How insurtech will change Operational Risk Management?

According to its generally accepted definition, operational risk is “the risk of loss resulting from inadequate and failed internal processes, people, and systems or from external events” and it covers also legal risk exposure. However, according to the risk management literature, strategic and reputational risks are excluded from operational risk definition.

With its qualitative background, operational risk is found as one of the most treated components in business processes. Because its features, operational risk exposure of an entity is not easy to measure and risk appetite is not easy to determine. Like other qualitative risks, top down and bottom up assessments are performed for operational risk exposures. However, yearly analyses change frequently and finding a trend for exposures is really struggling.

Risk management can add value to companies only because markets are imperfect and today, insurtech is the main driver which makes markets imperfect. As a revolution in insurance business, it is changing every dynamic in our business. Inevitably, it converts traditional risk management functions of insurance companies totally. After two very busy years with solid development, insurtech is more than an emerging risk now. And as risk management professionals, we need brand new approaches for manage its effects.

Needless to say, insurtech affect all risk types of an insurance company, but because of above mentioned features, it is more difficult projecting how will change ORM (Operational Risk Management) after insurtech. My predictions on this grey point are as below.

With digitalization, operational risk exposure of an entity will be based more on digital process based risks (not systematic or systemic risks!)  than man-made risks. After insurtech implementations, many manual controls will die, and system-based ones fill these gaps. Enterprise risk manager will need to construct its risk management framework mainly on automated controls and this brings different testing processes as well.

Insurtech implementations do not mean just digitalization, but also using disruptive technologies; as AI, IoT, machine learning, blockchain, AR, VR; in every step of insurance business. As a second line of defense of insurance companies, risk managers should be one step further from their colleagues and need to define control framework of these activities.

Last but not least, one of the crucial side effects of insurtech in operational risk management is cyber risk. Today, cyber risk is assessed as third or fourth most threated risk in insurance professionals ‘expectations. However, more automated systems will put insurance companies into target of cyber-attacks and cyber risk will become most threated and costly risk in very short time.

#OperationalRiskManagement, #ORM, #Insurtech, #DisruptiveTechnologies, #AI, #IoT, #MachineLearning, #Blockchain, #AR, #VR, #CyberRisk, #RiskManagement, #EmergingRisks, #ZeynepStefan

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Micro Insurance and Insurtech V2

Until Insurtech, insurance companies were defining micro insurance policies as social responsibility project. With the magic touch of technology, the picture is changing rapidly!

Micro insurance is a type of micro financial activity, which protects low-income people and communities with low premiums and limited coverages against risks. The main objective is providing financial protection for all low-income members with pooling risks and financial resources. Target customer group is quite big as well. As a fast growing industry more than 2 billion people are potential customers of micro insurance worldwide.

Besides, when we have a look to its social effects, micro insurance enhances financial security and peace of mind, supports social security system of poor or developing countries and provides a high-level risk management system. As a long-term investor, micro insurance contributes stabilizing and development of financial markets in developing and poor countries and provides a considerable liquidity for critical times.

Four key features are very crucial for penetration of micro insurance:

* Premiums should be affordable for low-income households

* Products should be very basic, easy-to-understand and cover limited risks

* UW, claims and collection processes should be operated with high effectiveness

* Products should be distributed effectively and with minimum distribution cost

For providing these conditions, insurance companies defined micro insurance activities as social responsibility projects and did not expect any financial gains after UW process. Until now!

With insurtech, the picture is changing rapidly! Insurtech is converting micro insurance into a very profitable area for insurance companies with advantage of reaching a huge customer group. So, the first rule of insurance, the law of large numbers, is now valid for micro insurance business as well. With insurtech, number of insureds is widening and this makes claims more stable and predictable for insurance companies.

The first impact of insurtech in micro insurance is on UW processes. Because of the low premiums, operational efficiency is the key of success in projects. Insurtech allows insurers for having their own automated UW decision making processes for fast and costless policy production. The key of success, management of operational risk, is reduced significantly. The products are simple, do not require any financial literacy and are very user-friendly.

