Tag Archives: Michael Morrissey

Mutual Insurance: Back to the Future?

Mutual companies, which are operated for the benefit of their member-owners and are not controlled by outside investors, have been experiencing a moderate period of growth following the recent financial crisis as policyholders have retreated from stock-owned institutions. Mutuals’ share of the world insurance market increased from about 24% in 2007 to a little more than 26% in 2014. Their share was much higher in the late 1980s and early 1990s, before a surge of de-mutualizations in a number of developed countries took place.

One of the challenges facing mutuals is new, risk-based regulatory capital standards and the introduction of tougher corporate governance arrangements that are designed to boost the resilience of individual insurers and curb excessive risk-taking. The requirements could put some mutuals at a competitive disadvantage. However, the biggest challenge to mutuals comes from digital technology, which is profoundly changing the competitive environment for all insurers.

Existing mutual insurers recognize the need to innovate, and some are on the front lines of change, promoting digitalization in all areas of operations. Some smaller, more traditional mutuals, however, still remain slow to adapt. The growing development of peer-to-peer (P2P) insurance platforms, which enable individuals to share risks among themselves in much the same way that affinity-based mutual insurers do, has also had an impact.

Find the full report here.

A Shift to Service, Away From Price?

According to the U.S. Small Commercial Insurance Study, after three years of declining rates, insurance providers are no longer able to compete primarily on price and are now focusing their efforts on ways to please their customers.

The payoff is a significant increase in satisfaction among their small business commercial customers, with a 30-point improvement in overall satisfaction in 2016, to 823 on a 1,000-point scale, up from 793 in 2015.

The study, now in its fourth year, examines overall customer satisfaction and insurance shopping and purchasing behavior among small business commercial insurance customers with 50 or fewer employees. Overall satisfaction is composed of five factors (in order of importance): interaction; policy offerings; price; billing and payment; and claims. This marks the third consecutive year when satisfaction has improved.

The study finds that interaction improved the most among all study factors, increasing 32 index points from 2015. Within that factor, website performance showed the largest jump year over year (up 36 points), followed by agent/broker (up 34) and call center (up 28). Interaction is driving the overall increase in satisfaction.

This is the only J.D. Power insurance study in which Gen Y is the most satisfied generation. As expected, Gen Y businesses have been operating for a much shorter time, but they typically have higher revenues than the businesses of their baby boomer counterparts (51% of Gen Y business customers report annual revenue of more than $500,000, compared with 42% of baby boomers).

The study found that American Family, Allied and Nationwide hold the top three positions in terms of satisfaction.

Find more on the study here.

InsurTech Need Not Be a Zero-Sum Game

This summer, I have attended a number of disruption/innovation insurance industry conferences in London that often, to varying degrees, come down to a debate regarding the extent to which InsurTech startups will be able to come and eat the lunch of industry incumbents. There is little argument that, should the insurance industry fail to better engage with its customers and continue to poorly communicate its social value in protecting people, communities and assets somewhere else will transform what today for many is a “grudge transaction” into a delightful relationship.

However, I believe InsurTech does not have to be a zero sum game. I am a proud member of the International Insurance Society (www.internationalinsurance.org) led by Michael Morrissey. In Singapore at the IIS annual conference, a keynote presentation was delivered on the recently formed Insurance Development Forum (IDF). The IDF was formally launched in April and is a collaboration between the insurance industry, the World Bank, the UN and various other institutions. The IDF is chaired by Stephen Catlin, with Rowan Douglas leading the Implementation Committee that includes industry heavyweights such as Dan Glaser, Nikolaus von Bomhard, Greg Case and Inga Beale. Its mission is to incorporate the insurance industry’s risk management expertise into governmental disaster risk reduction and to give insurance a larger role in providing resilience to communities all over the world.

In a speech at the conference, IDF Chairman Stephen Catlin noted, “We talk about innovation and new products. The reality is we are not even selling well the product we know and love dearly.” I believe the less insular InsurTech community — with its diverse skills sets (often from outside of the insurance industry) — can help insurers start to address the obvious misunderstanding consumers, governments and regulators share of the social value of the insurance product. Sam Maimbo of the World Bank, who sits between deep technical insurance teams and the public sector, noted he spends 70% of his time explaining what the industry has to offer. Addressing this communication gap has parallels to what many InsurTech companies are trying to do in providing better engagement with consumers than is currently provided.

There is real opportunity for InsurTech to work with the insurance industry in addressing blockages in the system that, if unlocked, would drive increased demand and grow the overall insurance pie. We are seeing a bit of this in microinsurance with companies like MicroEnsure and Bima providing low-cost insurance solutions to customers that, before recent technological advances, were just not possible. For instance, we need to see more examples of smart contracts founded on blockchain technology. In Africa, it is now possible to buy crop insurance through a mobile device that pays out based on a parametric weather-related trigger through a blockchain-validated third party source that almost eliminates the cost of handling a claim.

