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HOW INSURERS CAN KEEP UP WITH A NEW WAVE OF MILLENNIAL PET OWNERS

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Chris Blatchly, Chief Digital Officer & Consulting Leader for Insurance, Cognizant

 

In the midst of COVID-19, puppies and kittens have emerged as go-to companions to get us through the extended public healthcare crisis. This is one important reason pet insurance is touted to be the next hot growth segment for personal insurance carriers, as the global market is projected to surpass $10 billion by 2025 and grow 6.7% annually.

With the market evolving at such a pace, there are some core trends and themes that insurers should keep in mind as they look to keep up with the quickly evolving market and changing consumer habits.

 

Emerging trends in pet ownership: the millennials

The customer landscape has changed for the pet insurance industry, with millennials now the largest segment of pet parents. They own more pets (about 35% of total pet ownership) and spend more on their pets than any other generation currently, serving organic foods, buy flavoured medications, hire services, host pet parties and even take their pets on holiday.

Chris Blatchly

They also lead the charge in tech adoption. As they have grown up in an increasingly digital world, they expect quicker and more efficient service from insurance providers, and any other service provider for that matter, than ever before.

Such factors highlight the demand for customer-centric services within the pet insurance industry, that include personalised, nurturing communications and an interactive, immersive experience.

 

Increased demand for pet tech

Pet-oriented technologies (pet tech), such as wearables, are addressing increasing concerns around pet health and security. The pet tech market includes activity monitors, GPS trackers, RFID sensors and accelerometer sensors, among others.

Wearable technology has already demonstrated value in the life and health insurance space, so it is only a matter of time before it makes deeper inroads in the pet insurance market too.

The opportunities for pet tech are vast, from automated food dispensers and climate-controlled pet houses to pet doors with facial recognition. These types of devices and sensors help support a data-driven approach to underwriting and claims processes.

 

How pet insurers are keeping up with the market

Digitally native companies, known as insurtechs, are already bringing new capabilities to the pet industry, with a focus on enhancing the customer experience.

However, the rise in millennial pet owners and the growing use of pet tech wearables will be key drivers for future decisions and bring forth a new range of considerations, outlined further below, which will lead to some key themes that insurers should keep in mind as they plot their pet strategies.

  1. Considering different business models

A digitally enabled approach to product innovation can lead to new business models, such as peer-to-peer (P2P) insurance.

Millennials share many common interests in various social networks and they generally have a higher risk tolerance than older age groups, which suggests they would be open to joining online communities. P2P insurance leverages the power of social networks to reimagine the very old concept of a mutual insurance company. Social networks allow like-minded people to easily find each other and then pool their premiums to fund a pet insurance company.

Other approaches to consider include cross-selling complementary services. Millennials are more open to buying or using adjacent or complementary non-insurance services/products from their insurers, as demonstrated by their adoption of wellness offerings. For example, customers of Embrace can add onto the company’s Wellness Rewards plan to get reimbursed for the pet’s routine care or preventative steps to avert emergencies.

  1. Modernising core systems

Legacy core systems of existing pet insurers were built, patched and upgraded to support traditional manual processes. These aging systems are bound to affect the flexibility and scalability that are required for success. Insurers should reimagine and modernise their core systems, rules and processes to promote flexibility, agility, innovation and speed-to-market. The “core” of this effort should revolve around business capabilities such as flexible configuration of products and automated quote generation, as this will ensure that the derived technical capacities will best align with business outcomes.

  1. The role of AI

Pet insurance carriers can accelerate their digital evolution with advanced artificial intelligence (AI), which will enable them to automate core capabilities in new ways. For example, intelligent process automation (IPA) will enable the direct issuance of low-value/low-risk policies and the straight-through processing of low-value claims. IPA will also help integrate optical character recognition, intelligent character recognition and deep learning technologies. Some examples include reading unstructured scanned medical bills and intake claim documents, and creating an automated first notice of loss.

AI will also enable machine learning-based decision support for underwriters and claim adjustors and, when coupled with intelligent automations, will allow carriers to continuously mine case and claim data to identify fraud and security risks in real time.

  1. From indemnification to loss prevention

Finally, another potentially strong differentiator for pet insurers is loss prevention services. Pet owners’ two overriding concerns are their pets’ health and their security. One way that pet insurers can continuously engage with their customers and better promote safety are device- or sensor-driven alerts. By reducing injury claims, this can in turn translate into premium discounts. The growing use of devices and wearables provides a great opportunity for insurers.

