Global InsurTech Report – 2017

Global InsurTech Report – 2017 Insurance’s new normal Driving innovation with InsurTech 45% of respondents currently partner with InsurTech 68% of participants expect to adopt blockchain as part of an in-production system by 2018 94% of respondents are prioritising better risk insights and customer engagement pwc.com/fintech

2 PwC Global InsurTech Report – 2017 Key messages Foreword 3 Insurers are going beyond disruption 4 Prioritising better risk insights and customer 5 engagement Analytics and mobile focused, but emerging tech 6 on the horizon Insurance is primed for blockchain adoption 7 InsurTech is no longer seen The need for better risk Insurers are investing in key as disruption, but rather a insights and customer technologies, such as data Challenges can lead to opportunities 8 transformative force engagement is driving the analytics and mobile, that will transformation support this transformation Final thoughts 9 Participant profile and DeNovo 10 Contacts 11 Emerging technologies, such Blockchain is more familiar Insurers and InsurTech are as RPA, AI and IoT are coming and a majority of insurers collaborating to overcome to the fore expect to have use cases in industry challenges production by 2018

3 PwC Global InsurTech Report – 2017 Foreword The pace of change in the Financial Services industry is accelerating, and while the insurance world won’t change overnight, many have begun to look outside their own organisations in order to respond to challenges and take opportunities. New products and services are developing which meet the needs of an expanding and changing customer base. Costs will begin to decrease as new ways of doing business evolve and emerging technologies, such as artificial intelligence (AI) and the Internet of Things (IoT), not only provide customers with a better experience, but also streamline back office operations. InsurTech is reshaping the insurance industry. Previously viewed as a disruptive force, it is now driving innovation across the sector. The insights in this report are based on the responses of 189 senior Insurance Sector executives from 40 countries who participated in PwC’s Global FinTech Survey 2017. With an editorial board made up of specialists from around the world we complemented the report with our own insights and analysis into how InsurTech and Insurance are moving closer together and how insurance is innovating in response to InsurTech. The report is also fuelled by proprietary research from PwC’s DeNovo, focused on InsurTech innovation and its impact on business. Stephen O’Hearn Jonathan Howe Global Insurance Leader Global InsurTech Leader New products and services are developing which PwC Switzerland PwC UK meet the needs of an expanding and changing customer base.

4 PwC Global InsurTech Report – 2017 Insurers are going beyond disruption In 2016, the insurance sector was in the midst of the FinTech Figure 1 Percentage o reenues at ris to InsurTech copanies revolution, with InsurTech disruption on the mind of 74% of insurers. Today, while most respondents still see business as What percentage of your business (in terms of revenue) is at risk of being lost to standalone FinTech companies within the next five years? being at risk, InsurTech is becoming more widely understood and accepted. Gaining a better understanding of InsurTech has 201 2017 led the majority of respondents (56%) to estimate between 1% and 20% of revenues being at risk (see Figure 1). 0 – 1 In fact, insurers are taking a more proactive approach to seize 0 – 3 the opportunities offered by InsurTech, with 52% putting disruption at the heart of their strategy. 10 –  Additionally, insurers are the most active among Financial Institutions when monitoring FinTech in order to respond 22 ­–  20 competitively and are increasingly partnering with innovators (45% in 2017, versus 28% last year). Partnering can assist 4­ –­ € incumbents to meet changing customer needs and target new segments, for example, pay as you use insurance. €ource‚ ƒw„ …lobal FinTech €urvey ­†‡ ˆnsurance €ector ƒarticipants New innovations will also enhance incumbents’ operations, such as the use of artificial intelligence (AI) to improve efficiency by automating existing customer-facing underwriting and claim “I believe startups will drive this disruption and will processes. be integrated into either tech companies or traditional institutions.” Head of Innovation of a large Asian Insurance company