While penetration of smart phone usage is relatively high even if in poor countries, target customers reach policy without location restrictions via digital distribution channels. Premium collections, claims notifications and all compensations activities are performed with digital tools that were developed and perfected by insurtech.

For now, micro insurance projects are mainly focus on personal accident, health and agricultural activities, but new products are developing promptly. With all its components; like Artificial Intelligence, Machine Learning, Chatbots, Internet of Things; insurtech is becoming the new leverage of micro insurance. Not just diversifying and absorbing risks of individuals, for also providing very strong preconditions for other productive activities of policy owners.

#MicroInsurance, #DevelopingCountries, #Insurtech, #Penetration, #IoT, #MachineLearning, #Chatbots, #IoT, #ZeynepStefan

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With Insurtech, it is more threatening than ever: Cyber Risk

As a more connected world with billions of sensors, connected machines, totally digital processes, trillion terabyte of new data and strict regulations on data privacy, cyber risk appears as a big threat on their digital transformation journey of insurance companies.

Actually, cyber risk was always there and companies had been managed it without detailed policies or billion dollar covers. But, the conjuncture is changing dramatically. In our century, managing cyber risk is a full-time job and requires big budgets. With 2017 figures, gross written premium of cyber risk policies is nearly 3,1 billion USD and it is expected to reach 14 billion USD just  in 5 years. Insurance professionals expect a rapid growth because cyber risk is now threating not just financial statements, but also existence of companies from every business.

As a sub-type of operational risk, cyber risk is defined as “exposure to harm or loss resulting from breaches of or attacks on information systems”. According to other risk types, managing cyber risk seems still like maiden soils. In frontline of policies, there are covers for business interruption, reputation loss and possible physical damages. However, it is obvious that there is lack of clear understanding about how much cyber risk has policy owners.  If we look from point of maturity, cyber risk management is still in the very early stage of risk management: I don’t know what I don’t know!

As a result of new capital regimes and strict regulations, like GDPR, Solvency II, MiFID II, there is a remarkable increase in sales and acquisition activities among companies from every sector and cyber risk appears as a new key indicator during M&A due diligence processes as well. As professionals said, “four or five years ago, cybersecurity due diligence consisted of asking few questions in a short phone call”. But now, maturity of cyber risk management of a company terminates a very profitable M&A process just in few days without any deal or with a deal very low than normal price. So, insurers appear as due diligence partners of companies during their cyber risk management. As all we know, the acquisition process of Yahoo Inc. was radically changed right after Verizon Communications learnt about three billion Yahoo accounts were stolen. Accordingly, the proposed purchased price was reduced from 4,48 billion $ to 350 million $! Sometimes, companies discovered their hacking history during due diligence processes. When Home Depot Inc. was preparing itself for a fair proposal to its rival, The Company Store, they discovered that e-mail and payment card information of up to 56 million customers was stolen and nobody knows about this breach in the Company Store! I cannot be sure, which one is worst.

Cyber risk is climbing to top of CEO’s nightmares steadily. Ironically, even it is a trigger for increasing of cyber risk; insurtech is the unique tool for also managing cyber risk.

#CyberRisk, #Insurtech, #RiskManagement, #GDPR, SolvencyII, #MiFIDII, #ZeynepStefan

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Yeni Nesil Hayat Sigortası ve Insurtech!

Hayat Branşı Yeniden mi Doğuyor?

