Embracing the disruption by emerging technologies Expert perspectives on the Fourth Industrial Revolution TABLE OF CONTENTS

1 INTRODUCTION 1

RISK AND REWARDS 2 TAKING CHARGE OF DISRUPTIVE TECHNOLOGY RISKS 2 Brian C. Elowe, Managing Director and US Client Executive Practice Leader at Marsh 3 TECHNOLOGY INNOVATION IS DISRUPTING RISK MANAGEMENT 6 Melissa Gale, Senior Manager, Risk Solutions at Lyft 4 HOW RISKY ARE THESE TOP 10 EMERGING TECHNOLOGIES? 9 Andrew Maynard, Director, Risk Innovation Lab at Arizona State University 5 DISRUPTIVE TECHNOLOGY BRINGS RISK AND OPPORTUNITY TO INFRASTRUCTURE PROJECTS 12 Adrian Pellen, Infrastructure Segment Leader, US and Canada, Construction Practice at Marsh

FINTECH 6 FINTECH IN CHINA: WHAT’S BEHIND THE BOOM? 15 Cliff Sheng et al., Partner and Head of Financial Services, Greater China at Oliver Wyman 7 FINTECH SPURS INNOVATION IN ASIAN WEALTH MANAGEMENT 19 Steven Seow, Head of Wealth Management, Asia for Mercer 8 WHAT ARE THE IMPLICATIONS OF THE RAPID GROWTH OF FINTECH IN CHINA? 22 Jasper Yip et al., Engagement Manager of Financial Services, Greater China at Oliver Wyman 9 HOW BANKS CAN KEEP UP WITH DIGITAL DISRUPTORS 25 Scott A. Snyder, Senior Vice President, Managing Director and Chief Technology and Innovation Officer for Safeguard Scientifics 10 INSURETECH IN CHINA: REVOLUTIONIZING THE INSURANCE INDUSTRY 29 Cliff Sheng, Partner and Head of Financial Services, Greater China at Oliver Wyman CYBER RISKS AND SECURITY 11 CYBER RISK IN ASIA: INCREASING TRANSPARENCY TO LIMIT VULNERABILITY 32 Wolfram Hedrich et al., Executive Director of the Asia Pacific Risk Center and Partner in Oliver Wyman’s Finance and Risk practice 12 ASEAN: THERE CAN BE NO DIGITAL ECONOMY WITHOUT SECURITY 36 Naveen Menon, President, ASEAN of Cisco Systems, Singapore 13 A GROWING CYBER VULNERABILITY: THE COMPETITION FOR TALENT 39 Tom Jacob et al., Senior Partner and Global Leader of Research & Insights in the Information Solutions group of Mercer’s Talent Division 14 ARE ASIAN SMEs PREPARED FOR GROWING CYBER THREAT? 42 Jaclyn Yeo et al., Senior Research Analyst at the Asia Pacific Risk Center

ASIA IN FOCUS 15 CHALLENGES AROUND THE CYBERSECURITY REGULATORY ENVIRONMENT IN SOUTHEAST ASIA 46 Simon Piff, Vice President of IDC Asia/Pacific’s IT Security Practice Business 16 BANKING THE UNBANKED IN SOUTHEAST ASIA: HOW CAN DIGITAL FINANCE HELP? 49 Duncan Woods et al., Partner in the Retail & Business Banking Practice, Asia Pacific at Oliver Wyman 17 HERE’S HOW ASIA’S CITIES CAN BE SMART AND SUSTAINABLE 53 Todd Ashton, President of Ericsson Malaysia and Sri Lanka 18 ELECTRIFYING EMERGING ASEAN THROUGH OFF-GRID DISTRIBUTED RENEWABLE ENERGY SYSTEMS 56 Han Phoumin, Energy Economist at the Economic Research Institute for ASEAN and East Asia

WHAT’S NEXT? 19 THE END-TO-END AUTONOMOUS SUPPLY CHAIN… IS HERE 58 Wolfgang Lehmacher, Head of Supply Chain and Transport Industries at World Economic Forum 20 FACTORIES OF THE PAST ARE THE DATA CENTERS OF THE FUTURE 61 Graham Pickren, Assistant Professor of Sustainability Studies at Roosevelt University 21 HOW DATA AND TECH WILL FUEL MEGACITIES OF THE FUTURE 64 Terry D. Bennett, Senior Industry Strategist for Civil Infrastructure at Autodesk INTRODUCTION Artificial intelligence, robotics, and the digital revolution are just some of the expanding scope for emerging technologies to drive productivity across sectors such as transportation, healthcare, financial services, and the energy industries, to name a few. While most businesses across industries are trying to master and deploy the disruptive technologies to enable economic benefits, they also present new hazards that exacerbate global risks, introducing opportunities as well as challenges across sectors. In particular, this disruption takes place against a backdrop of rising cyber threat landscape, a top risk concern for executives, including the more advanced economies in the Asia-Pacific region. The articles presented in this publication have been selected to illustrate the key technologies and applications relevant to Asia, the associated risks and rewards to ensure successful navigation and management of this unprecedented change we all face today. All articles first appeared on BRINK, the digital news service of Marsh & McLennan Companies’ Global Risk Center, managed by Atlantic Media Strategies, the digital consultancy of The Atlantic. BRINK gathers timely perspectives from exerts on risks and resilience around the world to inform business and policy decisions on critical challenges.

1 Marsh & McLennan Companies BRINK Perspective TECHNOLOGY TAKING CHARGE OF DISRUPTIVE TECHNOLOGY RISKS

Brian C. Elowe Managing Director and US Client Executive Practice Leader at Marsh

There’s a lot of talk these days about an established technology and alters using IoT technologies within disruptive technology – 3-D printing, an industry or way of doing business two or more years. Similarly, only autonomous vehicles, blockchain – including jobs – or a ground- 25 percent of our respondents said and more. It’s easy to find breathless breaking product that creates a their organization uses or plans descriptions of a world gone digital, completely new industry.” to use wearable technologies, be it the promise of connecting all while studies show 93 percent the world’s people to all the world’s For some companies, a lack of focus of companies across a range of knowledge or the perils of poorly on such risks will bring financial industries are already evaluating governed artificial intelligence difficulty; for those with foresight, or using them. running amok. a focus on the risks will enhance the opportunities. Such disconnects show a gap in Despite the abundance of understanding: Too many risk information on disruptive A surprising number of respondents executives don’t seem to realize the innovation, our research raises (24 percent) acknowledged that pervasiveness of these technologies. questions about the level of they do not use or plan to use any of Perhaps they are simply mesmerized discussion companies are having 13 common disruptive technologies; by the “gradual evolution rather about managing the risks of the numbers were even higher than radical change” with which disruptive technology. The 2017 around individual items. technology now disrupts the Excellence in Risk Management business world. But companies project from Marsh and RIMS, the For example, 48 percent of risk cannot afford to be surprised when Risk Management Society, looks at executives told us their organization technology fails or goes awry. an array of issues around disruptive doesn’t use or plan to use the technology risks. For this survey, Internet of Things (IoT); yet, Risk executives need to fortify their disruptive technology was defined according to many estimates, strategic role by understanding as “one that purposefully displaces 90 percent of companies will be how technologies impact not just