€ PwC Global InsurTech Report – 2017 “I believe InsurTech will have repercussions across the entire insurance industry, both consumer and commercial aspects – startups will find ways of undertaking processes and services in a better manner than incumbents.” CEO of a large Asian Insurance Company Prioritising better risk insights and customer engagement Insurers’ focus has shifted to become more customer centric. Figure 2 Insurance innoation tren‚s In line with last year, customer engagement and the generation of better risk insights are identified as the most important ƒlease rate the degree to which these ˆnsurTech trends will be important for the insurance industry over the next five years innovation trends by 94% of respondents (see Figure 2). The si‰e of the bubbles is proportional to the number of related FinTech companies as assessed by the Še‹ovo platform Current InsurTech value propositions reflect these innovation trends. With market players focusing on Internet of Things (IoT) ’ ˆncr eased sophistication of data models and analytics to better identify startups and solutions that leverage data usage and monitoring, and “uantify risk new tools are being developed that will help companies align ­’ ˆncreased sophistication in methods to reach‡ engage and serve with customers’ needs as they change from protective to  customers in a highly”targeted manner ery important •’ –ise of aggregators to compare products and services from different preventative models. Alongside this shift, InsurTech companies Œ are focusing on specific microsegments and developing products ­ providers to reach them. The growth of specific products on demand (e.g. ’ „onsolidation of “as”a”service” solutions enabling outsourcing of core pay as you use) and P2P models highlight this trend. insurance functions ™’ šmergence of connected cars and autonomous vehicles impacting auto Prioritising customer engagement will ensure products are claim fre“uency and severity intuitive, easy to use and accessible. According to respondents, • as only 16% and 25% of their customers currently engage with ƒeel o iportance them through mobile and website, there is ample room to boost ™ digital interactions. As participants expect these channels will be used by 81% and 90% of their clients in the coming years, insurers will need to focus their investments on connectivity ‘oderately important and mobility. €lightly likely Œery Žikely InsurTech companies are in a strong position to develop new ƒielihoo‚ to respon‚ to the tren‚ products, drive market innovation, and help incumbents remain relevant to changing customer demands. €ource‚ ƒw„ …lobal FinTech €urvey ­†‡ ˆnsurance €ector ƒarticipants and Še‹ovo

 PwC Global InsurTech Report – 2017 Analytics and mobile focused, but emerging tech on the horizon Consistent with the trends highlighted for the industry, insurers Figure 3 Releant areas o technological inestent oer the ne„t 12 onths plan to heavily invest in data analytics and mobile technologies to ensure better risk insights and customer engagement models. What are the most relevant technologies for your business that you plan to invest in within the next ­ months? Alongside this they are beginning to look at emerging technologies such as AI and and robotics process automation (RPA) for short term investment (see Figure 3). RPA is already being used in back office operations to connect previously disparate systems. AI is streamlining simple claims and underwriting decisions, leaving experienced professionals free to work on more judgment based decisions. Compared to the broader Financial Services industry, insurers have chosen to prioritise IoT (22%) over blockchain (8%), whereas it is almost the inverse for the banking industry where 12 blockchain is prioritised by 25% of respondents and IoT by 11 ­ 8%. Such a focus on IoT highlights the industry shift from a ­4 €­ 34 33 33 22 reactive model to a more preventative risk management model leveraging available data. IoT offers vast amounts of data in real time, changing the way insurers will interact with their customers and manage risks to limit losses. Šata analytics ‘obile –obotics ›rtificial „yber”security ˆnternet of ƒublic cloud œiometrics Šistributed process intelligence things infrastructure and identity ledger automation (›ˆ) (ˆoT) management technologies (–ƒ›) (e’g’ “blockchain”) €ource‚ ƒw„ …lobal FinTech €urvey ­†‡ ˆnsurance €ector ƒarticipants

7 PwC Global InsurTech Report – 2017 Insurance is primed for blockchain adoption Blockchain is increasingly attracting the attention of Figure 4 Cuulatie blocchain a‚option in insurance participants. They are realising the competitive advantage that this technology could bring to the design of new products and What timeframe do you most likely expect your organisation to adopt blockchain as part of an in production systemžprocess? services with increased transparency, security and efficiency. While last year only 17% of insurance participants recognised n ˆnsurance blockchain as a very important innovation trend, half are now n ›ll financial services 100 exploring the technology in-house or are in the process of …… participating in some blockchain initiatives. ­ Going forward, a widespread adoption of blockchain technology ­ is anticipated in the insurance industry, with 68% of participants 77 7… expected to adopt blockchain as part of an in-production … system or process by 2018 (see Figure 4). This emphasises the importance of the technology and its many use cases, including: €7 (1) automated claims processes, which will deliver benefits to the customer while reducing costs; (2) streamlining data collection and payments, which can provide better visibility and controls for underwriting; and (3) the aggregation and 20 allocation of catastrophe risks or losses which would allow for better monitoring, understanding, and transparency of exposure 2 21 and claims processes. 2 ­ ­† ­ ­Ÿ ­­ ­­ €ource‚ ƒw„ …lobal FinTech €urvey ­†‡ ˆnsurance €ector ƒarticipants

