Association Internationale de Droit des Assurances

Swiss Chapter

«Insurance in the Realm of Digital and Disruptors»

AIDA Swiss Chapter

Zurich, 30 May 2016

Program of today

Topic Speakers

Introduction to AIDA Swiss Chapter, the speakers

and the topic

AIDA Swiss Chapter Organizing Committee

Digitalization in the Insurance Industry Matt Whalley (Ernst & Young LLP)

Digital Disruption in Insurance Intermediation Julian Teicke (FinanceFox)

The Changing Legal Risk Map for Insurers Rolf Staub (Zurich Insurance Company Ltd)

Panel discussion with interactive participation of

audience

Matt Whalley (Ernst & Young LLP) Julian Teicke (FinanceFox) Rolf Staub (Zurich Insurance Company Ltd)

Moderation: Stefanie Gey (Ernst & Young Ltd.)

2

Christian Lang – ChairmanSwiss Re

Lars Gerspachergbf Attorneys-at-Law

Dr. Stefanie GeyEY

Prof. Dr. Helmut HeissUniversity of Zurich

Dr. Peter HsuBär & Karrer

Rolf StaubZurich Insurance Company

AIDA Swiss Chapter – Organizing Committee

3

AIDA Swiss Chapter Organizing Committee:

AIDA Swiss Chapter Support: David Hirzel (SCOR Switzerland) and Dominik Skrobala (PragerDreifuss Attorneys-at-Law)

AIDA Swiss Chapter – Announcements

4

Sponsoring – Please let us know should you be willing to provide acontribution

AIDA Swiss Chapter – Sponsors

We thank our donators for their constant support:

5

AIDA Swiss Chapter Insurance in the realm of digital and disruptors Digitalization in the Insurance Industry / 30 May 2016 Matt Whalley, Director Financial Services Legal, Ernst & Young LLP, London

Page 2

Insurance in a digital age

1. What is digital – and is it good or bad. 2. How digital affects the insurance industry. 3. What you need to know as in-house lawyers.

Digital Darwinism An era where technology and society are evolving faster than businesses can naturally adapt. This sets the stage for a new era of leadership, a new generation of business models, charging behind a mantra of “adapt or die.” - Brian Solis

Page 3

1. The Insurance sector is digitally conservative

Dig

ital I

nten

sity

Transformation management intensity High

Hig

h

Beginners Conservatives

Experimenters Exceeders

Pharma

Manufacturing

Consumer packaged goods

High technology

Retail Consumer Banking

Telecom

Travel and hospitality

Source: EY survey response

Utilities

Insurance

Page 4

2. How digital affects the Insurance industry

Customer lifecycle management

Competitive and Regulatory forces ► KYC ► FFIEC/BSA/AML (trans monitoring) ► Higher capital requirements ► Conduct

Customer expectations ► Intense digital innovation ► Brand truly matters ► Immense pressure from new

entrant threats Organizational

challenges

Prospect &

Acquire

Serve

Grow

Customer expectations

Investment

P&C

Pension

Life

Health

Customers

► Don’t show me something I already have or don’t need

► Present personalized, tailored, and contextualized content

► Embrace the power of networking to connect like-minded individuals, businesses

► Promote social and economic wellbeing

► Make it fun and exciting

► Make me money

I need you when I need you, not when you want “

”

Page 7

Customers – trust in your brand is critical

Competitors can copy a product, spend more on advertising, or offer a lower price. One thing competitors can never copy is a trusted relationship. --Trusted Advisors

Improve performance

► High trust companies provide 4 times the returns than the market average for comparative low-trust companies and typically experience a 50% lower turnover rate (Fortune)

4x of American customers trust businesses to “do what is right.“

of adults trust brand or product recommendations from friends or family, while just

trust ads on websites and 9% trust text messages (Forrester).

50% ► Trust management means inspiring

committed and engaged employees

► Empowered employees perform 20% better and are 87% less likely to leave an organization (Fortune)

Increased productivity

Exceed customer expectations

70%

10% 20%

Consider this…

…55% of consumers paid a premium for a product or service from a company they trust

…77% of consumers refuse to buy a product or service from a distrusted company

…91% of consumers chose to buy a product or service from a trusted company --Edelman Trust Barometer, 2011. US consumers aged 25-64

Legal & Compliance risks, e.g.

Brand protection Conduct risks

Data protection

SOURCE: US Data.

