7.-Role-of-regulator-in-enabling-the-digitization.pptx

BCG deck

1. Ljubljana, September 4th, 2017 Filip Glavan & Ákos Újlaki The Role of The Regulator in Enabling Digitization of The Insurance Industry

2. BCG has a strong presence in the SEE region and we offer international and local insurance know-how ... with experience across all major insurance topics Marketing & sales 90 Corporate Development 60 230 Digital/IT Health 60 Life 140 Organization/ HR 90 Non-Life 150 Operations 50 Claims 15 Reinsurance 10 Asset management 120 Trends/Strategy 210 BCG has strong global and regional presence... Source: BCG

3. Digitalization is changing the world as we know today Source: BCG Data explosion Pervasive Digitalization Enabling Technologies New Consumer New Market Forces Unprecedented visibility on customers, business, activates, market trends Omni channel, sensors, always connected Processing power, storage and robotics ready for AI and automation Ready to engage with brands, anytime, anywhere Disinter-mediation, sharing economy, crowdsourcing, etc. The world is changing rapidly, driven by technological advancement & data availability

4. Digital is fundamentally reshaping the competitive dynamics and customer expectations A more dynamically changing environment is underway Source: BCG New customer expectations Evolving technology Big data Cloud Internet of Things Wearable Devices Cognitive Computing Social, Local, Mobile InsTechs entering value chain Insurer

5. The emergence of new Generations further accelerates the digitalization - By 2027 in Slovenia Millenials will account for ca. 50% of the client base 2.0 2.5 4.5 5.0 3.0 3.5 4.0 1953 1947 1948 1949 1998 1999 2000 1995 1996 1997 1992 1993 1994 1989 1990 1991 1986 1987 1988 1985 1983 1981 1982 1980 1984 1946 1951 1950 1952 1979 1971 1972 1973 1974 1975 1976 1977 1978 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 1959 1958 1957 1956 1955 1954 Baby boomers, once the bedrock of large insurers, now only represents ~1/3 of potential target customers... ...and Millenials have very different expectations of customer service and channels to interact The new Generations of customers are digital natives Baby Boom Generation (1946-1964) ~75 million Generation X (1965 – 1980) ~66 million Millennial Generation (1981 – 2000) ~87 million Digital native index Year of Birth 1. U.S. Census Bureau, Population Division. 2014 estimate of population; Generations as defined by Pew Research Center, 2014 2. BCG digital satisfaction survey 2013 (n = 3,135), based on MaxDiff technique: consumers distributed 100 utility points across segments according to how positive they felt their online experiences are

6. Digital has already transformed numerous industries Digitalization is attacking the value chain of insurance companies Source: BCG Additive digital value Digital attacks value chain Digital dominates value chain Digital progress Impact of digitalization Public sector Construction Energy Insurance Automotive Agriculture Telco Banking Consumer Retail Logistics & mobility Media Analog competition Impact of digitalization is growing in all industries Transformations Digital competition Attackers

7. Yet, most insurers are lagging behind in delivering the right digital experience Source: Based on Morgan Stanley and BCG Insurance Customer Survey 2014; (n=500 p. countries: Australia, Canada, China, France, Germany, HK, India, Italy, Japan, S.Korea, UK, US); Average of European markets (UK, GER, FRA, ITA, ESP, PL, POR); average for property and casualty and life insurance; NPS of existing customers; BCG project experience Average Insurance Best-in-Class Insurance True Customer Orientation 50+ ~20 -12 Customer Satisfaction in Net Promoter Score … at Research … at Purchase … at Servicing Insurance customers dissatisfied with online journeys Net Promoter Score across online journeys

8. Digital can bring tremendous value by... Source: BCG Unlocking major inefficiencies in the current operating models Allowing better accessibility & higher insurance penetration Enhancing the relevance of insurers Shifting the focus from sheer loss compensation to prevention 1 3 2 4

