Our primary goal is to help you to understand RegTech and to become more confident and persuasive in your ability to analyze and make recommendations to executives within the finance industry regarding how to react to these changes, e.g. Regulations to crypto-currencies like BitCoin & ICO. This MOOC on RegTech offered by HKUST presents the views of several professors from the top business school in Asia as well as perspectives from industry professionals. HKUST has been ranked for many years as the number one EMBA program in the world, as the number one Finance program in Asia, and as the top MBA program in Asia by multiple independent rating and review journals and surveys. This course offers the combined strengths of HKUST in Business, Finance, and Technology as one the world's leading academic institutions on an important area of technology and business innovations. For students from outside Asia, this also gives an insight into changes happening in the most advanced FinTech markets of the world, since Asia leads worldwide in FinTech adoption and creative innovations. This course "FinTech Security & Regulation(RegTech)" is part of the HKUST-Coursera FinTech specialization. There are 3 other courses in the specialization including FinTech Foundations and Overview, FinTech Risk Management, and FinTech Innovative Disruption: Implications for Society. The FinTech specialization will be launched in Fall 2018, stay tuned!
1.5a What is InsurTech? (Part 1)
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Do curso por The Hong Kong University of Science and Technology
FinTech Security and Regulation (RegTech)
3 classificações
The Hong Kong University of Science and Technology
3 classificações
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Introduction to FinTech Security & Regulation
In this module, learners will examine the relationship between security and regulation as twin methodologies for managing and reducing risk in financial services. Issues explored will include "What is RegTech?", "What is InsurTech?", and how can we determine when regulation and security are enough or too much to achieve important social & business objectives.
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Theodore Henry King CLARKAssociate Professor
Information Systems, Business Statistics and Operations Management Department
Welcome back to our course on FinTech security and regulation.
In our last session,
we talked about RegTech.
Today, we're going to talk about InsurTech.
You might ask what do we mean by InsurTech.
Essentially, I mean, it's kind of obvious it's technology plus insurance,
just like RegTech is regulation plus technology.
With RegTech, we said it's a little more
complicated than that and you can look at it from different perspectives.
InsurTech is also a little bit more complicated and in some ways,
it's just the new buzzword to throw around, RegTech for insurance.
Essentially, it's an extension of FinTech and RegTech into a new market context,
into the insurance context.
When InsurTech relates to consumers,
consumers buying insurance or having
a different insurance experience or peer-to-peer insurance,
or something like that, when we're on the side of
InsurTech that heavily touches consumers and consumer convenience,
it's really not much difference from any other type of FinTech.
So, when you hear InsurTech,
you would say, Insurance and technology,
but sometimes InsurTech is more,
and sometimes it can be disruptive or very different.
Now, InsurTech is more than FinTech
because insurance markets are extremely heavily regulated.
More regulated than banks,
more regulated than payment companies and other transactions, stock trading companies.
Insurance companies are very,
very much a concern to governments because they
are dealing fundamentally in risk and risk management,
and if their projections are wrong,
or they're making mistakes,
they can go bust and hurt a lot of people.
You might have the illusion of insurance and then the insurance company goes bankrupt.
It's easy to sell cheaper insurance,
but it might just be an illusion or fraud, you say,
"I will sell you an insurance and in case of catastrophe,
I will guarantee that you'll be paid out."
So, for example I could sell a systematic insurance and I could say,
"For $100 a year,
I will insure everyone on the planet Earth against a
meteor striking the planet Earth and destroying all humanity."
The good news is I'll never have to pay out because of all humanity
dies then I won't have to pay anything because everyone will be dead,
so there'll be no claimants.
Now, you might say, what if a meteor strikes and kills half of the people on the Earth,
the other people sue you for everything they've lost,
then I go bankrupt,
meanwhile I get to keep all the premiums for a long time
because that unlikely disaster doesn't happen.
Now, you may say,
"Oh, come on that's silly,
but the 2008 financial crisis was kind of
related to that and that AIG is selling insurance
against catastrophic event that they thought would never happen,
real estate prices collapsing and it's just,
"No, it's not going to happen."
This isn't the first time insurance companies have said,
"We will insure you against some catastrophe,
but we'll put it in a subsidiary or will protect it in
some ways and then we'll say we're broke,
we can't pay out now.
Governments really don't like that,
they don't like you selling insurance and
actually not delivering it when a catastrophe happens.
Sometimes that means the government has to bail
out the firms that have provided the insurance.
They really don't like that either,
sometimes they do it like with AIG.
But, they're going to be some consequences.
