Digital Marketplaces Unleashed
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Allianz X has backed Fairfleet, which provides a platform for a community of amateur drone pilots. In the past, if there were a natural catastrophe, it would often be several days, weeks or even months, before loss adjustors could enter safely an area where the loss had occurred. Fairfleet aims to solve that problem, amongst others by creating a ‘drone on demand’ marketplace.
For example, a certified drone pilot can apply on that platform to be part of a global community. This enables the community member to combine a hobby with revenue. As soon as Allianz has a relevant risk‐ or disaster assessment, it places the job into the platform, and that job is available to the pilots close to the area. They then fly their drone over that area in a pre‐determined way to produce pictures, for which they get paid.
32.3.4 Pillar 4: Advanced Business Analytics
Analytics are at the core of customer journeys and internal processes. Data is a core asset. Since the turn of the century advances in technology and an incredible expansion in new digital data sources have expanded and reinvented the core disciplines of insurers. Actuarial science is becoming not only about more data, but also real‐time data.
In future, efficient sourcing of data and innovative analytics methods will be much greater sources of competitive advantage in insurance than the traditional combination of scale of exposures and underwriting expertise.
Data monitoring on its own can influence customer behavior. New data sources, and new tools for underwriting risk, will all be major factors for the insurer of tomorrow.
With better access to publicly available third‐party data from a wide variety of sources – the so‐called “data exhaust” from social media, smartphone apps, connected cars and connected homes – insurers will learn to ask new questions that will help them understand better their existing exposures, and also to create new products for exposures that were previously uninsurable because of a lack of data.
Erwann Michel‐Kerjan, Executive Director at Wharton Risk Center see data analytics to be at the core of rejuvenation of insurance [8]: “We are now seeing more companies spending a fair amount of time and money upgrading their risk selection processes, from improving their understanding of their maximum exposure to extreme events around the world (direct, business interruption, contingent business interruption), to extracting information from decades of claims data and combining those with other sources of knowledge.”
The Supply Chain Stack
An Allianz Global Corporate & Specialty (AGCS) project demonstrates how data analytics can improve supply chain risks assessment for a corporate insurer: Any kind of multi‐national has a first‐tier supply chain – the direct suppliers they need to have operating in order to keep production running. But these suppliers also have suppliers, the tier‐two supply chain. So if one of these tier two players falls down, then the tier one supplier has a problem, which means that the insured has a problem. This can be extended to tier‐three, tier‐four and tier‐five supply chains.
An insurer’s risk manager needs to go through the slow process of checking the various levels of the supply chain and the back‐ups in place. What the insurer needs is to know more about the client, and the client’s suppliers down through the various tiers, without having to ask any questions of that client.
AGCS has developed a linguistic algorithm that can read all of the publicly available information on the client and its suppliers. This information is visualized and helps making complex supply chains more transparent and identifying bottleneck suppliers.
Praedicat: “The Next Big Thing” in Liability
Los Angeles‐based Praedicat is another example of innovative data analysis. The company focuses on “improving the underwriting and management of liability catastrophe risk” using big data analytics.
Praedicat sets out a methodology that uses big data to improve insurers’ understanding of liability risk. The new technology mines data from scientific research associated with potential liability risks, generating a probability of a consensus being reached that exposure to a substance or product causes a particular form of injury.
The key factor here is that this consensus is seen as the critical threshold at which lawsuits become more likely to succeed. This information is overlaid on an insurer’s portfolio to identify potential accumulations of liability risk. The analysis can be used to develop quantitative estimates of mass litigation, allowing a liability catastrophe model to be built from the bottom up.
32.4 A Company Is Its People
Digitalization is not only about embracing and integrating new technology. It is also about a major cultural change; agility, trial and error, less hierarchy in decision making, fewer silos, more cross‐functional collaboration.
It is also about new capabilities.
Insurers must spot and exploit opportunities sooner rather than later, creating a vision for the fully digital customer journey.
Although companies such as Google, Amazon and Facebook have accumulated huge amounts of data, insurers not only have a considerable amount of data in store, they have also been accumulating it for a long time and, most significantly, they know what to do with it.
For InsurTech the challenge is correlating that unstructured data with the risk. At the moment the major data collectors do not have the knowledge of risk that an insurance company has.
Within AGCS there is a division called AZT (Allianz Zentrum für Technik) that analyzes the root causes of 8000 losses a year, correlating this engineering information with policy pricing.
Companies such as Microsoft have developed engines to analyze unstructured data, but it is still necessary to teach the engines what to do. Currently the established insurers are well‐positioned to do that, much more so than the pure data engines out there. But tomorrow’s world might be totally different, because the opposition is learning fast.
An example of how insurers can use unstructured data in innovative and inductive ways was a small pilot AGCS ran which looked for correlations between data and fire exposure. It was nothing big. It was young talents, without much money or investment, who were told to “go off and do something”. What they discovered was the data gleaned from online reviews about any lack of cleanliness of hotels had a positive correlation with a higher likelihood of a fire claim.
