Issues of Social Computing and Microinsurance Singapore NTU...

Issues of Social Computing and Microinsurance

Singapore NTU April 2008

David PiesseGlobal Head of Insurance Sun Microsystems, Inc.

Roundtable Microfinance

Commercial in confidence

Leveraging Disruption

Step 1


•

» Compelling Disruptive Events

» Governments compete with non-governments

» Companies compete with non companies

» Products compete with non products

» Platforms compete with non platforms

» IT Departments deal with rebellious users

» Need to look at the non tech factors and how insurers can leverage benefit from disruption especially in microinsurance.

Something is happening out there.....Something is happening out there.....


Everyone and Everything Participating on the Network

Social Networks and Communities Matter

Changing Scenario - Flat World Forces

Courtesy of INFOSYS


The Opportunity Divide Challenge

.

Power

Costs

Space

Heat

Demand

UsersServi

cesAcce

ss

EnterpriseCommunity

Bridging The Digital Divide by Simplicity

Page 7 Sun Proprietary/Confidential: Internal Use Only

The Breakthrough Framework

• Value Aggregator: Value chain optimization, new value creation (3x-ing..)

• Incubation• Coalitions /

Partnerships creator

SUN’s Role:

• Communities creator – getting people with similar aspirations together

• Connector of Communities’ Aspirations with Partner(s) who will enable fulfilment of the aspirations

• IP owner of the architecture of the bridge

• Architect

Bridge: Technology

Platform for access and connectivity

Partners / Coalitions

People enabling the end user along with us

Corporations, EntrepreneursGovernment, Service Providers

Content Providers, Partners/Channels

CommunitieCommunitiess

End user who is impacted

‘Opportunity Divide’ Bridge

Page 8 Sun Proprietary/Confidential: Internal Use Only

The Breakthrough Framework

Bridge: TechnologyPartners / Service

Providers

People enabling the end user alongwith us

Corporations, EntrepreneursGovernment, Service Providers

Content Providers, Partners/Channels

CommunitiesCommunities

End user who is impacted

‘Opportunity Divide’ Bridge

Biz ConnectorBiz Connector


Compelling Events – (Non) Financial Players

Ease of Payment collection in Rural AreasStreamline MFI, PostOffice and

other business providers in conjunction with the rural service providers.

Use of Mobile Phone Technology as Standard

Use of Alternate Distribution Channels including. Takaful

Regulated processes made mandatory and proper risk management for catastrophes.

Offer a full suite of cross sell products designed for the micro-insurance market linked to back office from point of sale..

Automated underwriting for credit and insurance


The Web Lifestyle – “Social Computing”

WebnApplicatio

n

How You Build It

Enhanced Web UI

Concept of Trust

Building on theWork of Others

Web As a Platform

LightweightProgramming

User Data

Communities Roles

Presence

Data,Activity

People

Work

Services

DataWeb Content

Groups

Tasks

Actio

ns

PeopleM

e

Collaboration

Web 1.0Standard Web Focus

Web 2.0Productivity Focus

Next Generation INTERNET


The Deepening Web Experience – Web 2.0

Social Computing and DisruptionBanks/Insurer Must Participate•Power in the hands of the communities•Changing financial behavior and brand

loyalty – declining trustPeer-to-Peer Technologies•Search engines - Google•Comparison shopping sites•Blogs and Podcasting •Content Network Distribution •GEN Y Comparisons•Status Quo Changes By All Players•INTERNET becomes ubiquitous

channel

Social Computing's Impact on Financial Services - Insurers Can Leverage


True “Open Finance”

Social Computing and MultiChannels

Product Efficiency•Relevant and easy to use•Seamless interactions•Control the message and brand•Best of breed product portfolios•Mobile banking•Give customers what they wantService Efficiency•Customer in Driving Seat Demanding

Rich and Easy User Experience•Telcos, Banks and Media and

Entertainment Combine

Enriching the Multi-Channel Experience - Insurers Can White Label


Gartner: by 2012 75% of banks/insurers will be using Web 2.0 Technologies

The New World or Post Disruption

Business Collaboration•Beyond the enterprise•Architecture of Participation•Real time communication•“Captive” partners - Telcos/BanksEnd User Efficiency•Training podcasts - eLearning•Interactive education •Rural Driven for Microfinance •Broadband computing•Mobile service

