robotics in the New Zealand targets are measured. The Code
insurance industry may not be far off. requires issuers to comply or explain.
Whilst the new NZX Corporate
Governance Code is relevant only
From To to NZX-listed entities, every New
Zealand insurer should consider its
shareholders and its own ESG-related
Customer waits on hold Claim reported instantly through performance. New Zealand insurers are
to report claim responsive mobile site or carrier app generally well supported by offshore
parents and reinsurers, and the
Lengthy first notice of loss call Automatic data collection success of the New Zealand insurance
to give information on claim based on simple questionnaire, industry is reliant on their continued
photo upload and sensors support. We only have to look at the
regeneration of Christchurch to see
No transparency on Proactive updates sent via email, how New Zealand has benefited from
status of claim SMS and online messengers this offshore support. Total insurance
of NZ$33 billion being applied to
Communication with human Communication with chatbot a population of around 360,000 is
adjustor to check for status and via digital channels unprecedented worldwide – and a large
share additional information proportion of this has been funded
via phone and email during by offshore parents and reinsurers.
normal business hours
Payments triggered manually Payments triggered automatically Our next article, authored by Jamie
and deposited directly into Munro and Nicola Raynes, explores
customer’s bank account ‘where to from here’ and provides
a snapshot of views from CEOs
and insurance sector leaders.
7 | KPMG | General Insurance Update 2017
Major forces and influences:
Preparing to disrupt and grow
Jamie Munro – Partner, Head of Insurance and Nicola Raynes – Director, Financial Services
There are multiple challenges
facing the industry and these
“As the leading
are forcing bold decision-making
around where to invest, where
insurer in NZ, it is
to grow and where to change. our responsibility to
In a market where customer
preferences and demands are
be leading change.
changing and disrupters are shaking The skill is in how
up the business operating models
of old, insurance companies need to we transform our
adapt their outlooks and strategies
and focus on continuous business business, growing
transformation to remain competitive.
This is not an easy task in a low- customer relevance,
profit-margin environment!
simplifying
Anticipating what customers are
thinking, what competitors are our business
Picking up from Nick doing and which environments an
organisation might have to operate and delivering
Moss’ opening article in (be it technological, geopolitical or
amazing customer
environmental) is at the forefront of
on major forces and any CEO’s mind. And whilst we all experiences.”
wish a crystal ball were on hand to
influences, it comes help guide us through these dilemmas,
Craig Olsen
we need, instead, to ensure that
as no surprise that, the mindset of the organisation,
CEO, IAG New Zealand
at present, insurance and particularly that of the CEO, is
one which is open and adaptive to
companies are facing emerging influences and changes.
a huge balancing act, We see this thinking coming through
loud and clear in the results of the New Zealand perspectives
which will become latest KPMG Global CEO Outlook
Survey. In 2017, for the first time, With the Kiwi ‘can-do’ attitude
even more prevalent New Zealand participated in KPMG’s shining through in the responses,
our CEOs were generally upbeat
global survey of nearly 1,300 CEOs.
as we move into More than 100 were insurance sector about the future. New Zealand
CEOs see themselves as open
leaders while 51 were New Zealand
the future. CEOs from a wide range of market to collaboration and technological
sectors, including insurance. disruption, viewing the disruption as
an opportunity, rather than a threat.
1 51 New Zealand CEOs from across a range of
market sectors participated in the KPMG Global
CEO Outlook Survey in 2017.General Insurance Update 2017 | KPMG | 8
Mindset Trust Adaptability
We’re talking about adopting a New Zealand CEOs feel a growing Being open to new ideas and
growth mindset and being open to responsibility to represent the best collaboration is a hallmark of New
opportunities. New Zealand CEOs interests of their customers. Zealand CEOs — and openness
agree that they’re more open to new is seen as the way forward.
