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One of the interesting things about the
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crisis and the putitive recovery from
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the crisis is we're left with a lot of
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uncertainty about the future. And maybe
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the only thing we can predict with
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certainty is that there's a lot of
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uncertainty. But your team at KPMG have
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been looking at potential trends which
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might shine through this. Some important
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trends which might help shape the future
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of the insurance industry. Would you
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like to talk a little bit about some of
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these trends and how you see them
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affecting the challenges and
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opportunities for insurance companies?
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Thank you very much. So
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that uncertainty is exactly why it was
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that we wanted to focus on some of the
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big issues that are out there facing
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insurers because
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um as you can tell from my accent I come
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from the UK
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and it feels at the moment as though we
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don't know what direction our economy is
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going. Um most recently um our economic
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forecaster was talking about is the
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economy zigging or is it zagging?
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And the one certainty it felt that
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insurers were having to face um was an
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increased burden of regulation.
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And with that uncertain outlook, we felt
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that it was timely to focus on what
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we've described as some of the mega
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trends potentially driving demand for
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insurance. So things like the changes in
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population demographics,
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people are living longer. Um I was
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talking to an actor earlier on this week
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about what he describes as the
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rectangularization of mortality. So at
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one stage we used to have sort of peak
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mortality and relatively few people used
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to live through into their 90s
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um particularly with some of the um
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medical advances particularly um
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detecting more cancers particularly with
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heart disease we're now seeing much
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broader cohorts living through into
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their 70s 80s and 90s um I have to say
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some people say well does that mean
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we're all going to live forever
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people just seem to decline by the time
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they get to about 1995.
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So that's why those statistics now look
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much more rectangular. So we're living
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longer.
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Um the other big trend is that
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particularly if I think about Southeast
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Asia and that's where I've been based
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the last three years. big changes in the
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incidence of childbirth and the role of
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women in the economy and that's also
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having a really significant impact on
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the demand for insurance. So for
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example, if you look at Korea,
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um the rate of child birth in the
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population has dropped almost half in 10
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years as the population has become more
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educated, more women are entering the
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workforce.
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And really as you're getting smaller
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populations,
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people can see that they need to save
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for retirement. That really creates the
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environment
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um that's got a lot of potential for
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insurers. So that's one piece of the
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equation.
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Um thinking about some of the other
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things that have a less positive um
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potential, just thinking about some of
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the changes in the environment.
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Um,
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relatively few people now question
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climate change.
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But the other big impact is not only
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what's actually going on in the
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environment, but really as populations
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are getting wealthier, as we're getting
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more urbanized, that's actually creating
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greater exposure to risk. We sometimes
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talk about the shape of risk changing.
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So clearly that's something that
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insurers need to be very alive to and
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that poses really significant issues. I
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mean around the world lots of different
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models adopted um in terms of dealing
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with some of the risks like flooding. Um
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I've just come from the UK where yet
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again um we have lots of pictures of the
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country underwater
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and the agreement between the government
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and the insurers that has let everybody
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actually buy flood insurance in the open
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market looks as though um there are real
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difficulties in actually reaching
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agreement on that going forward. And
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some of that is because where we find
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ourselves in 2012 is that governments
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really just have very little room for
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maneuver
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um as we come out of the global
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financial crisis.
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What else is going on? Um well, lots of
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technological change.
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Um that can feel like both a blessing
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and a burden. So everybody these days um
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wants everything to be on 24/7.
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Um, we've gone from wanting to deal with
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things online to wanting to deal with
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things through smartphones and tablets.
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Um, what are insurers doing to actually
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make sure their products are front of
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mind for their consumers?
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But also importantly as um customers are
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interacting with them in the digital
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world rather than face toface that
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leaves a vast array of data
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and a lot of the more forward-looking
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insurers are starting to mine that data,
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starting to use it to predict not only
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how to price their products but also how
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to design them. and actually really
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starting to tailor products to meet
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customer needs.
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And there's also a huge change in
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individuals preferences.
