Preparing for detariffication

The challenges

Frankie Chan - Head of General Insurance, Asia, Ageas

Faiezy Hasnan - Head Pricing General, Etiqa Insurance Berhad

Agenda
Learnings from other markets
Challenges & the way forward

Learning from other markets

DETARIFFICATION IN ASIA
3

Recent Detariffication activities in Asia

Increased move towards market liberalization
Timeline
2000

2002

2003

2002 - Motor
2005 - Fire
*Re-tariff in 2006
Partial detariffication pilot started since Jun 2015

2007

1994 Personal Accident

2005 Marine
2007 Motor & Fire

2017?

Expected final details to be released by 2015

??

Some common themes from other markets

Turkey Premium and Profit experience, de-tariff
2006 (Source: Mercer)

UK Underwriting result, de-tariff 1968 (Source: Towers Watson)

Turkish Motor - Liberalization July 2006

Year
Premium
2004 1,092,423
2005 1,170,324
2006 1,359,544
2007 1,583,328
2008 1,819,027
2009 1,971,735
2010 2,305,578
2011 2,700,640
June 2012 1,635,842

Result
Profit ratio
66,309
6.1%
17,612
1.5%
118,636
-8.7%
244,646
-15.5%
467,280
-25.7%
296,056
-15.0%
586,668
-25.4%
461,640
-17.1%
432,513
-26.4%

Average
Premium
106.72
105.01
111.19
121.59
132.15
137.73
152.74
167.86
193.67

Vehicles
10,236
11,145
12,227
13,022
13,765
14,316
15,095
16,089
16,893

Australia Average Premium, de-tariff

1991/2 (Source: Mercer)

India Loss ratio, de-tariff 2007 (Source: Towers Watson )

Average Quarterly Premium for Annual Policies

$450
$422
$413
$397

$394

$400

$385 $388

$388

$385 $386

$388
$366

$350

$378
$358

$350

$374

$401
$407
$395 $395

$383

$376

$377
$371

$345

$316
$307

$300
$263
$254

$250

$255

$255
$247

$236
$223

$200

$215
$209

$212

$207
$201 $198 $202 $201

$207 $204
$201

$194

$196
$193

$236 $235

$239
$233

$230

$230 $229

$225

$249

$202

$192

$150

Quarter
Metro Class 1

All classes

China
Detariffication occurred in 2003 but failed
2001
Joined World Trade
Organization (WTO)

2003

Detariffication started

2005
Retariffed started, fully
enforced in 2008

China
What the regulator did about it.
2008

Tighten
solvency and
control
Industry COR 106.7%

Source: Milliman and Asia Capital Re

2009

2010+

Profitability
& Market
conduct

Continued
market
improvement
& push by
CIRC

Industry COR 104.5%

Industry COR 97.3% in

2011

China
Detariffication pilot started: 2nd time lucky?
Partial detariffication started 1st June 2015
Self
underwriting
factor*

6 provinces/cities* were selected in pilot

Own expense
assumption

New tariff

Vehicle make
& model**

Used in
pilot

Channel
adjustment
factor*

*Heilongjiang Shandong Guangxi Chongqing

Shaanxi Qingdao
Source: Milliman, http://xw.sinoins.com/2015-08/03/content_164449.htm

* +/- 15% Insurer defined

** +/- 20% Prescribed

Expanded
NCD

China
Detariffication pilot started: 2nd time lucky?

How did it go so far?

Average
Premium

77%
23%

9%
Commission

Combined Ratio

10% (18%)

1% (94.4%)

Consumer
awareness

Source: http://xw.sinoins.com/2015-08/03/content_164449.htm
http://www.weixinyidu.com/n_117868

Malaysia
Detariff timeline
Financial Sector Master Plan
2001-2010: To progressively
deregulate Fire and Motor tariff

2001

2009

Detariffication
timeline
announced

2010

Tentative full
liberalization

2012

2016/2017

2020

First of four rate changes

for Motor between 2012
and 2015

RBC introduced

Limited product
innovation

Limited price deviation

against tariff
+20%

-20%

-5%

5%
10

Malaysia
Sit back and wait for 2020, no?
Motor Private Car
Comprehensive

Pricing
Underwriting
IT
Product

Price
change

Policies
affected

+/- 20%

50%

+/- 5%

15%

Can make or
break one
year budget

Before: Tariff premium vs cost. Now: Market price vs modelled price

Investment in tools and headcounts
To complement and ensure smooth pricing delivery
Evolving roles e.g. loading?
Rating engine upgrade or revamp
Flexibility & agility matters
Product innovation
Bundling of benefits

11

12

Discounts
13

How much can price vary among insurers?

An example from the UK aggregator

Comprehensive insurance quote from

www.comparethemarket.com on August 2015

35 years old male with license held for 15 years, driving a 2015 Honda Civic
auto 5 door wagon. Vehicle is garaged at home in Canary Wharf, London
and is for social use only, estimated usage of 3,000 miles per annum

14

Front lines & customers are looking forward for discounting

Challenges for Pricing, IT, Underwriting and Risk

One-off vs permanent
Cash back

Channel discount
Campaign discount
1st month free
Ad hoc discount

VIP discount
Fixed rate

15

Winning the Price competition

Monitoring

Pricing
Competition

Innovation

System

CREATING SUSTAINABLE VALUE IN A DETARIFFED

MARKET

16

Monitoring

Do I need to ACT?
Portfolio Monitoring

17

Monitoring

Do I need to ACT?
Competitor monitoring

Weekly Competitor Price Monitoring

Insurer A
decreases rates

Insurer C
defaults to
market value
+ other rate
changes

Insurer B
increase online
discount to 20%

Source: Finity Consulting, Champions, stalwarts and the art of battling slingers, 2015

18

Monitoring

Do I need to ACT?
Model monitoring

Source: Finity Consulting, Framework for model monitoring

19

System

Granularity
Component /peril based
New vs Existing customer
pricing
Customer level pricing
Address level pricing
Capping and cupping
Premium matching
Campaign pricing
Discretionary pricing
Price testing
Multiple rating algorithms
e.g Champion vs
Challenger
Price Optimization

ACT quickly!
How does your rating engine rate?