2 Marsh & McLennan Companies BRINK Perspective EXHIBIT 1 N IRPI NI I R RNIIN IN R PNNIN

Percet respets rce rs RI ceece i Ris eet

No disruptive technology use 24

Use 1 to 3 disruptive technologies 46

Use 4 to 6 disruptive technologies 22

Use 6 or more disruptive technologies 9

* Numbers add up to more than 100% due to rounding

their own operations and business By definition, disruptive technologies What is coming? If our Excellence models but also the direction of can make or break a business. survey is any indication, this is a entire industries – both theirs and Assessment and analysis of the dangerous gap that needs to be related ones. risks need to be integrated into bridged by risk executives. existing business strategy decisions. ALIGN AND ASSESS Why, then, this lack of focus on The pace of innovation is truly assessing disruptive risks? “Other fascinating. As our colleagues at A primary responsibility for areas have greater priority,” was the Lippincott put it: “There is no more any risk executive is to ensure top answer when respondents were important question to answer than that new and emerging risks are asked about the biggest impediment ‘What is the big, unstated need of being identified and assessed. to understanding disruptive tomorrow?’ The answer is deep, Yet we found a significant number technology risks. constant, and insatiable inquiry.” (60 percent) of respondents saying Educate yourself on terminology, no risk assessment is being done for But today’s risk executives need on leading-edge innovations, about disruptive technologies. That should to develop insights that will hits and misses, emerging risks, and make people nervous given the help leadership prepare for the other disruptive technology topics, impact that disruptive technology unexpected. Disruption from especially for those your organization can have on an organization’s technology is an area that unexpected or industry is using or planning strategy. In fact, such lack of events will no doubt emanate from to use. attention to the risks should be and should be treated as a priority. viewed as unacceptable. In doing so, expand your network, the people and places you turn to From a liability standpoint alone TAKE CHARGE OF for answers and ideas. There may be these innovations may upend the DISRUPTIVE RISK other industry sectors with experts status quo. Look at a driverless car you don’t typically tap into that can or truck or train. When the vehicle The transformational changes that help you to better understand how of the not-so-distant future is come with managing disruptive disruptive technology may shift involved in an accident and injures technology risks can be difficult. your risks – or how it is already a pedestrian or damages property, So what can be done now to changing them. will that be the fault of the owner, help organizations map out the who is not actually driving the way forward? “You can’t stick your head in the vehicle? Will liability fall to the sand with what’s happening with vehicle manufacturer? What about First, understand. disruptive technology,” the director the software designer who built the You need to know what disruptive of risk management for a major algorithm to “tell the car” what to do or innovative technology is. What freight company told us. “At some leading up to the accident? is your organization already using? point, you have to adapt.”

3 Marsh & McLennan Companies BRINK Perspective EXHIBIT 2 I IN IRPI NI I R PN RRN IN I R PNNIN

Percet respets rce rs RI ceece i Ris eet

Telematics

Sensors to track, analyze, and predict

Internet of Things

Smart Buildings

Fintech

Drones

D Printing

Sharing Economy

Advanced Robotics

Artificial Intelligence

Wearable Technology

Autonomous Vehicles

Blockchain

Multiple ansers alloed

Second, invest. intend to invest in data and analytics, makers, and develop mitigation The inability to model the magnitude yet usage remains elusive: Analytics strategies. One way to do that is of disruptive technology risks was ranked near the bottom of techniques through the effective use of cross- cited as a strong impediment to our survey respondents said they use functional risk committees. And managing them and undoubtedly to assess and model disruptive risks. yet, we continue to see a decrease contributes to the lack of focus. in the number of organizations Models, data, analytics – such tools And it’s more than just money that reporting they have such committees. can help prioritize, but they require needs to be invested. A commitment This year, only 48 percent of investment from leadership. of time and collaboration to discuss disruptive risk issues across the respondents said they have a Risk professionals have told us for organization will help set priorities, cross-functional risk committee, many years that their organizations lay out the implications for decision- a drop from 52 percent last year

4 Marsh & McLennan Companies BRINK Perspective and 62 percent five years ago. Several risk professionals we spoke Interestingly, 41 percent of with suggested using the current respondents without a committee allure around cyber risk to pivot to said their company should have one. broader discussions: “‘Cyber’ is a good catch-all word,” a risk executive Finally, engage. at an industrial contracting firm Organizations generally, and risk told us. “It provides a level of comfort management professionals in that people can understand. If you particular, need to adopt a more get too detailed or technical during proactive approach about disruptive conversations about disruptive technologies – what is already in use, technologies, people may be less what is on the horizon, and what are willing to engage. But if you keep it the risks and rewards. general, keep it high level, and talk about potential cyber threats and Forward-thinking executives managing them – that’s an easy way will look for alternative means to to start the conversation.” generate the necessary discussions to raise the risk profile of disruptive Companies should also make use of technologies. For example, in most an executive-level risk committee organizations today, the term to discuss broader disruptive “cyber” is likely to attract attention. technology risks. Risk professionals In our survey, “establishing can help lead the way as companies effective cybersecurity” was the adapt to technology innovation, but top concern related to disruptive they will be relegated to support technology among respondents roles if they fail to understand and across various industries. While data address the unique issues the fourth breach and privacy issues are real and industrial revolution brings. The should not be downplayed, the focus good news is that the desire and on cyber risk may at times obscure ability to play a leading role are there. other concerns organizations should consider regarding This article first appeared on BRINK disruptive technologies. on April 24, 2017.

5 Marsh & McLennan Companies BRINK Perspective SOCIETY TECHNOLOGY INNOVATION IS DISRUPTING RISK MANAGEMENT

Melissa Gale Senior Manager, Risk Solutions at Lyft

Technological innovation in today’s the rewards along with the risks will avoid seeking out the risk team for fast-paced business environment help their companies successfully guidance. They fear that doing so may is full of potential benefits, but adopt new technologies. only lead to a lecture on why a new it is also fraught with risks. As venture, process, or technology is a more companies feel pressured Traditionally, risk managers have hindrance and shouldn’t be pursued. to innovate, assessing the risks been seen as isolated within their of disruptive technologies can organizations. Nowadays, this can Fortunately, risk professionals sometimes fall by the wayside. mean that a company’s so-called today are increasingly aware of Risk professionals who recognize innovators or disruptors may that scenario.

EXHIBIT 3 MAJORITY OF RISK PROFESSIONALS BELIEVE TECHNOLOGY INNOVATION IS KEY TO GAINING COMPETITIVE EDGE IN THEIR INDUSTRY Source: Marsh New Reality of Risk online poll, 6 July 2017 91% of risk professionals believe their organization will fall behind if it doesn’t take advantage of new technologies.

6 Marsh & McLennan Companies BRINK Perspective EXHIBIT 4 SIGNIFICANT PROPORTION OF COMPANIES HAVE YET TO UNDERTAKE RISK ASSESSMENTS AROUND DISRUPTIVE TECHNOLOGIES Source: Marsh New Reality of Risk online poll, 6 July 2017

of risk professionals are not aware of their organization having processes and procedures in place to trigger a risk assessment of a new technology before it is actually used.

In a recent poll conducted by Management Society, in which For example, at Lyft, our risk team global insurance broker Marsh, more than half of respondents said works very closely with legal, an overwhelming majority of their company had not undertaken finance, compliance, government risk professionals agreed that risk assessments around disruptive relations, and others to fully understanding technology technologies. understand technology risk from innovation is essential in order to all angles. In general, challenges stay at the forefront of their industry. “Given the impact that disruptive may have to do with reporting technology can have on the strategy structures, conflicting priorities, Yet at the same time, two-thirds of of an organization, such lack of and bandwidth, making cross- these same professionals said their attention to the risks should be functional collaboration critical. company either hasn’t established viewed as unacceptable,” the report plans and procedures to assess new says. In recent years, a heavy focus on data risks or they were not sure if such breach and privacy due to cyber risks processes are in place. A thorough assessment of the risks may at times steal the limelight from emanating from the use of tech assessing other important risks. This lines up with the results from innovations within an organization a recent survey conducted by can enhance the understanding of Marsh and the Risk and Insurance a company’s changing risk profile.

EXHIBIT 5 KEY THREATS TO NEW TECHNOLOGIES TO RISK PROFESSIONALS Source: Marsh New Reality of Risk online poll, 6 July 2017

What aspect of new technology 8% Ability to assess risks Q: use at your organization is most likely to keep you up at night? 8% Liability issues (legal and insurance) Integration with ongoing operations 7% (including business interruption) 7% Changing risk profile 6% Errors and omissions 50% 6% Potential public relations crisis Data breach 4% Contractual risk and privacy 3% Regulatory compliance 1% Board/leadership awareness and buy-in

7 Marsh & McLennan Companies BRINK Perspective EXHIBIT 6 TAKING CONTROL OF DISRUPTIVE TECHNOLOGY RISKS

EDUCATE EXPAND yourself about disruptive your netork and foster technology, terminology, collaboration through innovations, and relevance to crossfunctional teams and your company relationships and ith outside experts

PUSH CONSIDER for investments in relevant the ider impacts beyond data and analytics tools and cybersecurity of disruptive skilled people to use them technology on your company’s risk profile

Data breach, privacy and other cyber In a time when it is “disrupt or risks are certainly not to be taken be disrupted,” risk professionals lightly, but there is a broader range of must assert a leading role in risks related to disruptive technology understanding, assessing, and that need to be accounted for as managing the risks and rewards of companies adopt new innovations. technology innovation.

Modern risk professionals need to This article first appeared on BRINK look for solutions and alternatives on June 26, 2017. that allow for innovation while balancing risk. And to do so, they need to help their company break down organizational siloes and ramp up discussions.