Companies are placing greater
influences and collaborations than They keep the door open to the
importance on trust, values and culture
at any other point in their careers. management table so that new
to sustain a long-term future. Trust
They see the benefits of orientating specialist skills areas are covered.
in leaders and in collective purpose
their organisations around purpose
inspires and motivates employees, They adopt flexible approaches to
by adjusting the collective mindset to
in organisations large and small. business strategy and planning.
one that is overwhelmingly positive.
New Zealand CEOs are increasingly Our Kiwi DNA enables adaptability
New Zealand CEOs see technological
focused on prioritising trust as a and New Zealand CEOs recognise
disruption as much more of an
core part of their products, services the importance of adaptability,
opportunity than a threat. Despite
and their brand, and building especially in times of change, which
the shortage of locally based talent
loyalty with their customers, are challenging for every organisation.
in this sector, for now, we remain
people and other stakeholders.
able to attract people with the
appropriate skills, perhaps because
of our appealing lifestyle. And those
who operate in New Zealand in the
technology sector tend to punch above
their weight on the international front.
From the New Zealand CEOs surveyed:
100% felt an increase in
responsibility to represent
the best interests of
90% see technological
disruption as more of an
opportunity than a threat.
82% are spending more time on
scenario planning than they
have ever done before.
the customer.
98% agreed that they
correlate being a more
90% expect a major disruption
in the coming three
years as a result of
78% are investing more
significantly in the
Internet of Things.
empathetic organisation technological disruption.
with higher earnings.
96%
are confident about their
growth prospects over
88% are actively disrupting rather
than waiting to be disrupted.
the next three years.9 | KPMG | General Insurance Update 2017
Insurance perspectives A view on disruption
From the international survey
results, insurance CEOs were also
confident about change, and see
themselves disrupting the sector: for
example, through collaboration with
InsurTechs, and the use of artificial
intelligence and robotics. But is the
30%
scale of self-disruption in the market
and the adoption of technologies
driving real transformational We see technological
31%
change? That remains in question.
That is not to say it won’t happen
– sometimes ‘testing the water’ is
disruption as more
of an opportunity
than a threat
19%
better than a big-bang approach.
However, the scale of change is
rapid and organisations need to be
16%
conscious that decision-making
around responses to that change
needs to be equally swift to
04%
ensure they are not left behind.
Insurance CEOs may be confident
in their current market position,
but they also recognise that they
face an uncertain future where
new innovations, technologies and
operational risks will upset the status
quo and catalyse further disruption.
43%
As insurers start to transform their
organisations and embrace new
My organisation is
37%
models and technologies, the risk
landscape is changing. In fact,
according to insurance CEOs, the
actively disrupting
the sector in which
we operate
09%
most concerning risks today are
those related to people, processes
and emerging technology.
07%
Changing market, environmental
and geopolitical forces are driving
insurance companies globally
03%
towards spending more time
focused on scenario planning.
As each company identifies and
monitors emerging risks and trends,
it will need to develop its future
according to these to ensure it
maintains a competitive placement
in an ever-evolving market.
36%
This is essential, if a company is
to ensure that it can sense market We expect major
17%
signals, understand the needs of disruption in our
customers and, thus, prioritise the
use of its time and investment for
sector in the coming
3 years as a result of
11%
changes that will ignite growth technological innovation
and solidify market positions.
In response, New Zealand insurers
27%
and their global counterparts
are moving to optimise and
align their operating models,
10%
processes and distribution
channels to accommodate the
preferences of customers.
Source: CEO Outlook, KPMG Internation al 2017
Strongly agree Agree Neither Disagree Strongly disagreeGeneral Insurance Update 2017 | KPMG | 10
Top of mind risks
“At Suncorp
New Zealand, we
29% 19% are creating a
connected network
of brands, partners,
36% 33% solutions and
Emerging technologies Operational risk channels. We are
creating a market
place to meet
13% 42% New Zealanders’
needs and to
support them in the
27% 26% key moments that
Talent Cyber matter in their lives.”
