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EY activities and solutions for insurers focusing on the emerging consumers


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Outlining the opportunity for global carriers is a new report from EY and LeapFrog Investments, a profit-with-purpose private equity fund and the world’s largest dedicated investor in insurance and related financial services to low-income consumers in Africa and Asia. The report highlights the various components of operational excellence that will be required for success in tapping the emerging consumer market.

This presentation provides:
- an overview of the insurance sector in emerging markets
- the various drivers insurers need to focus on in order to effectively serve low-income customer segments
- key challenges and focus areas
- EY's customised solutions

For further information and to download a copy of the EY and Leapfrog report, "Operational excellence for insurers focusing on emerging consumers", visit:

Published in: Business
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EY activities and solutions for insurers focusing on the emerging consumers

  1. 1. EY activities and solutions for insurers focusing on the emerging consumers February 2014
  2. 2. Page 2 Section one Market overview EY activities and solutions for insurers focusing on the emerging consumers
  3. 3. Page 3 4% -0.50% -11.10% -5.60% -3.80% 10.70% -8.20% 6.30% 7.30% 10.40% 18.60% 10.60% 17.90% 25.10% 8.18% 11.27% 8.92% 6.74% 9.57% 2.96% 3.96% 1.77% 4.80% 1.98% 1.40% 1.42% 0.68% 3.05% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% Growth in GWP, penetration and density Growth Penetration Density Overview: insurance sector in emerging markets Density (USD) GWP growth and penetration (%) ► The growth in total premiums is dominated by emerging markets, such as China, India, Indonesia, Malaysia, UAE, Philippines, Vietnam, Nigeria, Kenya when compared to developed markets in the West – most of which have shown negative growth ► However, if we compare the insurance penetration or density it is extremely low compared to the developed markets ► This highlights the potential of focusing on under-penetrated customer segments in these high-growth economies for global insurers Source: “World insurance in 2012," Swiss Re Sigma (1) GWP growth – change in total insurance premium change in 2012 vs. 2011 – nominal; penetration – total premiums as % of GDP in 2012; density – total premiums per capita in USD in 2012 Sample of emerging markets (1) India has been an exception and shown a de-growth in FY12 on the back of regulatory changes and other macroeconomic factors EY activities and solutions for insurers focusing on the emerging consumers
  4. 4. Page 4 Conventional insurance vs. insurance for low-income segment Upper middle class and above Global middle class Emerging consumer (low-income sector) Below poverty line (BPL) segment USD 2 – USD 9 per day Less than USD 2 per day USD 10 – USD 100 per day Income-based customer segment pyramid Source: EY Analysis Conventional insurance target segment Low-income insurance Social/Government sponsored insurance Conventional insurance Insurance for low income segment Target customer segment ► Urban/Educated/Mid to high income ► Rural, semi-urban, low income Products ► Apart from conventional pure-risk products, unit-linked products, pension products ► Motor/health insurance – non-life ► Typically higher ticket-size products ► Credit life/term insurance/critical illness/personal accident ► Cattle/weather insurance – non-life ► Low ticket size products Distribution ► Agents, banks, brokers, online sales ► Usually works on third-party partnerships (e.g., MFIs) or direct sale (e.g., mobile sales) ► Typically the same insurance company focuses on the various customer segments ► Conventional insurance – Usually targeted at the mid to high income customers, educated and living in urban centers ► Microinsurance – Targeted at the emerging consumers or low-income consumers living in rural/semi-urban areas ► Social/Government sponsored insurance – Government subsidized insurance for the below poverty line (BPL) segment USD 100 and above per day EY activities and solutions for insurers focusing on the emerging consumers
  5. 5. Page 5 Insurance services for low-income customers need to overcome multiple common challenges Common challenges faced by the emerging consumer Inconsistent cash flows Dependence on single source of income Mobile segment Unaware of concept of insurance Lack of trust Lack of consistent monthly cash flows; require flexibility in premium payment options Customers are mobile for employment and need servicing/ claim payments across the country Customers may not completely understand the concept of risk pooling and the advantages it offers. Lack of trust in private institutions for buying an intangible product like insurance Dependence on the single bread- earner; may not be able to afford large premium payments Improving awareness about insurance Make insurance accessible Guiding pillars for success in this market: ► Educate customers ► Drive awareness about insurance ► Explain/showcase benefits Make insurance affordable ► Appropriately priced ► Simple products with clear value ► Flexibility in payment options ► Trustworthy distribution channels ► Portability in purchase/servicing EY activities and solutions for insurers focusing on the emerging consumers Dependence on single source of income Mobile segment Unaware of insurance concept Lack of trust Inconsistent cash flows Common challenges
