Insurance Industry Overview

Insurance Industry Overview

2

What is Insurance?

Insuranceisamechanismindividuals usetolimittheirexposuretorisk.Ariskreferstothepotentialforaloss– meaningitisunclearastoifandhowanindividualwillbeaffectedbyanevent.Individuals bandtogethertoformgroupsthatpayforlosses. Byforminggroups,theriskisspreadandnoindividualisfullyexposed.

Exposure Loss

Someoneorsomethingthatcanexperiencedamage,destruction,disappearance,death,disabilityorillnessbecauseoftheactionofanotherpersonoraccidental

happening.

Theunintentionalorunexpectedreductioninvalueofanobjectorpotentialstreamofincomeduetotheactionofanotheroraccidental

happening.

Claim

Ademandforanotherpartytorecoverthevaluelostfromasuffered

loss.

3

Insurable Risks

Fourcriteriaaretypicallyusedtodeterminewhetherariskisinsurable:(1)theremustbealargehomogenousgroupexposed to thesameriskinthesamerelativemanner,(2)anylossmustbequantifiableindollars,(3)therisksmustbeindependentandnotsubjecttocatastrophiclosses, and(4)thelossmustbeaccidentalinnature.

Majorcategoriesofinsurance

Property&Casualty Life Health

Propertyinsurancecoversdamagestophysicalobjectsthatarelostordamaged,whilecasualtyinsurancecoversliabilitiesthatresultfrom

negligentacts.

Lifeinsuranceprotectsagainstthefinancialrisksassociatedwithdying,disablement,illness, andretirement.

Healthinsuranceprovidescoverageforhealthexpenses

incurredintheeventofillnessorinjury.

4

Managing Risks

Insurancecompaniesmanagetheirrisksthroughriskpooling, theruleoflargenumbers,diversification,andreinsurance.

Diversification

• Diversificationensurestheinsurancecompanyisnotoverexposedtoparticularlossesbyspreadingtheriskoverproducts,areas,ormarkets

RiskPooling&theRuleofLargeNumbers

• Groupingsimilarrisksreducesthevariabilityanduncertaintyassociatedwithinsuringapoolofindividuals. Givenasufficientlylargenumberofpolicies, theactualvalueofclaimsshould approachtheexpectedvalue

Reinsurance

• Atypeofinsurancepurchasedbyinsurancecompaniestomitigatetheriskofsustaininglargelosses. Insurancecompaniesselloffportionsoftheirportfoliotoareinsurerwhichaggregatestheriskatahigherlevel

5

Hazards

Hazardsareconditionswhichcauseorleadtolosses. Insurancecovers4typesofhazards:physical,moral,morale,andlegal.

• Lossesresultingfromdishonestintentorexposuretodishonestpersons. Examplesincludeembezzlementandarson

• Hazardsassociatedwithindifference,laziness,ornegligence,whichincludes actionssuchassmokinginprohibitedzones,leavingdoorsunlocked,andnotwearingsafetyequipment

• Lossexposureduetonewlegaldecisions andregulation.Forexample,ifagovernmentagencydeterminesachemicaliscarcinogenic,manufacturersoftheproductmayfacelawsuitsarisingfromtheruling

PhysicalHazards

MoralHazards

MoraleHazards

LegalHazards

• Risks thatresultfromenvironmentalfactors,suchasbrokenstairsteps,drybushnearbuildings,worntiresonvehicles,andinadequatefireprotectionequipment

6

Economics of Insurance

Supply

• Thepremiumforaninsurancepolicycoverstwomajorcosts– theexpectedlossandloading.Theexpectedlossistheamountofclaimsaninsurerwillincur inagivenyear.Theloadingiscomprisedofsellingandadministrativecosts,brokerandagentcompensation,andclaimadjustmentexpenses

• Thelowerthepremium loadingfactor,themoreefficienttheoperationsoftheinsurancecarrier.Actuariallyfairinsurancewillhavealoadfactorofzero

ExpectedUtility=

Demand

• Mostindividualsareriskaverseandarewillingtopurchaseinsuranceeveniftheexpectedutilityisnegative.Thewillingnesstopurchasewilldependonanindividual’sperceptionofthelikelihoodofaloss

• Thevalueofinsuranceforlowprobabilityeventsisoftenunderestimatedandthevalueforhighprobabilityeventsisoftenoverestimated

ExpectedUtility

Outcome

ProbabilityofLoss*ClaimReimbursement–Premium&Deductible

Riskaversecustomerbehavior

Premium

Quantity

Supply

Demand

Premium= ExpectedLoss/(1– PremiumLoadingFactor)

7

Insurance Anomalies

1. Inadequatedemandatreasonablepremiums

2. Largedemandatexcessivepremiums

3. Purchasingthewrongamountofcoverage

1. Coverageisnotofferedwhenitshould be

2. Coverageispricedbelowbreak-evenpremiums

Supply Demand

TerrorismInsurance

Terrorisminsuranceforbuildings hashistoricallybeenpricedextremelyhighgivenanassumed30-40%premiumloadingfactor.Asample$9Mpolicyispricedat$900K,implyinga1in10annualprobabilityofaloss.

HMOs

Inthe1990s,HMOhealthinsurancewaspricedsignificantlybelowtheactuariallyfairprice.HMOsassumedtheywouldbeabletobettercontrolcosts,andexperiencedmajorlosses beforeadjustingpremiums.

ElectronicsWarranties

Electronicsinsuranceisvastlyoverpricedandpurchasedgiventheexpectedcosttorepairorreplaceadevice.Around20-40%ofallcustomerspurchaseawarranteeonanewelectronicdevice.

LowDeductibleAutoInsurance

Mostconsumersshowastrongpreferenceforhighpremiumlowdeductibleautoinsurancepolicies, despitethefactthatlowpremiumhighdeductiblepoliciesaremoreeconomicalfortheaveragedriver.

8

Insurance ModelsPrivate

Stock

• Most insurancecompaniesarestockbased.Tostartthebusiness,individualspurchaseshares,andthecapitalisusedtofundtheoperationsofthecompanyuntilbreakeven

• Theboardofdirectorsiselectedbythestockholdersandaportionofearningsmaybepaidtostockholdersasdividends

Mutual

• Mutualinsurancecompaniesareownedbythepolicyholders.Beforea mutualinsurancecompanycanoperate,thecompanymustsellaminimumnumberofpoliciesandamountofpremiumstobeissueduponauthorization

• Mutualinsurancecompanieshavenostockoutstandingandtheboardiselectedby thepolicyholders.Surplusfundsaredistributedtopolicyholdersasdividends

Reciprocal• Reciprocal insuranceexchangesareownedbytheirmembers.Thesubscribers(policyholders)establishanexchange

toinsureoneanother.Anattorney-in-factisappointedtooperatetheexchange

• Premiumsarepaidindepositandsurplusfundsarereturned intheformofdividends

Public

Voluntary

• Optional insuranceprogramsunderwrittenby thefederalorstategovernment

• Voluntaryfederalprogramsincludemilitary,crop,securitydealertransactions,crime,andmortgageinsurance