By enabling their systems to integrate with third-party wearable-device data, pet insurers will gain significant insights. They can continuously monitor these data streams and pass contextual recommendations to the pet owner to help improve their pet’s health. Doing so means a proactive approach to reducing probable claim losses, versus the traditional reactive approach.

 

Barking up the innovation tree

The pet insurance market is ripe with significant untapped opportunity as evidenced by changing customer dynamics, the advent of pet technology and entry of insurtech players. Insurance carriers that take advantage of these developments to innovate with new customer-centric insurance products and services, by driving a holistic digital strategy, will be tomorrow’s market leaders. This journey will not be easy, given the challenges of updating legacy processes, modernising archaic systems and changing consumer behaviours. Designing a lean, cost-effective and digital-enabled operating model is critical, as insurers reimagine the future of pet insurance.

 

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DOGECOIN MADNESS

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by Nathalie Janson, Associate Professor at NEOMA Business School

 

After the unstoppable increase of Bitcoin (BTC) since January – it added 10 000$ to its price every month since January reaching 60 000$ in April 2021  – it is now the turn of the Dogecoin to be the next cryptofrenzy.

This crypto created in three hours by Billy Markus as a joke to make fun of the Bitcoin community back in 2013 had no specific use except federating crypto geeks sharing the same sense of humor. Its capitalization quickly reached 60 million USD back then. This is why until Tuesday, April 13th 2021, its price was closed to 0 since cryptos value derives from their usefulness.

The Dogecoin belongs to the family of Altcoins using proof of stake to validate transactions – more flexible and fast compare to Bitcoin and Ether based on proof of work – but essentially not as decentralized and secured.  So far Dogecoin has mainly been used for  tipping creators of content or more interestingly to noble causes. These include raising funds for the bobsleigh Jamaïcan team to send them to the Winter Olympic Games in 2014, paying back victims of Dogecoin hack in the early days after its creation,  and raising funds to provide access to drinkable water in Africa.

 

Dogecoin… a billionaire maker joke

How comes the DogeCoin price surged in such irrational manner? Is this move another proof of market madness? A sign that we might be close to the next burst of the crypto bubble? Who knows? … Why is it so difficult to understand the pricing dynamic of cryptocurrencies?  You might think that what we experienced is the paroxysm of futility. In a week, some Dogecoin holders become billionaires, the price of the Dodge coin increasing from almost 0 to 43 cents at its highest. How mad that sounds? Similar to what happened to Gamestop, we are dealing with a community with a strong identity – the Dogecoin joined by new members like Snickers – the sweet bar and more importantly by Elon Musk – who wants to set a record and claiming April 20th being DogeDay with the clear goal to push Dogecoin up to $1. They are encouraging each other to buy more of the coins. Given the limited size of the market dominated by “whales” – five “whales” are said to control 40% of the market – the increase in purchases of Dogecoin leads to significant rise in price given the low liquidity.

The Dogecoin case is an emblematic case showing how subjective value is in economics. Indeed, like Bitcoin, the price of Dogecoin only depends on its acceptance that in itself depends on the size of its network that suddenly increased.

Why now? First, Elon Musk started to show his interest in the Dogecoins by tweeting about it. Why does Elon Musk opinion matter? Because he symbolizes the success story of a man who is a visionary. After all, if Elon Musk invests in Bitcoin and supports Dogecoin it must be for a reason, and he may be right like he has been right about the industrialization of electric cars as the success of the Tesla demonstrates. He performs a role similar to leading investors in traditional financial markets like Warren Buffet.

Secondly, the Coinbase initial public offering contributed to a rally in the cryptocurrencies market, with no exception for the Dogecoin. Over the week-end, the major cryptocurrencies – BTC and Ethereum dropped for technical reasons due to a sharp decrease in the hash rate after an electricity shortage in the Xinjang province in China. When that happens, it usually benefits altcoins.

More broadly speaking, the crypto market is frenetic since the beginning of the year. This frenzy is a symptom of a global economy that is still suffering from severe restrictions in some activities but at the same time is also experimenting acceleration in others. Combined with overgenerous monetary policy feeding liquidity in search of profitability away from traditional markets because of low interest rates and over rated stock markets, this is a perfect combination for investors to try anything new to boost their portfolio return if you add on the top of that, growing concerns about the return of inflation in the US.