The new staff insurers are employing today need to be different from the people they employed when they themselves were youngsters in the early 1990s. The job of the underwriter will change dramatically over the next few years. It will still be there, but the underwriter in five or 10 years’ time will be a data scientist. He or she will have the ability to understand data from a completely different angle; to be able to express data into algorithms.
It is vital that insurers support their long‐serving staff on that journey, through internal or possibly external programs.
32.5 Conclusion
The progress of InsurTech in insurance can be a partnership rather than a battle. We do not need to blow everything up and start again from scratch.
But there is without doubt a possibility of disruption from outsiders. Real disruption so far has always come from the customer acquisition angle. These companies want to disrupt the current placement process. It will not be like the current insurance industry placement process with a bit of technology attached to it. It will be something completely re‐imagined.
InsurTech will have wide‐ranging implications for the industry, both short‐term and long‐term. It will cover the entire customer process, from customer acquisition through to claims payment, and will influence the entire insurance “stack”, from customer to reinsurer, via internal and external processes. Insurers need to react nimbly to ensure that the opportunities offered by InsurTech are used to the advantage of the industry rather than exploited by non‐insurers to negatively impact what
is a sound, reputationally strong and robust macro‐model.
Traditional market leaders need to make the most of the opportunities presented by the digital age being amongst those spearheading change and taking an active role in shaping its course, instead of letting the change drive them. Many organizations in the financial services sector are undergoing a process of fundamental transformation to incorporate disruptive technologies. What will emerge are organizations that are close to their customers, better at responding to their wishes and demands and capable of creating closer emotional ties between the customer and the company.
References
1.
Route 66 Ventures LLC, Alexandria, VA 22314: Graphic “Financial Services Industry Investment Universe”
2.
Accenture: “The Boom In Global Fintech Investment”
3.
Accenture: “The Future of Fin5Tech and Banking”. https://www.weforum.org/agenda/2016/08/the-rejuvenation-of-insurance-this-is-why-it-matters/
4.
http://www.FinTechinnovationlablondon.co.uk/media/730274/Accenture-The-Future-of-FinTech-and-Banking-digitallydisrupted-or-reima-.pdf.
5.
KPMG & CB Insights, “The Pulse of FinTech”, March/August 2016.The eight verticals listed were Lending Tech; PaymentsTech; Wealth Management/Personal Finance; Money Transfers; Blockchain; Institutional/Capital Markets Tech; Equity Crowdfunding; InsurTech. https://assets.kpmg.com/content/dam/kpmg/pdf/2016/05/the-pulse-of-fintech.pdf
6.
https://www.cbinsights.com/blog/insurance-tech-startup-funding-2015/.
7.
www.gartner.com/newsroom/id/3165317
8.
insuranceblog.accenture.com/author/jean-francois-gasc
© Springer-Verlag GmbH Germany 2018
Claudia Linnhoff-Popien, Ralf Schneider and Michael Zaddach (eds.)Digital Marketplaces Unleashedhttps://doi.org/10.1007/978-3-662-49275-8_33
33. Fintech Hypes, but Wealthy Internet Savvy Investors Prefer to Stay Hybrid
Thomas Altenhain1 and Christoph Heinemann2
(1)ALTENHAIN Unternehmensberatung GbR, Starnberg, Germany
(2)Christoph Heinemann Vermögensverwaltung GmbH, Munich, Germany
Thomas Altenhain (Corresponding author)
Email: altenhain@gmx.net
Christoph Heinemann
Email: heinemann@investagent.de
33.1 Fintech Hypes, Particularly in the Past Two Years
Selling financial services products by using technical equipment as well as electronic media reaches back a couple of decades. Back then players in retail banking and asset management used technology that offered the ability to secure unlimited operational readiness and to make advice and sales independent from branch locations: ATMs and statement printers had been on the rise since the early 1980s, electronic cash POS‐systems as well as home banking with videotext had been broadly offered since the late 1980s, and the 1990s saw the emergence of online banking & direct brokerage.
In the past two decades the continually spreading use of the internet, the prevalence of mobile technology as well as digital innovation have lead to new and revolutionary technologies that serve as impulse generators for deep changes to the ecosystem of financial institutions: The brick‐and‐mortar‐centered financial industry has embarked on separating customer liaison, customer advice, information gathering, product sales and product servicing from long‐established human interaction in branches. Thus, the value chain is constantly being restructured, offerings are getting re‐bundled, information gathering and treatment are redefined and new services are created that are presented and processed digitally.
