Zero Risk Innovation

KvGA ---- PresentationJos Berkemeijer AAG --- Innovation 115 mei 2019
ZERO RISK
INNOVATION
KvGA
Kring van Gepensioneerde Actuarissen
Jos Berkemeijer AAG, 15 mei 2019

Agenda
1. What is innovation?
2. The innovation force field
3. Dutch innovation struggle
4. Future of innovation
5. Discussion

What is innovation? | Definition
The process of translating an idea or invention into a good or
service that creates value or for which customers will pay.
Confines
• satisfy specific customers needs or expectations
• replicable at an economical cost
Involves
• Ideas, information, imagination, initiatives
• Processes, goods, products, services..
Innovation categories
• Evolutionary, continuous
• Revolutionary, disruptive

What is innovation? | Risk
Innovation = risk-taking
• Personal risk
• Innovator company risk
• Investment risk
• Reputation risk
• Regulatory risk
• Society risk
• ….

What is innovation? | The curve ahead
Organizations that
create revolutionary
products or technologies
take on the greatest risk
because they create new
markets

What is innovation? | Areas & Aspects
self-driving cars
disruption
robotization
artificial intelligence
the internet of things 3D / 4D printing
solar energynanotechnology
biotechnology
quantum computing
4th industrial revolution

What is innovation? | Actuary Perspective | Areas & Aspects
Big Data
Systemic risk
Regulatory Risk
Model Risk
Parameter risk
Economic Risk Models
Behavior Risk Models
Robo Advice
New Solidarity
Crowd/Community
- Funding
- Longevity Solidarity
- Disease Solidarity
- InvestingMedical Care
- Efficiency
- Waiting list
reduction
- Disease
Management
Communication
comprehensibility
tests
Bitcoin
Blockchain
Gamification
Cooperation Risk

What is innovation? | Actuary Perspective | Big Data
BIG DATA + AI
≠
INNOVATION

What is innovation? | Actuary Perspective | Dig Data & Models
Big Data Set
Chaotic, Noise
Pattern search
Filter irrelevant data
Testing
Related data dots?
Incomplete data?
Model assumptions
Connect the dots
Check relevance
Project, Estimate
Add Scenarios
Add Behavior
Realistic Model?
Result
Optimal Model
Facial keypoints detectio n
N e w e c o n o m i c , behavio ra l & s c e n a r i o m o d e l s

What is innovation? | Actuary Perspective | Capabilities
There are two kinds of actuaries:
those who can extrapolate from incomplete data

Innovation? | Actuary Perspective | Networking
Company
✓ Colleagues
✓ CEO/CFO
✓ Receptionist
YOU
Politics
✓ Government departments
✓ Project groups
✓ Face to face
✓ Cup of coffee
Actuarial Space
✓ Actuarial Association
✓ Permanent Education
✓ Research, Publications
Regulators
✓ Studies, Projects
✓ Research
✓ Cup of tea
Science Space
✓ Partnerships
✓ IT, Communication
✓ Accountants, econometrists
✓ Informal invitations
Social
✓ Sports or Chess team
✓ Volunteer work, Friends
✓ Have a drink
How much time do you spend on networking?

What is innovation? | Actuary Perspective | Client Perspective
Expert viewClient view
Globalization, Expectations, Social dynamics, Learning, Apps, Games, Speed of change, etc.

What is innovation? | Product development from a clients perspective
If I had asked people what they wanted,
they would have said faster horses
You‘ve got to start with the customer experience
and work backwards to the technology
Steve Jobs Henry Ford

What is innovation? Flip Thinking | Dutch ‘Omdenken’

What is innovation? | Learning | Old School learning
Source: locke

What is innovation? | Learning | Applied Model
Source: locke

What is innovation? | New Financial Business Models? | Agent Role
Agent Role
• Agile, fast product development
• Combining expertise cross professional areas
• Financial architecture including reinsurers

What is innovation? | Culture
WHY?
Simon Sinek

What is innovation? | Why change?

