Stark message for insurers: digitise or die
“Digitise or die” sums up the future for insurers.
That is the view of Laura Hay, global insurance leader for professional-services firm KPMG, who believes industry players must harness cutting-edge technology or face losing out to tech-savvy rivals.
Ms Hay, who visited the island for a meeting with insurance clients last week, said many insurers around the world were struggling with the pace of change.
Among the strongest trends in the industry recognised by KPMG is “digitise or die”.
“Digitisation is hard, but it's already here,” Ms Hay said. “It's a today thing, not a tomorrow thing.”
She cited the example of Zhong An, a Chinese online insurer launched jointly by insurer Ping An with Chinese e-commerce giants Alibaba and Ten Cent.
“It started in 2013,” Ms Hay said. “Today there are more than 500 million customers and it has premiums of more than $1 billion. The average premium size? $1.49.
“It reaches the underserved market — 60 per cent of their policyholders are aged between 25 and 30 and they're buying insurance through their phones.”
Such businesses, based on partnerships between insurance companies and technology firms, unencumbered by legacy issues, could increasingly become competitors for established insurers, Ms Hay said.
Efficiency is one of the most pressing issues for the industry that technology can help to address.
“On average, 25 cents of every dollar in premium is going to operations,” Ms Hay said. “It's an area that needs to be fixed. You can see it's a challenge for the industry.”
Of more than 1,500 insurtech start-ups, more than 300 were focused on infrastructure and back-end parts of the value chain, she said.
Companies grappling to make technological advancements were rethinking their business models and “moving from do-it-yourself to working with others”, she added.
An indication of this was that CEO respondents in a KPMG survey saw more likelihood of cross-border partnerships and alliances in their future than cross-border M&A activity.
“Insurtech funding rose from $2.2 billion in 2017 to $4.2 billion last year,” Ms Hay said. “In the US, 75 per cent of that funding came from insurance companies. That's important because it shows that one, we get we have to partner, two, insurtech's the right way and three, we're putting money behind it.”
Many companies had introduced technology, but tactically rather than strategically, while two-thirds said they were struggling with the pace of change.
The big challenge with insurtech was building up to scale, she added.
A related trend in the industry is the growing importance of data, described by KPMG as “the new oil”.
Ms Hay said that Traci Gusher, principal, data and analytics for KPMG in the US, estimated that on average insurers use about 20 per cent of their data, the structured data stored in rows and columns.
“They spend a lot of time on that 20 per cent,” Ms Hay said. “But the big competitive advantage is about capturing the unstructured data, which is about understanding behaviours better, moving more towards risk prevention and data from call centres, social media, and all of these areas we are nowhere near harnessing.”
She said there were several tools available in this space, citing KPMG's intelligent underwriting engine, which, she said, receives 13,000 exogenous signals in real time and brings the data together with a cognitive algorithm to support underwriting decisions.
“That's an example of technology used to capture the data and make sense of it to make it useable,” she said.
“More of this is coming in the next three to five years and the tools are already there.”
Advocating for more women leaders
Helping to develop and promote women in leadership positions in financial services is a mission for Laura Hay.
It's a road she has successfully travelled herself — as KPMG's global insurance leader she leads a staff of thousands.
Her blog, Mind the Gap, features interviews with other women who have achieved similar success telling their stories, sharing what it takes to be a leader, closing the confidence gap and maintaining a work-life balance.
“There's been progress relative to the last ten years, but not nearly enough,” Ms Hay said.
It was not just about fairness and doing the right thing, there was a solid business rationale, she said, adding: “It's all about diverse views and opinions to make the best possible decisions.”
Incoming employees straight out of college were typically split evenly between genders, but most leadership roles ended up going to men, she said. KPMG in the US looked at why and came to several conclusions.
One factor was that women were lost between staff and manager level.
“One of the root causes was not having good role models that are near enough to their level,” Ms Hay said.
“The second area is sponsorship. A study about ten years ago showed that on average men had three sponsors in the room at a time of promotion and women had one.”
The firm worked to ensure that women had sponsors, or people who advocated for them above others. “That started to change the number of women gaining promotions,” Ms Hay said.
“When women are thinking about having families, the issue is work-life integration. So we started to build a network of women, so they could see how they could make it work — if that's what they wanted.”
Ms Hay has seen signs of a shift in the right direction.
“What's changed is that before, I was the one bringing up the conversation and now, it's often the first thing people want to talk to me about,” she said.
“Companies are trying to move from talking about it, to taking actions. I'm seeing a lot of innovative solutions to address this issue of women in leadership. The tone at the top is there and the actions are starting to happen.”
• Ms Hay's blog is published at www.kpmg.com/mindthegap