Today banking and brokerage by telephone, internet, and mobile/app have fundamentally changed the way retail as well as corporate and institutional customers interact with their banks and financial advisors. As a consequence, long‐established players like high street banks and traditional brokers are confronted with new entries, so called Fintech companies, that apply ‘technology to conduct the fundamental functions provided by financial services, impacting how consumers store, save, borrow, invest, move, pay, and protect money’ [1]1. The following statistics illustrate the growing importance of Fintech start‐up‐companies and might potentially point up the ‘hype’:
The current number of Fintech companies in the world is estimated anywhere between 5000 to 6000 with some recent sources also quoting an amount of 12,000 – although there even might be a high underestimation as startup companies that have not used external funding might not to be recorded in any database [1, 2, 3, 4, p. 354 f.].
Fintechs are new ventures founded in the last ten years: According to joint research by KPMG and H2Ventures published in December 2015, only 18% of the global top‐50 Fintech‐companies are older than eight years, 28% are between six and eight years old and the remaining 54% were set‐up in 2011 or later [5].2
Fintech companies have been set up all over the world, although some regional clusters can be identified: An indication for the regional distribution may be that out of the top 50 Fintechs, 40% are headquartered in North America, 20% in Europe, 14% in China, 10% in South America and 12% in the rest of the world [5].
Globally, already 29 Fintech start‐up companies founded after the year 2000, can be regarded as ‘unicorns’ with a market valuation of more than USD one billion [6].3 Another about 50 firms qualify as ‘narwhals’ or ‘semi‐unicorns’, each with an estimated value of at least USD 500 million. In total, all these ‘animals’ together are valued at about USD 120 billion. In comparison, the banking group with the highest market capitalization in the world and going back to the 1850s, Wells Fargo Group, was at the same time valued at about USD 300 billion; the next biggest banking conglomerate and also from the early 1800s, J.P. Morgan Chase, as well as Industrial & Commercial Bank of China (at least over 30 years old) were worth USD 260 billion each [10]. The 20 biggest European banks have a market capitalization between USD 30 and 160 billion, but most of them, if not all, look back on a history of more than 100 years [11].
Their big number as well as the high valuations of Fintechs also indicate that they have very successfully attracted investors: During the last seven years, global investments into financial technology have increased from slightly above USD one billion to nearly USD 20 billion in 2015 [1, 12, p. 46]. Funding is geared towards regional clusters with fluctuations in its distribution: In the year 2015, venture‐capital backed Fintechs received USD 14.5 billion in equity investments overall, an amount of USD 4.9 billion was invested in the first quarter of 2016 alone. Out of this, North America received 56% (in brackets: Q1/2016: 37%), Asia 32% (53%), Europe 10% (6%) and the rest of the world 2% (4%) [13].
Interest has not only increased amongst financial investors, e. g. business angels, venture capitalists, mutual/private equity/hedge funds. Also public interest as measured by Google searches for the keyword ‘Fintech’ has rocketed in the past seven years: Average popularity of searches in comparison to all other searches in Google was stable for the first five years, in 2014 it approximately doubled and in 2015 it again went up five to six times [14]. Average relative popularity of keywords as ‘internet, mobile, e‐commerce, online banking, retail banking’ in the same seven years remained or rather declined slightly.
Fintechs span their offering of products and services as well as their customer reach over all segments of financial services: 88% of the already mentioned top 50 Fintechs focus on banking and only 12% on insurance products and services [5]. With 32%, the majority of the banking‐related top 50 Fintechs focus on lending to retail as well as SME clients; wealth management and trading services are offered by 23%, payment services by 14%; other products and services account for the remaining 31% [5].
&
nbsp; A slightly different view on the product and customer orientation is given by recent McKinsey research on more than 350 mainly smaller banking‐related Fintechs: With a share of 43% the main product area is payments, followed by 24% for lending, 19% for asset management/sales & trading/securities services (‘financial assets and capital markets’), and the remainder for account management [1]. 62% of the companies registered in this database focus on the retail customer segment, 28% on small and medium‐size enterprises, the remainder on large corporates, public entities and nonbanking financial institutions [1].4
25 to 30% of established top players in the banking field are also active outside their home market; at the moment, none of the insurance Fintechs has a multi‐country or even global reach (yet) [5].
33.2 Wealthy Internet Savvy Investors Between High Acceptance of Fintechs’ Offerings and Uncertainty of Their Choices
Fintech companies intend to fundamentally disrupt the traditional way of banking, brokerage and financial advice: Long established personal relationships between clients and their bankers/brokers disconnect and move to a digital environment. Thereby Fintechs’ offerings serve as strong impulse generators for deep changes in the industry particularly as the traditional value chain of attraction, information, advice, sales, servicing and processing is broken up, re‐designed and re‐bundled.
This provides big opportunities for new entrants, but also for established players that are either able to cement historic relationships to their customers ‘forever’ or to use the new technologies to also play the digital game. This chapter will point at the customers’ view. Although probably all customers of the financial services industry will be affected in some form by digitalization of the industry, this paper exemplifies the effect on wealthy and at the same time internet savvy investors.5