Insurance Industry: "The masters of deception are becoming vulnerable"

.

"Could the happy days for the 
Insurance Industry be over?

Given a terrible customer service
track record and bloated
infrastructure, the
global insurance industry
stands poised to be disrupted.

Nimble, tech-driven firms are challenging the status quo, using behavioral economics and technologies like IoT and cloud to target inefficiencies in the insurance value chain ranging from customer acquisition to back-office processing.

In the fourth installment of PitchBook’s Fintech Analyst Report series, our emerging-tech analysts dive into the consequent segmentation of insurance, exploring how the industry’s value chain is being disrupted. Key points of discussion include:

• The burgeoning variety of niche products
• How conglomerates—especially in developing markets—are leveraging synergies to appeal to emerging masses of middle-class consumers
• Peer-to-peer insurers returning the industry to its roots

The report also profiles companies in each nascent insurance sector, drawing on the PitchBook Platform to lay out key data points on investment in the space.

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Given a terrible customer service track record and bloated infrastructure, the global insurance industry stands poised to be disrupted. Nimble, tech-driven firms are challenging the status quo, using behavioral economics and technologies like IoT and cloud to target inefficiencies in the insurance value chain ranging from customer acquisition to back-office processing.

In the fourth installment of PitchBook’s Fintech Analyst Report series, our emerging-tech analysts dive into the consequent segmentation of insurance, exploring how the industry’s value chain is being disrupted. Key points of discussion include:

• The burgeoning variety of niche products
• How conglomerates—especially in developing markets—are leveraging synergies to appeal to emerging masses of middle-class consumers
• Peer-to-peer insurers returning the industry to its roots

The report also profiles companies in each nascent insurance sector, drawing on the PitchBook Platform to lay out key data points on investment in the space.

The analog business processes still prevalent in the insurance sector suggests roots in antiquity. The fundamental function of insurance as the pooling and sharing of risk dates back to the ancient world. Maritime societies from the Greeks, to the medieval Genoese, to British merchants all employed schemes to pool resources in financing risky trading voyages.

The Romans formed funeral societies to pay for and conduct funeral rites for members from shared contributions. Sir Edmund Halley (of comet fame) compiled an early actuarial table of death rates in order to establish a fund for widows and orphans of Scottish clergy.

The industry began to take its modern form in 19th century Britain and America when large corporations emerged to insure against various forms of catastrophe, while government regulations popped up to both encourage the purchase of insurance policies and to prevent insurers from operating unscrupulously. Insurance operates assymetrically, with customers paying relatively small monthly premiums and insurers on the hook for large but irregular payouts. This creates the opportunity for unscrupulous businesses to promise terms that they can’t ultimately uphold. Insurers might be tempted to try and pull off cash-flow underwriting by selling insurance below cost and gambling that they will make up the difference with risky and/or speculative investments. The tactic drives sales in the short term, but becomes unsustainable when claims can no longer be paid out to policyholders and the insured are no longer covered against catastrophe.

Governments in many cases incentivize participation in insurance as well as other retirement benefit and pension schema such as 401ks in the US. Life insurance is used as a form of tax arbitrage in many jurisdictions in order to provide a defined benefit for survivors while making contributions tax deductible. Individuals choose to purchase insurance (or are compelled to by the government) due to natural risk aversion. Consumers pay more than statistically necessary in premiums, hedging against extreme tail risks while ensuring a profit for the insurer after deducting administrative costs. The price of premiums includes the not just the actuarial expected loss, but also the cost of running a business and the cost of capital, i.e. firms need to generate a return for investors.

In the US, private health insurance emerged first during the early 20th century as a way for hospitals to finance emerging pharmaceutical research and improved education by getting groups of people to pay in advance for medical care on a monthly basis through their employer. During the World War II-era economy, wages were fixed so employers began enticing workers with more generous health benefits.

In the high-tax postwar era, contributions became tax-deductible, further incentivizing employee plans. This system created a private system with a high degree of price opacity since patients would rarely see their full bill.