8 Marsh & McLennan Companies BRINK Perspective TECHNOLOGY HOW RISKY ARE THESE TOP 10 WEF’S TOP TEN EMERGING TECHNOLOGIES? EMERGING TECHNOLOGIES 2016

Andrew Maynard Director, Risk Innovation Lab at Arizona State University 1. Nanosensors and the Internet of Nanothings 2. Next Generation Batteries 3. The Blockchain 4. 2D Materials 5. Autonomous Vehicles 6. Organs-on-chips 7. Perovskite Solar Cells 8. Open AI ecosystem

Take an advanced technology. Add a Since 2012, I’ve been part of a 9. Optogenetics twist of fantasy. Stir well, and watch group of WEF advisers who help the action unfold. compile an annual list of emerging 10. Systems Metabolic technologies that are poised to It’s the perfect recipe for a transform our lives. This year’s Engineering Hollywood tech-disaster list includes autonomous vehicles, blockbuster. And clichéd as it is, blockchain (the technology behind it’s the scenario that we too often BitCoin), next-generation batteries imagine for emerging technologies. and a number of other technologies Think superintelligent machines, that are beginning to make lab-bred humans, the ability to their mark. redesign whole species – you get the picture. The list is aimed at raising awareness around potentially transformative The reality, of course, is that the real technologies so that investors, world is usually far more mundane: businesses, regulators and others less “zombie apocalypse” and more know what’s coming down the pike. “teens troll supercomputer; teach It’s also an opportunity for us to it bad habits.” Looking through think through what might go wrong this year’s crop of Top 10 Emerging as the technologies mature. Technologies from the World Economic Forum (WEF), this is probably a good thing.

9 Marsh & McLennan Companies BRINK Perspective Admittedly, some of these up from systems like Amazon’s These touch on things that define technologies would stretch the Echo, Apple’s Siri and Microsoft’s us as individuals and communities imagination of the most creative Cortana. Combining “listening” and get to the heart of what gives us of apocalyptic screenwriters – devices, cloud computing and the a sense of purpose and belonging. it’ll be a while, I suspect, before Internet of Things, machines are In this way, relevant threats might “Graphene Apocalypse” or “Day of increasingly combining the capacity include inequity or an eroded sense the Perovskite Cell” hit the silver to understand normal conversation of self-worth from new tech taking screen. But others show considerable with the ability to take action on what away your job. Or anxiety over who potential for a summer scare-flick, they hear. knows what about you and how they including “brain-controlling” might use it. Or fear of becoming This is a truly transformative optogenetics and the mysterious- socially marginalized by the use of technology platform. But what sounding “Internet of Nano Things.” new technologies. Or even dread happens when these AI ecosystems over sacrosanct beliefs – such as Putting Hollywood fantasies aside, begin to listen in on private the sanctity of life or the right to though, it’s hard to predict the conversations and share them free choice – being challenged by plausible downsides of emerging with others? Or independently emerging technological capabilities. technologies. Yet this is exactly decide what’s best for you? These what is needed if we’re to ensure possibilities raise ethical and moral Threats like these aren’t easy they’re developed responsibly in the concerns that aren’t easily addressed to capture. Yet they have a long run. solely by tech solutions. profound impact on people – and TECH PROBLEMS, as a consequence, on how new EXPANDING OUR technologies are developed and TECH SOLUTIONS CONCEPTION OF used. Thinking more broadly about risk as a threat to value is especially It’s tempting to ask what concrete WHAT WE VALUE helpful to understanding the possible harm technologies such as those undesired consequences of tech in this year’s top 10 could cause, One way to tease out the subtler innovation and how they might then simply figure out how to possible impacts of emerging “fix” the problems. For instance, technologies is to think of risk as a be avoided. how do we ensure that “logical” threat to something of value – an idea self-driving cars safely share the that’s embedded in the somewhat RISKS OF MISSING OUT road with less “logical” humans? new concept of risk innovation. This ON NEW TECHNOLOGIES Or how do we prevent bacteria that “value” depends on what’s important are genetically programmed to to different individuals, communities This approach to risk also opens the produce commercial chemicals from and organizations. door to considering the potential polluting the environment? These risks of not developing a technology. Health, wealth and a sustainable are risks that lend themselves to environment are clearly important Beyond existing value, future value technological solutions. “things of value” in this context, as is also important to most people and organizations. But focusing on such questions can are livelihood, and food, water and shelter. Threats to any of these align mask much more subtle dangers For instance, autonomous vehicles with more conventional approaches inherent in emerging technologies, could eventually prevent tens to risk; a health risk, for instance, threats that aren’t as amenable to of thousands of road deaths; can be understood as something that technological fixes and that we all too optogenetics – using genetic easily overlook. For example, being threatens to make you sick, and an engineering and light to manipulate infused with internet-connected environmental risk as something brain cell activity – could help cure nanosensors that reveal your most that threatens the integrity of or manage debilitating neurological intimate biological details to the the environment. diseases; and materials such as world could present social and graphene could ensure more people psychological risks that can’t be But we can also extend the idea of a solved by technology alone. threat to something we value to less than ever have access to cheap conventional types of risk: threats to clean water. Not developing these Similar concerns arise around self-worth, for instance, or culture, technologies potentially threatens “open artificial intelligence sense of security, equity, even deeply things that many people hold to be (AI) ecosystems,” the next step held beliefs. extremely valuable.

10 Marsh & McLennan Companies BRINK Perspective Of course, on the flip side, these In reality, unlike the simplicity technologies may also threaten what of Hollywood blockbusters, the is important to some. Self-driving risks associated with emerging cars might undermine human technologies are rarely clear-cut responsibility, not to mention the and almost never straightforward. enjoyment of driving. Optogenetics Yet they nevertheless exist. Every one raise the possibility of involuntary of this year’s World Economic Forum neurological control. And graphene top 10 emerging technologies has the might be harmful to some ecosystems potential to threaten something of if released into the environment in value to some person or organization, sufficient quantities. whether undermining an established technology or business model, By considering how emerging jeopardizing jobs or influencing technologies potentially interact with health and well-being. what we consider to be important, it becomes easier to weigh the possible These dangers are context-specific, downsides of developing them – or often intertwined with each at least developing them without other, sometimes conflicting and due consideration – against those of often balanced by the risks of not either impeding their development developing the technology. Yet or not developing them at all. understanding and addressing them is essential to realizing the long-term THE GREATEST RISK benefits that these technologies offer. OF ALL Here, perhaps, is the greatest risk: that either in our enthusiasm for What emerges when risk is developing these technologies or our approached as a threat to value is a Hollywood-inspired fears of potential much richer way of thinking about consequences, we lose sight of the how emerging technologies might value of developing new technologies affect people, communities and that make our world a better place, organizations, and how they can not just a different one. be developed responsibly. It’s an approach that forces us to realize This piece first appeared in that the consequences of developing The Conversation and BRINK on new technologies are complex and July 4, 2016. touch people in different ways – not all of them for the better. It’s not necessarily a comfortable reconceptualization, but looking at risk from this new angle does pave the way for technologies that benefit many people and disadvantage few, rather than the other way around.

11 Marsh & McLennan Companies BRINK Perspective TECHNOLOGY DISRUPTIVE TECHNOLOGY BRINGS RISK AND OPPORTUNITY TO INFRASTRUCTURE PROJECTS

Adrian Pellen Infrastructure Segment Leader, US and Canada, Construction Practice at Marsh

The infrastructure industry has not efficiencies in the way we operate. this new means of transportation. typically been known for its embrace While technology adoption can help Beyond efficiency gained from of new technology. In a recent paper, to promote sustainable growth, there proper design, what are the potential the World Economic Forum (WEF) are also risks to be managed. liability implications for inadequate attributed the industry’s relatively design? slow adoption of technological INNOVATION innovation to a number of internal TRANSFORMS Big data and analytics have and external challenges in the also infiltrated how we design engineering and construction sector: INFRASTRUCTURE infrastructure. For example, building “The persistent fragmentation of the DESIGN information modeling (BIM) is industry, inadequate collaboration realizing broader applicability as its with suppliers and contractors, Innovation dictates that technology develops. Historically the difficulties in recruiting a infrastructure needs to be used for 3-D modeling in the design talented workforce, and insufficient conceptualized and designed phase, continuing innovations in knowledge transfer from project to differently. BIM will enable faster and better project.” infrastructure development, as well Consider something as basic to as provide insights into how a project Change is inevitable and innovation society as roads, and add to that the will perform throughout its life is disrupting the way we design, coming of autonomous vehicles – cycle, allowing a view into a project’s build, operate and use infrastructure. both for passengers and in trucking. future risk profile. This innovation in Whether it’s in civil infrastructure Because autonomous vehicles rely to BIM promotes efficiency by allowing – roads, bridges, pipelines, and a large degree on sensing technology, those who design infrastructure to ports – industrial infrastructure, or we need to consider if roads, bridges, provide real-time support to those social infrastructure, technological tunnels, and other infrastructure building it. advancements are creating are being designed adequately for