Ease of Use
Amount of IT involvement
required?
Adding a new rating factor?
UAT
Deployment process

Source: Finity Consulting, How does your rating engine rate?

Agility
Speed to market
Table or formulae change?

20

Innovation

A change in mindset goes a long way

Be smart about where/who you discount

Stop leaving Money on the table

Replace the discounting habit with a little arrogance
Understand the value you offer to your customer
Play better poker with customers
Force your competitor to react to your pricing
Take simple steps to move away from cost-plus pricing

21

Innovation

Explore new techniques

Generating faster, deeper, cheaper insight

17th century: Life insurance,

Deterministic methods

Actuaries of the
Second Kind

Early 20th century: General insurance,

Probabilistic methods

Actuaries of the
Third Kind

1980s: Assets/derivatives,
Contingencies Stochastic processes

Paul
Embrechts
2005

Actuaries of the
Fourth Kind

Early 21st century: ERM

Big Data
Working
Party

Actuaries of the
Fifth Kind

Hans Buhlmann
1987

Actuaries of the
First Kind

Second decade of 21st century: Big Data

22

Innovation

Differentiate yourself from competition

Creating safer drivers

23

Innovation

Product differentiation
Making price comparison difficult

24

Innovation

Bundling
Rewarding customer loyalty

25

OH DATA!
26

More and Better Data Please

27

The impact.

28

Investing in our blood

CREATING SUSTAINABLE VALUE IN A DETARIFFED

MARKET

29

ODS/EDW
Storing our data in good form with clear
accountability over quality

30

Collect & Enrich your data

Start NOW!

31

What? When? How much?

32

A lot of key details are missing

System development, pricing & channel engagement
becomes difficult
Current Tariff
-20%

+20%

-5%

5%

33

Early, proactive engagement and dialogue with regulator

Robust and future proof system

CREATING SUSTAINABLE VALUE IN A DETARIFFED

MARKET

34

People &
Culture
35

The fight for pricing talents & the rush to build

capability continues..

http://afterschool.my/malaysian-actuaries-in-demand/

36

Resource required?
An example from a detariffed market

Pricing team structure of a major personal lines insurer in Australia

*As of 2012

Total number of FTE: over 30

National Manager,
Technical Pricing

Technical Pricing
Manager, Home
Insurance

Technical Pricing
Manager, Motor
Insurance

Technical Pricing
Manager,
Nat Cat

Technical Pricing
Manager,
Demand

Technical Pricing
Manager,
Competitor

Technical Pricing
Manager,
Optimisation

Manager,
Reporting & BI

5 Pricing
actuaries and
analysts

5 Pricing
actuaries and
analysts

2 GIS Specialists

2 4 actuaries
and analysts

2 4 actuaries
and analysts

2 4 actuaries
and analysts

2 4 actuaries
and analysts

37

It takes time to develop and influence a culture

Getting the mindset across is difficult sometimes.
Why do you need so many
people? Can we still survive
without doing this?
Detariffication is just
about pricing
I used to be able to do an
end-to-end pricing review in
a week

If we are going to face price war and lose

money post detariffication why dont we exit
the market now and re-enter when the
industry make money?

How much money am I going to make from

investing in a data warehouse?

How does underwriter

do loading next year?
38

Learn it, try it, feel it

We will get there

CREATING SUSTAINABLE VALUE IN A DETARIFFED

MARKET

39

Demonstrating incremental value

Never look for perfection on day 1

40

In Summary
Creating sustainable value in a detariffed market

Start early

Explore new
techniques

Data availability
& quality

Proactive
engagement with
regulator

Show
incremental
value & quick win

Granular, agile
and easy to use
rating engine

Monitoring
system

Smart
discounting

Innovation
41

Special thanks and acknowledgement

Guanjun Jiang
China

Dr John Yick
Sydney

Johnny Ho
Hong Kong

42

Appendix: Self assessment

Pricing readiness: Take the test
Who has pricing discretion? How much?
How long is your end-to-end process to change price?
How can you tell if company A is more expensive than company B?
Why is my renewal price much higher than the online price? I have been with your company for 10 years
without a claim, such a rip off!
This is expensive, can you discount? Can you beat competitor ABCs price?
If I have all my insurances with you, can do a better deal?
What are your target segments?
Ok, so you cant discount (or not much). I am a good customer, never claim and have lots of business
with you. Give me a reason why I shouldnt take all my business to competitor ABC, or anything you can
do to make me stay
The market is really competitive here, we need more commission and allowance to keep sending
business your way
I work very hard this week in the branch selling insurance, this is the 100 quotes I did and guess what, I
win NOTHING. You better go and fix your price or I will stop selling
Why do I get a cheaper price on the internet than from my agent? This is not fair!
You are invited to participate in an aggregator, and free hosting for 1 year
Why does my price go up this year? I didnt claim last year, the value of my car drops, I became a more 43
experienced driver and my NCD goes up

Thank You