Social Computing Outcomes


What’s So New About 2008?…LOTS!In 2008, the IT industry's biggest market makers will jump in with both feet: demonstrating that they are substantially rebuilding their core businesses on these disruptive models and principles. There will be so much investment in these disruptive markets, business models and offerings, that they will – in fact – cease to be considered "disruptions" … They will legitimately start to become the new status quo for competing in this "post-disruption" IT marketplace of the next decade. (Those) who still see these disruptions as ‘disruptions,’ rather than the new rules for competing, will be in deep trouble, as more market share is certain to shift in the next five years – as a result of these new approaches – than we saw in the last ten.”

IDC Predictions 2008: The “Post-Disruption” Marketplace Takes Shape, December 2007


All Mobile Network Operators Will Join the Open Internet

Virtually all major mobile network operator networks will - slowly and begrudgingly – open up their networks to any devices and any applications● A replay of “AOL vs. the Web” - Web Gadgets,

iPhone, Open Handset Alliance are forcing the issue

● The only way to capture the huge growth potential is by leveraging the community-driven value creation model

● MNOs will need to completely re-think their business in this environment

Victor Hugo said “no power on earth can stop an idea whose time has come”

New Developments

Strategic Pursuit of Emerging Markets - for growth

Offerings Designed to Leverage the Internet – for reach

Community-Driven Value Creation – for scale, scope & speed

“Solutionization” – for rapid adoption

A “hyper-disruption,” sparked by four disruptive strategies:

• IT vendors will accelerate investments in the hyper-growth “BRIC+9” economies, collectively growing at 16% “+9” = Mexico, Poland and Turkey,

followed by the smaller Argentina, Columbia, Saudi Arabia, Thailand, United Arab Emirates, and Vietnam

•SMB initiatives will also accelerate, with spending growing at 8-10% Consumer players will take on (and

partner) with Microsoft, HP, IBM, et al.

The Internet’s reach will extend greatly with the proliferation of many different “Web Gadgets” – devices filling the gap between notebook PCs and smartphones 1-2 palms wide, wireless Web-

connected, consumer-priced, good at one or two things

Dozens will be announced from vendors like Asus, Qisda (BenQ), Compal, Electrobit, as well as Microsoft, Apple, and smartphone suppliers

Intel is jumping in feet-first


The Web Lifestyle – “Making things easy”

iTunes Store

What It Is

Google Maps

Flickr Albums

Basecamp

Where is the bank?


Java Powers the Planet

•5M Java developers•1,135 Java Community

Process (JCP) members•Java on devices −

4 Billion•Java on the desktop − 800

Million JavaDesktops

•Java in the data center − Java Enterprise System − over 1 Million subscribers

•Java on smart cards –2 Billion

•$100 Billion Java economy

Mobile Phones

Webcams

Telematics

Game ConsolesLottery Terminals

PDAs

CashRegisters

Robots

Autonomous Vehicles

Settop Boxes

Parking Stations


Drives Developer Community and Loyalty

3,820,000



Economies of scale will definitely be needed…..

MONILINK™ - Smart banking on your mobile.

WWW.ZOPA.COM

http://www.zopa.com/ZopaWeb


Brandassurance: Carphone Warehouse

Brand Trust – not the insurer or bank brand but white labels


Technology Application

Commercial in confidenceSource: Celent “Software as a Service” Nov 2006

Celent Report

Enter Front Stage Business and Web Services


Systems Software Storage Services ● Hardware● Green IT● Black Box

● ILM● Archival● Java Smart Cards

● Architectural for s/w stack● Data Center Consolidation● Data Center Services●Web 2.0 Data Center

● Op System● Integration● Portals/IDM● Reusable Business Artifacts for Financial Services

Ecosystem of solution partners enable the insurance industry to accelerate time-to-market of new products and services, minimize operational risk and reduce IT costs and positions insurers to deliver on the promise of straight-through-processing for competitive advantage