However, there's a downside.
As long as you have limited liability companies,
you can accept a systematic risk that is excessive and price it too low,
and then not have to pay out because you simply go bankrupt.
So, governments are concerned,
they regulate it, and they want to say,
"When you're doing creative things with insurance,
we want more regulations,
we want more controls."
So, therefore InsurTech worries regulators more than typical FinTech.
Now, where does FinTech change our world and the world of insurance?
Where are the InsurTech disruptions?
What's going to happen that's different?
Because, I mean, we can do FinTech that just makes
things a little easier, more convenient.
I can buy insurance on my phone instead of
having to make a phone call or go into an office.
That's not disruptive.
I mean it might hurt some people's market share and cause some shifts,
but it's not radical transformation of insurance industries.
Insurance companies would say,
"It's just a new marketing channel."
But, there is something that could be disruptive.
One is peer-to-peer insurance, you insure me,
I insure you and there's some creative types of peer-to-peer insurance.
They might say, "How does that work?"
Well, let's say for example,
the most profitable automobile insurance policies are the ones that have low deductibles.
The high deductible policies tend to have
less profit in them because you have all the high risk,
big cataclysmic events, but you don't
get to charge us higher premium because they're more competitive.
Just like term life is the least profitable type of life insurance policies,
the ones that bundle more things in your retirement savings and other things.
You can sometimes differentiate them and get higher premiums for those.
But, so the generic basic vanilla term life or the generic vanilla,
high deductible, worse type of insurance,
but high cataclysmic damages,
those tend to be less profitable,
less attractive to an insurance company.
But, consumers like having a low deductible,
but what you could do is get the high deductible policy through an insurance company,
and then have a peer network where you say if you've got a small accident,
go to your peers and your peers will collectively chip in the extra premium,
we'll pay out this small part of the claim or your deductible to you.
If you have a big claim to the insurance company,
let's say you have a $5,000 deductible,
we'll pay the first 4,900.
So, now you really have $100 deductible.
But, our loss is limited to $4,900.
You may have a $5 million case against you for wrongful death,
we're only going to pay 4,900,
the rest goes to the insurance company.
So, you could have a peer to peer pool that is for the low risk,
low amount part that's high premium,
and then at the end of the year,
you can say to the pool,
"We're going to split the profits with each person in the pool."
So, that's a shared economy type of insurance and you'll find some
company's doing that in various creative ways.
Another kind of disruptive technology's
the idea of being able to connect your car, a smart car,
connected cars or self-driving car with insurance may cause different issues,
cost, opportunities in insurance.
If, for example, your car is telling your insurance company,
"This guy's really a pretty bad driver.
He hits the breaks a lot,
he accelerates a lot."
Your car might turn into a tattletale.
It might tell the insurance company, "Oh,
he changes lanes when he shouldn't,
he just really behaves badly."
You'd say, "Why premiums go up?"
Well, the car says you were driving like you were drunk.
So, we're raising your premium because we trust the car more than we trust you,
more than we trust the police,
we think you are more risky of having an accident or your self-driving car,
it keeps telling us that you're supposed to keep your hands on the wheel and you don't.
The car informs to the insurance company.
You say, "Well, I don't want my car to tell on me anymore."
"Okay, that's fine, but you're in the high-risk pool
now because if you don't want the car to tell on you,
then we assume you're a bad driver."
So, this may disrupt or change the insurance industry.
Blockchain and smart contracts may be disruptive for insurance.
I mean, some kinds of insurance may be things like letters of credit,
although traditional finance are kind of a way of
ensuring a shipment or ensuring a transaction.
We may be able to do things with blockchain
or insurance on title insurance for a property.
We may be able to change or disrupt that through using blockchain for transactions,
so that the cost of doing a title search may go down a lot,
things may be more public,
the record may be more open.
Smart contracts may reduce the risk of defaults in
ways that mean insurance is less meaningful or less expensive.
So, firms that are up on that or taking advantage of that may be able to
disrupt traditional insurance markets, connected health,
the kind of like your connected car,
but your idea that you may be able to- I mean,
a simple way is your Fitbit or
your Apple watch tells your insurance company that you're exercising a lot.
But, it may be more than that.
Your pacemaker may be able to tell your insurance company more about what you're doing.
Your insulin implant may be able to say,
"This guy's really controlling his diet.
Well, I think his risk of diabetes is low even
though he is got insulin every day and he does have diabetes.
His risk from that diabetes is lower than you might otherwise expect and so your devices,
your Internet of Things connecting with
your insurance markets may enable different insurance products and pricing.
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