Paul Smeaton
Source: CEO Outlook, KPMG Internation al 2017
CEO, Suncorp New Zealand
A 2016 A 2017
It is imperative that insurers in this situation – without this, “as the challenger in the market,
clearly articulate their customer CEOs and their management teams we believe disruption provides us
value propositions. The new are not working with a full deck with a significant opportunity, our
insurance CEO must lead with a of cards and will not be able to size provides us with the ability to
high level of emotional intelligence make the right decisions for their move faster and be more nimble than
that really understands what customers and their people. the larger industry incumbents.”
motivates a customer.
Efficiency in insurance operating Harding sees the big opportunity as
The insurance sector is not alone in this models is a continued area of “how we use data and partnerships
challenge and there is much still to do focus and should be integral in the to change and improve the claims
for it to become fully customer-centric drive to adapt operating models, process… customers are buying a
– for instance, only 50% of insurance processes and distribution channels promise to be protected in the future,
CEOs globally say they have aligned to the new market environment. we need to innovate and use data to
middle and back-office processes to improve our fulfilment of that promise.”
Whilst new technologies can be
become more customer focused.
brought in to improve the time The potential for a non-traditional
Data insights is, therefore, an required to service the customer, provider, such as one of the
essential cog in the transformation for example, a holistic review of technology giants, Amazon or Apple,
journey of an insurance company. the end-to-end processes, which to step into the market adds to a
identifies pain points and blockages, clear imperative for the industry to
There is a real concern amongst
is needed to avoid merely pasting continually challenge itself and evolve.
insurance CEOs, both from New
wallpaper over the cracks.
Zealand and across the world, that
poor data quality is inhibiting innovation We also tested themes from the So what could this mean?
and effective decision-making for global survey with the CEOs of the For a start, imagine seamless
change. Business information and data three largest insurance companies customised solutions during key
is not robust enough and there are in New Zealand, and we share some life events; insurance along with
gaps in customer data which hinder of their insights in this article. banking and legal advice as well as
the depth of customer insights that relevant services — for example,
So how fast can existing players
insurance companies can obtain. when buying a house or a vehicle,
react and change their own business
Great technology can drive innovation models? Richard Harding, CEO of or getting married or divorced. The
and enable creativity. Investment is Tower Insurance commented that new reality will be tailored insurance
needed to rectify the inadequacies effortlessly delivered, and responsive
to your changing situation.11 | KPMG | General Insurance Update 2017
CEO of Suncorp New Zealand, Paul
Smeaton, says, “At Suncorp New
Zealand, we are creating a connected Five takeaways as insurance CEOs prepare to disrupt and grow.
network of brands, partners, solutions
and channels. We are creating a
market place to meet New Zealanders’ Disruption is long-term
needs and to support them in the key CEOs are aware that their businesses
moments that matter in their lives.” need to significantly transform in
Imagine car insurance on demand if
01 order to meet changing customer
demands and optimise business
you are going away for just a few days.
and operating models. However, it
Your cover might also take care of any
may take some time and significant
roadside assistance or accommodation
effort before the benefit of this
needs. You’ll be able to turn your cover
transformation can be fully realised.
on and off using your phone or tablet.
And insurers can provide
access to more services that
fit at that right moment.
Customers are key
Craig Olsen, CEO of IAG New CEOs have sharpened their
Zealand, agrees. “As the leading organisational and personal focus
insurer in NZ, it is our responsibility 02 on the customer and have made
to be leading change. The skill is in efforts to align processes to improve
how we transform our business, customer relationships. Yet most still
growing customer relevance, have a long way to go before they can
simplifying our business and delivering say that they have truly differentiated
amazing customer experiences.” themselves from their competitors.
Internationally, insurance sector
leaders highlighted their people as
being critical to their future success
and something they worry about. Risks are changing
This theme resonated with all the
CEOs are concerned about the
local CEOs we spoke with. Craig
changing risk environment and worry
Olsen of IAG underlining that “talent 03 that their transformation efforts
is paramount, not only in the current
may be creating additional risks
environment but also in looking
for the business. As a result, firms
ahead to the workforce of the future
should be concentrating on their
and creating the work environment
governance and control environments
that retains and attracts talent.”
as well as core capabilities such
as program management.