Microinsurance Web IconBehind the Curtain

Microfinance Software As A Service


New Business Model for Insurers

Enterprise CustomersSMB & Enterprise Customers

Business Services

Infrastructure Provider

On Demand Insurance

ComponentsHW, SW, Storage, NetworkingLeased PricingSupportManaged Operations (ITIL)Client Solutions (architecture/design)

Hosting PartnerPing, Power, Pipe

On-site managed servicesBack-up and Disaster Recovery services

Managed Operations (ITIL)

Infrastructure ISVs

MONTHLY PER USER PRICING

SLA

SLA Application ManagementDeployment Architecture

Personal Accident Icon


Growth of Software As A Business

REUSABLE BUSINESS ARTIFACTS

TRAVEL

MICROFinance

ISLAMIC

MOTOR BANK

What is Required for Micro Insurance/ Micro TAKAFUL Delivery ??

An “On Request” or “Pay as You Go”Global Financial Service

Rapidly Create, Launch and Manage Micro Finance Products

via any distribution channelany currency, any language, anywhere in the worldaccessible 24x7 via the web and any pervasive deviceend to end process control with real-time information

Schemes and Affinity Model– a well trodden path – win win

On Demand


Best of Breed Banks

and

Insurers

Affinities / Retailers

Urban

Community

Farmers

Post Offices

MFI’sDirect to End User

Connecting brands and their customers with insurance products and underwriting capacity.

Connecting insurers with niche distribution channels and brand loyal customer segments.

Remittances

Mutuals and Cooperatives align to this model.

Credit Franchises can also adopt.

“On Request Distribution”


Best of Breed Banks and

Insurers

Affinities / Retailers

Rural/Semi Urban

Community

Loyalty

Cards

Post Offices

On Demand Micro Pensions

Migrant Workers

“On Request Pensions”“Provision of annuities for old age”by small value defined contribution


Call Centre / Insurance Services

Call Centre & Insurance Back Office – Base functionality, platform, systems, services and processes

Vertical market alignment, e.g., insurance, tele-marketing, etc.

Standard products and processes, e.g., PA, Medical

Country specific – language, legal and statutory reporting, financial

Delivery Model Based on SaaS

Insurance Tele-marketing

Credit Cards

PA Travel

IndiaChina

Client 1

Client 2


The Face of Utility ComputingEasy Access to Compute Resource to Anyone on the Network


Low CostFinancing

WebWebServicesServices

Utility Utility ComputingComputing

SecureSecureTechnologyTechnology

Low CostFinancing

WebWebServicesServices

Utility Utility ComputingComputing

SecureSecureTechnologyTechnology

Permanent Access toFinancial Transactions

Outreach

Clients Banks and Insurers

AffordabilityOperatingCosts

Matching the Triangles

SUSTAINABILITY


A Microfinance Utility Offering“Commercial Utility”

Standard Offering,Semi-Customized

“Public Utility”Standard Offering,Instant Deployment

Medium to Large Enterprise Anyone On the Network

Access Customer or SI Hosted Dedicated Portal

Availability Longer Term Contract Short Notice On-Demand

Scheduling Time-Based Reservations No Reservation

Pricing Negotiated Negotiated $/cpu-hr

Business Terms Capacity Provisioning Contract Service Level Contract Standard Contract

Technology Menu of Options Solaris 10 x64 or Redhat Linux Solaris 10 x64

Storage Menu of Options Customer Defined 10 GB Standard

Typical Customer

Large Enterprise andSystem Integrators

Dedicated or Time Based Reservation

Predictable and all-inclusive $1/cpu-hr

“Variable CostInfrastructure”Customized, Modular

Custom Standard

One-off Implementations Massive Volume

People Intensive Automated / Virtualized

XX XX

X

XX


“Finance On Request” Insurance SolutionRapidly Create, Launch and Manage Insurance Products

➔ replicate via any distribution channel – multi-channel – no silos➔ any currency, any language, any compliance anywhere in the world➔ low cost of entry and change➔ elimination of claims hot spots, bad distribution channels, bad products➔ full integration into existing infrastructure – ACORD complience➔ movement from capital to revenue based expense➔ pay as you go insurance➔ speed of outreach


Data No MatterWhere It Resides

Securely Aggregatedand Personalized

TargetedViews

IdentityAttributes

IdentityFunctions

AuthenticationMechanism

Carrier CRM.