  6. 6. Page 6 Insurers are increasingly focusing on drivers across the three guiding pillars Making insurance accessible Use of mobile as a distribution channel ► Significant increase in the use of the mobile phone to sell simple, retail life and health benefit policies to low- income customers in Africa. ► Embedded insurance – insurance offered as a “value-add” along with telecom subscriptions as a loyalty program. Alternate distribution channels ► Retailers, churches and other distribution channels considered trustworthy by customers are being leveraged by insurers Convenience of paying premium ► Ease of payments by tying up with utility companies to pay insurance premium through existing bill payments. Low cost outsourced servicing models ► Outsourcing new business processing/ customer servicing/claims management to third-party intermediaries. Making insurance affordable Working with local partners for distribution and back-office processing ► Globally, insurers have started to partner with third-party intermediaries to reduce their overall operating model expenses. ► This has cut down on overall operating expenses and has helped in reducing the premium. Technology backed models ► Technology-backed distribution models have helped in reducing the cost of distribution and processing, thus allowing for affordable products. ► Technology has helped in improving quality of data for analysis, which has helped in reducing reinsurance premiums and led to more affordable products Improving awareness Educative multimedia materials ► Regulators in various countries have developed social marketing/educative materials, such as movies, information leaflets, radio messages which are disseminated via various partner organizations. Use of technology in transmission of information ► Continuous transmission of information related to product (e.g., life insurance cover) to the customer via SMS ► Products sold via the mobile phone offer USSD short-codes to receive and convey information related to the policy, for example, update on cover, making a claim, etc. Dedicated microinsurance awareness programs by the regulators ► Regulators in Ghana and the Philippines have started dedicated microinsurance-focused programs. EY activities and solutions for insurers focusing on the emerging consumers
  7. 7. Page 7 Insurers need to focus on various aspects to effectively serve the low-income customer segment “External” drivers Product Distribution Customer servicing Marketing/ Promotion “Internal” drivers Standardized processes Focused risk management Robust governance “Core” drivers Operating model and organizational strategy Performance management and leadership focus Skills Mindset and culture The emerging consumer/ low-income consumer ► Insurers need to focus on various drivers in order to effectively serve low-income customer segment. ► External drivers – Relating to product aspects, distribution, marketing/promotion, awareness generation (essentially all aspects related to direct customer interactions) ► Internal drivers – Ensuring standardization of processes, focused risk management, supported by a robust governance structure ► Core drivers – This includes core corporate drivers, such as leadership and management which is supported by the operating model and performance management structure. The main driver of innovation and change is the culture and mindset. Insurance company EY activities and solutions for insurers focusing on the emerging consumers
  8. 8. Page 8 Key challenges and focus areas for supporting activities Focus areas Missing growth opportunity Risk management and internal controls Process standardization Steer business by performance management Corporate culture/mindset Identify investment opportunities in rapid-growth markets ► Organization structure does not support the governance requirements ► Internal governance does not support local requirements and business needs ► Lack of standardization in processes and integrated IT solutions ► Presence of core process design and process differentiation in channels and segments ► Identification of value drivers and elimination of “not value adding” activities ► Identification of issues and problem solving at an early stage ► Living a performance management cascade supported by a defined structure and operational KPIs ► Resistance to change in cultural mindset required for operating in a nimble and ever-changing environment ► Leadership and role modeling Developing a strong governance and risk management framework Transforming existing businesses to create sustainable growth ► Limitations and low experience to evaluate opportunities and risks in rapid-growth markets ► Lack of local knowledge to operationalize investments and market potential in rapid-growth markets A B C Skill development ► Secure quality and customer focus in the defined business segment ► Skill building and knowledge sharing not in place ► Lack of flexibility in workforce management Governance structure ► Risk management is underdeveloped or does not focus on the key risks ► Critical internal controls are absent leading to fraud increasing cost of operations EY activities and solutions for insurers focusing on the emerging consumers
  9. 9. Page 9 Section two EY services and solutions
  10. 10. Page 10 Waves of change: the shifting insurance landscape in rapid-growth markets EY activities and solutions for insurers focusing on the emerging consumers ► This publication focuses on the risks and opportunities across 21 rapid-growth markets, highlighting the global rebalancing taking place across the world, as once flourishing BRIC economies expand at a slower pace than many RGMs. It weighs the opportunities against the risks of doing business in individual economies, and the analysis reflects a variety of indicators and forecasts ► Key elements of the report: ► A matrix that ranks opportunities and risks in 21 RGMs on the basis of market opportunities, risk and volatility ► An analysis of the key opportunities arising across RGMs ► The regulatory trend affecting insurance in RGMs ► An evaluation of key risks that can affect insurance markets across these markets ► As a result, we believe that insurance executives must regularly evaluate and refresh their strategies to identify which international markets are most likely to offer the best prospects for focus and investment.