Fast forward to present day, insurance premiums alone make up 7% of US GDP. Sir Halley’s previously mentioned Scottish Widows fund grew into a corporation acquired by Lloyds Group for £7 billion in 1999. While insurance doesn’t always merit inclusion into the buzzy fintech vertical, the stubbornly analog nature of the industry makes it extremely exciting for venture capital investors. Globally, the insurance industry covers all manner of risks from life, disability, healthcare, fire, burglary, collision, and professional and business insurance including cybersecurity and medical torts. Government programs like Medicare and more recently The Affordable Care Act have added a further degree of complexity in the US due to the layering of public and private primary and secondary coverage.

Insurance also covers to a large degree the risks assumed by the financial and shadow banking sector, e.g. AIG’s role in the financial crisis and wealth management products in China. Insurers are incentivized to specialize in niche risks in order to find pockets of mispricing. Insurers typically hedge some of their own exposure via reinsurers which lend capital to rapidly growing direct insurers.

Reinsurers have played a key role in technology transfer to developing markets. Local governments are often wary of foreign entities yet local operators need foreign seed capital and expertise. Thus it makes sense to partner with foreign reinsurers who have the expertise and access to technology as well as the balance sheets to de-risk partner firms. The growth of emerging markets over the last several decades with billions of new middle class consumers around the world have played a prevalent role in insurance sector growth strategies.

While insurance largely remains an extremely analog industry, technology has begun to play a crucial and increasing role, impacting all facets of the insurance business. Improved data, often from connected devices, improves the pricing of risk. Thus, when companies know more about their customers, they are able to partner with insurers or insurance products directly to better serve consumers, building ecosystems around loyalty and trust. This puts pressure on incumbent insurers to improve their customer service both via online user experience, and by increased alignment of consumer interests. This comes both from the incorporation of new tools and data to calculate risk, but also a fundamental shift in business models within the insurance ecosystem.

Historically, the insurance value chain has been linked, with each company offering multiple lines of insurance and managing that business line from customer acquisition and marketing to underwriting and back office as well as other intermediate and related processes. The horizontally and vertically integrated insurance model will begin to be disrupted along both planes. The integration of digital-only players into the insurance ecosystem will only further vertically segment the entire insurance value chain. This segmentation will only align the interests of companies and consumers as players focus on the niche where they hold maximum comparative advantage without depending on cannibalizing other parts of the value chain to extract profits.

The increase in data utilization has facilitated alignment in stakeholder interests from across the insurance value chain such as removing the financial incentive to delay or deny legitimate claims. Companies have increased information on consumers throughout the marketing, sales and customer service processes. Players that leverage this information in novel ways will be able to generate sizable comparative advantage.

The bottom-line for the Insurance industry is that only the strong,who have been able to stay in step with innovation, coupled with an ability to integrate high-tech marketing information kin their sales efforts.

Insurance-Digest 

Pro-Europe -Thousands join pro-Europe rallies across Germany and EU

Thousands of people have joined rallies across Germany and other European countries to show their support for the idea of a united Europe.

The weekly protests began last year as an attempt to counter growing nationalist sentiment on the continent, often expressed in opposition to the European Union.

Protesters in Berlin, Frankfurt, Cologne and dozens of other locations danced, sang and waved the EU flag — 12 stars on a blue background — during the rallies Sunday.

The protests are organized on social media by a group calling itself Pulse of Europe .

The group says it isn’t tied to any particular political party.

EU=Digest

Netherlands -Turkey: Economics of the standoff between Turkey and the Netherlands - by Altay Atli

 Mark Rutte and Recep Tayip Erdogan in the better days

As the diplomatic squabble between Turkey and the Netherlands continues to fester, concerns are raised about whether — and to what extent — the tensions will harm bilateral relations, particularly in economics where the two countries have robust trade and investment connections.

For Turkey, the Netherlands offers a large and expanding export market. Trade between the two countries has roots in the 17th century when the Ottomans exported wool and cotton (later tobacco as well) to the Netherlands and imported clothes and linen in return. Commerce between the two
countries remained strong into modern times; in 2016 the bilateral trade volume was US$6.6 billion.

The Netherlands is the 10th largest export destination for Turkey, and perhaps more importantly from the Turkish perspective, it is also a fast-growing market. Last year Turkish exports to the Dutch market amounted to $3.6 billion, against $3 billion in imports. And while the annual increase in imports was 3.4%, exports expanded much faster, at 13.8%. For the Turkish economy, which is suffering an acute current-account deficit, the increasing trade surplus with the Dutch is a precious commodity.

