Non-traditional Actuarial Paths, Innovation and the Transformation to Digital

What is innovation? Why I believe the future of life insurance lies in online distribution and how I got here.

Transcript

1. Non-Traditional Actuarial Paths, Innovation and the Transformation to Digital Kevin Pledge CEO and Founder Acceptiv Inc. Émilie Bouchard, FSA, FCIA Staff Fellow, Canadian Membership Society of Actuaries
2. 2 2 2 Where do actuaries work? GOVERNMENT, 2% OTHER, 16% BANK, 2% CONSULTING, 34% UNIVERSITY, 1% INSURANCE ORG, 44%
3. 3 3 3 Examples of non-traditional roles §  Renee works for the NHL and manages their employee benefits §  Scott is an expert witness and appears in Court from time-to-time §  Louis is a university teacher §  Jason started is own insurance company §  Richard gives retirement seminars §  Sebastien provides consulting on investment strategies §  Yanick provides consulting to global companies regarding the employee benefits they offer in each country §  Victor decided to move to Asia to provide ERM consulting §  Natalija works for the government and estimates the cost of medical needs of soldiers §  Emilie works three days a week and manages actuarial analysts working in India and visits them from time-to-time
4. 4 4 4 Some non-traditional areas where actuaries can bring value §  Investments and Fund Management §  Banking and Financial Services §  Enterprise Risk Management §  Big Data and Analytics §  …
5. 5 5 5 Keep your options open §  Market yourself based on skills §  Build a network of contacts
6. Non-Traditional Actuarial Paths, Innovation and the Transformation to Digital Kevin Pledge CEO and Founder Acceptiv Inc. Émilie Bouchard, FSA, FCIA Staff Fellow, Canadian Membership Society of Actuaries
7. 7 7 7 Question
8. 8 8 8 How much personal protection life insurance will be sold online 5 years from now? §  0 – 9% §  20 – 29% §  40 – 49% §  60 – 69% §  80 – 89% §  10 – 19% §  30 – 39% §  50 – 59% §  70 – 79% §  90 – 100%
9. 9 9 9 About Me – Early Career §  Actuarial Exams §  Several “traditional” actuarial roles, including Chief Actuary §  Less traditional roles such as compliance and marketing §  “Intrepreneur”
10. 10 10 10 About me – post Y2K §  Entrepreneur §  Served on Microsoft Advisory Board §  Volunteered for SOA
11. 11 11 11 Agenda 1.  What is innovation? 2.  More about me
12. 12 12 12 What is Innovation? Dr. Anjan Thakor SOA Annual Meeting 2012, 2013 Successful Innovation
13. 13 13 13 Two Pillars of Successful Innovation Challenges in the operating environment generate trends whose intersection creates a discontinuous opportunity for innovation Changing a key assumption of the current paradigm
14. 14 14 14 Example Pillar 1: Intersection of Trends 1984 §  PC manufacturing costs decreasing §  PC distribution costs level §  Consumer preferences moving to cheaper PCs §  Working capital is expensive due to high interest rates Challenges in the operating environment generate trends whose intersection creates a discontinuous opportunity for innovation
15. 15 15 15 Example Pillar 2: Change paradigm PCs must be sold through retail distribution channel to consumers Changing a key assumption of the current paradigm Consumers will buy PC’s through mail order channel
16. 16 16 16 Example Pillar 1: Intersection of Trends 1985 §  Growing wealth and willingness to pay for fashionable brands §  More dual-career couples, more time spent at work §  Growing awareness of European cappuccino culture in North America Challenges in the operating environment generate trends whose intersection creates a discontinuous opportunity for innovation
17. 17 17 17 Example Pillar 2: Change paradigm Coffee is a commodity that consumers will never pay a premium for Changing a key assumption of the current paradigm High-quality (Arabica beans) coffee offered close to places of work is an affordable luxury!
18. 18 18 18 What trends are affecting the insurance industry? What paradigm can be questioned?
19. 19 19 19 What is Innovation? Dr. Samuel Chun SOA Annual Meeting 2014 Disruptive Innovation
20. 20 20 20 What is disruptive innovation? 1/2 as good at 1/20 the price or 20x better at 2x the cost or 20x better at 1/2 the cost A:
21. 21 21 21 The problem with continuous improvement Margin on a roll of film – a $5bn global business in 1995 Cost of Goods $0.85 Point of Sale $3.50 Price to Dealer $2.70 $0.70 $1.95 $0.85 Dealer Margin Kodak Margin
22. 22 22 22 George Fisher in 1995 §  70% share in film, but down from 76% §  70% gross margin in film §  Commanding share in paper in chemicals §  Increasingly competitive new entrants into film business
23. 23 23 23 Their solution – make it better
24. 24 24 24 Blockbuster vs. Netflix
25. 25 25 25 What makes disruptive innovation difficult You actually have to do it
26. 26 26 26 How did Netflix do it? §  website §  DVDs §  Red envelopes §  Postal service
27. 27 27 27 How do you come up with this? 1.  Know your customer 2.  Know your value proposition(s) 3.  Ask the right question how would I obsolete myself? 4.  The go do it to yourself first
28. 28 28 28 20/20 Hindsight
29. 29 29 29 "I know it when I see it.” Supreme Court Justice Potter Stewart
30. 30 30 30 Innovation?