Page 8

Interest in receiving advice % of US customers who are very or extremely interested in obtaining financial advice or assistance in different ways

All channels cited can be driven, supported, or enabled by digital capabilities

Preferred approach for obtaining advice % of customers who would like to obtain advice in certain ways

20%

28%

26%

26% Advice from one

person on a broad range of accounts

and services

Advice from specialists for a particular account

or service

Prefer to do my own research and then get advice based on my

findings

Other

In person

65% By phone at the branch during working hours

47%

Use online financial management tools

38% By phone with someone in a call center any day, any time

39%

By video chat from home or work

19%

SOURCE: US Data.

Prefer to do their own research first

28%

Many customers expect specialized advice, in addition to broad services

Average (All channels)

Customer – ability to offer options

Page 9

Interest in receiving advice % of US customers who are very or extremely interested in obtaining financial advice or assistance in different ways

All channels cited can be driven, supported, or enabled by digital capabilities

Preferred approach for obtaining advice % of customers who would like to obtain advice in certain ways

20%

28%

26%

26% Advice from one

person on a broad range of accounts

and services

Advice from specialists for a particular account

or service

Prefer to do my own research and then get advice based on my

findings

Other

In person

65% By phone at the branch during working hours

47%

Use online financial management tools

38% By phone with someone in a call center any day, any time

39%

By video chat from home or work

19%

SOURCE: US Data.

Prefer to do their own research first

28%

Many customers expect specialized advice, in addition to broad services

Average (All channels)

Customer – ability to offer options

A BAT and a ball cost £1.10 between them. The bat costs £1 more than the ball.

How much does each cost?

Page 10

Interest in receiving advice % of US customers who are very or extremely interested in obtaining financial advice or assistance in different ways

All channels cited can be driven, supported, or enabled by digital capabilities

Preferred approach for obtaining advice % of customers who would like to obtain advice in certain ways

20%

28%

26%

26% Advice from one

person on a broad range of accounts

and services

Advice from specialists for a particular account

or service

Prefer to do my own research and then get advice based on my

findings

Other

In person

65% By phone at the branch during working hours

47%

Use online financial management tools

38% By phone with someone in a call center any day, any time

39%

By video chat from home or work

19%

SOURCE: US Data.

Prefer to do their own research first

28%

Many customers expect specialized advice, in addition to broad services

Average (All channels)

Customer – ability to offer options

The mind plays tricks and most people divide up neatly to £1 and £0.10.

The actual answer is £1.05 and £0.05, now

imagine a consumer trying to work out the cost of a new loan application presented with various

calculations on a small mobile screen? Could they be taking poor cognitive shortcuts?

Page 11

What do the best repeatedly do well?

The best have developed a new Organizational paradigm where experience is placed at the heart of everything they do

Experience

Platform

Content

Service - Paradigm information based New economics

Customer relationships modular

Customer value, brand

proposition, trust,

relationship

Contextual information, real time offer, products

Platforms of services including infrastructure, technology, data, and know how

Packaging, format, tailoring, service, community, tools

Copyright: Information Economics, 2013

Page 12

Old value proposition New value proposition

► Pay your premiums on time ► We’ll cover you if you need

medical care

► We’ll partner with you to keep you healthy for the rest of your life (or as long as you stay with us)

► You’ll be empowered with apps, technology, data to manage your health

► Over time, your premiums will increase more slowly than average

► You could get other benefits for proactively managing your health

EXAMPLE: The digital ecosystem

Page 13

Connected world

Advanced Analytics

Insurer Host & founding

member HC Provider network

Device & app manufacturers

Data consolidator

Retailers & supermarkets

Gyms / health clubs

Customer

Data analytics

Life Record Provider

Behavioral incentives

Other potential members: ► Governments ► Pharmacies ► Pharmaceuticals ► Social media

Promotions

Incentives

Preventative Measures

Individual Consumer Wellness Strategy

Health Servicing Strategy / Steering

Claims Management and Processing

Measuring Alignment to Wellness Strategy

Preventative Notification

Trending

Secure data storage

Customer portals

Electronic records

Workflow Customer Analysis and Preventative Data

Product Provider

EXAMPLE: The digital ecosystem

Page 14

Section 3

Competitors and Regulation

Page 15

Financial services: the digital challenge is real

Customer Ownership ► Retail companies across the

Globe selling FS products ► Insurance providing

backend, but losing direct relationship with customers

Telematics ► telematics are expected to

see exponential growth in the upcoming years reaching $ 66 billion in premium income by 2020

► Opportunities for new entrants better leverage telematics to offer differentiated products and pro-actively reduce their risk profile

Wearables ► Enormous amount of

personal data will be available due to the extensive use of devices connected to the internet

► Analysis of non-traditional data will reveal new risk factors enabling product and pricing differentiation and new value propositions

Financial Planning ► Financial planning outside of

the advisor channels losing traditional client mindshare

► Third party online advice for selecting Insurance products

Page 16

Financial services: the digital challenge is real

Company Bought By Many (Established 2012, Fintech Innovation of the Year 2015)

Friendsurance (Established on 2010) iMingle (Established on 2010)

Business model ► Works as an intermediary and enables people to come together to buy insurance. Earns a commission on the business

► It connects people with similar insurance needs to form groups and use the group's collective buying power to negotiate offers

► Friendsurance acts as an insurance broker. It works on the concept P2P insurance, which combines social networks with insurance companies.