• Stateprogramsincludelife,title,auto,medicalmalpractice,andworkerscompensationinsurance

Compulsory• Requiredinsuranceprogramsprovidedbythegovernment

• ProgramsincludeSocial Securityplansforretirement,survivors,disability,andhealthcoverage

Role of Agents, Brokers, MGAs, and Insurance Carriers

Risk-bearingindividual/business

InsuranceBroker

InsuranceAgent

Choosestoworkwithanagentorbrokertoobtain

insurance

Representstheinsurancecompanyandcollectsdatausedinthe

underwritingprocess.A“captiveagent”onlyrepresentsone

insurancecompany

Representstheclientseekinginsurance.Brokersgenerally donotworkforaninsurancecompany,butinsteadsell policiesfrommultiple

carriersProvidedata

Provideinformation onpolicies

Providepotentialcustomersand

data

Providecompensation

Providebenefits

ManagingGeneralAgent

InsuranceCarrier

Paypremiums

Defines policies,investspremiums,paysoutbenefits

andcommissions

Incertaincircumstances,insurancecarriersgrantauthoritytoMGAstoperformawidearrayoffunctionsassociatedwithselling andissuing

policies

9

10

Insurance Premium Allocation

Benefits Surrenders Reserves Transfers Commisions

Administrative

Insurance, Taxes,Licenses,andFees

Other

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

U.SAccidentandHealthExpenses

ThebulkofP&C, Life,andHealthinsurancepremiumsareallocatedtoclaimpaymentstocompensatepolicyholders forinsuredlosses.Asexpectedinacommoditizedmarket,profitmarginsarelowandthemajorityofexpensesaretiedtopolicyliabilities.

• Aninsurercancedecertainlossexposuresunderonecontract,orpurchaseseveralcontractscoveringdifferentaspectsorportionsofpolicies

Reinsurance

Reinsuranceis,inessence,insuranceforinsurancecarriers.Theinsurersecurescoveragefromareinsurerforpotentiallossesitisexposedtofrompolicies ithasissued. Reinsuranceenhancesthespreadingofriskandservestoincreasethecapacityofaninsurertowriteinsuranceandstabilizethefinancialresultsofinsurancecarriers.

Risk-bearingindividual/business

InsuranceCarrier/CedingCompany

Reinsurer Retrocessionaire(insurerforreinsurers)

Insurance

Reinsurance

Retrocession

• Layeringmultiplereinsuranceagreementsiscommonlyemployed toobtainsufficientmonetarylimitsofreinsuranceprotection

• Areinsuranceagreementdoesnotestablishapartnershipbetweentheinsurerandthereinsurerasco-insurancedoes,althoughsomepro ratacontractsmayprovidethatthepartiesshareproportionallyinthegainsandlossesoftheunderlyingpolicies

BasicReinsuranceStructure

11

Insurance Regulatory Bodies

IntheUS,stateinsuranceregulatorysystemsdetermineandsetmostregulations.Ifaninsurancecompanyoperatesinmultiplestates,thestatesmustcoordinatetotrackproducersandpreventviolations.

StateLegislators• Statelegislatorssettheregulatory policiesforinsurance

• Thestatelegislatorsoverseestateinsurancedepartments,reviewandreviseinsurancelaws,andapprovebudgets

StateRegulators• Granted authoritybythestatestooverseetheinsuranceindustryandimplementinsuranceregulation

• Responsibleforensuringinsurersarefinanciallysolvent,andthatclaimsarepaidout fairlyandasoutlinedinpolicycontracts

FederalInsurance OfficeandtheFinancialStabilityOversightCouncil(FSOC)

• TheFIOservesasanadvisorymemberoftheFSOC.The FIOisresponsibleformonitoringallaspectsoftheinsurancesectorandrepresenting theUSonprudent internationalinsurancematters

• TheFSOCmonitorsallaspectsoftheinsuranceindustry,including:

o Identifyingissuesorgapsintheregulationofinsurersthatcouldleadtoasystemiccrisis

o Monitoringtheextenttowhichunderservedconsumershaveaccesstoinsuranceproducts

o Recommendinganinsurerbedesignatedasanentitysubjecttoregulationasanonbank financialcompanysupervisedbytheFederalReserve

o Coordinatingfederaleffortsanddevelopingfederalpoliciesonprudentialaspectsofinternationalinsurancematters

o Consultingwithstatesregardinginsurancemattersofnationalandinternationalimportance

NationalAssociationofInsurance

Commissioners(NAIC)

• USstandard-settingandregulatorysupportorganizationcreatedandgovernedbythechiefinsuranceregulatorsfromthe50states

• TheNAICservesasavehicleforindividualstateregulatorstocoordinatetheiractivitiesandshareresources

• TheNAICfunctionsasanadvisorybodyandserviceproviderforstateinsurancedepartments

12

Functions of Insurance Regulation

Insuranceregulationisstructuredaroundseveralkeyfunctions, including:insurerlicensing, producerlicensing,productregulation,marketconduct,financialregulation,andconsumerservices.

Licensing• Aninsurancecompanymustbelicensedbeforeitcandobusiness

• Insurancecompaniesthatarelicensedandauthorizedtodobusinessinaparticularstateareknownas“admitted”insurersandaresaidtobe“domiciled”inthestatethatissuedtheprimary license

CapitalRequirements• Allinsurancecompaniesaresubjecttocapitalandsurplusrequirements,whichvarywidelybystate

• TheNAICdevelopsmodelrulesandregulationsfortheindustry,manyofwhichmustbeapprovedbystatelegislaturesbeforethey canbeimplemented

SolvencyandGuarantyFunds

• Stateregulatorsmonitorthefinancialhealthofcompaniesthroughthe analysisoffinancialstatementsandperiodiconsiteexaminations

• Allstateshaveorganizationsknownasguarantyfundsthroughwhichtheproperty&casualtyinsuranceindustrycoversclaimsagainstinsolventinsurers

Rates• Threeprinciplesguidestaterateregulation:ratesareadequatetomaintaininsurancecompanysolvency,ratesarenotexcessive,andratesare

notdiscriminatory(pricingonlyreflectsexpectedclaimandexpensedifferences)

• Stateshaveadoptedvariousmethodsofregulatinginsurancerates,whichfallintotwocategories,"priorapproval"and"competitive”

13

Insurance Landscape

14

US Insurance Landscape

LifeInsurance,$616,000,000

AccidentandHealth,

$178,000,000

P/CCommercial,$252,000,000

P/CPersonal,$255,000,000

RevenueAssociatedwith2013USInsurancePolicies($000)

TheUSinsuranceindustryisthelargestintheworldintermsofrevenue.Insurancepremiumstotaledmorethan$1.2T in2014,accountingforapproximately7%ofGDPand40%ofthefinancialsector.Insurancecompaniesplayasignificantroleintheglobalfinancialmarkets,accountingforroughlyhalfthetotalassetsheldbyinsureddepositoryinstitutions.

