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10 Predictions for Insurtech in 2017

It’s time to reflect on the passing year, mark my predictions from last year and throw some light on what I see 2017 holding in store.

In my post from this time last year, I made a number of predictions, so, now, I wanted to look at how I did. Feel free to jump in and see how close to the mark I was and share your perspectives.

Reviewing 2016 — How did I do?

1. Fintech and insurtech.  In last year’s piece, I said that 2015 was the year of the zone, loft, garage and accelerator and that this would continue in 2016 with more focus. Regarding fintech and insurtech, I was right. We have seen some heavyweight investment (more so in the U.S. and Asia) and no major failures, to my knowledge. Trending up. Points: 1. 

2. Evolution of IoT. In 2015, I wrote, “2016 will be the year we all realize (IoT) is just another data/automated question set.” Evolution here is continuing, but not at the pace I expected. New firms such as Concirrus (and many others) have come up with some great examples of managing and leveraging the ecosystem. Points 2.

3. Digital and data. At the end of last year, I said 2016 would continue to be a big area of growth for both. There’s been progress, yes, and pace and traction ahead of what’s expected. Points 3.

4. M&A will continue but will slow. I think this has slowed this year, with two of the three major regions in the latter half of the year focused on Brexit and the U.S. election. Now, folks are trying to work out where that leaves fintech/insurtech. Points 4.

5. Will the CDO Survive? I said I thought we’d see a move back to the chief customer officer. Well, no sign of my chief customer officers yet! (Although, after writing this, I came across three chief customer officers, so it’s a start). Have you ever asked an insurance company or people inside the company “who owns the customer?” To me, we’re still product-centric rather than customer-centric. Points 4.

6. New business models. I said last year that we’d need to be clear on what the new business model will be — and what it needs to be. This year, there’s been lots of talk in this area, including here at Deloitte in our Turbulence Ahead report. We identified four business models for the future: 1) Individualization of insurance, 2) Off-the-shelf insurance, 3) Insurance as utilities and, finally, 4) Insurance as portfolio. It may take longer for this to materialize, but, without doubt, these models are coming. See my colleague Emma Logan describe these here. Points 5.

7. What we buy and sell. I believed that, last year, we’d move away from a product mindset to become more relevant and convenient. But we’re still in talking mode, although the ideas here are evolving rapidly. Expect an all-risks policy in Q2 2017. Points 5.

8. Cyber is the new digital. There has been an increase in the number of products and players, but there still hasn’t been any personal cyber policy. I expect that to come in 2017 still. Points 6.

9. Partnerships and bundling. In 2015, I thought we’d see a big rise in the partnerships between insurers and third parties. That’s happened. Points: 7.

So I’m marking my 2015 predictions as 7/9 (or 78% ) — a good effort, but I may have been a bit too ambitious.

See also: 4 Marketing Lessons for Insurtechs  

Moving into 2017

Re-reading the above, I still feel all my predictions are valid, be it the end of the CDO, the birth of personal cyber or an all-risks policy. I’ve been involved in enough conversations over the last 12 months to say these are all very real, although some are closer to seeing the light of day than others.

Moving into 2017, here are my top 10 trends to watch:

  1. Speed. Almost all conversations about insurance start with a statement that we’re not moving quickly enough — from transforming and modernizing the legacy estates to quite simply getting products to market quicker. We can no longer wait six months to launch new or updated products. Look at those who managed to capitalize on Pokemon Go insurance cover. In insurance, we’ll move from fast walking to jogging and sprinting. But take caution: This is still a marathon, and there’s still a long way to go. In fact, as Rick Huckstep wrote recently, the sheer speed at which the insurance market has grown in the last 21 months is part of the challenge and attraction.
  2. AI, cognitive learning and machine learning. AI has been long bandied around as a material disruptor. On the back of collecting/orchestrating the data, it’s critical to drive material insight and intelligence from this and allow organizations, brokers and consumers to make subsequent decisions. In 2017, AI will come of age with some impressive examples, including voice. In 2016, we saw Amazon’s Echo and Google Home product launches, as well as some insurers — like Liberty Mutual — giving voice a try. Imagine asking freely, “Am I covered for…?” or, “What’s the status of my claim?” Adding this skill to the mix will likely be table stakes. In addition, AI will augment other solutions to drive value, e.g. robotic process automation, which I wrote about here. All this boils down to getting a better grip on the amazing data we have already while leveraging the vast open data sets available to us.
  3. Line of business focus shift. The insurtech world will make a definitive shift from all the wonderful personal line examples to SME (the next obvious candidate) and to more specialty and complex commercial examples. Will Thorne of the Channel Syndicate wrote a great piece on this in November. While the challenges are harder and more complex, I believe the benefits are greater once we get to them.
  4. Believers. The market has polarized somewhat between those who believe in major innovation and are pushing hard, and those who don’t (or have a different focus and near-term objectives). The range is from those who worry about the next 90 days/half-year results to those who are actively looking to cannibalize their business and investing to find the most efficient way to do this. Here, there’s no right or wrong, with hundreds of organizations strewn across the path. I still believe more will move to the cannibalization route as the first carriers start to unlock material value in 2017, including continued startup acquisition. Oliver Bate (Allianz) had an interesting and positive perspective on this during his company’s investor day in November.
  5. Scale and profitability. Over the last 12 to 18 months, I’ve seen some great startup organizations; internal innovation and disruption teams; VCs; and more. Now is the time to work out how we industrialize and scale these. This is the very same challenge the banking and fintech communities are going through. If you’re an insurance company with 30 million or 80 million global customers, should you be worried about Startup X that has 10,000 or 100,000 customers? If they do manage to scale, can they do so profitability? This reminds me of a recent article about how unprofitable Uber is, but, with millions of engaged customers, they have our attention now. Profitability will become front and center. In fact, Andrew Rear over at Munich Re Digital Partners put together a good post on what the company looks for and why he and the team chose the six they did.
  6. Orchestration. With all of these startups in insurtech, we’ll need to quickly understand what role they play. Are they a platform play, end product play, point disruptor or something else? Regardless, given the volume and velocity of data generation, the importance of both API connectivity and the ability to orchestrate it will increase dramatically. For me, these are table stakes.
  7. External disruptors. In the Turbulence Ahead The Future of General Insurance report released earlier this year, we identified six key external disruptors that are happening regardless of the insurance industry. These are 1) the sharing economy, 2) self-driving cars and ADAS, 3) the Internet of Things, 4) social and big data, 5) machine learning and predictive analytics, and 6) distributed ledger technology. The key for me within insurance is to identify what role we’ll play. I believe we’ll continue to firmly be the partner of choice for many given our societal and necessary position in the global economy.
  8. Micro insurance. Here, I specifically mean the growth of micro policies, covering specific risks for specific times. Whereas we typically annually see 1.1 policies per customer, we’ll see eight to 10 micro policies covering a shorter period (episodic or usage-based insurance) as per our business models described in the Turbulence Report. This will be true for all lines of business. We’ve already seen some great launches in this space — including Trov, which partnered with Munich Re in the U.S., AXA in the U.K. and SunCorp in Australia. There’s been global access through partnering with established players that has created a new way to market to the next generation. While we switch this on manually by swiping left and right (given some of the external disruptors and location based services), this will very much be automatic going forward. Insurers will need to find new ways to orchestrate, partner and find value to bring in clients. It won’t be just one policy, it will be many that they orchestrate to deliver clients everything they need.
  9. Blockchain and DLT. I almost didn’t include blockchain here, but two factors have led me to include this for the first time: 1) the number of requests we’re now seeing in the market for both specific solutions and more education/use cases and 2) the fact that nine of the 18 startups in the FCA’s new Sandbox are blockchain-related. In 2016, we saw lots of PoC examples, trials and the first live insurance product on the blockchain (see: FlightDelay). Some use cases are more developed than others, and some markets are more suitable than others (I’m still looking for good examples in personal lines), so I believe this will evolve in 2017 but that there won’t be scale breakthroughs. However, along with the World Economic Forum, I firmly believe that “The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector.” We still must ask, “why blockchain?” Just because you can use it? It needs to be the right solution for the right business problem. Horizontal use cases such as digital identity or payments offer compelling use cases that can easily be applied within insurance. In many ways, blockchain, for me, feels much more like an infrastructure play in the same way we would do core systems transformation (policy, claims, billing, finance, etc.)
  10. Business as usual — for now! Partly related to No. 4, we still need to run our business. How we do this and how we set up for the future will be another challenge — not just from a technology perspective but from a people and organization design perspective. (How we work, collaborate and more.) What are the transition states from our current models to a new world in 12, 24 or 36 months. Forward-thinking organization are putting plans in place now for their organizations in the years to come. This will become more important as we embed, partner and acquire startups and move toward new ways of engaging and working with customers.