31. 31 31 31 http://youtu.be/NugRZGDbPFU
32. 32 32 32 Steven Johnson §  Ideas can take a while to form §  Often lots of small ideas make up a big idea §  Sum of the whole is greater than the parts
33. 33 33 33 Founding a company based on great idea §  Founded in 2000 based on project I had led at Foresters §  Cheaper data management and reporting §  Several components made this possible, but the value of the whole was greater than the individual parts
34. 34 34 34 Trends and Paradigm Trends: 1.  More complex financial reporting 2.  Lower cost of data storage 3.  Increased use of standalone applications requiring large data feeds (valuation, ALM, experience studies) Paradigm: IT (not business areas) has to manage data
35. 35 35 35 What did I do well? 1.  I knew my customer (in fact I defined my customer to be me) 2.  I knew my value proposition (for a mid sized company) 3.  What would make my business obsolete? Big Data R Inclusive solution with other applications 4.  BUT we didn’t do it – why not?
36. 36 36 36 What went wrong? §  Concept, first client and capital from me §  Poor equity decision – 50/50 both taking risk §  Inability to make big decisions §  Failure to grow and mature §  When self-supporting – 100% of a slightly smaller business is better than 50% of the whole business
37. 37 37 37 Lessons Learnt §  Be prepared to change §  Address difficult equity questions up front §  Never do a 50/50 split Not all is lost “What was the biggest problem our clients were really facing?”
38. 38 38 38 It was not reporting or analytics What was the biggest problem our clients were really facing? It was a real operating issue
39. 39 39 39 Distribution “It takes too long to issue business” “It’s too expensive” “Our agents need to increase their productivity” “We need more agents”
40. 40 40 40 These questions… §  Are based on the current paradigm §  Look for an incremental improvement §  From the perspective of the current incumbent – the agent Time for a fresh look at this …let’s look at it from the perspective of the customer
41. 41 41 41 The Customer Journey Gather Information Get Advice Purchase
42. 42 42 42 Where do you go for information? Gather Information
43. 43 43 43 Get Advice Where do you go for advice? Get Advice
44. 44 44 44 Get Advice Where do you go for advice? Get Advice
45. 45 45 45 Get Advice Where do you go for advice? Get Advice
46. 46 46 46 §  Should you pay more to purchase online? Purchase
47. 47 47 47 Metrics for purchase process: Purchase Cost $500 - $747* Time to Issue 42 – 47 days** Sources: * SOA 2010 Expense Study Average Per Policy $500 weighted, $747 unweighted ** 2009 LOMA Service Turnaround Times Survey – Term Products: 47 days
48. 48 48 48 Indicative Quote Underwrite Issue Offer Add’l Q’s Modify Application Apply Underwrite evidence Further Questions Purchase How is this possible?
49. 49 49 49 A recent announcement… minutes not days Is this innovation? Purchase
50. 50 50 50 Indicative Quote Underwrite Issue Offer Add’l Q’s Modify Application Apply Underwrite evidence Further Questions Purchase n x better x% of the cost
51. 51 51 51 Purchase Indicative Quote Apply (UW) and Buy >5,000 x faster ∞ scalable (80% of the time) 7% of the cost
52. 52 52 52 §  Desire to issue business faster §  Increasing cost to issue business §  Increase in online shopping §  Aging distribution force Life insurance is sold not bought Life insurance can be bought and does not need advice Challenges in the operating environment generate trends whose intersection creates a discontinuous opportunity for innovation Changing a key assumption of the current paradigm
53. 53 53 53 How is this working?
54. 54 54 54 §  10 – 30 year term insurance, up to $500k §  Coverage age range 18 - 70 §  Applied UK experience and P&C lessons §  Simpler, yet more flexible than current products §  No medical evidence referrals •  Online, with offline support if needed •  On cover in 15 minutes or less Full UW + Lower cost = Lower premium
55. 55 55 55 T10 - $19.10 Online Quote and Application Basic auto and Manual Underwriting T10 - $20.00 T20 - $26.04 Online Quote and Application Basic auto and Manual Underwriting T10 - $20.10 Online Quote and Application Basic auto and Manual Underwriting T10 - $20.30 T20 - $30.69 Online Quote Manual Application and Underwriting Where did this put Teachers Life? MNS Age 40 $150K. Term Life Monthly Premium * Based on Acceptiv product design and pricing at May 2014 Insurance T10 - $13.42 T20 - $21.08 Online Quote, Application and Buy Automated underwriting immediate decision including rating if applicable
56. 56 56 56 Lessons from the UK §  Term insurance is a commodity §  Customers want the opportunity to buy online without an advisor §  Don’t need to be significantly cheaper §  Online underwriting – same mortality, better lapse experience Beagle Street – new entrant launched in 2012 (not really a life insurance company)
57. 57 57 57 http://youtu.be/HWF09ya1o5I
58. 58 58 58 Thank you Émilie Bouchard, FSA, FCIA Staff Fellow, Canadian Membership Society of Actuaries 613 402 4118 ebouchard@soa.org Kevin Pledge, FIA, FSA CEO and Founder Acceptiv Inc. 416 949 8920 kevinpledge@acceptiv.com www.acceptiv.com/asna