11.9

11.5

11.1

9

7.6

7.5

6.7

4

3.9

3

2.2

2

1.3

SouthKorea

UnitedKingdom

Japan

France

Italy

UnitedStates

Germany

Brazil

India

China

Mexico

UnitedArabEmirates

Russia

InsurancePenetrationRateRatioofTotalInsurancePremiums toGDP

Source:McKinsey,InsuranceInformationInstitute 15

StateFarm

LibertyMutualAllstate

BerkshireHathawayTravelers

Other

UnitedHealthGroup

WellPoint

KaiserFoundationGroup

HumanaGroupAetnaGroup

Other

MetLife

Prudential

NewYorkLifeInsuranceJacksonNationalLifeGroup

AEGON

Other

Insurance Landscape – Market Share by Sector

P&C Life Health

Source: InsuranceInformationInstitute 16

MetLife

PrudentialNewYorkLifeInsurance

JacksonNationalLifeGroupAEGON

Other

StateFarmLibertyMutual

AllstateBerkshireHathaway

Travelers

Other

UnitedHealthGroup

WellPoint

KaiserFoundationGroup

HumanaGroupAetnaGroup

Other

Insurance Landscape – Market Share by Sector Revenue

P&C Life Health


$783B

$533B$496B

Largest US Insurance Companies

Source: InsuranceInformationInstitute,USTreasuryDepartment,AMBest

Metlife

PrudentialFinancial

BerkshireHathawayAIG

StateFarm

0

200

400

600

800

1,000

1,200

0 20 40 60 80 100 120

Assets($B)

NetPremiumsWritten($B)

Therewere6,118insurancecompaniesintheUSin2014,including2,583P&C insurers,895lifeinsurers,and857healthinsurers.

Top25P&C andLifeInsuranceCompanies byAssetsandNetPremiums

18

LifeP&C Diversified

Key Performance Variables

Appropriatepricinganddiversificationofinsuranceportfoliorisk

• Accuratedevelopment ofcustomer riskprofiles• Appropriatediversificationofcustomers• Disciplinedandeffectiveunderwritingpractices• Abilitytomanagerisk

Costeffectivesalesanddistribution

• Ability tobuildbrandrecognition• Abilitytoreachandselltocustomersinacosteffectivemanner• Abilitytoservice claimsandpolicies

Investmentindiversifiedandwell-performingassets

• Development ofastrongbalancesheetwiththeappropriatelevelofinvestedcapital

• Allocationofassetsamongassetclasses• Abilitytoeffectivelymeasureandmanagerisk

Abilitytoobtain andanalyzeaccuratedata

• Ability tocollectaccuratedataoncustomersandevents• Abilitytousedatatodrivedecisionsandinteractions(e.g.product

development,customerengagement,frauddetection)

Awareness

Engagement

Application&ClosingServicing

RenewalAuto

InsuranceLifecycle

19

Major Trends - Consolidation

Theneedforgrowthinanenvironmentofexcesscapital,intensecompetition,commoditizationofinsuranceproducts,andshiftingconsumerbuyingpreferenceshasleadtoaseriesofmergersandacquisitions intheinsurancesector.Inaddition,growthingovernment-subsidizedprograms,suchasMedicaidandMedicare,coupledwitharetreatoftraditionalemployer-basedplansinfavorofhigh-deductibleplansandexchanges,hasgeneratedpressureamongcarrierstoacquireMedicaidandMedicareproviders.

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016

Num

bero

fTransactio

ns

USInsuranceMergersandAcquisitions

Therewere24transactionsvaluedat$1Bormorein2015,compared to9in2014.

P&CM&Adealsincreasedto$39.6Bin2015from$6.7Bin2014,drivenbyseverallargetransactions(suchastheAce/Chubbmerger).

ThenumberofhealthinsuranceM&Atransactionsalsoincreasedto22in2015from

13in2014.

Source:Pitchbook 20

Major Trends – International Regulation

Priortothedownturn,regulationofUSinsurancecompanieswasalmostentirelythroughtheNAICsystem.RegulationsusedUS-centricmetrics,withinternationalorganizationssuchastheInternationalAssociationofInsuranceSupervisors (IAIS)orInternationalMonetaryFund (IMF)havinglittleinfluence.

Postthedownturn,existingentities(suchastheIAIS) andnewones(suchastheG20)havemovedtoglobalizeandcentralizeinsuranceregulation,increasinginternationalinfluenceoverUSregulationintheprocess.

RegulatoryStructurePriortotheDownturn RegulatoryStructurePosttheDownturn

InternationalAssociationofInsuranceSupervisors

InternationalMonetaryFund

NationalAssociationofInsuranceCommissioners

InternationalAssociationofInsuranceSupervisors

InternationalMonetaryFund

NationalAssociationofInsuranceCommissioners

TheDepartmentoftheTreasury

USFederalReserveSystem

G20

21

Major Trends – Increased Technology Spend

Modernizingcoreinsurancetechnologyisaprimarychallengefacinginsurancecompanies.Fromaresourceperspective,thehighestpriorityishiringandretainingtechnologystaff.

28% 27%

15%

Modernizationofcoretechnology

Innovativenewproductsandservices

Increasedcompetition

TopChallengesIdentifiedbyInsuranceExecutives

68% 31%

InsuranceITBudgets

1%

68%ofinsurancecarriersanticipateITbudgetstoincreasethisyear.

AccordingtoIDC, globalinsurersspentalmost$101BonITin2015,a4.4%yearoveryearincrease.

ITResourceConsumption

Front,Middle,andBackOfficeIntegration

DataSecurity

DataLatencyIssues

Scalability

ThemajorityofITresourceswithintheinsurancesectorarededicatedtosystemintegrationsanddatasecurity.

Source:SS&CTechnologiesSurvey 22

P&C Insurance

23

P&C Insurance Overview

Property&Casualtyinsuranceaccountsfor56%ofthenetpremiumswrittenintheUSinsuranceindustry.ThelargestsegmentswithinP&Careauto,home,andcommercialinsurance.In2014,atotalof$502.6Bofnetpremiumswerewritteninthesector.

P&CInsuranceisaConsolidatedMarket

Thereare2,583P&CinsurancecompaniesintheUS.Thetop10carriersaccountfor45.4%ofP&C

directpremiumswritten.

USP&CCarriers DirectPremiums

EmploymentinP&CbyDirectInsurershasDeclined

0

1,000

2,000

3,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Employment(000

s)

InsuranceIndustryTotalEmploymentP&CDirectInsurersLifeandHealthDirectInsurers

DirectP&Cinsurershavereducedstaffoverthepastdecade,likelyduetotheriseofonlineauto

insurance.