What is innovation? | Failures

What is innovation? | Examples | Products
Products

What is innovation? | Examples? | Services
Services

What is innovation? | Examples | Communication / Social Media
Communication
11,5 mln
8,3 mln
10,8 mln
7,6 mln
8,0 mln
2,2 mln
4,4 mln
0,5 mln
4,1 mln
2,1 mln
Source: Marketingfacts
2,8 mln
1,0 mln
NL users
Daily NL users

What is innovation? | Examples | Platforms
Platforms
Distribution = Key
Financial services?

What is innovation?|Business & Revenue Model | Example UBER
What’s the value of UBER?
Why Uber may still be
worth $100 billion-plus even
after its embarrassing IPO
Investments in innovation business cases
with a positive cash flow expectation are ‘old school’

What is innovation? | Financial Examples | Lemonade

What is innovation? | Dutch Financial Examples | Insurance
✓ Car/Home Insurance
✓ whitelabel-product :Hema
✓ Outshared
✓ selfservice platform
✓ online claim-module |Canada
• 100% internet insurance company
• 100% self-service concept.
• Stimulating the good client behaviour
• Rewards prevention and claims.
• Refunding of surplus profits

What is innovation? | Dutch Financial Examples | Bank
Crowdfunding:
zakelijk lenen en geld investeren

Accept payments everywhere
What is innovation? | Dutch Financial Examples | Services
Experience the all-in-one payments platform that grows
your business from day one.
• All popular payment methods
• Payments around the world
• In-depth data insights

What is innovation? | Dutch Financial Examples | Car Insurance
“Pay as you do” Principle
Pay How You Drive
Actuarial key question: is modest speeding a positive or negative risk factor?

What is innovation? | Dutch Financial Examples | Sick Leave Payments
• Bread fund (Dutch: Broodfonds) is a
Dutch collective that allows
independent entrepreneurs to
provide each other with temporary
sick leave
• Gift based, no insurance
• Solidarity groups 25-50 people to
avoid anonymity.
• Personal connections, networking
• Members are self-governing.
Source: broodfondsSource: Bread Fund UK

What is innovation? | Dutch Financial Examples | Disability Insurance
De nieuwe zekerheid bij
arbeidsongeschiktheid voor ondernemers!
Solidarity groups

What is innovation? | Dutch Financial Examples | Equity Release Schemes
Lastenvrij verzilveren
Dit betekent dat de deelnemer de waarde
van de woning uitgekeerd krijgt in de vorm
van een maandelijks pensioen en een
levenslang woonrecht. De wederpartij krijgt
het volledige eigendom van de woning, maar
pas nadat de deelnemer de woning heeft
verlaten.
Cash-free redemption
This implies that the participant receives the value of the home in the form of a monthly pension and a lifelong
right of residence. The counter-party will receive full ownership of the property, but only after the participant
has left the property.

What is innovation? | Dutch Financial Examples | Case Symetrics (2015)
Key question after 5 years of being promising…
Do boards really want to understand and manage risks or just be regulatory risk compliant?

What is innovation? | Dutch Financial Examples | Case Symetrics (2015)
Even experts have difficulty to follow?
DC, IDC, CDC, API, Multi OPF, APF, DB, ….

The innovation force field |Basic Drivers
Green Wave
Sustainability
Environmental,
Social ,Governance
ESG
Regulation
Financial
Financial
Behavioral
Privacy
………
Technology
Big data
Machine learning
Social media
Society Change
Gamification
Robots
Sharing
Blockchain

The innovation force field | Client Central Model
Client needs
Distribution
• Direct
• Intermediary
• Agents
• Platforms
• …..
Services
• Advice
• Convenience
• Repair
• Health
Prevention,
treatment, recovery, hospice, …
• Financial
Lending, funding, saving,
pension payments, insurance,….
Distribution Services
Multi Segmentation
• Private consumers
• Communities
• Self employed
• Companies
• Blue eyes
• …..
Financial providers
• Banks
• Insurers
• Re-insurers
• Pension funds
• Lease companies
• ……
Providers
1. Financial
2. Other