The future is eveything
CeOs will need to understand their
strategic positioning for the future
04 and what it means for their innovation
strategy. This will require significant
foresight and bold decisions, particularly
as new business models emerge
and evove within the industry.
Focus for results
CEOs will want to be more strategic
with their investments. With
05 budgets remaining tight, CEOs will
need to be focused in the way they
invest, targeting technology and
investments that truly compliment
the business model and future
direction of their organisation.General Insurance Update 2017 | KPMG | 12
Preparing to disrupt and grow
So, if tomorrow belongs to those who
prepare for it, what are some of the
things we could be doing to prepare?
1
Prioritise strategy and investment
for trust – integrate the impact
of trust into business cases;
understand how product
and service attributes can
influence trust to achieve long-
term sustainable growth
2
Adapt the governance and
management framework for
increase focus and quality of
engagement to create new value
3
Invest in scenario planning to
become an organisation that
is truly fit for transformation
4
Fuel the adaptability
with innovation focused
on the customer
5
Consult widely: with technology
strategists and advisors, innovators
and millennial coaches
6
Establish and empower advisory
groups within your business to
tackle specific strategic issues
and launch growth campaigns
7
Consider the skills and capabilities
your workforce will require
in the future – find talented
people with both global skills
and emotional intelligence13 | KPMG | General Insurance Update 2017
Ensure future success by exploring
new solutions and embracing failure
Steve Graham – Director, Head of Digital Futures
Assuming we want In this hyper-disruptive age, insurance
firms face unprecedented challenges:
to stay relevant, the emerging customer expectations, new
business models, global competitors,
question is, “Have insurtech start-ups, technology
solutions, robotic processing, and
you agreed to the a myriad of emerging trends and
issues that are likely to have an
future you will impact on the status quo. Most of
choose to pursue?” these predicaments are new and
emerging and require leaders to
abandon habitual ways of responding.
The New Zealand
insurance industry Scenario
s
is in the throes of futu
re
le
disruption, but the ul
tip
M Assumed Future
more provocative
twist would be Past Present
Scenario
challenging industry
incumbents with Preferred Scenario
the hypothesis: “If
you do nothing, you Scenario
will quickly decline Straight-line thinking
into obsolescence!”General Insurance Update 2017 | KPMG | 14
2 3
1
Prevalence
Time
A mindset of emerging possibilities Divergent thinking
—— Traditional approaches may not leadership, is often ignoring the The capacity to integrate divergent
be effective in a highly volatile, need to lead from the emerging leadership capabilities will also be
uncertain, complex and ambiguous future. In exploring this territory essential in the era of new thinking.
world. Consequently, changing more deeply, we realised that Insurance organisations need to think
our mindsets may be the most most of the existing learning of ways in which to combine the
significant approach to maintaining methodologies relied on learning viewpoints of various types of leader:
relevance and reframing these from the past, while most of
1. Traditional leaders – architects
challenges into opportunities. the real leadership challenges
of past success, who were born
—— According to Otto Scharmer, “The in organisations seemed to
in the ‘pre-disruption’ era, are
quality of results produced by any require something quite different:
comfortable with the status quo
system depends on the quality of letting go of the past in order
and are reliant on tried and tested
awareness from which people in to connect with and learn from
management approaches.
the system operate. The formula emerging future possibilities.”