Major P&C Insurance Dynamics - Competition & Balance Sheet Strength

CyclicalPatternofCompetition

Insurancecarriersmustbalancegrowthwithprofitability– leadingtoacyclicalpatternbetweenhardandsoftmarkets.Thedurationofinsurancecyclesvaries,howeverhistoricallycycleshavelasted6-10years.

HardMarket

Premiumsandprofitsriseasinsurancecompaniesfocusonbuildingreserves.Insurancecarriersarelessfocusedoncustomeracquisitionandcompetingonprice.

SoftMarket

Premiumsandprofitsfallasinsurancecarriersattempttogainmarketshare.Insurancecarrierswithstrongbalancesheetsfocusonloweringpremiumsandaggressivelypricingrisk.

HardMarket

SoftMarket

HigherPremiumRates

IncreasedProfitability

StrictUnderwriting

FallingPremiumRates

DecreasedProfitability

HigherCompetition

25

P&C Insurance Industry Profitability Over Time

-5%

0%

5%

10%

15%

20%

25%

ROE

Profitabilitypeaksapproximatelyevery10years.Thenextprofitabilitypeakispredictedtooccurin2016-2017 – meaningthatpremiumsandthestrictnessofunderwritingstandardshavebeenheightenedoverthepastfewyears.

Source:MarketRealist 26

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Bonds Cash Property Equities

Major P&C Insurance Dynamics – Investment Performance & Profitability

InvestmentPerformanceDeterminesProfitability

Inpractice,veryfewfirmsmakeaprofitoffofpoliciessoldtoconsumers. Instead,P&Cinsurancecompaniesgenerateprofitoffoftheirinvestments.Insurancecarriersarethereforehighlyimpactedbythefinancialhealthoftheeconomy.Since2000,companieshave“de-risked”– movingawayfromequitiesandtowardsbonds.

P&CInvestedAssets

DebtSecurities Equity Cash/Other RealEstate&Loans

P&CInvestedAssetsOverTime

Source:NAIC,AmericanInsuranceAssociation 27

VC P&C Insurance Investing

0

10

20

30

40

50

60

2011 2012 2013 2014 2015 2016

CapitalInvested($M) Deals

InnovationfromstartupsintheP&Csectorhasprimarilyoccurredinautoinsurance.Thenumberofdealsinthesectorremainslowdespitegrowinginterestinthespace.

Source:Pitchbook 28

P&C InsuranceAuto Insurance Landscape

29

Auto Insurance Overview

Revenue $220.4 B

Profit $22.0 B

AnnualGrowth 1.9%

19% 11% 10% 9% 5% 5% 5% 4% 33%

MarketSharebyDirectPremiumsUnderwritten(2014)

StateFarmMutualAutomobileInsurance BerkshireHathawayInc. AllstateCorp.ProgressiveCorp. USAAInsuranceGroup FarmersInsuranceLibertyMutual NationwideMutualGroup Other

Categories ofInsurance • Liabilityinsurance• Comprehensive physical

damagepolicies

Main DistributionChannels • Brokers& agents• Online

Autoinsurancerepresentsthelargestlineofbusiness intheproperty&casualtysector– accountingforapproximately45%ofpremiumswritten.


Auto Insurance Coverage Requirements by State

Description Requiredbymoststates

Liability

BodilyInjuryCoverage • Paysforinjuriessufferedbyothersinanaccidentyoucaused, including:medicalexpenses,funeralcosts,long-termnursingcare,lostincome,andpainandsuffering

Yes

PropertyDamageCoverage

• Paysforrepair/replacement toanotherperson’sproperty thatresultedfromanaccident Yes

UmbrellaInsurance • Worksinconjunctionwithahomeownersand/orautoinsurancepolicy;appliedafterliabilitycoveragehasbeenexhaustedtocoverinjuriesandpropertydamage

No

MedicalCoverages

PersonalInjuryProtection • Coversthecostsassociatedwithinjuriessustainedduringanaccident.PIPcanoftenwork inconjunction withyourhealthinsurance.PIPis only availablein no-faultstates andaselectfewno-faultoptionalstates

RequiredinNo-FaultStates

MedicalPaymentsCoverage

• Medicalpaymentscoveragegenerallypaysformedicalcostsafter anaccident, regardlessofwhoisfoundatfault fortheaccident

Optional

Fullcoveragetypicallyprovidesstaterequiredliabilityandno-faultinsurancecoverage,collision coverage,andcomprehensive coverage.Stateinsurancerequirementsdifferwidely,withsomestatesrequiringnoinsurancecoverage.

31

Auto Insurance Coverage Requirements by State

Description RequiredbyMostStates

VehicleCoverage

Comprehensive InsuranceCoverage

• Paysforrepairstoyourcarafterithasbeendamagedbyaneventotherthanatrafficaccident,suchasfire,theft,vandalism,failingobjects,andnaturaldisasters

No

CollisionInsuranceCoverage

• Helpspayforrepairstoyourcarafterithasbeendamagedina trafficaccident No

GapInsuranceCoverage • Coversthedifferencebetweenavehiclescurrentfairmarketvalueandtheamountstillowedonthevehicle No

Other • Emergencyroadservicecoverage,mechanicalbreakdown insurance,custompartsandequipmentcoverage No

Other

Uninsuredmotoristprotection

• Coverscostsifyouarehitbyadriverwithnoinsurance No

Underinsuredmotoristprotection

• Coverscostsiftheotherdriverhasinsufficientinsurancecoverageand/orcoveragelimits No

Rentalreimbursement • Coversrentalcostswhileyourcarisbeingrepaired No

32

Factors Affecting Auto Insurance Premiums

AverageAnnualAutoInsurancePremiumbyState FactorsImpactingIndividualAutoInsurancePremiums

• Age

• Gender

• Educationandemployment

• Make,model,yearofthecar

• Wherethecaristypicallyparked

• Driving record andclaimshistory

• Credithistory

• Somestates donotallow insurancecompaniestofactorcredithistoryintopremiums

• Thechosendeductible

FactorsImpactingStateAutoInsurancePremiums

• Regulation(nofaultinsurancestructure)

• Accidentseverity(fatalities)

• Populationdensity

• Frequencyofdriverinitiatedlitigation

• Crime

• Weather

Source:Kiplinger 33

Key Auto Insurance Dynamics - Sales

AdvertisingDrivesSales

Autoinsuranceisforthemostpartahomogenousproduct.Carriersinvestheavilyinadvertisingtodifferentiatetheirproducts. Asaresult,autoinsurancehasoneofthehighestadvertising/salesratiosamonginsuranceproducts.Brandrecognitionisakeysuccess factorintheautoinsuranceindustry.