Hayat sigortası poliçeleri Euro bölgesindeki krizin sonrasında ciddi bir karlılık krizine girmişti. Günümüzde de halen etkilerini gördüğümüz iktisadi daralma sonrasında sigorta şirketleri hayat portföylerini, taahhüt ettikleri getirileri poliçe sonunda sağlayamayacaklarını gördüklerinden ellerinden çıkarmak için sıraya girdiler, düzenleyici kurumlar ise poliçe devirlerini yasaklayamadıklarından portöylerinin başka şirketlerce devralınmasının tercih ettikleri bir uygulama olmadığını ifade etmekle yetindiler. Bu olumsuz finansal ortam, hayat sigortası alanında penetrasyonu düşürmekle kalmadı, hane halkı diye adlandırdığımız sıradan kişilerin sahip olması gereken ancak olmadıkları-olamadıkları güvence açıklarını da dramatik bir şekilde arttırdı.

2017 rakamlarına göre Amerika Birleşik Devletleri’nde hane halkının sahip olduğu ve sahip olması gereken güvence değerleri arasındaki fark 21 trilyon Dolar’a ulaştı. Bu, aile başına 400 bin Dolar demek. Yani, Amerika Birleşik Devletleri’nde yaşayan bir ailenin gerçekleşebilecek risklerin maliyeti ile sahip oldukları sigorta teminatı değeri arasındaki fark 400.000 Dolar değerinde. Yapılan araştırmalar, ailenin geçimini büyük oranda karşılayan anne veya babanın ani bir şekilde hayata veda etmesi durumunda Amerikan ailelerinin %58’inin sadece birkaç ay yaşam maliyetlerini ödeyebilecek kadar birikime sahip olduklarını ortaya koymakta. Bu durum, 19 trilyon Dolarlık ekonomisiyle dünyanın en büyüğü olan Amerika Birleşik Devletleri için çok trajik bir tablo. Sosyal devlet modeli daha çok öne çıkan Avrupa Ekonomik Bölgesi (European Economic Area)’deki durum da benzer. Toplam teminat açığı 17 trilyon Dolar değerinde ve her geçen yıl artmakta.

Yaklaşık 10 yıldır hayat sigortası sektörü, değişken piyasalar, düşük faiz gelirleri, düzenleyici kurumların artan baskısı, mevcut veya potansiyel müşterilerinin değişen demografik yapısı ve yatırım alışkanlıkları gibi, etkileri kapsamlı risklerle baş etmekte. Yani hayat portföyünün daralmasında ekonomik krizin yanında hedef kitledeki demografik değişimler de rol oynamakta.

Bu olumsuz ortamı, yaşam süresinin sağlık sektöründeki gelişmeler ile birlikte artması, sosyal güvenlik sistemlerinin artan nüfus ve yaşam süresi gibi temel değişimlere uyum sağlayamaması, iş güvencesinin artık neredeyse hiçbir sektörde olmaması ve gelir dağılımı eşitsizliğinin her geçen gün yaygınlaşması gibi olumsuz faktörler de kötüleştirmekte.

Çözüm Teknolojide

İşte bu kritik konjonktürde, sigorta sektörünün teknolojik yolculuğu olarak adlandırabileceğimiz insurtech, hayat sigortası sektörünün ihtiyacı olan yaşam enerjisini vermek için devreye girmiş durumda. Sektörün değişen müşteri istekleri ile birlikte gelişimini gerçekleştirememesi, süreçlerindeki maliyet optimizasyonunu sağlayamaması dolayısıyla elde edilebilir fiyatlarla ürünlerini satamaması ve standart ürün kavramından müşteriye özel ürün kavramına geçememesi gibi faktörler, Insurtech ile hayata geçirilebilecek bir model ile, tamamen online, kullanımı kolay ve kişiselleştirilebilecek bir sigortalanma deneyimine dönüşebilecek.