2. Disruptive leaders – people who
for a successful change process —— Otto goes on to highlight the
are actively looking for change,
is not ‘form follows function,’ but notion that energy follows
experimenting with new business
‘form follows consciousness.’ We attention: “Wherever you place
models, thriving on disruption
cannot transform the behaviour your attention that is where the
and eagerly seeking new skills.
of systems unless we transform energy of the system will go.
the quality of attention that people ‘Energy follows attention’ means 3. Intrapreneurial leaders –
apply to their actions within that we need to shift our attention people who are impatient with
those systems, both individually from what we are trying to avoid to the present, open to future
and collectively. A blind spot of what we want to bring into reality.” possibilities and perceiving trends
and signals that are obscure to
others, while anticipating the
business models of tomorrow.15 | KPMG | General Insurance Update 2017
Customer-centricity versus Competition is within Accelerating change
product-centricity
Noel Condon, CEO of AIG in Australia, According to KPMG global research,
As we race towards a rapidly shifting said that his firm could consider taking insurance organisations need to
emergent future, we need to focus our on the big two of the New Zealand accelerate their transformation efforts
attention on re-imagining the customer market – IAG and Suncorp. “We are if they hope to live up to their growth
journey and moving from product- increasing pricing, staying the course and market ambitions. Insurance
centricity to customer-centricity. and we are trying to take on the big sector research has revealed five
guys,” Condon said. “Actually, we key takeaways as insurance CEOs
Design thinking, human-centred
are going to take on the big guys prepare to disrupt and grow:
design and journey mapping are all
because I think they have a big piece
customer-centric approaches that —— Disruption is long term – it may
of the home insurance market over
break the mould of organisation- take some time and effort before
there and it is time for disruption.” Raj
centricity in order to move to customer- the benefit of transformation
Nanra, CEO of general insurance at
empathetic ways, thus enabling firms can be fully realised.
Zurich Australia, continues the theme:
to understand genuinely the goal- —— Customers are key – most
“75% of that market (New Zealand)
driven journey of targeted customers. CEOs still have a long way
is controlled by two carriers and there
Customer insight is paramount is opportunity to disrupt for Zurich”. to go in improving customer
to survival! Understanding the relationships and in truly
Although existing markets will differentiating themselves.
behavioural drivers implicit in the
be exposed to increased global
consumption of general insurance —— Risks are changing – firms should
competition, insurance firms will
reveals the customer circumstances, concentrate on their governance
need to look within at their abilities
preferences, habits and goals that and control environments
to adapt to the increasing pace of
underpin the organisational energy and core capabilities.
change; these may, in totality, be
necessary for shaping future offerings. —— The future is everything –
better indicators of future success.
Hindsight, insight and foresight CEOs need to understand their
are all valuable components of the strategic positioning and innovation
collaborative process in designing strategies for the future.
new services. They are essential —— The focus is for results –
for working in conjunction with CEOs need to be focused in
the customer at the centre, with the way they invest, targeting
insights from frontline staff and technology and investment that
with a sophisticated real-time-data truly complement the business
analytics capability that enables your model and future direction.
company to respond, intervene and
adapt as rapidly as change itself. Your
competitors will be using unstructured
and structured data to look for patterns
(machine learning) that may not have
been detected! The best way to tackle
these issues is with a new mindset,
customer-driven empathy, and rich
qualitative and quantitative data.General Insurance Update 2017 | KPMG | 16
Hope Confidence
Swamp of despair
Insight
Innovation and failure –
two sides of the same coin
common: they all go through the Where do we start? Start by
“At the beginning of a project, we
swamp of despair. Accepting that this developing and expanding your
feel hope; at the end, we might feel
is an integral step for moving from organisational capability to glean
confident, but in between there is
‘Hope’ to ’Confidence’, as opposed insights about customers; through
a negative emotional valley labelled
to avoiding it, will serve you well. the lens of emergent futures, we
‘insight’ and during this phase,
are enabled to take a more robust
it’s easy to become downhearted Despite the volatile market conditions
approach to anticipating change.
because it’s immensely difficult to causing a tumultuous riptide of
Invariably, your organisation will
figure out what to do next.” Tim change, the question remains:
have identified the key drivers and
Brown, CEO of IDEO, the world- “How do we adapt to the forces of
assumptions that underpin your
class purveyor of Design Thinking, change?” We tend to respond in
evolving business model, regularly
goes on to say: “Encourage people one of two ways. Either we freeze,
revisiting these indicators as part of
to ‘seek out Failure’ because it’s the instinctively attempting to swim
the monthly strategic conversation.