Interestingly, there are now also so many accelerators, garages, hubs, etc. that startups all now have a lot of choices regarding where to incubate and grow. This presents a whole new challenge on the rush to insurance disruption.

See also: Asia Will Be Focus of Insurtech in 2017  

Finally, there are two other observations I wanted to share:

  1. China. While I don’t spend any time in China, it’s hard not to be in awe of what is going on — specifically, the speed and scale at which things are happening. China’s first online insurer, Zhong An, did an interview with Bloomberg regarding what the company is doing with technology (including blockchain) and, more importantly, its scale ($8 billion market cap in two years, 1.6 billion policies sold) — and the only concern from the COO, Wayne Xu, is that the company isn’t moving quickly enough! Step away from this and look further to what’s happening with disruption in general with Alipay and others from the BAT (China’s equivalent of GAFA — Baidu, Alibaba and Tencent) is simply amazing. There’s a good FT article on Tencent, the killer-app factory, and the sheer speed and scale of disruption.
  2. Community. The global insurtech (and fintech) community is an amazing group of people from around the world who have come together across borders and time zones to further challenge and develop the market. Each geography has its own unique features, mature players, startups, labs, accelerators, regulators and, of course, independent challenges. We don’t always see eye to eye, which makes it all that more rewarding because you’re challenged by industry veterans and outside-thinking entrepreneurs. This year’s InsureTech Connect in Las Vegas with more than 1,600 people was truly amazing to see. Things have clearly moved far beyond a small isolated hive of activity with varying levels of maturity to a globally recognized movement. It was great to meet and to see so many carriers, startups, VCs, regulators and partners looking to further the conversation and debate around insurance and insurtech. This community will, no doubt, continue to grow at a fast pace as we look for insurtech successes, and I look forward to seeing how the 2017 discussion, debate and collaboration will continue.

As always, I look forward to your feedback! What I have I missed?

Here’s to an exciting 2017!

Health Issues: a Rising Economic Threat

Heart disease, lung cancer and other non-contagious health issues, many of which are at least partially avoidable through changes in lifestyle, are costing the economy hundreds of billions of dollars every year. Today, non–communicable diseases (NCDs) are already responsible for half of all deaths worldwide – and this figure is projected to increase by 17% over the next decade.

Of particular concern for businesses: More than half of those affected by NCDs are of working age. This is why this isn’t just a human tragedy, it’s an economic one — which is why combating the rise of NCDs should not only concern public health authorities.

It could even be a sensible investment for encouraging future economic growth: The World Economic Forum estimates that costs related to NCDs will account for as much as 4% of annual global GDP by 2030. That is a staggering $47 trillion.

Perhaps surprisingly, these silent illnesses are affecting more people in the developing world than in the developed. The greatest increase, 27%, is projected in Africa, with sub-Saharan countries stuck with the worst predictions. In lower-income countries, it is primarily respiratory diseases that are the biggest killer, often linked to smoking and poor air quality, while heart disease and stroke, associated with sedentary lifestyles, are the biggest killers in richer countries, according to WHO data.

The rise of NCDs is increasingly undermining the productivity of workers all over the world and has devastating effects on the economic potential of the poorest of nations. Boosting the health levels of employees and participating in public-private partnerships to reduce the impact of NCDs in wider society should be seen as a profitable strategy, not a burden.

In Depth

Two myths surround non-communicable diseases: that they primarily affect people in wealthy countries and that they are a disease of the old.

Historically, that was the case. Cancer, diabetes, respiratory or heart diseases were an illness of the developed world, largely caused by risk behaviors such as smoking, drinking, living a sedentary lifestyle and having a bad diet. Today, of the 38 million people who die each year from NCDs, 28 million live in developing countries. That is a 40% increase since 1990.

“While it may seem easy for businesses to ignore this trend, especially in markets with government-centric health systems,” says Jim Winkler, chief innovation officer of Aon Health, “organizations need to focus on the adverse impact poor health has in the ability for working people to do their jobs effectively.”