  11. 11. Page 11 The market maturity for insurance business in emerging markets is developing, and investors are seeking for new growth potential Composite index: 33.3% weighted regulatory risk rating+33.3% weighted ease of doing business rank +33.3% corruption perceptions index; countries with GDP per capita $500-$10.000; color-coded Composite index: 50% weighted GDP per capita and 50% weighted insurance penetration rate; color-coded Which future market entries are you are considering? Heatmap insurance penetration – EM Heatmap business environment – EM EY activities and solutions for insurers focusing on the emerging consumers
  12. 12. Page 12 Operational excellence for insurers focusing on emerging consumers: one of the potential solutions for insurers in this market segment EY activities and solutions for insurers focusing on the emerging consumers ► As initial marketing activity an EY publication has been developed in close cooperation with LeapFrog Investments, a leading private equity investor in this market segment globally ► Key highlights of the report: ► Today’s low-income customer (earning USD 2 – USD 10 per day) is tomorrow’s middle class. ► This global middle class will fuel growth over the coming years. ► Insurance is a critical enabling tool for this segment. ► However, global insurers need to target this segment differently. ► Operational focus can provide robust returns for investors. ► A differentiated operational strategy backed by a dedicated organization, skilled manpower and robust performance management systems is critical for success; hence the importance of “operational excellence”.
  13. 13. Page 13 EY has developed customized solutions for clients active in the market segment of insurance for emerging consumers Market entry/transaction Business transformation/performance improvement Risk management and governance A B C ► Many insurers/investors are evaluating investment opportunities in new markets ► e.g., Prudential (UK) has recently bought LeapFrog’s stake in Express Life in Ghana ► Sanlam and Old Mutual looking to expand in Africa ► Business transformation/performance improvement for existing players ► e.g., insurers in Africa are identifying new distribution channels, such as mobile ► Insurers focusing on new distribution partnerships, leveraging IT in processes and revamping organizational strategies ► Risk management and governance are critical topics for insurers/investors in this market ► e.g., focusing on building a robust governance structure ► Regular process audits to evaluate risks and performance ► Build a strong internal controls framework Currentmarketactivities andneeds ► Commercial analysis with focus on customer and market, regulatory environment and infrastructure ► Due diligence support with additional focus on operational, IT and risk issues ► Integration and setup support with focus on local implementation of global policies and regulatory requirements CustomizedEYsolutions ► Operational excellence approach to support business transformation activities ► Bancassurance as integrated financial inclusion approach (in development) ► Customer conversion and segmentation (in development) ► Integrated controls framework for small business insurers ► Performance management structure to steer business and support internal and external governance EY activities and solutions for insurers focusing on the emerging consumers
  14. 14. Page 14 Section three EY: your advisor in the emerging markets
  15. 15. Page 15 EY globally has the leading insurance consulting practice with global reach and strong emerging market focus Access to a global EY network of 175,000 employees across 700+ offices in more than 150 countries Experiences of 9,700 seasoned insurance professionals globally in one of EY´s largest sectors Global availability and deep knowledge regarding insurance-related regulatory requirements and changes EY has established an Emerging Markets Center that connects clients quickly and effectively to the world’s fastest- growing economies EY structure that supports cross- border approaches, by our leading and highly integrated global organization. EY activities and solutions for insurers focusing on the emerging consumers Your value add Kennedy Consulting Research & Advisory has recently named EY as the leading provider of insurance consulting services globally
  16. 16. Page 16 Our experience shows that it is critical to be global, yet local ... Local experts Global special matter experts Emerging market insurance experts ► Specialist in insurance business in emerging markets ► Best practice sharing regarding solutions in other markets ► Expert in specific topics, such as transformation, risk management ► Using knowledge, information and experiences from the global EY network ► Cultural fit with language skills ► Understanding of the local specifics: ► Market ► Culture ► Infrastructure ► Regulation ► Direct access to local information ► Usage of existing network of local EY practice Cross-disciplinary and cross-border staffing will strengthen the knowledge and leverage the best benefit for our clients EY activities and solutions for insurers focusing on the emerging consumers