In this context how long will the Dogecoin rally last? This essentially relies on the determination of its fans to support it but after a while, it will need to be more than a symbol!

 

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Wealth Management

WHY COMPLICATED INCOME STRUCTURES SHOULDN’T PREVENT HIGH NET WORTH INDIVIDUALS FROM INVESTING IN PROPERTY

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Mike Coates, Founder and CEO of Commercial Expert

 

An investor’s preference is usually to split their investment across different funds, in a varied and balanced way.  Research has shown that the most popular investments made by high-net-worth individuals (HNWIs) vary between stocks, shares, hedge funds, private equity, and real estates (residential and commercial properties).  The allocation of funds is predominantly governed by taxes, goals and individual preferences.

However, in the past decade, HNWIs have encountered barriers to accessing finance because of the way lenders approve loans.

 

The barriers facing HNWIs

In the aftermath of the GFC of 2008, a notable trend to emerge was lenders seeking to minimise the level of risk to which they were prepared to expose themselves. This was achieved through adopting a more stringent selection criteria when it came to assessing an individual’s financial situation before approving a loan.

As a result of this change in lending behaviour, securing finance has ultimately become more difficult across the board, including, ironically, HNWIs, whom you might expect would be unaffected. The reason HNWIs might struggle is because the new lending culture favours those with straightforward finances, and a regular income.

However, for HNWIs, this is not usually the case.  For example, a HNWI’s portfolio could be split across various asset classes and jurisdictions; their income may be irregular or derived abroad (including off-shore tax-havens); many HNWIs are expats and may be receiving income in different currencies.  When these factors are considered, it’s easy to see why HNWIs might be classed as ‘high-risk’ in the eyes of some lenders.  As a result, many HNWIs have struggled to secure funding or even a credit card.

Consequently, for HNWIs looking to take advantage of the current low borrowing rates, as well as the tax relief by securing finance, they will be better off finding a reputable financial adviser or broker who will take a more holistic view when it comes to assessing their financial situation.

Financial advisers have established relationships with a wide portfolio of lenders who aren’t just the regular high street banks and building societies. There are certain lenders who are used to dealing with clients that have huge property portfolios and are experienced in calculating the stress levels on existing portfolios. They are able to use different assessment criteria in order to approve loans, even where applicants have a low debt service coverage ratio (DSCR).  They may also request to see your SA302 (self-assessment tax returns for the last 4 years), tax overviews and accounts in order to gain a deeper understanding of your income structure. Where people have deferred tax, this also gets taken into consideration.  At the end of the day, it’s about having your foot in the door with the right lenders, that helps to determine your ability to secure a mortgage as an HNWI.

 

Reasons to invest in property

Compared to private equity and hedge funds, real estate investment is by far the least risky option. Real estate is safe and is set to lead us to recovery following the aftermath of Covid-19.

What we witnessed during the global pandemic was that contrary to early predictions, rental prices remained relatively stable and property prices rocketed. The UK house price index, published in January 2021, revealed that the average house price increased by 7.5% year-on-year. i   Initially, the stamp duty tax relief may have been attributed to the increase, however, as the tax relief deadline approaches, there doesn’t appear to be any sign of a slow-down.  This indicates that other factors are underpinning the rise. Many believe that lockdown has forced people to reassess their priorities, with an increasing number of people desiring more generous living and outdoor space in areas away from cities.

 

What properties to invest in

As it currently stands, almost 60% of HNWIs have revealed that they invest in real estate. ii The properties are usually where they themselves reside, or in “offshore” areas where they enjoy going on holiday.  If properties are situated in tourist hotspots with nearby beaches or mountains, they are often rented out to tourists during peak holiday seasons and available for their own holiday use during off-peak times.

 

Final thoughts

If you want to invest in properties either in the UK or abroad, don’t be deterred by previous failed attempts at securing finance. It is a good move to appoint a specialist commercial finance broker with access to the whole of market, who can undertake all the research required, and recommend a suitable lender and product.

There are only a handful of lenders who are equipped to deal with HNWIs, with complex income structures, therefore it’s crucial to make sure you’re speaking with the right people.

 

References:

i https://moneytothemasses.com/owning-a-home/house-prices-2/what-is-going-to-happen-to-uk-house-prices

ii https://www.fool.com/millionacres/real-estate-investing/articles/what-are-high-net-worth-individuals-investing-in-now/

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