On the other side of the equation, Turkey is and has always been a favored destination for Dutch investment. A process that started in 1930 when the Dutch company Philips set up shop in the newly established Republic of Turkey has reached new levels since then, making the Netherlands by far the largest source of foreign direct investment in Turkey today. According to data by the Turkish Central Bank, Dutch investment stock in Turkey was $22 billion in 2016, compared with $11.2 billion in US investments in second place, and $9.8 billion from Austria in third place.

Turkey is home to 2,700 companies funded by Dutch capital. This figure includes those transnational companies registered in the Netherlands for legal and tax-related purposes. This sizeable Dutch involvement in the Turkish economy benefits both sides. For Dutch multinationals such as Unilever, ING Bank, Philips, Perfetti, Royal Dutch Shell and Philip Morris, Turkey is not only a favorable production base but also a lucrative market and a trading and logistics hub for access to the Middle East and North Africa, Balkans, Caucasus and Central Asia. More Dutch investment is set to come to Turkey, such as the recent purchase by Vitol Group of the Turkey-based fuel products distribution company Petrolofisi for $1.47 billion. Investment needs a stable political climate, and the diplomatic spat between Turkey and the Netherlands doesn’t help.

It is also worth nothing that while the amount of Turkish investment in the Netherlands is considerably smaller, there are several large Turkish firms that have set up subsidiaries enabling access to the larger EU market.

For the past week, Dutch pundits have been commenting that Turkey is more dependent on the Netherlands, so possible sanctions imposed by Ankara would only mean “shooting themselves in the foot.” Turkish authorities have imposed political sanctions over the Dutch government’s refusal to allow Turkish ministers to meet with members of the Turkish diaspora there, including halting high-level political discussions between the two countries and the closing of Turkish airspace to Dutch diplomats. But Ankara has carefully ruled out economic sanctions. Turkey’s economics minister, Nihat Zeybekçi said: “If we take these steps, both sides would be hurt.” Ömer Çelik, minister of EU affairs said the Dutch business community, which is “investing in Turkey, doing commerce and generating employment” is “certainly not a part of this crisis,” and “Dutch investment in Turkey is by no means under risk.”

Economic sanctions between Turkey and the Netherlands don’t seem likely at the moment, but longer-term threats remain. First, even if no sanctions are imposed, the significant loss of confidence caused by recent events will take a toll on bilateral economic relations for some time.
Second, the sizeable Turkish diaspora in the Netherlands, as well as the relatively smaller Dutch community living in Turkey, will face uncertainty, and this will have an economic impact too. An estimated 400,000 Turks live in the Netherlands, according to a diaspora association, and there are 25,000 businesses with Turkish owners, most of them smaller enterprises. Many of these companies are doing business with Turkey, and they are negatively affected by the current dispute between the two governments. So is the much smaller Dutch community in Turkey. But it is equally active in the economy, especially in the tourism sector. Declining tourist numbers will hurt Turkish and Dutch operators alike, and it might take some time to recover to pre-crisis levels of business.

Third, the diplomatic spat is likely to have a negative effect on efforts to revise the Turkish-EU Customs Union. The union, which took effect in 1996, is outdated, failing to catch up with the requirements of today’s global trade. Ankara and Brussels had begun talks to improve the deal, but the current circumstance is likely to overshadow attempts based on economic rationality.

This week Turkish football team Beşiktaş played the Greek side Olympiakos in the European cup. The Turks won 4-1 helped by two goals from Ryan Babel, the Amsterdam-born Dutch striker. Turkey and the Netherlands have links that are closer than many realize, and it will benefit both to keep them intact.

Read more: Economics of the standoff between Turkey and the Netherlands | Asia Times

German-US Relations: Donald Trump and Angela Merkel "make nice" - sort of .....

Trump : considers EU non-existent 

If the cancellation of their previously planned meeting due to severe weather in Washington could be perceived as a fitting symbol for Chancellor Merkel's and President Trump's earlier relationship - frosty, if not icy - then today's weather in the US capital - sunny, but crisp - might have served as a sign that the two are trying to move beyond past grievances.