only way for genuine growth to occur. against the tide, reverting to old
This approach will be fundamental to
Without failure, our work stagnates. patterns or, less commonly, we open
identifying and communicating your
Without failure, we’re not frustrated up ourselves to the uncertainty and
firm’s role in the future. This shared
enough to seek new solutions to vulnerability of the unknown journey.
view of the future inherently creates
the challenges we’re confronting.” This journey is littered with failure
a shared context in which to focus on
but, if we embark on it, allowing the
I recall reading a story about Tim internally driven disruptive innovation.
force to carry us forward, it moves
Brown and how he concluded As the saying goes: “Disrupt yourself
us towards an uncertain but well-
that all projects have one thing in or others will do it for you”.
thought-through horizon of success.17 | KPMG | General Insurance Update 2017
Productivity is a strategic imperative
for New Zealand insurers
Dylan Marsh – Associate Director, Performance
At the same time, the insurance
industry faces a barrage of
challenges, such as the following:
—— A shifting and broadening of —— Inconsistent use of internal
customer expectations. The and external services. Sourcing
expectations of some groups of versus internal capability
customers are shifting, creating versus specialisation versus
a different and broader set of managed services adds
expectations and needs. complexity, bureaucracy and
unnecessary cost burdens.
—— New competition. New forms
of competition are entering —— The regulatory and compliance
the market; they are geared burden. This burden continues
for innovation and the ability to to grow unfettered.
cherry-pick markets, and are —— Staffing and operating models.
not constrained by physical Staffing levels and salaries have
infrastructure or geography. grown consistently over time, with
—— Product portfolio complexity. low spans of control and a skew
The New Zealand Product portfolios have expanded towards non-customer-facing roles;
this is particularly so in head-
to provide a greater range of
insurance industry options for customers, raising the office and supervisory functions.
levels of complexity and increasing —— Reliance on third-party origination.
has seen its cost frontline time requirements. This results in sub-scale and
base expand over These bring into question the
profitability of different products.
inefficient physical distribution
channels and service.
the last five years.
Consider that, in
2012, there was
a cost of 31c for
every dollar of net
premium earned.
By 2016, this had
risen 14% to 35c
– an increase of
$180 million for
the industry.General Insurance Update 2017 | KPMG | 18
New business models and So how can an insurer rethink its —— revert back to core by
advancements in technology promise approach to productivity to achieve exiting non-core businesses,
to improve productivity and respond both? Typically, a successful products and markets.
to industry challenges yet, in practice, financial services firm is pursuing —— develop strategic outsourcing/
many senior business leaders struggle cost productivity in a consistent offshoring propositions and
to look beyond the complexity inherent way. For example, it will: partnerships to leverage
in their organisations; this constrains scale and innovations.
—— leverage analytics and
their ability to respond. This pressure
customer insights to focus —— work persistently towards
focuses senior leaders on optimising
productivity improvement and digitisation and simplification
the current cost base for profitability,
rationalise customer, channel of end-to-end processes
delaying focus and investment
and product investment. and products.
that will position their businesses
to navigate future challenges. —— improve customer satisfaction —— transform technology through
by aligning acquisition and infrastructure, changing delivery
We strongly support the need to service resources to the and system/platform rationalisation.
continue to invest in the medium needs of priority segments, Leading financial services firms are
term but it is clear that a radically creating a nimbler corporate tackling these challenges through
different approach to productivity is core and management layer. clear business-wide strategies that
required to release resources and
—— optimise channels by designing are built on tangible insights and that
create financial capacity to invest
cross-channel experiences draw from the innovation of others
in transformation while delivering
that fit seamlessly into the – both within financial services and
acceptable financial results.
lives of customers – while still from other sectors (e.g. technology).
offering economical options.