Business leaders are beginning to take notice. The World Economic Forum’s Global Competitiveness Report shows that about half of all business leaders worry that at least one of the four biggest NCDs (heart disease, cancer, diabetes and lung disease) will hit their company’s bottom line, especially where the quality of local healthcare is poor.

A disproportionate 80% of deaths from NCDs are premature, taking the lives of people during their most economically productive years. The WHO says that 23% of Indonesian people between the ages of 30 and 70 are expected to die from NCDs. In the U.S., this figure is 14%.

“Chronic and complex diseases such as heart disease, diabetes and other obesity-related conditions lead to declines in physical output, mental acuity and emotional resiliency,” Winkler warns. All of these will affect productivity — which is why this is a growing crisis not just for people’s health but also for the global economy.

The Economic Burden of NCDs

Hundreds of studies have linked individual NCDs with economic losses. The World Economic Forum and the Harvard School of Public Health estimate that people dying of heart disease in India (26% of all deaths) will cost the economy $2.7 trillion from 2012 to 2030. Along with other NCDs and mental illnesses, the total economic loss — measured by taking into account money spent by health providers on treatment and the reduction in the number of working people due to deaths — will be two and a half times the country’s GDP in that period.

Productivity losses for businesses due to NCDs can be measured by calculating the cost of Disability Adjusted Life Years (DALYs), sick leave, unemployment and days lost by caregivers. In Nigeria, more than half of stroke survivors take a year and a half to return to work. A comprehensive study by the European Journal of Epidemiology found that the workplace productivity of stroke victims’ caregivers also continues to fall one to two years after they become carers. The same study found that, in the U.S., absenteeism one year after a cancer diagnosis costs the economy $20.9 billion annually. Aon’s European Sick Leave Index report, meanwhile, found the average direct cost per individual sick leave day was at least €160.

How Can Business Help?

The WHO has put combatting NCDs at the forefront of its agenda, with businesses playing an important role in helping stop the spread of the epidemic. The 2013–20 Global Action Plan for the prevention and control of NCDs calls for a collaboration between states, NGOs and the private sector to develop affordable strategies that would help prevent the continued rise of these diseases.

The cost of inaction far outweighs the potential economic benefit of taking action on NCDs. The WHO calculates that implementing its Global Action Plan proposals would come in at just $1.20 per person per year.

Business leaders are increasingly aware of the benefits that health programs bring to the organization. Aon’s 2015 Health Care Survey found that the top change U.S. employers want to implement in their rewards system to appeal to the 2020 workforce is “more opportunities and support to connect health and wealth.”

The spread of NCDs is a trend that businesses should not ignore. They are increasingly taking the lives of people during their most productive years and have a huge impact on productivity before, during and after their development. The question is not whether businesses should act upon this global epidemic, but how.

These initiatives not only save lives but help businesses reduce healthcare costs and productivity losses. For instance, Johnson & Johnson’s health and wellness program saved the company $250 million on health care costs over 10 years. The return on investment was $2.71 per dollar spent on tackling smoking and physical inactivity.

To tackle this growing global crisis, targeting the risk behaviors that increase the chances of dying from NCDs is key. This is where businesses can have a significant impact — by improving availability of healthy food, promoting physical activity, setting up programs to help employees quit smoking and giving better access to preventative healthcare.

Talking Points

“The challenge… goes beyond health ministries… Non-communicable diseases undermine productivity and result in the loss of capital and labor. These costs are unbearable and clearly call for innovative solutions and an all-of-society approach, with strong partnerships between government, the private sector and civil society.” – David Bloom, member of the World Economic Forum Global Health Advisory Board and professor at the Harvard School of Public Health

“Creating an effective, collaborative response against NCDs requires cross-sector and cross-industry action – it can’t be achieved by any one business, nor one sector alone.” – Dr. Fiona Adshead, chief wellbeing and public health officer at Bupa

“We should encourage individuals to make the smart choices that will protect their health.  Exercise, eat well, limit alcohol consumption and stop smoking. We can do more than heal individuals — we can safeguard our very future.” – Ban Ki-moon, secretary-general of the United Nations

This article originally appeared on TheOneBrief.com, Aon’s weekly guide to the most important issues affecting business, the economy and people’s lives in the world today.”

Further Reading