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Um a really significant loss of trust
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post global financial crisis. Um I was
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reading the papers as I came over and
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there was a short piece in the comment
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column um which was the co-chief exec of
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Deutsche Bank saying how unfortunate it
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was that at social events nobody wanted
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to talk to him because he was a banker.
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Well, some of the bad news for insurers
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is that if you look for example at the
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Adelman trust barometer which measures
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you know the public's trust in
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institutions I'm afraid to say that
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insurers are grouped with sort of
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broader financial services institutions
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they are even less trusted than banks.
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So that's a very rapid tour around some
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of these issues. And it seemed to us
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that these had both the potential for
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growth, but also some very real issues
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and threats.
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And so what we were trying to do was to
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find a way really to present some of
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those issues in a way that was lively
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and compelling and that was also
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functional and practical so that
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insurers could look at what it was that
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they were doing to address some of these
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issues.
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Some of the major trends you did
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identify such as um trends in population
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um which is obviously not only um going
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to generate uh potentially demand in the
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near future, it's going to affect the
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age distribution in the long f long term
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and maybe exacerbate some of the aging
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population issues which we've got in the
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US.
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um that one the the global climate
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change is another one which has some
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interesting implications um about how
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risk is transferred between people and
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what's the government's role in bearing
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part of this risk. You know for example
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if we can imagine climate change will
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change the values of properties in
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different locations. It might make some
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locations uninhabitable and they are
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risks which are of a mega duration. I
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was going to say and they are really
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difficult risks I think to see quite how
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they are addressed. So it involves
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dealing both with governments, dealing
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with corporates, dealing with
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individuals
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and quite what the forum is to resolve
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some of those issues I think is actually
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very hard to see. Mhm. Um so thinking
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about some of the flooding that took
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place well clearly lots of issues close
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to home here on the northeastern
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seabboard. Um but also in Australia last
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year there are a number of government
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commissions looking at those. Um I mean
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the thing that was quite extraordinary
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is that some insurers were providing
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flood cover for their customers and
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others weren't. Mhm. And not really any
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very clear answers as to how some of
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those really difficult issues are going
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to be addressed.
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And I think the one thing that we can
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see is that there is the potential that
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they are only going to become more
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significant and that's not only um
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because of some of these
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trends in the in the environment but
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also just because of the pace at which
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populations are urbanizing.
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So that means that the concentrations of
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risk are really building up very very
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significantly.
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And
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one of the very interesting examples of
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that I think is um
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I've got to get my years right. So the
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floods in Thailand last year
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um where I think a lot of people thought
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of Thailand as a holiday destination.
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They think of it having very beautiful
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beaches and I think they probably think
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of it as still being a largely
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agricultural country in the middle.
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Well, actually there's a huge amount of
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consumer electronics um assembly and
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manufacturing that takes place there.
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And the thing that was particularly
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critical was that in the early part of
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the year there had been the terrible
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tsunami in Japan. And so a lot of those
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Japanese light electronics um even sort
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of hard disk manufacturers were able to
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shift their supply chain out of Japan
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because they had the issues with power
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outages into Thailand
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and Thailand had significantly greater
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exposure to flooding than I think
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perhaps any insurer had expected. I mean
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it's actually a great success story for
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the insurance industry. So that's a good
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example of how when you think about
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these potential trends, we can make
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strategic decisions now to anticipate
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what might happen and protect ourselves
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to manage that risk. Can you give some
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other examples of opportunities which
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might be available to insurance
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companies? A you know given the distrust
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in the insurance industry these days or
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maybe things they can take proactively
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to address population change either to
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defend against it or find opportunities
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in it. Um well one of the things that I
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think is very interesting are some of
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the trends around micro insurance.
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So I think some insurers have
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historically
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really had some very significant
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questions around what does this mean for
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us? Um is this real insurance?