► Customers form networks and contribute and are reimbursed from that pool. Can lower annual premiums by up to 50%.

► iMingle allows consumers to combine (or “mingle”) their policies with their friends (on social networking sites or blogging) so that they both benefit from the iMingle Network discount of 10%.

Products ► Home insurance, travel insurance, horse riding insurance and more.

► Personal liability, legal expenses insurance and mobile phone insurance.

► Home, condominiums, renters and auto insurance.

Key success factors

► Bought By Many is a pioneer in the UK market.

► The company offers niche insurance products, not likely to be available otherwise.

► The company is a pioneer in P2P insurance in the German insurance market.

► Customers get coverage even on the deductible and the insurer does not have to deal with smaller claims.

► It is the first insurance provider for the “i Generation.”

► iMingle embraces technology and social media to serve a new generation of policyholders.

Page 17

►Willing to review regulatory barriers to entry

►Aware that digitalization isn’t purely a force for good

►E.g. FCA Sandbox

Regulators are innovating too

Page 18

Section 4

Internal business structures and teams

Page 19

Strategic Priorities Customer

► Address customer needs ► Enhance customer experience ► Bolster security ,privacy and trust ► Align servicing capabilities

Digital Solution Map Digital Governance

Customer

Claims Commerce Transactions Management Research & Apply

Sales Servicing Marketing Enterprise

Lines of Business Technology Shared Services Risk/Legal/Compl. Vendors

Frequent Moderate Major Event Location Relationship Life Stage

Devices

Channels

Content Sources

Enablers

Mitigation

IT Operating Model Functions

IT Strategic Planning Solution & Service Strategy

Portfolio Management

Architecture

Risk Planning & Management

IT Governance

Organization Planning & Design

Program & Project Management Solution & Service Design

Service Delivery Management Architecture & Process Standards Management Operations Management

Information Security Management Solution & Service Support Financial Management & Reporting

Value Management

Resource Management

Sourcing & Vendor Management Quality Management

Knowledge Management Compliance Management

IT ► Evaluate new and immature vendors ► Balance build versus buy ► Optimize complex integration ► Scale and manage performance ► Execute design, development, test and deploy ► Build a strategic architecture ► Support “always on/always connected”

Business ► Adapt business models ► Support innovations ► Defend from competition ► Identify appropriate skill sets ► anticipate and react to new regulations ► manage risks with new platforms

Phones Tablets PC’s Handheld/Field Devices

Mobile App Mobile Web Online Social Media Messaging

(email, text, chat etc.)

Emerging

On Premise Infrastructure Cloud Infrastructure

TV

External/Third Party User Generated Employee Generated Business Rules Systems of Record

Applications SOA, EAI and REST Data Stores SDK’s & API’s User Interface

Security Fraud Risk Compliance Legal

NFC

Applicable areas of focus

End to end simplicity – optimize the supply chain

Insurance companies MUST think

“end to end” when optimizing customer

experience

Investment

P&C

Pension

Life

Health

Page 20

3. What you need to know as lawyers

1. Clear mandate

2. Clear responsibilities

3. Clear view of the legal risks

Page 21

Law department performance model

Governance and Control

Operational Excellence

Business Insight

Technology

Have the authority to

influence – and when necessary

control – business decision making

Deliver insight into how the business can

prosper within the current and future legal/regulatory environments

Be efficient and effective in its

management of its own use of resources,

and the business’s external legal spend

Operating Model: internal structure and relationships with business, functions and external suppliers

People: collective skills and expertise of legal department staff

Technology: tools and systems that enable legal department to deliver

Objectives Enablers

Law departments have three core objectives: ► To deliver meaningful insight to the

business, ► To influence business decision

making, and ► To operate efficiently and effectively. You have three core assets you can use to enable delivery of the three objectives: ► Your people, ► Your relationships (as structured

through your operating model) and ► Your technology. The way you leverage these ‘enablers’ is the key to improving law department performance. You can measure law department performance, and utilisation of ‘performance enablers’ on a standard maturity scale, from ‘basic’ to ‘leading’. This structured scaling helps you pinpoint where to effect change for maximum performance improvement.

