The role of regulation and supervision for enhancing innovative insurance, reinsurance and capital market solutions Dr. Rodolfo Wehrhahn ADB Consultant Manila, The Philippines 25/26 September 2018
# Innovation pays off with significant higher shareholder returns Three and ten-year annualized total shareholder return (TSR) premiums of innovative companies compared with their industry peers, by region Annualized TSR premium 1 (%) (1) Total shareholder return premiums (%) generated over industry peers Source: BCG Study: Incubators, Accelerators, Venturing and More 3
4 A systematic approach to decide where to innovate Intral Innovation Discovery Map Value Chain Disruption Customer Evolution and Experience Shareholders & Ecosystem Macro & Micro Trends Explore & Understand Interconnect Define opportunity scenarios New Macro technology: Blockchain,cloud, mobility, Big data, IoT, In-memory, etc.. Business Division s View Generate Concrete Topics Feed Ideas to the Innovation Pipeline Internal Capabilities Constraints & Beliefs Regulations Current Response: Competitors Suppliers VC s Patents Etc Emerging Challengers Emerging Capabilities
For discussion we follow a simplified Innovation framework Governance & Organization Explore Ideate Validate & Refine Execute Extract Value IDEAS PoC PROJECTS Innovation Ecosystem Supports the whole lifecycle
Case 1 - Governance & Organization Conflicts between IT and Innovation Explore Ideate Validate & Refine Execute Extract Value IDEAS Ideation is Very large outsourced investments in established FiTechs, 100M INITIATIVES Ecosystem is limited to established fin-techs Integrates Fin-techs in the BUs PROJECTS Business case to be achieved Innovation Ecosystem Supports the whole lifecycle
Case 2 - Governance & Organization Innovation is the top priority for the CEO Explore Ideate Validate & Refine Execute Extract Value IDEAS Investments in early stage start ups Ideation is conducted across the organization INITIATIVES Global Innovation Observatory covering all stages Innovation Ecosystem Supports the whole lifecycle IT is fully integrated in the execution New IT Platform PROJECTS Business case to be achieved. Some significant write downs
An Innovation Model based on global best practices is mandatory Governance & Organization Prioritized Focus Areas Explore Ideate Validate & Refine Internal Idea Generation Regional & Global FinTech Ecosystem IDEAS External Innovation Advisory Board Customers & Business Partners GATE I GATE II Execute Dedicated Innovation Space Selection Criteria Competitive Budget Distribution PoC Innovation Ecosystem and Central Team Supports the whole lifecycle Internal Go / No-Go Decision Exit IT Portfolio Spin off Sell Hold Extract Value PROJECTS 8
9 Strategic questions for insurers in the Innovation Journey Expand their business model with Fin-Techs? Rebuild the value chain with FinTech components? Offer white label insurance services to fin-techs and web champions? Become the Apple of Insurance build excellent user experience? Other?
Huge investments in global fin-tech VC funds 2016 has seen 1,436 deals globally attracting $17.4bn of VC investment, a 10.9% increase YoY 20,000 1,420 1,617-11.2% 1,436 1,800 1,600 1,400 Deal value (USD M) 15,000 10,000 5,000 699 1,036 11,873 15,648 10.9% 17,355 1,200 1,000 800 600 400 Deal volume 0 6,252 2,581 2012 2013 2014 2015 2016 200 0 Deal value Deal volume Deal value 5 year CAGR: 46.4% Deal volume 5 year: CAGR: 15.5% Source: Pitchbook (as at 30/01/17) 10
Global Fintech VC Investment is highly concentrated China, for the first time, attracted the most investment at $7.7bn over 28 deals, beating the US which attracted $6.2bn over 650 deals Top 10 countries by deal value ($M) Top 10 countries by deal volume China 4,203 7,730 United States 650 764 United States 6,182 7,082 United Kingdom 173 164 United Kingdom 783 1,178 India 82 69 Ireland 524 97 Germany 50 33 Germany 384 108 2016 2015 Singapore 41 36 2016 2015 India 272 1,690 Canada 37 41 Canada 183 150 France 31 36 Israel 173 43 China 28 55 Hong Kong Brazil 170 125 161 87 Australia Israel 27 32 27 34 Source: Pitchbook (as at 30/01/17) 11
Case Kabbage, the SME lending partner of Santander in UK
Case Data ownership Telefonica Platform 4 Start Ups Innovation and Digital Transformation Support Platform 4 will transfer ownership of data back to clients Clients decides the use of data Data can be sold to external players CaixaBank is a potential buyer of data to improve credit scoring and cross selling
Case - Top Spanish banks are investing heavily in AI and big data Ø Top priorities are: Biometrics, Speech recognition, Chatbots, Decision Management Ø Caixabank has lunched this year a chatbot for imaginbank Ø BBVA has offered an automated agent for years with mixed results Ø BBVA offers100% digital on boarding with a selfie Ø Telefonica is testing Robots for back office automation
Fin-techs are having strong impact in collaborative business models with financial institutions But they are very different than an insurer: not regulated cloud based fast mover reluctant to invest have limited resources very short term focused and sometimes arrogant 15
Regulation Protection Level playing field Scams Privacy Cyber theft Investments protection Principle based requirements Development Product approval Legal framework
Scams Protection Privacy Cyber theft Level of understanding Transparency Size of exposure Usage rules Limiting the exposure Who pays Compensation
Level playing field Investments protection Approval process Disclosure vs patent Competition issues Principle based requirements Advice Operational risk Risk capital Reserving
Development Product approval Legal framework Expertise Contract law Consumer rights Time sensitivity Privacy
The role of regulation and supervision for enhancing innovative insurance, reinsurance and capital market solutions MANY THANKS for your attention Manila, The Philippines 25/26 September 2018