0 200 400 600 800 1,000 1,200

Geico

StateFarm

Allstate

Farmers

Progressive

LibertyMutual

Nationwide

AmericanFamily

Travelers

AIG

USAA

AnnualP&CMarketingSpend($M)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Marketin

gSpend($B)

TotalP&CMarketingSpend($B)

Source:Cornell,McKinsey 34

Key Auto Insurance Dynamics - Distribution

3.1millionautoinsurancepoliciesweresoldonlinein2012,upabout6%from2010.67%ofcustomersreportobtaininganonlineautoinsurancequote.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 209 2010 2011 2012

DistributionbyChannelbasedonDirectPremiumsUnderwritten

Independent Captive DirectResponse


Auto Insurance Change & Innovation

Theautoinsuranceindustryisanticipatedtochangedrasticallyoverthenext10years.Whilecarownershipispredictedtoriseinthecomingdecade,technologywillenablemoreefficientriskpricingandmanagement,whichwillsqueezeinsurancemargins.Thesharingeconomyandautonomous vehicleswillalsohavealargeandunknown impactonthecarinsuranceindustry.

Telematics

• TheuseofGPStechnologytotracklocation,mileage,speed,acceleration,andtimeofusetobetterevaluateadriver’svehicleutilizationandriskprofile

• Telematicshaspenetratedpersonalinsurancetoagreaterextentthancommercial,withmostnationalcarriersofferingausage-basedinsuranceproduct

• Telematicsenablescarrierstoofferproductsthatarecloselypricedtoactuariallyfairpremiums,potentiallyincreasingcompetitionascarriersreducethecushiononpolicies,andeventuallyleadingtoconsolidation

SharingEconomy

• Thesharingeconomyposesnewriskstotheinsurancebusiness.Thedividebetweenpersonalandcommercialautohasbeenobscured,andnewproductsareneededtofilllegalgaps

• Thesharingeconomywillincreasinglyimpactcarpurchases.Inmajorurbancities,vehicleownershiphasdroppedasserviceslikeUberandLyfthavebecomemorepopular.Inthelongrun,iflesspoliciesarepurchased,theriskandcosttoserviceanareawillincreaseandpremiumswillrise

AutonomousVehicles

• Autonomousvehicleswillreduceaccidentfrequencyandseverity.Thelegalresponsibilitiesofinsurancecarriershowever,havenotbeendetermined.Statebystateregulationwilllikelydiffer,leadingtovaryingproductofferingsbyregion.Carrierswithastrongregionalfocusmaybebetterpositionedtoadoptchangesrelativetonationalcarrierswithabroadcustomerbase

• Autonomousvehicleswilldrasticallyalterpricingmodels.Withloweroverallrisk,premiumswilldrop.Withlesscapitaltoinvest,carrierswilllikelybelessprofitableinthelongterm

36

Auto Insurance Startups

Logo Company Stage TotalFunding Location Description

Goji SeriesC $70M Boston Autoinsurancequote-comparisonportal

CoverHound SeriesC $57M SanFrancisco Autoinsurancequote-comparisonandbuyingportal

Zendrive SeriesA $15M SanFrancisco Mobile telematicssoftwareforcommercialfleetsandindividuals

Metromile Series B $14M San Francisco Pay-per-mileinsuranceproviderandsmartdrivingappandhardware

DrivewaySoftware

SeriesA $12M SanMateo Appgivingdriversandauto-insuranceprovidersdataaboutdrivinghabits

Snapsheet SeriesB $11M Chicago Virtualinsuranceclaimsoperations

Estify SeriesA $2M LosAngeles Digitizingpaperinsuranceclaimsforautorepair

Accuscore SeriesA $1M SanDiego Dataanalyticsondriverbehaviorforinsuranceunderwriters

37

P&C InsuranceHome Insurance Landscape

38

Home Insurance Overview

Revenue $80.8B

Profit $4.8B

AnnualGrowth 4.7%

21% 9% 6% 6% 5% 5% 4% 2% 42%


StateFarmGroup AllstateCorp. FarmersInsurance LibertyMutual USAAInsuranceGroup TravelersGroup NationwideMutualGroup Chubb Other

Categories ofInsurance • Propertycoverage• Liabilitycoverage

Main DistributionChannels • Exclusiveagents• Independentagents

ThesecondlargestlineofpersonalP&Cinsuranceishomeowners,whichrepresentsapproximately15%ofnetinsurancepremiums in theUS.


Home Insurance Policies

Homeowners1– Limitedcoveragepolicy

• This“barebones”policycoversagainstfireorlightning,smoke,windstormorhail,explosion,riotorcivilcommotion,aircraft,vehicles,glassbreakage,vandalism&maliciousmischief,theft,andvolcaniceruption.Due todemand forhighercoverage,HO-1isnolongeravailableinmoststates

Homeowners2– Basicpolicy• Broadpolicycoveringagainst16disasters,includingthosecoveredbyHO-1, lossbyfallingobjects,weightofice,snoworsleet,

accidentalfloodingfromplumbing,suddenruptureofheatingorcoolingsystems,freezingofplumbingorrelatedsystems,andsuddenandaccidentaldamagefromartificiallygeneratedelectricalcurrents

Homeowners3– Specialpolicy • OffersthesameprotectionastheHO-2;howeveralsocoversallperilsexceptthoseexplicitlyexcluded

Homeowners4- Renter • CoverspersonalpropertyagainstthesameperilsasHO-2.HO-4alsoprovidescoverageforadditionallivingexpensesintheeventofaloss

Homeowners6– Condo/Co-op • Policycreatedtocoverthespecialneedsofcondominium owners.Itcoverslossofpersonalpropertyandbuildingadditionsandalterationsinsidetheowner’sindividualunit

Homeowners1– Limitedcoveragepolicy

• Policydesignedforolderhomesinwhichreplacementcostsexceedtheproperty’smarketvalue.Thisformallowsthepolicyholdertocarrylowerlimitsofinsuranceratherthantrytomaintaincoveragefor80%ofreplacementcost

40

Factors Affecting Home Insurance Premiums

AverageAnnualHomeInsurancePremiumbyState MicroFactorsImpactingHomeInsurancePremiums

• Amountofcoverage

• Neighborhoodcrime

• Firesafeguardsandhomesecurity

• Condition,materials,andageofthehome

• Certainbreedsofdogs

• Swimmingpools,trampolines,etc.

• Homeowner’screditscore$980

$691

$674

$567

$648

$538

$580

$871

$821

$1038

$844

$1661

$1501

$1213

$1038

$789

$1038

$1140

$779

$631$802

$804

$1158

$721$840$881

$1091

$2084

$975

$1134

$1248$1314

$1742

$1096

$771

$961

$1008$927

$843

$837

$678

$981

$1160$1233$1150

$741$792

$848

$957

$942

• Populationdensity

• Realestatepricesandconstructioncosts

• Exposuretocatastrophes

• Buildingregulationcodes

• Inflationaryimpactoninsuredcontents

MacroFactorsImpactingHomeInsurancePremiums

Accordingtoarecentsurvey,95%ofhomeownershaveinsurancebutonly40%ofrentershaverenter’sinsurance.