Page 22

Three key points

1. Digitalisation puts huge pressure on Insurers to change their business and distribution models

2. As a legal department, to stay relevant you need to be clear about where you deliver value to your business in this new world, and how much that value costs

3. Digitalisation brings with it opportunities for in-house legal teams, to deliver transformational improvement in the insight and influence you deliver to your business.

EY | Assurance | Tax | Transactions | Advisory About the global EY organization The global EY organization is a leader in assurance, tax, transaction and advisory services. We leverage our experience, knowledge and services to help build trust and confidence in the capital markets and in economies all over the world. We are ideally equipped for this task – with well trained employees, strong teams, excellent services and outstanding client relations. Our global purpose is to drive progress and make a difference by building a better working world — for our people, for our clients and for our communities.

The global EY organization refers to all member firms of Ernst & Young Global Limited (EYG). Each EYG member firm is a separate legal entity and has no liability for another such entity’s acts or omissions. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

For more information, please visit www.ey.com.

EY’s organization is represented in Switzerland by Ernst & Young Ltd, Basel, with ten offices across Switzerland, and in Liechtenstein by Ernst & Young AG, Vaduz. “EY” and “we” refer to Ernst & Young Ltd, Basel, a member firm of Ernst & Young Global Limited.

© 2016 Ernst & Young Ltd All Rights Reserved.

www.ey.com/ch

1

The smart insurance hero

Unifying the customer experience in private retail insurance

Radical transformation of the customer experience by owning the insurance distribution

channel and the customer interface

2

Julian Teicke CEO

Former Co-Founder & COO, DeinDeal;

Ex-Rocket Internet Exec

Built fastest growing start-up in Switzerland

Increased efficiency by more than 300% in

two years with use of salesforce technologies

Dario Fazlic CSO

Former Founder & CSO, DeinDeal

Built a sales team of 100 at DeinDeal,

the fastest growing start-up of Switzerland

Jonathan Seoane COO/ CTO

Several years experience in implementing

force.com technologies (>20 implementations)

Specialist in building highly scalable operational

infrastructures; Qualifications include:

Saleforce.com Certified Administrator, Developer

A Team With Extensive Startup Background

Florian Eismann CCO (Product & Marketing)

Former Lead Fidor Bank UK

Responsible for country setup of Fidor UK

one of the most innovative banks in Europe

Fabian Wesemann Business Development & Internationalisation

Former Investment Banker at Deutsche Bank

Tier 1 rated Banker leading junior team of strongest

HC IB team in Europe

Björn Grasedyck CFO

High profile financial executive

Former CFO of ebay, brandsforfriends, fab.com

& Avenso

3

Source:CommerzVentures,SwissRe,McKinsey,Accenture,CBInsights,VentureScanner

Banking Insurance BankingTech InsuranceTech

3.7

4.7

41

4.6

Globalrevenuepool2014($tn) Startupfunding2008-2015($bn)

Massive Potential For Insurance Tech

4

Michael John CEO Switzerland

More than 20 years industry experience

Successfully exited own broker to Funk

Insurance Brokers

President of the Swiss Broker Association

(IGB2B)

Brought In Significant Knowledge That Allows For Best Service, Fast Scalability And Industry Standing

Hartmut Teicke CEO Germany

More than 30 years of industry experience

Built one of the largest German brokers

and exited

to Swiss Life Select

Excerpt of Cooperation Contracts with Insurers

Accredited Broker

Working with traditional brokers

>85%coverageinCHandGER

Workingwith>50brokersinCHandGER

Stephan Ommerborn

CEO FinanceFox Insurance Former Managing Director Zurich

Insurance

Has successfully built two insurance

companies

Headed Greenfield Insurance Project

for Zurich

5

A business model with a global need

Global Potential

6

Lack of overview

of insurance terms

in paper folder

95% of consumers have

more than one insurance

company in their portfolio

Price differences of up to 400% for

similar services

Only 20% of customers

have a positive experience

when making a claim

Capgemini Insurance Customer Survey 2014 & Insurance Europe: European Insurance in Figures, December 2014

$

71% of customers worldwide have

unpleasant experiences with their

insurance companies

The Global Problem That Drives The Need For Disruption

7

Free

to use

Personal

insurance

advisor

Get

notifications

for saving

potential

Digital

insurance

folder

Handle

claim

completely

digital

Sign

new

offers in

App

Single

point of

contact

Submit

invoices for

reim-

bursement

How FinanceFox Solves The Pain Of The Customer

8 Insurance Is On The Agenda Of Investors – But None Of The Players Has Found The Golden Nugget

Digitalentrants VerJcalInsurancecompanies TradiJonalbrokers

Pros Digitalfolders SimplerandmoreinnovaNveproducts Goodadvice

Cons Donotofferpersonalservice

Donotunifythecustomerexperience

Cannotscaleandarelimitedbysignificant

amountofadministraNon

CompInstead of looking at insurance brokers as our main competitor we have made them the major channel of acquisition