And their public statements during the highly anticipated press conference only underscored the palpable wish to restart the personal relationship between both leaders, after Trump's vicious comments about Merkel during the election campaign and to restore the traditionally close partnership between both countries, which has been in question ever since Trump took office.

It was, of course, up to Trump try to reset the relationship with Merkel and to reaffirm the commitments to transatlantic ties, and at first glance, he did.

But below the surface, things were not as smooth as it seemed. That is because on some crucial issues, including trade and the EU, Merkel and Trump took a very different tack. But that is not entirely accurate since Trump - in a noteworthy and unusual move for a US president - did not even mention the European Union once in his remarks.

"Trump made no reference whatsoever to the European Union, either in general terms or, more pointedly, on the specific issue of trade relations," said Anderson. "The closest he came to acknowledging the EU was when he stated that the US would respect 'historic institutions,' but then added that there needed to be balance and fairness in the relationship to the US." 

Merkel, meanwhile, "spoke from an entirely different - and actually much more grounded and accurate - perspective, answering in effect that the EU negotiates trade deals with member state input and that the principle of mutual benefit in EU trade deals is well established," said Jeffry Anderson, who directs Georgetown University's Center for German and European Studies.

"So on trade, which had not been discussed at that point in the visit, the two leaders seemed to be speaking past one another, which will not be a reassuring message for Germany or for Europe," Anderson added.

That impression was shared by presidential rhetoric scholar Farnsworth.

"The news conference suggested that these two leaders have little in common, other than a desire to avoid exchanging harsh words in public," he said. "Mainly they talked past each other." 

Having made some boilerplate statements about the importance of German-American ties, but really having spoken past one another on a substantial level may sound like a harsh verdict for a meeting between a German Chancellor and an American president.

But given Merkel and Trump's past and their very different political and personal backgrounds as well as the fact that this was their first ever face-to-face encounter it may have been all that could have been reasonably expected at this point.

Read more: Donald Trump and Angela Merkel make nice - sort of | Americas | DW.COM | 17.03.2017

US Economy: Trump's federal budget to eliminate dozens of government funded Agencies and programs-by Gregory Korte

President Trump's proposed budget takes a cleaver to domestic programs, with many agencies taking percentage spending cuts in the double digits.

But for dozens of smaller agencies and programs, the cut is 100%.

Community development block grants. The Weatherization Assistance Program. The Low-Income Home Energy Assistance Program. The National Endowment for the Arts. The Corporation for Public Broadcasting. All would be axed if Congress adopts Trump's budget.

Also proposed for elimination are lesser-known bureaucracies like the McGovern-Dole International Food for Education Program, the Endocrine Disruptor Screening Program and the Inter-American Foundation.

Many of those programs have constituencies in states and cities across the country — and their champions in Congress. "The president's beholden to nobody but the people who elected him, and yes, I understand that every lawmaker over there has pet projects," said Trump budget director Mick Mulvaney. "That's the nature of the beast."

Read more: Trump's federal budget would eliminate dozens of agencies and programs

Netherlands says No to Trump and Wilders populism in General election-as Rutte wins again - by Philip Blenkinsop

Mark Rutte

Dutch Prime Minister Mark Rutte said his VVD party was on course for victory in Dutch parliamentary elections on Wednesday in a result he declared represented a rejection of "the wrong kind of populism".

"It appears that the VVD will be the biggest party in the Netherlands for the third time in a row," a beaming Rutte told supporters at a post-election party in the Hague.

Rutte, who beat off a challenge from anti-Islam and anti-EU far-right firebrand Geert Wilders, said he had spoken to a number of European leaders already by telephone.

"It is also an evening in which the Netherlands after Brexit, after the American elections said stop to the wrong kind of populism," he said.