Source:NAIC 41

Home Insurance Claims

In20145.3%ofinsuredhomeshadaclaim.Propertydamageaccountedfor97.3%ofclaims.Thepercentageofhomeownersfilingclaimsishighlydependentonweather-relatedactivity.

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2014HomeownersLossesRankedbyClaimsSeverity

0

0.5

1

1.5

2

2.5

3

3.5

2014HomeownersLossesRankedbyClaimFrequency

42

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

HomeownerInsuranceCombinedRatio

Actuariallyfairpricing

Homeowners Insurance Dynamics – Catastrophic Losses

Thefrequencyandseverityofnaturalcatastropheshasincreasedwithinthepastfewdecades.Bothpremiumsandlosseshaveincreasedasinsurersattempttomaintainprofitability.

HurricaneAndrew

HurricaneIke

RecordTornadoActivity Hurricane

Sandy

Thecombinedratioisameasureofprofitability.Itisthesumofincurredlossesdividedbyearnedpremiums


Key Home Insurance Dynamics – Construction Costs

0

20

40

60

80

100

120

1980 1985 1990 1995 2000 2005 2010 2015

PriceIndex

PriceIndexofUSSingleFamilyHomes

Constructioncostshavealargeimpactonhomeinsurancepremiums.Thecostofbuildingahomerose45%fromthestartof2001totheendof2011– faroutpacingtherateofinflation.

Source:USCensus 44

Home Insurance Change & Innovation

Innovationinthehomeinsurancesectorlagstheautoinsurancesector.Whileconnecteddevicesareavailable,fewcompanieshavedesignednewinsuranceproductswhichintegratethesetechnologies.

ConnectedDevices Drones

• AccordingtoAccenture,45%ofallhome insurersbelieveconnecteddevicesdriverevenuegrowthoverthenextthreeyears.Bypartneringwithconnecteddevicemanufacturers,insurerscanenablehomeowners topreventlossesandlimittheseverityofevents

• Throughprovidingpreventativeservices,insurerswillincreasetheirtouchpointsandhaveamorepositivepresencewithcustomers

• Despitevariousconnecteddevicesenteringthemarket,implementationhasbeenlimitedbyalackinmassmarketinterest.Consumersviewconnecteddevicesas“indevelopment”andareholdingoffformorerefinedproducts

• Droneshavethepotentialtogreatlyreduceoverheadcostsofinsurers.Physicalinspectionscanbereplacedthrough imagingperformedbydrones– revolutionizingtheunderwritingandclaimsprocessofhome insurance

• Amajorreductionintheefforttoassessdamagestoapropertywillresultfromthepairingondroneswithanalytics,tocompletelyautomatetheinsuranceanalysis

• Currentlydronesarerestrictedinuseduetoregulation.DronesareregulatedbytheFAAandstates,andrequirepilotlicensestooperate.Pendingrefinedregulationtoaccountforspecificdroneuses,insurancecompaniesareexpectedintegratedronesintotheiroperationstoagreaterdegree

45

Home Insurance Startups


Augury SeriesA $9M NewYork,NY Sensorsforheating,ventilationandairconditioningsystems

Wallflower Seed 500 K Cambridge,MA Connectsmobiledevicestogasorelectriccooktopsandmonitorswhetheritsonoroff

Roost Pre-Seed N/A Sunnyvale,CA Asmartbatteryforsmokedetectors

Bungalow Pre-Seed N/A Philadelphia, PA Aplatformtargeted atmillennialsforpurchasingrentersinsurance

ZeneHome Pre-Seed N/A Santa Monica,CADigitizes homeownerpaperworkandinspectsthehomeowner'smortgage,insurancepolicies,propertytaxes,bills,andservicesforinefficiencies,cost-savings,orbetteralternatives

46

Life Insurance Overview

47

Life Insurance Overview

Revenue $533B

Profit $31 B*

AnnualGrowth 6.2%

16% 8% 5% 5% 4% 4% 4% 3% 52%


MetLife PrudentialFinancial NewYorkLifeInsurance JacksonNationalLifeGroup AEGON LincolnNational AmericanInternational ManulifeFinancial Other

Categories ofInsurance • PermanentLife• TermLife

Main DistributionChannels • Independentagents• Affiliated agents

*ThomvestEstimateSource: InsuranceInformationInstitute

RelativetootherformsofinsuranceintheUS,lifeinsurancehasarelativelylowpenetrationrate.Traditionallifeinsuranceisnolongertheprimarybusinessformanycompaniesinthelife/healthinsuranceindustry,astheyhaveshiftedfocustounderwritingannuityproducts.

48

Life Insurance Products

PermanentLife

Providesdeathbenefitsandcashvaluein returnforperiodicpayments.Permanentlifeproductsincludewholelife,universallife,andvariableuniversallife.

• WholeLife:Pays adeathbenefitandalsoaccumulatesacashvalue.Thesepolicieshaveahighexpensestrainduetofirst-yearcommissionstoagents.Overtime,wholelifeprovidesanincomestreamtothecompanyandtheagent

• UniversalLife: Flexiblepremiumpoliciesthatincorporateasavingscomponent. Thecashvaluesthatareaccumulatedareput intoinvestmentstoearninterest.Theaccumulationsareusedtoreducefuturepremiumsorbuildthebenefitamount.Tightpricing andhighreserverequirementslimittheprofitabilityoftheseproducts

• VariableUniversalLife: Flexiblepremiumpoliciesallowinvestmentsinmutual-fund-likeaccounts.Thevariable performanceoftheinvestmentsisariskheldbythepolicyholder.Insurers aresusceptibletoprofitfluctuationsasmutualfundfeesadjusttochangingenvironmentsintheequitymarket

TermLife• Providesprotection foraspecifiedperiodoftime.It paysabenefitonlyiftheinsuredpersondieswithinthecoveredperiod.Term

periodstypicallyrangefrom1-30years.Termlifeinsuranceisahighlycompetitivemarketwithmanyfinancialinstitutionsmarketingandofferingproducts

GroupLife• Group lifeinsuranceismarketedtoemployersorassociationgroups.Typicallyintheformoftermlifeinsurance,costsmaybeshared

betweentheparticipant(employee)andthemasterpolicyholder (employer).Participantscantypicallyelecttopayforadditionalcoveragenotpurchasedbythemasterpolicyholder

49

0%

10%

20%

30%

40%

50%

60%

70%

ReasonsforNotPurchasingLifeInsurance

Life Insurance Penetration

62%

38%

USHouseholds withLifeInsuranceCoverage

0.3

3.62.20.7

7.1

7

GenY GenX BabyBoomers

LifeInsuranceSalesPotential($T)

Covered UntappedMarket

Source:Deloitte

Thevalueoflifeinsurancerelativetoitspriceandotherfinancialprioritiesisthemainreasonfor

remaininguncovered.