12 Marsh & McLennan Companies BRINK Perspective BUILDING SITES OPERATION AND Change is BENEFIT FROM NEW UTILIZATION OF TECHNOLOGIES INFRASTRUCTURE inevitable and innovation is Construction sites are incubating WILL CHANGE grounds for a range of technology Once these innovative infrastructure disrupting the innovations in such areas as assets become operational, they wearables and telematics. will likely include embedded way we design, Wearable technologies, for example, technologies, such as the intelligent build, operate are rapidly changing the work transportation systems (ITS) used landscape and promoting safety, on many highways and freeways. and use accuracy and efficiency. Among These incorporate a variety of the advancements in construction technologies including Bluetooth, infrastructure. technologies is the smart hard video, and other wireless systems hat, which allows technicians to to promote efficient traffic project 3-D images in the natural management, allow for toll tracking environment, such as a bridge and billing, enhance emergency span, through augmented reality response times, and assist law (AR) – the same technology behind enforcement. With the coming of Pokémon Go. autonomous vehicles, it’s likely that additional sensing technology will be Enhanced safety vests borrow needed to improve safety. concepts from vehicle telematics. These vests are equipped with Beyond impacting how society uses GPS and radio-communicating and engages with roads and other technology to enhance workforce infrastructure, interconnectivity safety and prevent injuries by will allow individual components warning users as they enter hazard to interact on an almost “live” zones. It’s not hard to imagine a basis. For example, it’s anticipated future in which workers wear an that, in the near future, individual exoskeleton that will improve safety, infrastructure components will enhance efficiency, and allow for the contain monitoring technology that instantaneous exchange of data. will provide real-time information about their operating efficiency and Technology will also enable life span. When such components infrastructure to be built by fewer need replacement, the sensors will humans – potentially enhancing put in the order. safety and promoting resource efficiency. Balfour Beatty, a large There is no question that innovation international construction firm, in robotics, automation, and other suggests that by 2050 some technology will continue to alter the infrastructure will be built without way infrastructure evolves and the physical human labor. It is not way we use it. These technologies difficult to anticipate that in our promote efficiency, connectivity and lifetime infrastructure will be sustainable growth. designed and constructed using 3-D printing and installed by robots and mechanistic devices that operate with artificial intelligence.

13 Marsh & McLennan Companies BRINK Perspective INFRASTRUCTURE RISKS could be builders, engineering firms, infrastructure. Companies involved ALSO SHIFT and/or equity firms and financiers in infrastructure can no longer developing and maintaining afford to think of cyber risk as an With innovation comes risk, infrastructure. afterthought, but need to adopt however, as technological strong cyber-risk management Cybersecurity: Because disruption also increases volatility practices from day one. infrastructure now needs to be able and exacerbates emerging issues, to integrate with and connect to Thankfully there is a bustling market including those related to social technology, such as smart buildings, emerging in the risk management stability as well financial viability autonomous vehicles, and transit and insurance industry to address and cybersecurity. systems, cybersecurity risks cybersecurity. In addition to Social disruption: If innovation does become more of a threat than in consulting services developed to eventually displace large numbers of the past. The interconnectedness assess and manage cybersecurity construction crews, drivers, or other of our infrastructure through the exposures, insurers have developed workers, it’s possible there could be Internet of Things (IoT) will face products to transfer the risks that considerable social unrest in some cybersecurity risks. Infrastructure infrastructure stakeholders face as parts of the world. According to may increasingly become a target well as support risk mitigation by executives participating in a recent for sophisticated organized establishing incident response plans. World Economic Forum event, it crime looking to extract sensitive These products, which are triggered will be critical for industry to plan information. Firms with proprietary by cybersecurity breaches whether ahead by investing in education and software, systems and infrastructure motivated by financial crime or training for workers whose jobs may become targets of corporate and terrorism, can cover expenses could be made redundant due to political espionage. related to extortion, property damage or financial loss related to a technological advancement. Hackers have long probed for data and privacy breach or network Financial viability: As technology weaknesses in critical infrastructure. outage. advances, will the infrastructure The ability for cyber events to affect One recent estimate from the Global we design and build today be useful infrastructure has grown, as seen in Infrastructure Hub, a G20 initiative, in 20 to 30 years? How quickly will two recent global attacks involving says there is a need for $94 trillion it become obsolete? What if we malware – WannaCry and Petya. in infrastructure investments by the have flying cars? That may sound Infrastructure from hospitals to year 2040. harebrained at face value, but marine ports suffered financial compare the world we live in today losses and damage due to those At the same time, it’s clear that to what people thought was possible events. rapid technological advancement is just 20 or 30 years ago. Once we changing the way we design, build, Perhaps the most frightening risk integrate technology into physical operate, and use infrastructure. from an infrastructure perspective infrastructure, it can quickly become Innovation in infrastructure is that of cyberterrorists seeking to outdated. will enable growth and promote invoke fear. In the age of digitization economic, environmental and social This is particularly important in and IoT, there are legitimate vitality. the context of privately financed concerns that cyberterrorists could infrastructure, where the private gain access to flood control gates, But advancement comes with sector takes on the life-cycle traffic lighting systems, public transit risks – including social disruption, management of infrastructure. systems, or even the doomsday obsolescence and cybersecurity Obsolescence is of particularly scenario of shutting the electric grid threats. These risks can be mitigated heightened risk to private down completely. Cybersecurity by forward-thinking city planning, concession companies who have continues to be one of the global investment, and integration of assumed revenue risk (e.g. tolling) risks of highest concern. education into our workplace as based on financial models that were well as an increase in cyber-oriented unable to incorporate disruption in Today’s new technologies almost defenses. infrastructure utilization. The firms always increase connectivity, exposed to the financial risk related including in the ways we This piece first appeared on BRINK to infrastructure obsolescence build, operate, and maintain on August 14, 2016.

14 Marsh & McLennan Companies BRINK Perspective FINTECH FINTECH IN CHINA: WHAT’S BEHIND THE BOOM?

Cliff Sheng Partner and Head of Financial Services, Greater China at Oliver Wyman

Jasper Yip Engagement Manager of Financial Services, Greater China at Oliver Wyman

China has struggled to shake off the We believe the development of 31 billion yuan ($4.64 billion) in perception that it’s lagging behind fintech in China has reached an January 2014 to 856 billion yuan developed economies in technology inflection point. From this point, three years later (Exhibit 7). and innovation. And while much of technology will be the key driver that perception is warranted, there of value-chain disruption in an The explosive growth in is one industry where China can be increasingly data-driven industry. China’s fintech sector is further considered a leader: fintech. characterized by its relatively short UNPARALLELED maturity curve. For example, it The country makes some of the took four years for peer-to-peer world’s largest investments in the GROWTH WITH UNIQUE transaction volume to exceed sector, and it has adopted fintech CHARACTERISTICS $5 billion in the US, while it took technologies faster than anywhere only two years in China. Lufax, else. Companies such as Alipay, Over the past half decade, we have a Chinese peer-to-peer lending Lufax and ZhongAn Insurance have witnessed phenomenal growth in platform founded in 2011, reached made their names across the globe the Chinese fintech industry. 2013 is an annual loan origination amount by using fintech to develop some of widely recognized as the onset of the of 9 billion yuan in just two years, the most disruptive business models. boom. Since then, major segments of compared to five years for Lending These players have enjoyed the fruits the fintech market have, on average, Club, the biggest peer-to-peer of fintech’s unprecedented growth by doubled or even tripled every year. lending company in the US. filling the gaps in China’s structurally For example, the outstanding loan imbalanced financial system in an balance for online peer-to-peer open regulatory environment. lending platforms surged from

15 Marsh & McLennan Companies BRINK Perspective EXHIBIT 7 INDEXED GROWTH OF CHINA FINTECH SEGMENTS1 Source: WIND, Analysys, CIRC, Insurance Association of China