—— ensure that customer coverage
is refocused on sectors and
segments that deliver value.19 | KPMG | General Insurance Update 2017
Augmented and virtual reality:
seizing the opportunity
Tuhi Isaachsen – Director, Global Strategy Group
We estimate that these risks could result in annual net losses
of around US$20 billion, some of which could be covered by the
insurance industry; this presents a new growth opportunity
What is augmented reality? What is virtual reality?
“A technology that superimposes “The computer-generated simulation
a computer-generated image on a of a three dimensional image or
user’s view of the real world, thus environment that can be interacted
Augmented and providing a composite view.”1 In this with in a seemingly real or physical
article, we categorise ‘mixed reality’ way by a person using special
virtual reality (believable virtual objects visible in the electronic equipment (such as a
real world) as ‘augmented reality’.
(AR and VR) are helmet with a screen inside, or
gloves fitted with sensors).”2
expected to become
multi-billion-dollar
industries in the
next few years and
should create a
multitude of new
risks for individuals
and businesses.
1 Definition of augmented reality from Oxford 3 A car crashing into a tree in New York driven by 4 Pokemon Go: Two men fall more than 50ft off cliff
Dictionaries online: https://en.oxforddictionaries. a US Pokémon Go gamer, The Independent, 14 while playing mobile game, The Independent, 14
com/definition/augmented_reality July 2016. http://www.independent.co.uk/life-style/ July 2016. http://www.independent.co.uk/news/
2 Definition of virtual reality from Oxford Dictionaries gadgets-and-tech/gaming/pokemon-go-car-crash- world/americas/pokemon-go-men-fall-off-cliff-san-
online: https://en.oxforddictionaries.com/definition/ new-york-a7137261.html diego-android-ios-app-a7136986.html
virtual_realityGeneral Insurance Update 2017 | KPMG | 20
Why this matters Emerging risks on the rise
As AR and VR products and services
become more widely accepted by Health risks Behavioural risk
society, a range of major risks is Personal accidents caused by negligent
likely to evolve, including information There are already reports that female
players may have hit the headlines users of VR spaces experience
security, privacy violation, virtual but VR experiences can also cause
harassment and motion sickness. All frequent harassment; this is a
serious side effects, including nausea problem that could escalate when VR
these risks need to be considered and dizziness. A VR session could
when making underwriting decisions. becomes mainstream. We believe the
affect your ability to drive safely perception of ‘limited responsibility’
For example, the recently or carry out hazardous workplace in a virtual environment, which is
successful AR game, Pokémon tasks. Companies are already faced already prevalent on the internet, might
Go, has been associated with with high costs associated with cause frequent destructive behaviour,
multiple accidents, as reported: sickness and we believe employers including in business situations.
will be keen to avoid additional
—— a car, driven by a US Pokémon absences created by AR and VR.
Go gamer, crashing into Privacy risks
a tree in New York3
Security risks We are entering an environment where
—— a pair of men falling off a cliff every head/eye movement is tracked
while playing Pokémon Go.4 In the short term, risks should be and every conversation in a virtual
We believe this is just the mostly related to AR games, which, environment can be recorded, and this
beginning of losses related to AR by their nature, involve interaction with data is shared with any AR and VR app
and VR. By swiftly addressing the real world. AR users increasingly provider. Serious data leaks are likely to
growing customer concerns, the engage actively with the technology, become more frequent and impactful,
insurance industry has a potentially taking photos and capturing videos on as relatively unsafe applications start
significant revenue opportunity. devices that often track geolocation storing unprecedented amounts
data. The safety of this information of detail about the behavioural
depends largely on user behaviour: characteristics of their users.
how actively they share their AR
experiences on social media and how Insurance carriers and brokers are
freely they share their information well placed to seize the opportunities
with AR application providers. and begin addressing these
emerging risks. But, if they delay
their responses, we expect three
market developments could drive
disintermediation of traditional insurers.21 | KPMG | General Insurance Update 2017
Market disruption from outside
the industry – or insurtech
Augmented and virtual reality
companies could form cross-sector
partnerships or even establish their
own insurance arms, leveraging
their customer networks and
detailed customer behaviour data.