Back Office

Communication &Collaboration

Claims

Underwriting

Agent

Kiosk

Customer

Any Device

Unified Distribution Channel Portal Platform Resulting Architecture


Best of Breed

InsurersPost Office

“Post Office Distribution”

Leverage INTERNET Kiosks and Outlets


Opportunity -entering competition from different segment

Volume

Value

Low

High

Low High

Bank A

Bank D

Bank B

Bank C

Bank E

PostOffice


Mobile Payments

Consumer Behavior and Sticky Products


NFC: Near Field Communication

• Integral carrier> Passive RFID> “Card” glued to phone

• Integrated carrier> Active NFC> Powered and> Connected to SIM> Java Security


Rural Area Expansion


Facts2.5 billion mobile users worldwide

The majority (59%) lives in developing countries

Grew by 500 million in the past 12 months25% coming from China and India


What about China? Mobile rural bank systemProject by Bank of China

If bank infrastructure:>$2 billion(for 130 terminals & ATMs per 1M people)

Cost of mobile rural bank system:$40 million to $60 million

Source: South China Morning Post - March 2007


Mobile Platform• Based on new generation Near Field Communications (NFC) mobile phones;

contact-less RFID smart cards and integrated biometrics. • Alternate option of attaching fingerprint scanner + card reader to a PC or PoS.

Can also be deployed on PCs - by adding a NFC card reader + fingerprint scanner (both USB peripherals costing about Rs. 6000)


Technology drives micro payments markets31

Greatly Reduced Cost Per Transaction

Multiple services delivered to customer via a single channel

Seamless integration with prepaid core banking

Central database of accounts driving local operations

Complete payment platform for cash deposit/withdrawal at point of sale, instant money transfers plus payments of premiums and claims.

Domestic use given option over foreign networks or in conjunction

Online (SMS.GPRS..) and Offline Working

Rural focus across tough terrains in conjunction with mobile phones

Applications• Customer ID Profile with Biometrics (fingerprints + photo - KYC• Micro-Savings (No-frills interest bearing savings account) • Cash Withdrawals• Micro-Credit • Micro-Insurance• Disbursal of Government Pensions / Benefits • Disbursal of wages for NREGA • Farmers credit – Kissan Cards• Cashless Payments to Merchants• SHG saving-cum-credit accounts • Passbook• Utility Payments and Links to Master Card/Visa switches


Micro Takaful


Huge growth in TakafulThere is a 50 Million plus Muslim Population in China

Regulator Role


Islamic Finance and Microfinance

Islamic economic goals of equality, fairness, social solidarity through risk sharing, propertyrights, and the sanctity of contracts, entrepreneurship, partnership, income generation through productive activityfor poverty alleviation are consistent withelements of Micfrofinance

A successful marriage of both in Islamic Microfinance reinforcesthese principles.


In the Past However......

Islamic financial services industry has shown little interest in Microfinance and poverty alleviation aiming for Shariah compliance in form not in spirit

Conventional Microfinance industry has shown inadequate interest in religious and cultural sensitivities and also largely excludes the poorest of the poor

Islamic Microfinance will enhancefinancial inclusion


Composite Approach Required:-

– Market-Based: For-profit modes Debt-Based Finance (Murabahah, Bai-Muajjal,

Ijarah, Istisna) Equity-Based Finance (Musharakah and

Mudarabah)Remittance (Hawalah); Guarantee (Kafalah)Insurance (Takaful)Deposit Products (Mudarabah, Qard)

Linked with non-profit modes

– Mission-Based: Charity (Zakah, Sadaqa, Awqaf), – Zero-Return Loans (Qard-Hasan)


For Profit Mode Issues....– Agency Problems with Partnership/

Equity-based Financing; Complexity – Apparent Similarity between Debt-

based Modes and Conventional Loans – Charging of Penalties for Defaults and

Delinquencies– Earning Fee on Hawala, Kafala

Adapting classical Islamic contracts to modern Islamic microfinance is easier than for mainstream Islamic finance

Takaful Insurance or Sharia compliant insurance products will aid institutions that are trying to reach the low income market.