  17. 17. Page 17 Overview of selected credentials LeapFrog Investments’ stake acquisition in Mahindra brokers (India) ► Provided support in identifying the investment, due diligence and closing the transaction Operational restructuring support of Express Life (Ghana)/Leap Frog ► Operational restructuring based on operational excellence approach to support sustainable growth Market analysis and full due diligence for top 5 global insurance player (Columbia) ► Provided advice in market entry strategy and full DD (CDD, ODD,IT DD, FDD) Implementation of the Rashtriya Swasthya Bima Yojana in India ► Provided technical assistance to GIZ in developing the world’s largest micro-health insurance program in India Financial due diligence for Old Mutual (South Africa) ► Provided financial due diligence services to Old Mutual on a Nigerian target in a similar industry Restructuing of National Credit Fund for women in India ► Development of new operating strategy to increase scale Strong relationships with the local, regional and global regulators Trusted advisor on M&A, transaction support, complex restructuring programmes and risk management Cross disciplinary staffing with global experts and local support Significant experience and capability across all continents (LatAm, EMEIA, Asia-Pac) EY methodology and tools can provide an accelerated project success 1 3 2 4 5 Investment strategy/ transaction support Business transformation Roll out of the internal control approach for HDFC ERGO (India) ► Supported in development and implementation of the approach covering all value chain components, entity level controls (ELC) and IT general controls (ITGC) Implementation of internal control approach for First Takaful Insurance (Kuwait) ► Implementation of internal control approach, including ELC and ITGC. Update of processes documents based on revised controls Implementation of internal control approach for Gulf Takaful Insurance (Kuwait) ► Implementation of internal control approach, including ELC and ITGC. Update of processes documents based on revised controls Internal control small business EY activities and solutions for insurers focusing on the emerging consumers
  18. 18. Page 18 Contact our Special Matter professionals Dr. Andreas Freiling EMEIA Insurance Leader Tel: +49 6196 996 12587 Email: Jan-Erik Behrens EMEIA FSO – Transaction Advisory Services Mobile: +49 160 939 29804 Email: Focus areas: ► Operational Transaction Services ► Business Transformation/Operational Excellence ► Transaction Strategy Rohan Sachdev Insurance – Performance Improvement (India) Mobile: +91 99207 76259 Email: Focus areas: ► Insurance performance improvement ► Insurance for emerging consumers Martin Gehringer Insurance – Assurance (Germany) Tel: +49 6196 996 12427 Email: Focus areas: ► Internal controls with focus on emerging markets in Eastern Europe and India ► Audit of insurance companies ► Insurance regulation Prajeesh Mukundan Insurance – Risk Advisory (India) Mobile: +91 8879 070509 Email: Focus areas: ► Internal control advisory with special focus on medium and small insurance companies ► Internal audit of insurance companies ► Risk management for insurance companies EY activities and solutions for insurers focusing on the emerging consumers
  19. 19. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit About EY’s Advisory Services Improving business performance while managing risk is an increasingly complex business challenge. Whether your focus is on broad business transformation or, more specifically, on achieving growth or optimizing or protecting your business, having the right advisors on your side can make all the difference. Our 30,000 advisory professionals form one of the broadest global advisory networks of any professional organization, delivering seasoned multidisciplinary teams that work with our clients to deliver a powerful and exceptional client service. We use proven, integrated methodologies to help you solve your most challenging business problems, deliver a strong performance in complex market conditions and build sustainable stakeholder confidence for the longer term. We understand that you need services that are adapted to your industry issues, so we bring our broad sector experience and deep subject matter knowledge to bear in a proactive and objective way. Above all, we are committed to measuring the gains and identifying where your strategy and change initiatives are delivering the value your business needs. © 2014 EYGM Limited. All rights reserved. EYG no. EG0175 1402-1203412 NY ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.