Size in 2016 Metric (RMB billion) 2,773* tsti ce ie 856* PP ei ptrs

rscti ve 10,825 ie 1,448 ie istrite ici isrce prei 235 revee 807 Ivesti 749 r prt ie 54,470 ie pets trscti t Isrce rscti

1. Methodology: One representative metric for each area adopted and indexed at 100 in 2013. Metric selection: Financing – outstanding loan balance of online P2P lending platforms; Investing – transaction volume of online wealth management platforms; insurance – Online distributed insurance premium revenue; payment – total 3rd party online and mobile payments transaction amount 2. Used outstanding loan balance at the end of the first month of the year after in lieu of the year-end figure as no official pre-2014 data was available, i.e. the outstanding loan balance of January 2014 is indexed at 100 3. Figure at the end of January 2017 (see note 2 for details)

Venture capital investments in model in China has historically For example, over 60 percent of the China’s fintech sector are soaring, been structured around large and 5,890 online peer-to-peer platforms and these investments have given government-related corporates. that ever existed are estimated to rise to several unicorns. Most SMEs and retail customers have ceased operations based on data have been largely unserved, amid from Wangdaizhijia.com. Ezubao, a ‘FIN’ AS THE HISTORICAL limited and imperfect credit peer-to-peer lending platform that VALUE DRIVER – infrastructure. raised more than 1.5 billion yuan in a year and a half, was proved to RIDING THE WAVE OF Noticing the structural imbalances, be a Ponzi scheme, making it the TRANSFORMATION the Chinese government is gradually biggest-ever financial fraud case pushing for financial reforms. in China. The recent Zhao Cai Bao When compared to the US, China’s Coupled with the timing of the default illustrated how online wealth financial system has historically Internet boom, this has created management products were offered exhibited three main structural an opportunity for fintech players to investors who did not have access imbalances or inadequacies, namely to bridge the gaps in traditional to transparent information. underserved retail and small- and financial services by capitalizing on medium-enterprise (SME) segments their strong online presence and Such incidents created growing in the bank-dominated indirect loose regulation. concerns over the legitimacy of financing model, a deposit-driven fintech and prompted policymakers Despite the impressive growth, not investment model and trailing to incorporate fintech into the all players that emerged in this wave infrastructure development. regulatory framework. The tightened of transformation are truly “fintech” regulatory environment will For example, direct financing in nature. Some of the players grew undoubtedly challenge some of the amounted to only 69 percent of rapidly by exploiting their less- fintech players that have grown GDP in China from 2011 to 2015, regulated status to offer products uncontrollably amid regulatory compared to 166 percent in the that were stringently regulated in loopholes. US, according to our analysis. the traditional financial services The bank-driven indirect financing system. The unregulated growth has led to several high-profile scandals.

16 Marsh & McLennan Companies BRINK Perspective TECH AS THE FUTURE The application of these Transaction: Although still nascent, VALUE DRIVER – NEW, technologies will create significant blockchain and its applications could disruption along value chains and potentially be used to provide low- DISRUPTIVE BUSINESS bring about distinctive values for cost, reliable transaction solutions MODELS each of the four major areas of across different areas of financial financial services: services. They could potentially CAs the window of regulatory promote mutual growth with arbitrage closes, future fintech Financing: With the availability of budding fintech business models leaders will differentiate themselves nonfinancial data and improved that are only economically possible by pushing the frontiers of knowledge of how to use it, with support from such solutions. technological innovation and Chinese fintech companies could disrupting traditional financial considerably improve their credit- We have not yet seen the full services business models (Exhibit 8). risk management capabilities potential of fintech in China; but and enhance the customer we believe that technological We believe big-data analytics, experience. They could expand advances, coupled with the the Internet of things (IoT), and the “lendable population” from unique circumstances of China’s blockchain technologies and around 200 million credit-card- financial system, will propel applications will form the bedrock carrying prime borrowers to around fintech companies to further for future fintech leaders, owing to 800 million, creating value for drive innovation and disrupt the their ground-breaking capabilities – and from – otherwise neglected traditional financial services space. to acquire, assemble, analyze, and subprime segments. apply information. Data treatment This article first appeared on BRINK and information processing are at Investing: With stronger on August 24, 2017. the heart of decision-making for computing capabilities, online financial services, especially in China wealth management platforms can where data are often incomplete, conduct detailed analysis by pulling not transparent, and sometimes together various types of data about questionable. the market, individual securities, and investors. They can then offer For example, technology leaders low-cost, bespoke investment in China have already achieved a solutions that are free of subjective major leap in big data analytics and behavioral biases. Assuming computation capacity and made these solutions attracted 2.5 percent significant progress in machine- of invested assets by China’s learning capabilities. Leading historically self-directed investors fintech players are also increasingly by 2020, these would represent adopting such techniques to assets under management worth a facilitate their understanding whopping 5 trillion yuan. of the market and customers by building know-your-product Insurance: The emergence of (KYP) and know-your-customer connected ecosystems, along with (KYC) capabilities. They also use the increased adoption of technology such techniques to support the gadgets, provides not only gateways development of innovative products to innovative insurance products and dynamic pricing. In addition, but also alternative data sources for big-data analytics also enable the tailored products and pricing. In automation of decision-making our recent publication, Insuretech processes and reduce labor costs. in China, we estimated that such technology upgrades and ecosystem embedding would present insurers with premium revenues amounting to 400 billion yuan by 2020.

17 Marsh & McLennan Companies BRINK Perspective EXHIBIT 8 RECENT REGULATORY DEVELOPMENTS FOLLOWING GROWING CONCERNS AND INCIDENTS Source: Oliver Wyman analysis

KEY CONCERNS EXAMPLES/INCIDENTS RECENT REGULATORY MOVEMENTS Financing •• Borrower •• Nude selfies for loan •• More stringent requirements on lending to university appropriateness/ •• Student suicides amid student¹ borrowing terms loan shark collection •• Capping borrowing balance by individuals •• Inappropriate (RMB 200 thousand) and organisations (RMB 1 million)³ collection approach •• Enlarging but untraceable leverage; multiple sources borrowing Investing •• Visibility/transparency/ •• Ezubao’s Ponzi •• Prohibit P2P players from exaggeration in prospectus and traceability of scheme concealing of flaws and risks (e.g. any guaranteed principal investment flows •• Corporate default & return of interests); disallow P2P players from asset (e.g. Ponzi scheme) related to Zhaocaibao securitisation³ •• Investor-asset risk •• Accusation on JD.com •• Investigation against Internet Co with AM license mismatch/mis-selling “Baina” model conducting inappropriate activities; against Cos without •• Liquidity mismatch AM license but conducting such activities; against Cos with multiple licences on potential tunneling⁴ •• Prohibit crowdfunding platform from engaging in public equity raising activities (more than 200 shareholders) and selling private funds⁵ Transaction •• Fraudulent •• Yu’E Bao attracted •• Require real-name identity verification² transactions/anti- transfer of •• Classification of individual payment accounts, capping money laundering bank deposits transaction volume and account balance² •• Overexpansion of •• Disallow settlement and custodian for other FI² third party payment to deposit taking Protection •• Inappropriate product •• Emergence of •• Suspension of speculative products such as “limit down nature for speculation “innovative” insurance insurance (跌停险)” by CIRC instead of protection •• Emergence of internet •• Challenge the provision of insurance activities by non- •• Sustainability/potential “mutual help” model regulated platforms (e.g. Quarkers (夸克联盟))⁶ fraud of emerging insurance platforms

1. “Notice on Strengthening risk management and education against inappropriate lending in universities”, 2016 April 2. “Administrative Measures for the Online Payment Business of Non-Banking Payment Institutions”, 2016 July 3. “Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions”, 2016 Aug 4. “Issuing the Implementation Plan for Special Rectifications on Risks in Asset Management and Carrying Out Cross-boundary Financial Business through the internet”, 2016 Oct 5. “Issuing the Implementation Plan for Special Rectifications on Risks in Equity Crowd-funding”, 2016 Oct 6. “Note on Potential Risks associated with unlicensed operation of insurance business by Internet companies”, 2016 Apr – Internal document of CIRC which was later exposed and discussed publicly

18 Marsh & McLennan Companies BRINK Perspective FINTECH FINTECH SPURS INNOVATION IN ASIAN Banks are WEALTH MANAGEMENT fortifying their positions by Steven Seow Head of Wealth Management, Asia for Mercer either investing in technology infrastructure or launching fintech outfits.

