Trends

1
Trends Opportunities in Insurance Markets

• E-business and More

2
The Internet Insurance

• The consumer insurance on-line
• Internet convenient time-saver
• Just another business on-line (B2C/B2B)
• Companies have problems with regulatory
  stipulations and location-specific rules

3
The Internet Insurance

• Financial services
• Stockbrokers first to make inroads
• Success due to
• Lower commissions!
• Improved services
• PC Insurance
• Some early successes
• And failures

4
PC Online Difficulties

• Products can be very complex (commercial and/or
  umbrella P/L policies)
• Claims adjusting settlement are decided on a
  case-specific basis
• Insurance is purchased infrequently
• Security issues
• Regulatory problems

5
PC Products

• Standardized products (all lines are not)
• P/L are the easiest and most suited to
  sell/market on the internet
• Parameters are small relatively constant
• Simple for customers to obtain price comparisons
• P/L online market share is rapidly growing

6
PC Products Distribution

• Lines requiring extensive advice and consultation
  are iffy for online business
• Large accounts could still benefit from online
  claims reporting and administrative services
• Large brokers can bundle several clients with
  similar needs together

7
PC Products Distribution

• Insurers can offer
• Personalization of products to consumer
• Faster response time
• Flexibility
• Risk management

8
Flow of Information

• Becomes a key factor for PC insurers
• To create value via challenging and changing the
  traditional methods of history
• Becomes a key factor to increase value via
  improving service to insureds
• Retention ratio (customers want to remain with
  their insurer)

9
Insurers the Web

• Insurers websites
• Different yet similar
• Company information
• Products
• Who to contact
• Some financial statements

10
PC Online Problems

• Infrequent purchases
• How to attract visitors to the website?
• Visitors for insurance are educated-consumers
  usually higher income-earners

11
PC Online Problems

• Aggregators now in the picture
• Clients often are referred to only one insurer
  aggregators deal with many
• Personal Auto may allow an easy comparison but
  many lines will not
• Infrequent purchases discourage any sort of brand
  loyalty among consumers

12
Changes Via Online

• Borders become irrelevant
• Call centres
• Outsourcing becomes important
• Size matters so does function

13
Barriers to Entry

• Independent broker network has put up a major
  barrier (in the past) to new entrants
• Internet offers an almost-immediate access to the
  PC market (at minimal cost)
• Branding becomes a problem

14
Costs of the PC Insurer

• Think Expense Ratio small compared to the ELR.
• Cutting expenses via the internet is good
  however, what about claims payments/settlements?

15
Online Insurers

• Lower rates lower expenses
• Becomes a margin squeeze
• Premiums beget market share, which begets more
  advertising dollars, and on and on
• Traditional insurers then react and the circle
  continuesfrom P/L into C/L etc

16
Brokers Change

• Independent broker faces a direct challenge
• Product information
• Price comparisons
• Internet provides both (above) more quickly
• Brokers must embrace the internet and utilize its
  capabilities to enhance their services

17
Benefits

• Decrease prices
• Eliminate barriers to entry
• Improve quality of service
• New business opportunities

18
Risks

• Technical problems
• Liability risk problems
• Size no borders means risk spreads containment
  is almost impossible
• Trust personal data misuse can backfire
• New companies new employees risk
• Outsourcing risk

19
Risks

• Credit risk
• Financial security/planning can be threatened
• Operating risk
• Outsourcing causes potential problems
• Ie. Cant do it yourself!

20
Credit Insurance

• Part of the financing needs process
• Big in Europe
• Consolidation hasnt slowed growth
• Less popular in North America

21
Credit Insurance

• Defined
• Provides coverage vs. risk for default or
  insolvency of buyer of goods/products
• Advantages
• Transfer of risk (potential loss)
• Servicing of A/R credit information collections
• Availability of better credit/financing

22
Credit Risk Management

• Is the buyer of product credit worthy?
• What is the maximum credit line to be extended?
• Information purchase can assist any organization
  to determine credit worthiness

23
Debt/Payment Collection

• Does a firm have the ability, time, and skill at
  collection of A/R in order to boost cash?
• What happens if default occurs?
• Who takes action? Who collects?
• Who determines whether more specific debt
  collection is necessary?
• Should the function be outsourced?

24
Credit Insurance Types

• Domestic credit insurance
• Export credit insurance
• Whole turnover insurance
• Specific amount insurance
• Proportional and non-proportional insurance

25
Credit Insurance or

• Factoring firm sells the title of its
  receivables for immediate cash
• Companies with strong relationships with their
  customers would not factor
• Letter of Credit an agreement guaranteeing
  payment of a draft

26
Growth Worldwide

• Dominant in Europe
• US is slow to grow/catch on
• Provide fewer services than European firms
• Exports are less important
• Availability of company data
• Transparency of company data
• Credit management is better handled in US

27
Worldwide Growth

• Asia after financial crisis interest has
  increased
• Latin America slow to develop market is open
  to credit insurance
• Volatility is hallmark of credit insurance

28
Growth Opportunities

• New markets new opportunities
• New services
• New products
• Factoring
• Information selling worldwide credit info and
  ratings (ie. Dun Bradstreet)

29
Internet Credit Insurance

• Three different uses
• Improve service reduce costs via new
  technologies
• Offering traditional credit insurance
• Offering new products and services (B2B)
• Substantial risk has evolved

30
Credit Insurance Strategies

• Business Strategies
• Information technological advantage unbundling
  services and separating from the insurance
  product
• Complete opposite bundling information and risk
  coverage separately

31
Credit Insurance Issues

• Competitive Issues
• Out-of-industry firms compete in the providing of
  company credit information (DB)
• Additional info can be easily and transparently
  obtained via companies via internet
• Credit insurers also have underwriting expertise
  and debt collection know-how

32
New Credit Products

• ABCP Asset Backed Commercial Paper
• A short-term discount instrument
• Credit Default Swaps
• Firm pays periodic fees to a counter-party in
  return for protection vs. impact of negative
  credit event
• Ie. Failure to pay, bankruptcy, default etc.

33
Future for Credit Insurers

• Opportunities
• Evolving into receivables mgmt companies
• New products to support B2B transactions

34
Four Pillars

• Insurance the Financial Services Market
• Europe market sectors retail and wholesale
• European market is same size as US market

35
European Retail Market Trends

• Demographics aging population
• Increasing demanding customers
• Importance of branding
• Increasing competition
• New entrants new methods/products
• Disappearing borders
• E-business e-commerce

36
European Wholesale Market Trends

• Changing customer needs
• Increasing self-insurance
• Market pressures
• Concentration/consolidation of brokers
• Specialization niche markets

37
Impact on Insurance Industry

• Blurring of traditional boundaries between
  banking and insurance
• Becomes an integrated market between the two
• Need for innovative products
• Distribution strategies will change via e-commerce

38
Impact on Insurance Industry

• Risk management new players pushing total
  financial integration of large risks
• Bancassurance impact - execution

39
Financial Convergence

• Ask
• What are the different types of institutions
  involved?
• Which structures are used to create financial
  conglomerates?
• What is the level of integration for all
  activities?
• How diversified are the financial conglomerates?

40
Convergence

• Bancassurance
• Banks selling insurance products
• Assurfinance
• Insurers selling financial products

41
Integrated Services

• Shifting from product-oriented supply to
  customer-focused focus
• All - finance in direction of personal
  financial planning and employee benefits
• All care family risk management and
  integrated risk management