­ PwC Global InsurTech Report – 2017 Challenges can lead to opportunities Investing in InsurTech related projects can be an opportunity With InsurTech’s spread across the sector, regulators and Figure € Challenges the insurance in‚ustr† aces in their for insurers to expand their products and services, increase policy makers have begun to focus on these developments. abilit† to innoate their customer base, and leverage their analytical capabilities. For example, there is growing concern in Europe surrounding Curiously, incumbents responded that they expect to see a 13% the unintended consequences that come from an over-reliance return on investment (ROI) on these projects, substantially on data analytics, such as higher risk policyholders being priced lower than the 20% expected by the overall Financial Services out due to more accurate information. industry. We wonder if these more modest expectations, closer to product pricing expectations, reflect the mainstreaming of Further concern regards new data privacy rules, such as the innovation investment throughout the insurance sector. General Data Protection Regulation (GDPR), and the possible conflict with innovative digital strategies. Much of this is yet Talent is a key issue for insurers, with 87% having trouble in to be tested, and while the full force of GDPR is still largely hiring and, even more so, retaining people with the right skillset conceptual, insurers should be aware of the possible implications to innovate (see Figure 5). In fact, 38% find it very difficult to do to their digital strategy. so, compared to 28% of respondents from the banking sector. Insurers can attract talent by acquiring from startups, partnering As InsurTech grows, we are also seeing a rapid rise in RegTech, with innovators, and fostering internal talent. However, most with organisations increasingly looking at technology that can ­7 3 €3 4€ 43 companies will need an updated staffing model in order to help them address these regulatory and compliance obligations develop their talent accordingly. more efficiently and effectively. There are numerous existing pain points in regulatory functions where RegTech can help, IT security is also a pressing concern when taking into from client onboarding and compliance monitoring to regulatory consideration the increase of consumer and risk data. Acquiring reporting and fraud prevention. While the banking industry is Talent Šata storage‡ ˆT security Šigital identity ‹ew business or partnering with InsurTech companies can mean that perhaps ahead when it comes to their interaction with RegTech privacy and authentication model traditional insurers’ legacy IT systems are introduced to new companies, it is likely that insurers will follow due to the cost protection regulations regulations exposures and risks as they are integrated with new, often and headcount savings that RegTech can provide. regulations cloud-based platforms. €ource‚ ƒw„ …lobal FinTech €urvey ­†‡ ˆnsurance €ector ƒarticipants

… PwC Global InsurTech Report – 2017 “We’ll see traditional Financial Institutions recognise they can’t move as quickly as large tech and either invest more heavily in acquiring startups or partner with them to drive change.” Head of Products of a large North American Insurance Company Final thoughts Effective innovation programs depend more on an organisations’ Figure  Changes e„pecte‚ in innoation sources Figure 7 Insurers abilit† to co‡create with innoators innovation processes, tools and culture than on how much is spent on R&D. An excessive internal focus and silo mentality, What changes do you expect to see in your sources of innovation over the next ƒercentage of incumbents who rate their ability to co”create with innovators as caused by minimal contact between business units, will often •”™ years? good and very good weaken innovation capabilities. The question is then: how to ensure innovation adds value to your company? Traditional 1 1 3 4 7 insurers should continue monitoring the InsurTech landscape, 1 comprehending how it affects the market and focusing on 17 relevant innovations. Ultimately, for insurers, it’s no longer a question of whether or not they are involved with InsurTech, 42 rather it is about how they leverage the InsurTech ecosystem. €2 Insurers see their potential sources of innovation coming from 4 partnering with InsurTech companies and through internal efforts (see Figure 6). While the majority of insurers see their company as good at generating ideas, only 17% state they are confident in creating products with innovators (see Figure 7). Insurers should not fall behind other sectors such as Asset & Wealth Management and Banking & Capital Markets that are significantly more confident (30%) in this area. Fundamentally, incumbents need to decide how to leverage their own incubators and accelerators in relation to InsurTech. Whether by acquiring or partnering with innovators or serving as a source of experimentation for innovators, capitalising ­4 ­2 €€ 43 2… 17 30 30 on their brand and large customer base is the InsurTech opportunity. In the end, no matter the source of innovation, FinTech ˆnternal ¡ther FinTech ¡ther insurers need to ask themselves how they mainstream it into partnerships efforts partnerships ac“uisitions ac“uisitions ˆnsurance ›sset ¢ Wealth œanking ¢ „apital ‘anagement ‘arkets legacy cultures unaccustomed to the speed and agility of InsurTech. n ˆncrease n €tay the same n Šecrease €ource‚ ƒw„ …lobal FinTech €urvey ­†‡ ˆnsurance‡ ›W‘ and €ource‚ ƒw„ …lobal FinTech €urvey ­†‡ ˆnsurance €ector ƒarticipants œ„‘ €ector ƒarticipants