Asian wealth management is at on creating a strong ecosystem for an interesting inflection point, fintech development in Singapore and the next five years will reveal by way of the new FinTech & some path-breaking developments Innovation Group. in the industry. At one end of the spectrum, financial technology – On the wealth side, a start-up fintech – is spurring innovation that called Robinhood now offers a free is disrupting traditional banking trading platform; whereas another, and wealth management, and on called R3, is building a ‘blockchain’ the other end, banks are seeking to union among traditional banks. reinvent themselves by focusing Blockchain, which is the technology on technology to offer more to on which the cryptocurrency customers. bitcoin is based, could potentially be deployed to legitimize fintech- When DBS, which is partnered enabled transactions without the with Kasisto, recently announced need to comply with the typical their first digital-only retail know-your-customer norms used in banking platform in India, traditional banking. naysayers and old guards truly started taking note of the buzz Large traditional banks have begun surrounding fintech and admitted to fortify their positions by either that this is not a passing fad. investing heavily in their technology infrastructure or, better still, Recognizing the trend, Ravi Menon, launching their own fintech outfits Managing Director of the Monetary to foster innovation from within – Authority of Singapore, is bullish Citi FinTech being a recent case in

19 Marsh & McLennan Companies BRINK Perspective point. However, when we look past To offset the need for “human The fintech the novelty, we find that while every touch,” especially for high-net-worth fintech entrepreneur may claim to individual investors, a number of industry itself have found the ‘the next big idea,’ players in this space have begun only a select few have been able to migrating to a “bionic” or hybrid has begun successfully monetize that idea and tech-augmented advisory model, turn it into a sustainable business where, in addition to the algorithm, to look like model. Yet it is already disrupting there is a human advisor to guide private banking in Asia. the investor along the way. a promising The rise of robo-advisors points to high-return THE SLOW YET STEADY an underserved need – the ability RISE OF THE to see investment performance investment ROBO-ADVISOR in real time rather than in static snapshots over a period of time – haven. Most players in Asia still advise funds giving robo-advisors a leg up over way below the critical mass needed traditional private banks and advisors. to be sustainable. The going rate Investors like being able to track for advisory fees currently hovers performance relative to standard between 0.15 percent and 0.35 percent benchmark indices for each of the asset classes within their portfolio. of the investment, which implies gross revenue of only S$150,000 A start-up called Future Advisor now ($111,940)-S$350,000 ($261,194) provides such sophisticated analytics for S$100 million ($75 million) in for free. This leads us to believe that assets under management (AUM). banks will be compelled to up their So for a robo-advisory business to game and offer more than periodic sustain, it would need significantly paper-based reports. more than S$100 million in AUM given the fixed cost structure of BETTING ON FINTECH operating a robo-advisor business. Beyond robo and analytics, the Another trend we see is the relatively growth in fintech has been marked small size of investments, typically by the rise of multiple peer-to-peer under $200,000. This may be due lending start-ups, which endeavor to to the fact that when someone disintermediate lending to individuals is attempting to augment their and small enterprises. In 2015, three retirement income, they implicitly Singapore-based P2P start-ups – accept a relatively lower rate of return. MoolahSense, Capital Match, and Inherent to robo-advisors is the Funding Societies – raised more than concept of portfolio investing. With S$10 million for small and medium high returns from single asset classes enterprises. becoming increasingly elusive with Another sweeping trend we see in the current economic headwinds, Asia with the rise of fintech is the investors are keen to spread their investment directed at fintech itself. investments in portfolios. And In particular, ultra-high-net-worth robo-advisors offer advice based on individual investors, and more sophisticated algorithms mapping discerning family offices in Singapore portfolios rather than investments in, and throughout Asia, are looking at say, equities alone. more avenues to seek higher returns.

20 Marsh & McLennan Companies BRINK Perspective With the increased volatility in The rise of fintech is as much a social equities and slowing returns in phenomenon as it is technological. alternatives, the fintech industry There is a need to ensure that itself has begun to look like a enough checks and balances are in promising high-return investment place, coupled with a longer-term haven and there has been a surge of view of what constitutes success investments into the sector. in fintech as it relates to wealth management. Fintech is a strong As the fintech industry begins means to an end, not an end unto to bring together these start- itself. And the end is all about how ups and digital solutions in an individual investor is empowered blockchain, analytics, lending with more choice and better and cybersecurity, we will find information in real time. some degree of consolidation with either traditional banks acquiring This article first appeared on promising fintech start-ups or The Business Times and BRINK multiple fintech companies on September 15, 2016. merging or acquiring each other to broaden their value proposition.

Fintech continues to spur innovation along the entire wealth and banking value chain and will ultimately benefit individual investors above all. Traditional banking will evolve and become better as it becomes more digital. And banks will always be relevant as custodians of wealth, governed by strong legal frameworks, processes and regulation. Their challenge will be to match fintech companies in the speed of delivery, customer experience, and ability to provide financial information in real time.

21 Marsh & McLennan Companies BRINK Perspective FINTECH WHAT ARE THE IMPLICATIONS OF THE RAPID GROWTH OF FINTECH IN CHINA?

Cliff Sheng Partner and Head of Financial Services, Greater China at Oliver Wyman

Jasper Yip Engagement Manager of Financial Services, Greater China at Oliver Wyman

China’s fintech market has grown will be increasingly data-driven, Availability of proprietary and rapidly in recent times, but the and data will be at the core of the comprehensive products: Chinese potential for the sector’s growth value chain. Therefore, innovation consumers will increasingly seek in China remains massive. Against and impact in future fintech will unique, proprietary products. that backdrop, the ability to develop be greatly helped by access to or Fintech players will need to develop and apply cutting-edge technology ownership of large amounts of adequate scale and obtain necessary will be increasingly important for proprietary data, as well as the licenses so that they can offer a tomorrow’s fintech leaders in China ability to derive insights from the comprehensive suite of products to if they are to make the most of this data (Exhibit 9). satisfy their customers’ needs and phenomenon. differentiate themselves from peers. Large customer base: A large While different types of players will customer base will complement Strong knowledge of financial attempt to penetrate the market, data capabilities, completing a services and risk management: we don’t believe there is a one- virtuous cycle of mutual benefits for A strong combined core of size-fits-all formula for success, fintech players and their customers. financial services expertise and but rather that certain factors can First, fintech companies can apply risk management capabilities increase the likelihood of success. data-driven insights to monetize remains a prerequisite for success, their large customer bases, deriving allowing for more efficient KEY SUCCESS FACTORS direct economic value from the data. identification of useful data and A large customer base, in turn, allows building of effective risk models. We see five major key success factors for faster accumulation of valuable for the future China fintech market: data that can be analyzed to further “Fin plus tech” organization and improve products and services for culture: Constant innovation will Data abundance and application: customers, risk management and be crucial in the future of fintech, Business models in financial services dynamic pricing. and the right operating model

22 Marsh & McLennan Companies BRINK Perspective EXHIBIT 9 AVAILABLE DATA SOURCES FOR CREDIT-RISK MANAGEMENT Source: Oliver Wyman analysis

DATA SOURCE EXAMPLE PURPOSE

TRADITIONAL DATA

Central bank Individual credit data  Credit record

Proprietary data User behaviour  Identity verification

ONLINE SOURCED DATA

Third-party Individual credit data Credit record, credit agencies  financial condition

Identity verification, Third-party Blacklist, anti-fraud data data institutions  credit record

Telecommunication Telecom data Identity verification operators 

E-commerce platforms Consumption records in Taobao  Consumption habit

Identity verification, CHSI, universities Education level  personal reputation

Private information Information authorised by Assist collection users in app (e.g. emails, messages) 

Social media The use of Wechat, QQ, Weibo, etc.  Personal reputation

Third-party Third-party payment data Financial condition payment institutions  Other small loans/P2P/ online consumer Borrowings on other platforms  Liability condition finance platforms

and culture will be integral to All-around Fintech Players should has expanded beyond its legacy success. This implies a lean, flat maintain their advantages by focus on university borrowers to organizational structure with cementing their pioneering roles develop an e-commerce ecosystem product-driven teams comprising in the fintech space through driven by a consumer finance model. both financial and technology technology-enabled innovation. At the same time, we anticipate talents in order to shorten product First, they should continue to build mergers between some niche players development cycles through their customer base and drive to consolidate their strengths and hypothesis-driven experimentation innovation using insights derived resources. Some players are actively and maximize returns by tailoring from their massive data pools. considering expansion outside China products for customers Second, using this abundance of in order to replicate their success in data and their insight-generating markets with similar needs, such as IMPLICATIONS FOR capabilities, they should identify Southeast Asia. Since banks and all- FINTECH MARKET opportunities for needs-based cross- around fintech players are dominant selling of financial services products. in their customer base, niche players PARTICIPANTS Third, given the recent regulatory could export their technological trends, they should proactively apply know-how to partner with During the explosive growth of for necessary licenses to sustain traditional financial institutions. fintech in China in recent years, we their business models. have witnessed the establishment Traditional Financial Institutions of four major types of players, with Niche Fintech Players should expand should build data capabilities each type of player possessing its and perhaps transform their under flexible organizational own strengths and weaknesses. Such business models. The first and most setups. First and foremost, they dynamics result in rather different intuitive way is to grow organically need to create leaner structures strategic foci for each type of player. beyond a niche. Qudian, for example, and culture with operating models