Local religious leaders are the key for Sharia microfinance or micro takaful to be effective.

Takaful has a large impact on the potential for microinsurance as most Sharia insurance has been focussed on upper middle and higher wealth sectors.

The low income market in Muslim communities most likely to resist non Sharia compliant products.

MICROTAKAFUL KEY POINTS

MICROTAKAFUL KEY POINTS

Intermediaries must charge fee and not commission. Buyers must be made aware by education that an intermediary is a pass through only for efficiency of getting cover quickly.

All premiums held in the field by intermediaries need to be held in separate accounts from other intermediary monies.

Outreach of Takaful penetration limited by lack of Trained personnel.

Islamic Law allows linkages between Takaful companies and cooperatives in general but restrictions on cooperatives and commercial insurers.

Islamic Alternatives to Microfinancing

Different alternatives: Islamic MFIs Islamic Banks Specialized Institutions

Group-based microfinancing can be used to mitigate Credit Risk

Sustainability Compare

SomewhatNoNoSpecialized IMFI

NoNoNoIslamic Banks

YesNoNoIslamic MFIs

YesYesNoConventional MFIs

Economic Cost

Moral Hazard

Credit Risk


New Business Model for Insurers

Enterprise CustomersSMB & Enterprise Customers

Business Services

Infrastructure Provider

On Demand Insurance

ComponentsHW, SW, Storage, NetworkingLeased PricingSupportManaged Operations (ITIL)Client Solutions (architecture/design)

Hosting PartnerPing, Power, Pipe

On-site managed servicesBack-up and Disaster Recovery services

Managed Operations (ITIL)

Infrastructure ISVs

MONTHLY PER USER PRICING

SLA

SLA Application ManagementDeployment Architecture

Microtakaful IconShariah Compliant

Web Site

ijarah

Best of Breed Banks

and

Insurers

Mosques

Urban

Community

Farmers

Post Offices

Islamic

MFI’s

Islamic

Banks

Connecting brands and their customers with insurance products and underwriting capacity.

Connecting insurers with niche distribution channels and brand loyal customer segments.

“On Request Distribution”


What's Next

Commercial in confidence 67

GREEN IT and MICROFINANCE


Green and ECO Friendly

Earthquake Test

Dan Esty’s Stakeholders wheel

70Source: Esty & Winston, Green to Gold (2006)

Regulators

NGOsBanks

MediaShareholders

Insurers

B2B Buyers

Competitors

Suppliers

Acquirers

“The Future” (Kids)

Communities

Consumers

Rule-makers & Watchdogs

Consumers &Community

Investors &Risk Assessors

CEO Peers

Employees Industry Assoc.

“Plaintiff’s Bar”

Company

Players in traditional economic and business analysis

Politicians

Business Partners

& Competitors

From Dan Esty, LEF Executive Programme presentation, 19 September 2007

A holistic approach is preferable

Business/IT Strategy

Green IT Operations

Supply and demand chain perspective

Think:• Business intelligence• Business processes• ERP • Sarbanes-Oxley

Courtesy of CSC

Living buildings, a radical rethink

California Academy of Sciences

4. Measurement, governance & Corporate SocialResponsibility

Key Questions:

Current Position:• Knowledge• Priorities• Effectiveness

• Can we measure our firm’s carbon footprint? Globally?• Is green thinking built into our business approach?• Are we addressing our key environmental stakeholders?• Do we have accurate, real time environmental data?• Can we tie environmental impact to key business processes?• How do our efforts compare to our competitors?• Can we withstand outside environmental scrutiny?• Are there risks that we haven’t adequately addressed?• Are we complying with global regulations, investor requirements?• Are we strategically shaping these expectations within our industry• Are we living up to our own company values?• Are we making a contribution to our customers & industry?

Customers, prospectsEmployees, recruitsSuppliers, partners

Investors, regulators

Stakeholders

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