I am confident we are at the start of this kind of innovation and look forward to seeing more InsurTech companies look to grow the overall industry pie for the benefit of themselves and society as a whole.

Asia

Insurance Implication in Asia Slowdown

The 20th century has been described as the American Century, with solid justification. From modest beginnings (the U.S. did not have one of the world’s 15 largest armies before World War I broke out), the U.S. became a virtual unipolar political and military force by the year 2000. As the world evolves, the 21st century is often referred to in its early years as the Asian Century. With more than 40% of global population and rising economic and military power, it’s easy to see why forecasters saw things that way.

In just the second decade of the century, though, the so-called Asian Miracle has show some slippage. A sharp slowdown in economic growth, most visibly in China but experienced region-wide, has prompted a reassessment of Asia’s prospects, certainly including prospects for the insurance industry.

Two recent visits to the “Greater China” area have given me some updated insights into the issue. In late January, I spoke at the annual conference of the China Insurance Regulatory Commission and the Insurance Society of China, visiting some major insurers while I was in Beijing. This past week, I spoke at the Asia Insurance CEO Summit in Hong Kong and called on several CEOs there and in Singapore. From both life and non-life perspectives, the comments were basically consistent.

China, the Asia Pacific’s economic driver, has been growing at near-double-digit rates over the last few years and has lifted the entire region’s GDP growth. Now it is clear that China has overbuilt industrial and residential capacity, saddling its bank with enormous leverage and likely huge loan write-offs. Its slowdown has had a ripple effect throughout the region, and for insurance leaders has forced a reexamination of growth prospects.

For the Asia countries with mature insurance markets, notably Japan, South Korea and Taiwan, and for materials-export-driven Australia, this deceleration has meant a sharp reduction in revenue growth. For the countries with less-developed insurance markets and low insurance penetration, there is still room for optimism. In China, for instance, a reduction to 6% to 6.5% annual economic growth over the next five years, as anticipated in the newly promulgated government Five Year Plan, would still likely produce annual premium growth for the country of around 15%. Double-digit annual volume growth is also likely for most of the ASEAN Union countries, as the combined effect of economic growth and increased insurance penetration occurs.

The key factor, of course, is rising penetration. While the most developed countries of Western Europe and North America tend to have insurance premiums in the range of 8% to 10% of GDP, in most of Asia the figure is less than 3%. In spite of the news headlines about the Asian economic slowdown, whether we are now just experiencing a pause or a long-term slowdown, growth prospects for insurance there are still the best in the world.

How Insurance Helps End Hunger, Poverty

These remarks were delivered at the United Nations Sustainable Development Summit on Friday, Sept. 25, 2015.

Good afternoon, excellencies, ministers, ladies and gentlemen. My name is Mike Morrissey, and I’m president and CEO of the International Insurance Society. We are a nonprofit research and idea exchange organization representing life and non-life insurers, as well as regulators and risk management scholars, from nearly 100 countries.

Professor Shawn Cole of Harvard, a world-leading expert in development economics, has said, “Risk is one of the greatest challenges faced by poor people around the world.”

This can be seen as the risk of flood, earthquake, hurricane or cyclone. It can also be experienced as crop failure, livestock mortality, illness or death of a family member or in food or water security. The ability to manage and finance risk is therefore a key element in the development of societies, and thus in alleviating poverty and hunger.

The insurance industry has played a key role in this effort by expanding access to risk protection and risk management advice, for centuries in the developed world, and now very broadly in Sub Saharan Africa, South Asia, Latin America and in other less-developed areas. With nearly one billion people living on about one U.S. dollar a day, this form of social protection is vital, since the poor are often those most exposed, just one loss event away from calamity for themselves, their families and their possessions.

At the UN Insurance Sector Summit, which took place at the ECOSOC Chamber here last June, I sat next to Secretary General Ban Ki-moon as he complimented the insurance industry for its vital role in mitigating and reducing risk and thereby raising living standards where help is needed most. But he also called for the industry to do more in the future, and so the industry continues to innovate in ways that offer more protection for more people, and makes a major contribution to reducing poverty and hunger.

A few examples are worthwhile to make the insurance industry’s role clear.

German Insurer Allianz is a world leader in microinsurance, the protection of low-income people. Allianz provides crop, livestock and other coverage for 125 million farmers in India and China, and participates in the Africa Risk Capacity pool to insure governments against natural catastrophes. Peruvian insurer La Positiva has tailored agricultural coverage for rural farmers who have limited access to communications and healthcare. A new Bermuda-based venture called Blue Marble Microinsurance has developed savings and protection products, among them some linked to poor women’s key life-cycle triggers.

These efforts, and many more like them, link the worlds of finance and development, expanding access to protection from the unique set of risks faced by the world’s poor. Through our industry’s efforts, and through public private partnerships with governments and international institutions to capitalize on both the risk assessment and long-term investing capabilities of insurance organizations, the sustainable development goals of ending extreme poverty and hunger can and will be achieved.