Sigorta teminatına sahip olmanın ilk adımı olan müşteriye ulaşım bu modelde her kanaldan sağlanabilmekte. Teknik süreç, insurtech yardımıyla tamamen otomatize edilmiş durumda. Anlık sigortalama ve fiyat hesaplaması yapabilen algoritmalar ile bir yılda altı milyona yakın sigortalanma talebi otomatik olarak cevaplanabilmekte. Bu, günde yaklaşık 16.500 talebin cevaplanabilmesi demek ki, standart bir şirkette bunun sağlanabilmesi için ilgili departmanda yüzlerce çalışanın olması gerekmekte. Müşteri, poliçesine istediği her kanaldan ulaşabilmekte. Ürünler müşteri ihtiyaçlarına göre farklılaştırılabilmekte. Dolayısıyla, standart bir hayat poliçesi yüzlerce farklı kombinasyonla müşteriye sunulabilmekte. Ürünlerin içeriği olabildiği kadar sadeleştirilmiş ve eğitilmiş bir satış gücüne ihtiyaç bırakmayacak kadar açık bir yapıya sahip. Müşterinin hasar anında şirkete ulaşabilmesi ise yine otomatize edilmiş süreçlerle desteklenmekte. Hasar anında, hasarın türüne göre otomatik cevaplama sistemleri veya ürün konusunda bilgilendirilmiş çağrı merkezi devreye girmekte.

Bu kadar otomatize edilen ve süreç kalitesi arttırılan bir ürün için bir sonraki aşama markalaşmaya gerek duyulmaması. Dolayısıyla bir sigorta şirketi, ki günümüzde Avrupa piyasasında uygulama bu yönde, direk müşteriye ulaşma yerine (B2C), portföyü olan bir kuruma ulaşabilir (B2B) ve ürettiği poliçe üzerine aracı kurumun logosunu koyarak üretim yapabilir. Hayat sigortasında devrim olarak niteleyebileceğim bu model sağlık sigortasında veya elementer branşta da uygulanabilir.

Türkiye gibi gelişmekte olan ve finansal derinleşme sürecini henüz tamamlayamamış piyasalarda, küçük bir ekip tarafından kolaylıkla uygulanabilecek bu yöntem, sektördeki dengeleri değiştirebilir. Ve piyasanın yeni kuralı olan, hızlı balık büyük balığı alt edebilir. İlk kim uygulayacak merakla bekliyorum.

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New Generation Life Policies with Insurtech!

After the financial crisis in European Economic Area (EEA), life insurance business was significantly influenced by volatile market conditions, low interest rate regime, pressures from regulatory bodies, changing customer demographics and investment patterns.

These undesired economic conditions caused a dramatic increase in protection gap. The insurance protection gap or underinsurance shows us the difference between the amount of actual need for insurance coverage and the amount that is purchased. This significant gap reached 21 trillion Dollar in USA. According to their financial agility, 58% of American families would not be able to cover their monthly expenses just a few months after a loved one from their families passed away. European Union countries are in a similar situation as well. Sadly, the coverage gap reached 17 trillion Dollar in EEA. Moreover, inequality is widening faster than ever. Current social security systems are strained because people live longer lives and job security is not a given anymore.

When we look on other contributors to protection gap, we saw the negative perception about life insurance among customer as well. Life insurance is found very complicated, not easy to understand, requires very bureaucratic processes beforehand and policy premiums are not affordable. So, simplifying life insurance, especially for the new generation insurance buyers will be crucial for life insurers’ future. The key of success is definitely insurtech!

When we examine classic life cycle of a life insurance product, we see 5 main steps. These are:

  • New business&UW support
  • Agency & distribution management
  • Policy admin support
  • Claims management
  • Shared services

With insurtech, these steps will be converted to standardized, efficient and optimized processes. The necessity for new product introduction will be performed while maintaining consistency and maximum quality in customer services.

With insurtech, buying a life insurance will be converted as a digital customer experience and this is a brand new business model. With insurtech, life insurers will:

  • create easy-to-understand and non-advisory life products,
  • have customer-centricity for creating new life products,
  • have automated UW (underwriting) decision processes which enable instant decision,
  • reach target customers via different distribution channels,
  • use predictive analytics to transform business with measurable variables easily and
  • provide a high level end-customer satisfaction.

Finally, creating a straight forward and informative online journey for life customers will be the unique solution for penetration problem of life insurers. And main drivers for mentioned solution come absolutely from insurtech!

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