Relativetoothertypesofinsurance,lifeinsurancehasrelativelylowpenetration.Withoutagovernmentmandate,manyconsumerschoosetoforgolifeinsuranceduetoitspriceandotherfinancialpriorities.

50

Factors Impacting Life Insurance Premiums

MonthlyPremiumsfora20-YearTerm$500,000Policy

$33 $36$111

$611

$107$217

$490

$2,016

$26 $36 $87

$419

$73 $144

$334

$1,495

20 35 50 65

MaleNon-Smoker MaleSmoker FemaleNon-Smoker FemaleSmoker

Source:TrustedChoice.com

Lifeinsurancepremiumsincreaseexponentiallywithage.Tobaccouse,medicalhistory,andotherhealth-relatedfactorshavethe potentialtoraisepremiumsby3-4x.

51

FactorsImpactingLifeInsurancePremiums

• Tobaccouse

• Age

• Gender

• Medicalhistory

• Alcoholuse

• Currenthealth

• Weight

• Familyhistory

• Occupation

• Lifestyleandhobbies

• Drivingrecord

• Credithistory

Key Life Insurance Dynamics – Life Insurance Sales

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

<25 25-44 45-64 65+ Total

HowConsumersWould LiketoPurchaseLifeInsurancebyAge

Wouldnotusetheinternet Researchonline,purchasedirectlyfromcompany(phone/mail)

Researchonline,completepurchaseonline Researchonline,buy fromadvisororagent

Whilethemajorityofconsumersstillprefertopurchaselifeinsurancethroughagents,theage-oldsayingthatlifeinsuranceis“soldnotbought”maybechanging.Youngerpopulationsareperformingsignificantresearchonline,andarecomfortableexecutingfinancialtransactionswithoutinteractingwithanadvisor/agent.With80%offirstyearpremiumsgoingtowardsagentcommissions, areductioninthecostofsalesbyswitching to digitalchannelshastheabilitytodrasticallychangethecoststructureoflifeinsurance.

Source: LIMRA 52

Key Life Insurance Dynamics – Capital Market Conditions

ComparedtoP&Cinsurance,lifeinsuranceismoreasset-intensiveandpoliciestypicallyhavelongerdurations.Interestratesandcapitalmarketreturnsthereforehaveamoresignificantimpactontheprofitabilityoflifeinsurancecarriers.

Source:EY&USTreasuryDepartment

(60)

(40)

(20)

-

20

40

60

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2008 2009 2010 2011 2012

NetIn

come($B)

Return

USLifeInsuranceProfitability&InvestedAssetReturns

NetIncome ReturnonStatutorySurplus

53

Key Life Insurance Dynamics – Aging Populations

70

71

74

75

77

79

9%10%

11%

13% 12%13%

0%

2%

4%

6%

8%

10%

12%

14%

64

66

68

70

72

74

76

78

80

1960 1970 1980 1990 2000 2010

Percento

fPopulationOver65

LifeExpectancy(Years)

LifeExpectancy %Populationover65

In1900,75%oftheUSpopulationdiedbeforetheageof65.Today,70%ofthepopulationlivespast65.Withlongevityincreasing,individualsmustbetterprepareandsaveforretirement,andinsurancecarriersmustappropriatelyadjustmortalityassumptions toremainprofitable.

Source:CenterforDiseaseControl 54

Life Insurance Startups


LionStreet Seed $3.1M Austin, TX Resourcesforindependentlifeinsurerstomeetthe financialplanningneedsofhigh-net-worthandcorporateclients

Ladder Pre-Seed N/A MenloPark,CA Technology-enabled fullstackinsurancecompany

Sureify Pre-Seed N/A SanJose,CA Thirdpartysourceforlifeinsuranceeducation,comparison,andcarrierdata targeted atmillennials

55

Health Insurance Overview

56


Revenue $783B

Profit $33B

AnnualGrowth 6.5%

14% 8% 8% 5% 4% 3% 2% 2% 54%


UnitedHealthGroup WellPoint KaiserFoundationGroup HumanaGroup AetnaGroup HealthCareServiceCorporation HighmarkGroup CIGNA Other

Types ofInsuranceStructures • HMO• PPO• EPO

Main DistributionChannels • Employerplans• Direct• Government

Source: InsuranceInformationInstitute

Healthisthelargestsectorwithininsurance.Thesectorincludesprivatehealthinsurancecompaniesaswellasgovernmentprograms.SelectP&Candlifeinsurancecompaniesprovidehealthinsuranceproducts.

57


Healthinsurancecostsarecloselytiedtohealthcareexpenditures– whichhaveskyrocketedoverthepastfewdecadesaslifeexpectancyhasincreasedandnewhealthcaretechnologieshavebeendeveloped.

ThehealthinsurancemarkethasgrownsignificantlysincetheimplementationoftheAffordableCareAct,withrevenuesincreasingfrom$641Bin2013to$743Bin2014.Muchofthisgrowthhowever,hasbeenunprofitable.Healthinsurerslostatotalof$2.5B,oronaverage$163perconsumerenrolled,intheindividualmarketin2014.

ComparedtoP&Candlifeinsurance,healthinsurancehasashorterinvestmenttimehorizonandhigherloadingfactor.Theaveragemedicallossratio(medicalcosts/premiumrevenues)hasincreasedslightlytoinrecentyearsto83.2%,duetorequirementssetbythePatientProtectionandAffordableCareAct.

HealthInsuranceCoverageintheUS

Employer Non-Group Medicaid

Medicare Other Uninsured

PrivateHealthInsuranceSpend

Inpatient Outpatient

Professionalservices Pharmacy

Other

0%

5%

10%

15%

20%

25%

30%

PercentofInsurers

OperatingMarginofPrivateHealthInsurers

Source:WallStreetJournal,McKinsey,Deloitte 58

Flow of Health Insurance Funds

Purchasers HealthPlans Providers

$2.7TinExpenditures

Individuals

Employers

$305B

$305B

$580B

Government

PrivatePlans

$952B

$286B

Healthplansconsumea15.2%ofthe$1172Binsurancecompaniesreceive.HealthplansrepresentasignificantcosttotheUShealthcaresystemandarethereforeunderintensescrutiny.

• Hospitals• PhysicianGroups• IntegratedDeliverySystems• AccountableCareOrganizations• CoordinatedCareOrganizations

Source:Deloitte

$1172B

59

Health Insurance Plans

Plan Description MarketShareofPolicies

HealthMaintenanceOrganization(HMO)• HMOsuseprimarycarephysicians(PCPs)asgatekeepers topreventtheoveruseof

healthcare.CustomerswhoenrollinHMOsarerequiredtochoosehealthcareproviderswithinthenetworkofcontractedphysiciansandhospitals

16%

PreferredProviderOrganization(PPO)• PPOplansaimtorestraintheoveruseofmedicalserviceswhileallowingpatientsmore

flexibilityintheirchoiceofphysiciansandspecialists.ThereisnoPCPgatekeeperfortheseplans,butcustomersareencouragedtochooseproviderswithinthenetwork

56%

PointofService(POS)

• A point-of-serviceplan (POS)isatypeofmanagedcare plan thatisahybridofaHMOandPPO plan.LikeanHMO,participantsdesignateanin-networkphysiciantobetheirprimarycareprovider.ButlikeaPPO,patientsmaygooutsideoftheprovidernetworkfor healthcareservices

9%

High-DeductibleHealthPlan(HDHP) • Health insurance planwithlowerpremiumsandhigherdeductiblesthantraditionalhealthplans.