9. There are typical challenges insurers are facing with digital Scale and business case Complexity of products Legacy IT system Hesitance to innovate Regulatory obstacles Source: BCG

10. Regulatory obstacles delay digitalization in SEE & CEE as well It is possible It is not possible No adequate data/regulation was found to answer the question Source: BCG Analysis N.A × Usage of e-signature Use of digital archiving × Identify the clients remotely (e-KYC) N.A ×

11. 2 Co p y r ight © 201 6 - 201 7 b y The Bo s to n Con s ulting G r ou p , I nc. A ll r igh t s r e s e r v e d . We see three main roles of the regulator in digital Enable digitalization of the core 1 Steer insurers' focus on new digital risks 2 Encourage genuine innovation 3 Source: BCG

12. Digitize the core Description Introduce digital solutions along the value chain of insurers (product development, back office, sales & distribution, etc.) allowing insurers higher efficiency and better quality of services Examples: Biometric signature, digital archiving, remote client identification Potential role of the regulator Serve as a sparring partner to insurers in introducing solutions to the industry which results in better insurance penetration. Open dialogue with the insurers on sharpening the regulation Flagship example Several regulators introduced a new formal channel with incumbents to share emerging trends, issues and requests for help – Call for Input Source: BCG 1

13. New digital risks Description Leverage digital tools and develop products addressing the risks arising from the digitalized lifestyle Examples: Cyber risks, identity theft, misuse of IoT data Potential role of the regulator Support insurers to cope with the new digital risks, create awareness on the risks to underwrite. Encourage insurers to educate and serve the market with products covering the new risks Flagship example Monetary Authority of Singapore has launched CyRiM public-private research project with the objective to better understand cyber risk & provide the insurers with data, know-how and specialized experts Source: NTU, BCG 2

14. Genuine innovation Description Introduce new or digitally-enhanced business model or offering which reshapes or disrupts the industry by challenging its foundations Examples: Artificial Intelligence, connected insurance Potential role of the regulator Create an environment welcoming & supporting genuine innovations which bring the end consumers additional benefits and strengthen the role of the insurance industry Flagship example FCA UK has established the Innovation Hub which provides support innovators to navigate in the regulatory system, to reduce the barriers to innovation whilst maintaining consumer protection Source: FCA, BCG 3

15. Steer insurers' focus on new digital risks 2 Monitor frequency & severity of new risks Increase awareness Consider legislative changes to assist penetration Co p y r ight © 201 6 - 201 7 b y The Bo s to n Con s ulting G r ou p , I nc. A ll r igh t s r e s e r v e d . What can be done to unlock the potential of digital? Enable digitizing the core 1 Define a common industry vision and goals Set up joint working groups to address efficiency hurdles one-by-one Encourage genuine innovation 3 Create a safe bay Increase awareness & confidence of InsurTechs Eliminate innovation hurdles Act as an independent arbiter (Regulator) Source: BCG

16. An inspiring example of cooperation between the Regulator & Insurers A tech savvy regulator can drive the digitalization of the industry Source: BCG Activities of the Monetary Authority of Singapore Created an entire unit dealing only with Digital & FinTechs Eliminates the efficiency barriers in cooperation with a network of stakeholders Dictates digital transformation pace through competition Facilitates increase of awareness about the digital solutions Fosters open banking/insurance platform via application programming interfaces (APIs)

17. The sandbox is an experimental environment where actual financial products and services are provided to customers within a well-defined space Failure is a feature of innovation and the aim of a sandbox is not be to prevent failure, but rather to provide appropriate protections to limit the impact of failure on consumers Source: FCA, MAS, BCG "Controlled environment": A well-defined space for a limited duration, within which institutions can experiment with innovative solutions in a relaxed regulatory environment “Consumer Benefit”: Innovation offers a good prospect of identifiable benefit to consumers

18. To significantly increase the digitalization of the industry Regulator and Insurers have to closely cooperate 17