9

Many small insurance

brokers

Fragmented Insurance brokers

are Inefficient

Undertechnologised

The Traditional Broker Market Is Broken

FinanceFox offers a solution curated to traditional insurance brokers

10 The 5 Reasons Why Brokers Work With Us

Better customer

service and coverage

1.

Protect their existing customer base

2.

Reduce the administrative costs

3.

Increase efficiency and upsell potential

4. Increase revenue

through bundling quota

5.

Get new customers in your direct proximity

11 Core Metrics To Date FinanceFox guides people to feel safe by focusing on a customer-centric approach using personal advice and advanced technology

New Customers B2B2C Customers Accumulated

Churn on Customers

New Customers Marketing

108%abovetarget

103%abovetarget

428%abovetarget

CAC on Total Customers AnnualvalueMarkeNngcustomer:CHF161

AnnualvalueB2B2Ccustomer:CHF184

12 Business Model Built On Strong Unit Economics

B2B2CLifeNmeMarginisCHF413over6.4Yearsat16CHFUpfrontCosts

MarkeNngLifeNmeMarginisCHF271over3.4Yearsat73UpfrontCost

Average Margin per B2B2C Customer Average Margin per Marketing Customer

25.1xLM/CAC 3.7x

1144

413

16

549

165

0

200

400

600

800

1000

1200

1400

CLV CAC RevenueShare CSC LifeNmeMargin

522

271

73

178

0

200

400

600

800

1000

1200

1400

CLV CAC RevenueShare CSC LifeNmeMargin

MarginsrepresentSwissBusiness

13

The smart insurancehero

Thank you!

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AIDA Swiss Chapter Insurance in the realm of digital and disruptors May 30 , 2016 Rolf Staub

General Counsel General Insurance

Changing legal/compliance risk map Insurance in the realm of digital and disruptors

2

Legal Issues

Privacy/Data Protection & Data

Security

Prudential Regulation

Consumer Protection

Intellectual Property/Anti-

Trust

Future Regulations

• Customer facing conduct and suitability of insurance products (Profiling, Price Optimization)

• Fairness, equality, anti- discrimination (disparate impact)

• Restrictions of the use of correlation instead of causation

• Machine-made decisions (cognitive intelligence; software robotics)

• Data processing principles (purpose limitation, data retention, correctness of data, data minimization, transparency)

• Privacy by design • Individual rights (explicit consent;

right to be forgotten, data portability, disclosure requests)

• “Ownership” of data • Secondary use • Automated processing/profiling • Data security: data loss, incident

reporting; cloud security • Cross-border transfer

Digitalization may increase • focus on protecting

intellectual property rights and

• sensitivity to anti-trust issues.

• Focus on risk management and compliance with data quality standards and data security

• Cyber security assessments by regulators

• Value assessment of the quality and integrity of data

• Protection of policyholder groups due to market disruptions (solidarity principle, affordability of insurance)

• Launch of the “Ethics Advisory Group” of the EDPS

• Risk of eroding public trust triggering government intervention

• Risk of adverse regulatory intervention with respect to solidarity principle and information asymmetry/ adverse risk selection

• “Sand Boxes” • Shift from consent based

concept to use based concept in data privacy

Expand the social and economic value insurance Enhance efficiency of insurance (cost savings

through more efficient and automated processes) Expand the scope of insurance by rendering

previously uninsurable risks insurable Potential to share enhanced risk insights with

customers as a basis for mitigation and prevention Potential for pre-event intervention and enhanced

efficiency of the claims process

Big data affects the complete value chain from marketing, distribution, underwriting (pricing and risk selection), product design, claims to risk mitigation.

Opportunities and challenges of big data

3

Privacy concerns Concerns about the processing of personal

information and algorithm-based decision making may erode public trust in insurance and trigger government intervention

Traditional approaches to privacy (notice, consent, use limitation) are challenged by big data

Potential to undermine fundamentals of insurance More granular pricing challenges the solidarity

principle as highest risks may no longer be able to find coverage, triggering government intervention

Enhanced insights by policyholders (e.g. through genetic testing) may lead to information asymmetry and adverse selection

Issue description

Opportunities Challenges

1

2