19%

Source:KaiserFoundation 60

Major Government Programs and Regulation

Children'sHealthInsuranceProgram(CHIP)

• AprogramwhichwasestablishedbytheBalancedBudgetActdesignedtoprovidehealthassistancetouninsuredlow-incomechildren

ConsolidatedOmnibusBudgetReconciliationAct(COBRA)

• Afederalactwhichrequireseachgrouphealthplantoallowemployeesandcertaindependentstocontinuetheirgroupcoverageforastatedperiodoftimefollowingaqualifyingeventthatcausesthelossofgrouphealthcoverage

• Qualifyingeventsincludereducedworkhours,deathordivorceofacoveredemployee,andterminationofemployment

HealthInsurancePortabilityandAccountabilityAct(HIPAA)

• Afederalactthatprotectspeoplewhochangejobs,areself-employed,orwhohavepre-existingmedicalconditions.HIPAAstandardizestheapproachtothecontinuationofhealthcarebenefitsforindividualsandmembersofsmallgrouphealthplansandestablishessimilaritiesbetweenthebenefitsextendedtotheseindividualsandthosebenefitsofferedtoemployeesinlargegroupplans

• Theactalsocontainsprovisionsdesignedtoensurethatprospectiveorcurrentenrolleesinagrouphealthplanarenotdiscriminatedagainstbasedonhealthstatus

Medicaid

• Governmentfundedhealthcaretypicallyprovided tolow-incomeindividualsandfamilies

• Medicaidisjointlyfundedbythefederalandstategovernments

• Althoughthefederalgovernmentestablishesnationalguidelines,eachstatehastheauthoritytoestablishitsowneligibilitystandards,determinethetype,duration,andscopeofservices,setpaymentrates,andadministertheprogram

Medicare • In1965,theSocialSecurityActestablishedbothMedicareandMedicaid.Medicareisafederalhealthinsuranceprogramdesigned toprovidecoverageforindividuals65+andindividualswithapplicabledisabilities

Source:UNTHealth 61

$429

$476

2013 2014

MedicareSpending($B)

$586

$619

2013 2014

MedicareSpending($B)

Healthcare Spending Breakdown – Medicare & Medicaid

5.5%growth

TheincreaseinMedicarespendingwasprimarilyattributabletofastergrowthinspendingforprescriptiondrugs,physicianand

clinicalservices, andgovernmentadministration.

Medicareaccountsforapproximately20%oftotalhealthcarespending.

TheincreasedspendinginMedicaidwaslargelydrivenbythenewlyeligibleenrolleesundertheACA,whichwerefullyfinanced

bythefederalgovernment.

Medicaidaccountsforapproximately16%oftotalhealthcarespending.

StateandlocalMedicaidexpendituresonlygrew0.9percent,whilefederalMedicaidexpendituresincreased18.4percentin2014.

11%growth

Source:CenterforMedicareandMedicaidServices 62

$326

$330

2013 2014

Out-of-PocketExpenditures($B)

Healthcare Spending Breakdown – Private & Out-of-Pocket

Source:CenterforMedicareandMedicaidServices

$949

$991

2013 2014

PrivateHealthInsurance($B)

Privatehealthinsuranceaccountsfor33%oftotalhealthcarespending.

PrivatehealthinsurancespendinghasincreasedduetotheAffordableCareAct,whichhasimplementedmarketplaceplans,healthinsurancepremiumtaxcredits,healthinsuranceindustry

fees,andbenefitdesignchanges.

Out-of-pocketexpendituresgrewslowerthantheoverallannualgrowthinhealthcarespending.Theslowdownisprimarilyduetoareductioninthenumberofindividualswithouthealthinsurance.

Out-of-pocketexpendituresaccountforaround10%oftotalhealthcarespending.

63

4.4%growth 1.3%growth

Innovation in Health Insurance

MedicalGradeWearables Telemedicine

• SoreonResearchestimatesthatthesmartwearablehealthcaremarketwillgrowfrom$2Bin2014 tomore than$41Bin2020,withdiabetes,sleepdisorders,obesityandcardiovasculardiseaserepresentingthelargestgrowthsegments

• Insurancecarriershaverecentlyinvestedandpartneredwithavarietyofwearabledevicecompanies.Insurancecompaniesarecurrentlyusingwearabledevicesasapreventativemeasure,offeringdiscountstocustomerswhomeetcertainfitnessandwellnessgoals

• Aswearabledatabecomesmoreavailable,reliable,anddetailedhealthinsurancecompaniesareexpectedtoincreasecustomeroutreachthroughapps,wearables,andothermobiledevices

• Althoughtelemedicinehasbeenaroundfordecades,itsprevalenceandpopularityhassuddenlyexploded,fueledbyapowerfulcombinationofmarketforcesandtechnologicaladvances

• MorethanhalfofUShospitalsnowusesomeformoftelemedicine.Telemedicineallowsdoctorstoprovidecareatlowercostsandreduceshospitalcontaminations.Inaddition,patientshaveexperienceda75%reductionintravelandacorresponding75%increaseincertaintypesofcare,suchaspsychologicalevaluations

• Whilethepromisesoftelemedicineareprevalent,doctorarepreventedfromtouchingapatientandobservingcertaincues–makingitaninappropriateresponsetocertainmedicalconditions

Source:Reuters,InsuranceNetNews 64

Health Insurance Startups


Oscar PrivateEquity $738M NewYork,NY Provides andsellshealthinsurance,utilizingtechnology,designanddatatooptimizethehealthcareexperience

BrightHealth SeriesA $80M MinnesotaCity,MN An insuranceserviceplatform thatpartnerswithhealthsystemsandcarepartnerstoprovidehealthplans

MaestroHealthcareTechnology

Venture $53M Chicago,ILAnonlineserviceplatformthatoffersprivateexchangemarketplace,healthcareenrollment,healthinsurance,healthcaresavingsaccounts,caremanagementandbillingservices

CloverHealth Series B $135M SanFrancisco, CA Clinicaldataplatformthatdesignsvariousmedicalinsuranceplansandmodelsforseniorcitizensandothermiddle-incomegrouppatients

StrideHealth SeriesA $15M SanFrancisco,CA Health insurancerecommendationengineforfindinghealthinsuranceplans

65

Insurance Industry Overview

Economy & Finance