Read more: Dutch PM Rutte - Netherlands said no to 'the wrong kind of populism' - World | The Star Online

US Trump Presidency: Prospects for U.S. Democracy Promotion Under Trump

It is impossible to know for certain what approach President-elect Donald Trump will take to supporting democracy and human rights abroad. So far, he has offered only scattered hints—expressions of instincts and impulses that largely point toward a disinclination to engage in democracy promotion but remain far from being elaborated into concrete policy plans. In addition, Trump’s leadership style and the overall troubled state of U.S. democracy will clearly hurt U.S. efforts to advance democracy’s global fortunes in the years ahead. While all of this points almost uniformly in a negative direction, it is likely that as Trump and his team move to actual policymaking, their actions in this domain will prove less consistently negative than their initial signals might indicate.

Throughout his campaign, Trump emphasized his intention to take a purely transactional approach to other international powers. Underlying this approach is the idea that the United States will define its interests narrowly and thereby focus on U.S. economic interests and core security concerns (above all, counterterrorism). Democracy and human rights in other countries, and other “soft” interests, are to be put aside in the pursuit of a get-tough, America-first foreign policy. According to Trump and his advisers, their counterterrorism strategy will rest on stepped-up military efforts and possibly harsher treatment of suspected terrorists who are detained or imprisoned. They have shown no interest in longer-term political approaches to undercutting the roots of state fragility: for example, Trump declared at a public event in December that “we’re going to stop trying to build new nations in far-off lands” that “you’ve never even heard of.”

In line with his promise of transactionalism, Trump has taken a strikingly friendly approach toward various foreign strongmen. His favorable statements about Russian President Vladimir Putin have attracted the most attention but are only one part of a larger pattern that includes a recent sympathetic statement about Philippine President Rodrigo Duterte’s brutal crackdown on undocumented immigrants and drug traffickers, a backslapping meeting with Egypt’s President Abdel Fattah el-Sisi in New York in September, and an effusive postelection telephone call with Hungary’s Prime Minister Viktor Orbán. He has made it clear that in pursuing warmer relationships with such leaders, he does not intend to raise unpleasant truths about their democratic shortcomings. Of course, the United States has long maintained cozy ties with various nondemocratic governments for the sake of security and economic interests; but Trump has been offering a kind of lavish praise that generally does not characterize such relationships and that extends to strongmen leaders who are not even strategically important to the United States (like Orbán).

Another serious negative signal related to democracy policy is Trump’s deep-seated doubts about the value of core U.S. alliances—both with NATO partners and other crucial longtime allies such as Japan and South Korea. He has exhibited a lack of appreciation of these alliances, which are foundational elements of a broader international order that the United States helped establish and has led for more than a half century—an order rooted in liberal political values. Without anchoring specific democracy policies and programs in a larger strategy to preserve this international order, such efforts will lack real weight.

Of course, U.S. democracy promotion relies not just on actions the United States takes abroad, but the power of the example it sets at home. Various problematic features of U.S. political life in recent years—the institutional gridlock, the ever-rising role of money in politics, and the frequent skirmishing over basic electoral rules and procedures—have already tarnished the United States’ image abroad. But the recent U.S. presidential election process damaged this image much more widely and deeply. Although this damage had many sources, numerous actions that Trump took during the campaign and since the election—from his vows to prosecute his main opponent to his baseless postelection assertions of massive electoral fraud—figure significantly in the dispiriting diminishment of America’s global political brand. Trump went so far as to mock the idea of the United States as a democratic exemplar, declaring in July that “when the world sees how bad the United States is and we start talking about civil liberties, I don’t think we are a very good messenger.”

Moreover, highly visible elements of Trump’s leadership style—from his propensity to engage in personal attacks against journalists and even average citizens in response to minor perceived slights to his unwillingness to seriously address the linkages between his business interests and his political position—set a devastating example to strongmen leaders around the world. In taking such actions, he is drawing from the playbook of these vindictive leaders, who have undercut democracy in a growing number of countries that once enjoyed considerable political space, such as Hungary, the Philippines, and Turkey. Many democratically dubious leaders are observing these actions emanating from the president-elect and undoubtedly saying to their critics: How can you object to my efforts to defend myself? When I reach out to slap those who dare criticize me, I’m only doing what the new president of the world’s greatest democracy does.

In short, the prospects for serious, effective U.S. engagement by Trump to support democracy and human rights abroad look dismal. But in practice, the picture will likely end up being at least somewhat less negative than the initial signals indicates.

Read more: US Trump Presidency: Prospects for U.S. Democracy Promotion Under Trump