23 Marsh & McLennan Companies BRINK Perspective that are more suitable for fintech. field for traditional financial Strategic This could also be done by setting up institutions such as banks and separate business units with more- securities firms. The recent strategic planning, independent authority and decision- partnerships with fintech players making processes. It is important by China Minsheng Bank and the significant and for traditional financial institutions introduction of online lending to then invest in data processing products by ICBC are just a few signs rightly directed capabilities and infrastructure to that fintech investors should start effectively monetize the traditionally looking beyond fintech startups. investment and offline customer base by leveraging on innovative data sources. Assess the potential downside. prompt action Despite not bearing credit risks in Players from Non-Financial Industries legal terms, fintech platforms could are required should carefully consider whether face reputational losses, regulatory and how to best leverage their actions, and even liquidations due to for tomorrow’s strengths and large customer potentially problematic products. bases to expand laterally into the Chinese fintech fintech space. For example, logistics This has been illustrated by the providers such as S.F. Express cases of Ezubao and Zhao Cai leaders. possess proprietary information Bao. Although the number of such on massive daily inventory flows, products will likely diminish under which is then incorporated into a the tightening regulations, investors risk-assessment methodology and ought to be aware of downside used to power their supply chain scenarios and diligently assess their financing and consumer lending potential impact. ventures. Capture value from technology and IMPLICATIONS FOR the surrounding infrastructure. As technology-enabled disruption FINTECH INVESTORS is the main trajectory for China fintech, investors should look beyond Capital investment in China fintech the actual innovative solutions and is hotter than ever. However, as products. There is also value in the the development dynamics of the infrastructure enablers behind such industry are bound to change in the products, such as large user bases future, we believe that China fintech for trials, access to proprietary data investors should follow the four key for analysis, and agile fin plus tech rules below. governance structures.

Avoid overvaluing regulatory While current leaders might be arbitrage. The historically open able to build on their strengths regulatory environment was one of and expand on all fronts, the the major growth drivers for a lot chaser pack could still find major of fintech players. But tightening places for themselves by applying regulations are bringing the age of differentiated technology in spaces arbitrage to an end and will likely where it is needed. Strategic have a negative impact on fintech planning, significant and rightly expansion. So, investors should directed investment and prompt identify targets’ underlying growth action are required for tomorrow’s drivers and avoid overestimating Chinese fintech leaders. The fintech future value driven by regulatory landscape in China is evolving fast – arbitrage. only those who weigh it right will be able to hit gold. Explore the broader landscape. The integration of fintech into the This article first appeared on BRINK regulatory framework has, to a on August 31, 2017. certain degree, leveled the playing

24 Marsh & McLennan Companies BRINK Perspective FINTECH HOW BANKS CAN KEEP UP WITH DIGITAL DISRUPTORS

Scott A. Snyder Senior Vice President, Managing Director and Chief Technology and Innovation Officer for Safeguard Scientifics

Hardly a day goes by without seeing EXHIBIT 10 IN YOUR INDUSTRY, HOW MANY COMPANIES WILL LOSE THEIR PLACE IN a new business article or blog post THE TOP 10 DUE TO DIGITAL DISRUPTION (OVER NEXT FIVE YEARS)? on digital disruption. Blockbuster Source: Global Center for Digital Business Transformation, 2015 is dead, taxis are struggling and hotels are losing customers, who 4.3 are increasingly renting rooms in spititrve homes of ordinary people. We get ici ervices it: Incumbents get disrupted by new entrants armed with digital re cpies t ris technologies, talented and highly Reti incentivized teams and fresh venture cti capital. There are very few industries ec Prcts ervices 3.7 eecictis in which CEOs do not live in fear of P ctri aerae etcre digital disruption. ei tertiet Banking is no exception: Executives believe digital disruption will drive Prcetics eer cpies t ris 40 percent of companies out of the top 10 in the next five years. As Antonyite ttesJenkins, former CEO tiities of Barclays, aptly put it in a 2015 speech: “Over the next 10 years, we will see a number of very significant disruptions in financial services, let’s i s call them Uber moments.” 2.5

25 Marsh & McLennan Companies BRINK Perspective Despite these historic advantages, EXHIBIT 11 SELECTED EXAMPLES OF HOW COMPANIES DISRUPT TRADITIONAL banks need to start transforming FINANCIAL SERVICES USING EMERGING TECHNOLOGIES Source: Author’s research themselves from inflexible, analog monoliths to delivering highly personalized physical and digital CATEGORY COMPANIES experiences in order to be relevant Payments PayPal, Dwolla, Square, M-Pesa, Billtrust, Kantox, to the next generation of banking Traxpay, Venmo consumers. The key opportunities Alternative currencies Bitcoin, Bitstammp, Xapo, BitPay, Etherium, ZCash to do this are the following: Product and service advice Bankrate, MoneySuperMarket, LendingTree, Credit Karma Make banking seamless. When Personal finance management Fintonic, Moven, MINT, Digit Disney launched its MagicBand Wealth management and advice Betterment, Wealthfront, SigFig, Personal wristband at its theme parks, the Capital, Nutmeg company integrated a wearable that Crowdfunding (Capital and debt) Lending Club, Kickstarter, Crowdfunder, combined frictionless transaction AngelList, SeedInvest and personalization features that Peer and pre-approved lending Lending Club, Prosper, Kreditech, Lenddo improved the customer experience and increased consumption by around 8 percent per guest without Ten years may be wishful thinking, Most brands spend billions to requiring additional effort on their as significant disruption is already increase customer engagement. part. Banks need to do a similar job happening. Massive investments Banks already have it, yet bank of integrating banking into everyday in fintech are spawning a wave loyalty is not much better than life experiences to stay relevant. of new companies reinventing cable companies. Examples include BBVA’s Wizzo app, everything from payments and which makes getting and sharing money management to lending Reach and trust. The blend of money easy; TransferWise, which and financial planning. Exhibit 11 physical and virtual touch points takes the pain out of moving money above shows examples of companies can extend to more of people’s across borders or Quicken Loans’ disrupting financial services. Some everyday needs; people want to Rocket Mortgage, which enables analysts believe Fintech disruption know banks are nearby and part mortgage approvals when you need it. could take as much as 10 percent of the community. Defunct online Hyper-personalize. While to 40 percent of bank revenue and banks such as Wingspan and ING 69 percent of customers have tried eliminate 1.7 million banking jobs Direct, now Capital One 360, didn’t mobile banking, only 25 percent by 2025. scale without the brick-and-mortar use it regularly. Much like the element, much like Amazon, the challenge other mobile apps face in Couple this with increasing e-commerce giant, now sees the need regulation, historically low interest maintaining ongoing engagement, for physical presence with the roll- banking apps tend to lose relevance rates and the fact that most out of lockers, pick-up points and (73 percent) millennials would by using a one-size-fits-all approach, even Amazon Go stores. prefer to get their banking services failing to leverage recent activity patterns and context, and not taking from a non-financial services Knowledge. Banks have an enormous advantage of different modes of company, and banks seem to be amount of data on customers and headed the way of Blockbuster. engagement based on what users their needs, spanning from where prefer. In order to deliver “hyper- you work to what you buy, how much Before we declare the game over, personalized” experiences that you save and even where you like to let’s think about some of the unique increase engagement, banks must vacation. Banks should know if you advantages banks possess. combine predictive analytics with have a side job as an Uber driver to multiple modes of interaction. Frequency. Next to social media save for a new house and therefore By using data to adapt to customer platforms, banks are the second- be ready with a business banking behaviors, banks can determine most frequently touched platforms account, a car loan to upgrade and which customers will respond well in our lives. People engage with even home-financing options. Yet to self-service robo-advisors versus their banks 17 times per month on most of this data lives in silos across human ones, or which customers can average, versus 14 times per month disparate data sources, preventing elevate their financial literacy and for retailers. these types of integrated offers. savings discipline through apps such