The innovation force field | Regulation
Client needs
Wft = Financial Supervision Act
FTK = Financial Assessment Framework for Pension Funds
GDPR = General Data Protection Regulation
AVG = Dutch GDPR | Algemene Verordening Gegevensbescherming
CRD = Capital Requirements Directive
IFRS = International Financial Reporting Standards
PARP = Product Approval and Review Process
MIFID = Markets in Financial Instruments Directive
SIRA = systematische integriteitrisicoanalyse
Code = Governance code for banks, insurers, pension funds
protection

The innovation force field |The Question
How to live in a world where everything is
possible, regulated and prohibited?

The innovation force field |The Answer
How to live in a world where everything is
possible, regulated and prohibited?
Artificial
Intelligence
wins
in the end

The innovation force field | Changing risk attitude | Apollo example
Apollo ‘One mission’ probability of survival
90%
Estimated one mission ‘Shuttle’ probability of survival
99.999%
Apollo ‘Six missions’ probability of survival?
53%
Facts
Challenger disaster (1986)
Columbia disaster (2003)
What’s the future of ‘zero risk’ based innovation?
Heading for Mars or the Moon again?

The innovation force field | Long term default probabilities
Long term ‘zero risk’ objective is an illusion

The innovation force field | Zero Risk and Innovation | Kill your darlings
‘zero risk’ objectives kill innovation
Solution
1. Kill your darlings
2. Accept and manage innovation risks at substantial
lower confidence levels (e.g. 50%)
3. Learn, adjust, improve
4. Regulation
• Stop zero-risk attitude
• Back to principle-based instead of rule-based
• Hold owners/developers accountable instead
of a solely penalty approach
• Inform, involve regulators in new business
developments and innovation projects

Dutch innovation struggle| Pension PEPP Fear
Source: KPMG

Dutch innovation struggle| Pension Longevity Anticipation?
Within the next 30 years new anti aging medicines
will improve life expectancy with more than 10 years
© DW2
(2016) The Food and Drug Administration has approved human testing for what could be the world’s first anti-aging drug: metformin
What financial (pension) products can deal with this development?
Short term discussions about increase or decrease of life expectancy are irrelevant

Dutch innovation struggle| Pension Longevity Anticipation?
Recipes | Approach examples
• Flexible strategies that manage risk
• Early warning indicators instead of trigger points
• Self adapting profit sharing contracts
• Solidarity algorithms based on groups,
communities and big data, instead of guarantees
• Etc., etc.

Dutch innovation struggle| Prescript Pension Lifecycle Investing
What about the risk attitude of pension plan members?
Age
BONDSSTOCKS

Dutch innovation struggle| Breaking up Benefit Defined Pension Plans?
Age 20 Pension date
DC Pension payment
Buy your pension annuity
- Interest rate / return ? Risk?
- Artificial transition solutions (messing around)
Decreasing investment risk | Less return !
Innovation
• Maintain intergenerational
solidarity on investments and
longevity
• Introduce individual saving
accounts.

Dutch innovation struggle| Prescript Pension Communication
2007 2009 2013
Indexation label

Dutch innovation struggle| Prescript Pension Communication
2019
What
have we
learned?
Indexation label

Dutch innovation struggle| Health | New apps | Example Zilveren Kruis
New health apps will change the health business model
Source: Zilveren Kruis

Dutch innovation struggle | Climate change? | It’s the attitude
Climate Change
Yes or no?
It’s not just about the facts..
It’s about YOUR attitude

Dutch innovation struggle | Dutch Flood insurance example
It’s not just about the facts..
It’s about YOUR attitude
On april 19, 2017, Neerlandse won the NVGA AM Innovation
Prize for their flood model. The jury praised Neerlandse on its
perseverance in creating an insurance solution for a risk that
had previously seemed uninsurable.

Future of innovation | What is the role of the actuary?
KvGA ---- PresentationJos Berkemeijer AAG --- Innovation15 mei 2019 54

Discussion
Innovation?
Where are
the actuaries?

Zero Risk Innovation

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