10 PwC Global InsurTech Report – 2017 Participant profile and DeNovo The 2017 Global FinTech survey was based on the responses of The current report is based on the responses of 189 insurance DeNovo 1,308 participants, principally chief executive officers (CEOs), companies from 40 countries around the globe. DeNovo serves as the digital front door on innovation to PwC’s directors /department heads, heads of IT/digital/technology, Financial Services practice, providing on-demand consulting and other top management involved in strategy and innovation delivered by experts in innovation within financial services and from 71 countries and across six regions. emerging technology DeNovo is a self-serve platform with access to PwC’s specialists. Figure ­ ˆrigin o participants‰ Insurance sector Figure … T†pe o respon‚ents‰ Insurance sector Use DeNovo to understand what innovation is happening, where in your value chain it is occurring, how to leverage technologies n ›frica ­ n „š¡ † and trends, and which companies are doing the innovating. You n ›sia • n £ead of ˆTžŠigitalžTechnology † can ask questions, get practical answers, and better understand n šurope  n Širectorž£ead of department   how innovation is impacting your business. DeNovo makes n Žatin ›merica Ÿ n „F¡  innovation practical. n ‹orth ›merica  n £ead of strategy † n ¡ceania • n „¡¡  n £ead of innovation ™ n „Š¡žœusiness development  n „–¡ž–isk manager ­ n £ead of products ­ n ¡ther  €ource‚ ƒw„ …lobal FinTech €urvey‡ ˆnsurance €ector ƒarticipants €ource‚ ƒw„ …lobal FinTech €urvey‡ ˆnsurance €ector ƒarticipants Try DeNovo for free, or upgrade to DeNovo Premium for deeper strategic analysis and direct access to specialists.

11 PwC Global InsurTech Report – 2017 Contacts Stephen O’Hearn Simon Copley Pauline Adam-Kalfon Paul Mitchell Global Leader, Insurance Partner – Client Service Director FinTech Leader Partner PwC Hong Kong PwC France Director PwC Switzerland +852 2289 2988 +33 1 56 57 83 72 PwC South Africa +41 44 628 0188 [email protected] [email protected] +27 21 529 2001 [email protected] Steve Davies Manoj Kashyap [email protected] Jonathan Howe EMEA FinTech Leader Global FinTech Leader Dean Nicolacakis Global InsurTech Leader Partner Partner US FinTech Co-Leader Partner PwC UK PwC US Principal PwC UK +44 131 260 4129 +91 226 669 1888 PwC US +44 (0) 20 7212 5507 [email protected] [email protected] +1 (415) 498-7075 [email protected] Leslie G. Fenton Gero Matouschek [email protected] Henri Arslanian Managing Director EMEA FS Digital Transformation and Insurance John Shipman Hong Kong and China FinTech Leader Director Strategy & Digital Asia-Pac FinTech Leader Director PwC US Partner Partner PwC Hong Kong +1 (312) 298-5866 PwC, Strategy & PwC Australia +852 2289 2490 [email protected] PwC Germany +61 8266 0198 [email protected] Scott Fergusson +49 89 54525 634 [email protected] Javier Baixas X-LoS Insurance leader [email protected] Yuan Yao InsurTech Leader Partner Paul McDonnell Global Insurance Data & Analytics Leader Director PwC Australia Global Insurance Advisory Partner PwC Spain +61 2 8266 7857 Partner PwC China/Hong Kong +34 91 568 4400 [email protected] PwC US +86(21) 2323 3084 [email protected] Haskell Garfinkel +1 (203) 470-1772 [email protected] Allan Buitendag US FinTech Co-Leader [email protected] Jamie Yoder Insurance Leader Partner Insurance Advisory Leader Partner PwC US Partner PwC Canada +1 (415) 298 2647 PwC US +1 416 815 5239 [email protected] +1 773 255 2138 [email protected] [email protected] For queries about the data within this report, please contact Grégory Weber on +352 49 48 48 6175 or [email protected].

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