Technology companies are attempting
to enter the insurance industry
and further sector convergence.
Third party specialists
could seize prevention and
response support services
In an environment where insurance
cover is not available, customers
may seek alternative means of
mitigating their exposure. Prevention
and response solutions (for example,
measures to minimise data security or
privacy risks) will be key. Specialised
agencies are already actively involved
in providing risk management and
response services for other risks, and
would be well placed to step in.
Influx of alternative capital as
carriers unwilling to provide capacity
Alternative capital solutions could
show inflated rates, as insurance
carriers hesitate to provide capacity
until they are more familiar and
comfortable with risk quantification.
This could incentivise alternative
captial holder to step in as some AR
and VR risk categories might provide
uncorrelated returns that would be
used for diversification purposes.General Insurance Update 2017 | KPMG | 22
The way forward for insurers Business enhancement Underwriting discipline
We believe the usage of AR and VR Utilise AR and VR technologies Consider how various applications
devices should increase exponentially to improve the effectiveness and of AR and VR technologies are
in both the consumer and commercial efficiency of insurance businesses. changing risk profiles for existing
space over the next few years. For Real-time information for claims products, and determine whether or
many businesses, these technologies adjusters, 3D modelling and not underwriting policies and specific
could be seen as interesting simulations are some of the product health wordings need to be
new tools to improve customer applications that might improve realigned. We expect AR and VR
experience and drive efficiency; customer appeal and drive technologies to impact the loss ratio
however, customers require peace profitability for insurance players. of existing products significantly (e.g.
of mind and reassurance that they for categories like personal accident
are protected should something and liability, cyber insurance may
go wrong. Insurance solutions intentionally or unintentionally cover
provide a suitable response to these some of the AR and VR-related risks).
emerging risks and the opportunity Therefore, some adjustments might
is likely to be there for the taking. be needed to price these policies
We believe there are several areas accordingly. Furthermore, some
executives need to address in order specific AR and VR technologies might
to seize this significant opportunity: require ‘spin-off’ products that provide
customers with optimal coverage.
Strategy and tactics
Identify those AR and VR risks that
are likely to be too big to ignore in
particular markets at specific times,
and decide where to play and how
to win. For example, analyse the
take-up rates of various AR and
VR technologies across industries
and segments, and consider
Market intelligence behaviour differences of users, to
assess the likelihood and potential
Invest in market intelligence in
impact of various risk factors.
emerging AR and VR trends and
pioneer the development of new
solutions – instead of reacting to
customer issues too late. A critical
success factor is to understand
the ways in which the industry
drivers are changing the future risk
landscape, as well as to identify
and profile future customers.23 | KPMG | General Insurance Update 2017
Digital Labour in insurance
Karl Arndt – Associate Director, Consulting
What is Digital Labour?
Digital Labour, or robotic and Enhanced Process Automation
cognitive automation, describes (Class 2) takes this further. It has
the continuum of technologies that built-in knowledge and the ability to
companies can use to automate have an understanding of human
business processes and operations. communication, to recognise patterns
and to understand unstructured
Robotic Process Automation (RPA)
data to support machine learning.
is Class 1 (see diagram below): the
simplest form automation takes. It Cognitive Automation (Class 3) is the
addresses rules-based transactions most advanced class of automation.
and processes that follow explicit, This uses artificial intelligence and
defined steps, and often works across a range of other inputs to automate
multiple platforms and systems to processes that require cognitive
deliver an integrated process. intelligence, either augmenting
or entirely replacing humans.
Digital Labour is
positioned to impact
the insurance
industry, automating
manual tasks across
the value chain
and optimising
internal functions
to deliver better
value for money
to customers.You can also read