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Is it something that actually fits our
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business model? Um I mean insurance has
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got huge social value and if you think
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about it that part of the role of
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insurance is to buffer risk and to
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transfer risk. Well, it's got very
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significant practical implications
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for populations with
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really on that first few rungs of the
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ladder. And there are some very very
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interesting practical examples. Um for
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example in Kenya where we've seen um
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crop insurance developing but it's a
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very very smart product. So it's a smart
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product that actually is paying out on
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an index. So if your crop is subject to
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frost and so it's going to be damaged,
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you don't actually have to prove loss
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because there are statistics out there
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and a lot of this is actually transacted
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through mobile phones. It's a great
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example of
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insurers being forced to be very lean
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and nimble. And one of the things I
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think is very interesting is whether
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there are applications for that actually
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in the more developed part of the world.
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Yeah, this is really interesting. I mean
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I was recently looking at the um World
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Bank's vulnerability index across
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various countries and people in maybe
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some of the African states, some of the
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poor Asian states um are very very high
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on this vulnerability index. Now, it
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seems to me that the cap capacity of the
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insurance industry is going to be
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stretched when it comes to talking about
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some of these mega climate risks, but
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that same capacity could add immense
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social value um for a lot of the micro
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insurance programs you're talking about.
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But this is is this a viable economic
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model? Are the numbers there? Does it
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have to be driven by profit? or there
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are some other models by which the
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insurance industry can participate. I
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mean I think a lot of um a lot of these
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programs are initially being catalyzed
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through NOS's.
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Um I personally think there is a role
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for insurers and for insurers to make
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profit from this.
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But I think what it does do, it does
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force them to live within very slender
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means. And that's something that I think
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is going to become increasingly
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important.
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Um
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really there's a you know a huge focus
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on more customer focused products,
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products that are f focused around
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customer needs. And I think insurers
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that can take cost out of their business
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model I think are some of the ones who
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are going to be best positioned for the
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future. Yes. Because some of these
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products the denomination of tiny isn't
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it? It's absolutely tiny. You know maybe
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a $10 premium or maybe less than that
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and with that you've got to provide
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cover and the distribution as well and
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the claim settlement everything involved
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in that. But there are really smart
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things that you can do through some of
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the um mobile payments through a mobile
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phone. Um there's a great example where
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you can use the camera on the back of a
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smartphone to swipe the barcode on
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things like your bags of fertilizer or
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your bags of seeds. What a great
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application of technology. And if you
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think how lean that is, it's taking a
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lot of the intermediaries out of the
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process and so is taking cost out of the
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process. And are there messages there
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which we can bring back to Europe, bring
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back to United States? Is one of the
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most interesting um examples that I've
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come across. Um I really think there is
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more that can be done. I mean as I think
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I mentioned I've spent the last three
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years living in China and there's much
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much greater willingness and propensity
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um to want to transact um things mobile
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you know using mobile payments for
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example um I think here in well
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certainly in con in Europe where I come
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from there's a little bit more
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reluctance to do that but I think we
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might find that in future there isn't
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there isn't that much choice voice when
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particularly given some of the economic
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uncertainties that are out there
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and thinking about well one of the
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questions we posed is is insurance
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investable
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and you know I think a lot of investors
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have some really hard questions for the
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industry
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um and in order to achieve attractive
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returns I think insurers going to have
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to become much more nimble, much more
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agile.
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Well, I think the exciting thing for me
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about reading through your your um
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report and your deliberations is the old
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saw that there's always opportunity in
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challenge and you're really mining those
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opportunities. I was going to say we
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were trying to be very sort of
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evenhanded. Yeah. So, I mean the history
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of this is um
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this is going to work or not. So,
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At KPMG, we spend a lot of our time
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focusing on regulation and capital
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management. And I found that I was in
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China trying to talk to executives from
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stateowned insurers. And
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okay, they have a regulator that has
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very significant powers, but that's not
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how you're going to capture their
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attention. And so I needed to talk to
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them about
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what were they doing, what could they do
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to achieve further growth in this
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country that is changing very in some
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ways is changing very slowly but in some
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ways is changing very very rapidly. And
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that was the genesis of the intelligent
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insurer. It was something to really act
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as a catalyst for those discussions and
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sort of break us out of the regulation
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and capital management which were
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important but they're not the only thing
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that's important. Mary, thank you so
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much for doing this and good luck with
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the development of these ideas and I
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look hearing some more of them. Thank
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you.
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