26 Marsh & McLennan Companies BRINK Perspective as Simple or Digit. With emerging will innovate around you. The best BBVA started its journey towards a touchpoints such as voice agents part is organizations that do this two-speed business capable of big and wearables, the opportunity to well – such as Waze, Pandora and innovations (“Big I”) more than capture data and personalize will Betabrand – are incredibly capital seven years ago, shifting from an only improve. efficient because they leverage OPM, 80/20 current operations/future or “Other People’s Money,” via smart innovation focus to 60/40. This Turn branches into experience devices, broadband connections and came with dramatic changes to the centers. Nearly 6,000 bank branches social media platforms that someone organization structure, a dedicated have been closed in the US since else already paid for. digital organization and a number of 2009, according to the FDIC, external innovations and ventures and with greater digitization, the J&J has created a patient experience that allowed transformation of the trend seems to shift away from center for iterating on new company while still executing on the physical touchpoints. As we see in healthcare innovations firsthand current business. retail, the leaders are figuring out with patients and providers before how to rationalize their physical deploying into the field. In the case Other banks are starting to follow space with smaller footprints and of the African micro-finance service suit, such as Citi with its Innovation automation while also equipping M-Pesa (created by Vodafone), Labs, Umpqua with its Pivotus employees to become ambassadors it was the local wireless carrier, Ventures subsidiary or Rabobank in the customer experience, since Safaricom, that saw the opportunity incubating its MyOrder venture brick-and-mortar conversion rates to innovate around the large separate from the core business. (25 percent) are still significantly population of unbanked mobile In order to support continuous higher than online (2.3 percent). consumers, and the two teamed up innovation in the core business, or to do it. Now M-Pesa has become “Little I,” in parallel with creating Retail brands such as Sephora and the largest payment platform in and accelerating “Big I” innovations Nike have enabled customers to sub-Saharan Africa. In banking, that will likely disrupt the core easily move from online to the local TD Bank partnering with Moven business, banks need to have talent store experience by allowing them to engage millennials with basic aligned to both missions. They also to browse store inventory, make banking services is a good example need an agile infrastructure that appointments and even interact of customer-centric innovation, but supports rapid experimentation with associates. Bank of America banks still have a long way to go to along with the reliability, security has started to connect its online fend off consumer-centric players and scale required by the core and local branch experience more such as Apple, Google and Amazon business. IT is no longer just the cost tightly via its mobile app, and from disrupting their markets. of doing business, but a key enabler Capital One now has 16 banking to innovation. cafes aimed at creating a more Create a two-speed business relaxed banking environment. The model. When GE CEO Jeff Immelt In October, banking regulator industry as a whole is still behind declared that the data coming from Office of the Comptroller of the when it comes to offering a truly equipment is now worth more than Currency (OCC) established an connected and personal branch the equipment itself, it forced GE to Office of Innovation, implemented experience. To make the experience rethink how it captures and delivers a framework for responsible more like Starbucks and less like value to its future customers. As innovation, and is even exploring McDonald’s, banks will need to part of GE’s transformation, every special bank charters for fintech ramp up investments in automation business unit now has a chief digital companies. With the potential (digital integration, automated officer, and GE Digital is becoming for a more relaxed US regulatory tellers) as well as attracting and one of the largest industrial software environment under the new training talent to match the new companies in the world, projected to presidency, we could see these digital-savvy customer base. generate $15 billion by 2020. innovation avenues open up even further. This is similar to what the Adopt a customer-centric innovation In a similar vein, BBVA chairman FDA has been doing around digital model. In this new era of empowered Francisco Gonzalez has said that health and mobile medical apps: digital end users, either you find the innovation process for banks establishing guidelines and examples a way to make the customer part “might be compared to changing the to facilitate innovation versus being of your innovation model or they tires of a truck while still in motion.” a barrier to it.

27 Marsh & McLennan Companies BRINK Perspective While there are signs of progress For bank executives, it’s time to on the regulatory front, most banks decide if you want to be Netflix or continue to lag on digital innovation. Blockbuster. Your customers won’t Despite being one of the top sectors wait forever. for technology investment over the last two decades – including the This piece first appeared on creation of major products such as Knowledge@Wharton, the online ATMs, debit cards, credit scoring and research and business analysis check scan and deposit – banks are journal of the Wharton School of lagging behind other industries, such the University of Pennsylvania, and as those in retail, transportation and BRINK on July 28, 2017. even healthcare, when it comes to digital transformation.

The good news is that banks are still very well-positioned to win with the new wave of empowered digital customers, given their rich historic data and balance of physical and digital touchpoints; however, it will take a strong commitment to a customer-centric vision, a two-speed business model and agile infrastructure to enable “Big I” innovation and a data-driven approach to delivering personalized, relevant banking experiences.

28 Marsh & McLennan Companies BRINK Perspective FINTECH INSURTECH IN CHINA: REVOLUTIONIZING THE INSURANCE INDUSTRY

Cliff Sheng Partner and Head of Financial Services, Greater China at Oliver Wyman

China’s capital markets aren’t In 2015, for example, total insurance INSURTECH yet mature enough to support gross written premiums (GWP) financial innovation; meanwhile, in China increased by 20 percent MAKES GAINS existing state-owned financial in 2015 to 2.4 trillion yuan Insurtech is revolutionizing the institutions are not reforming ($355 billion). insurance industry by bringing quickly enough. This gap in supply In fact, the Chinese insurance disruptive products and services has provided opportunities for to a market that is fast adopting, Chinese fintech players – who are market has doubled in size over the past six years. Based on China and increasingly moving toward, being supported by rapidly growing an online ecosystem. The market is online ecosystems and a tech-savvy Insurance Regulatory Commission’s (CIRC) five-year plan and various also seeing a surge in the number population – in diverse fields ranging of people who are aware of and are from investing to payments. other sources, the insurance market is forecasted to grow at 13 percent starting to understand the benefits A GROWING (compounded annually) up to 2020 of insurance. INSURANCE MARKET to 4.5 trillion yuan. The CIRC is supporting these gains The rapidly growing insurance by fostering a favorable regulatory While insurance penetration in market – albeit from a low base – environment for insurtech. As China is currently low (3.6 percent in China is also opening up plenty a result, the insurtech market is in 2015) compared to developed of opportunities for insurtech experiencing rapid growth and is markets such as the UK (10 percent) (defined as insurance further expected to rise from 250 yuan in and the US (7.3 percent), strong enhanced through technology 2015 to more than 1.1 trillion yuan government support, coupled with in a customer-centric way). in 2020. a growing middle class, is making insurance products more accessible.

29 Marsh & McLennan Companies BRINK Perspective EXHIBIT 12 CHINA INSURTECH SEGMENTS, KEY PLAYERS AND MARKET SIZE FORECAST BY 2020 Source: Oliver Wyman analysis

Segment 3: Ecosystem oriented innovation 2020F CNY 202 BN Leerain aa anaics o coer nees in emee honn nsrance ecossems ha are no crren me cn nsrance

Segment 2: Technology enabled upgrade 2020F CNY 197 BN iiin echnoo o prae eisin insrance procs inn nsrance o ecome more aree csomie an namic honan nsrance CC roper & Casa Segment 1: Online distribution 2020F CNY 747 BN ein raiiona insrance procs inn nsrance NEW TECH ENABLED hroh onine or moie channes honan nsrance Traditional CC roper products & Casa

ONLINE DISTRIBUTED

There are broadly three insurtech Ecosystem-oriented innovation market, several products such segments in China (Exhibit 12), of new insurance products auto insurance and universal life which are projected to grow at (e.g. shipping return insurance, insurance face uncertainties owing different rates: flight delay insurance). Estimates to the following four factors: show that GWP in this segment Online distribution of traditional will grow from 12 billion yuan to Macro economy. A fall in Chinese insurance products (e.g. online 202 billion yuan between 2015 and GDP growth to 5 percent or lower auto insurance sales). According to 2020. The key contributors to this would have an adverse impact on Oliver Wyman estimates, GWP for growth being the e-commerce and per capita disposable income, which this segment will grow from about travel ecosystems because of their in turn could negatively affect the 207 billion yuan in 2015 to about large market size and the growing demand for non-essentials such as 747 billion yuan in 2020. And within desire among consumers to protect automobiles, wearable devices and this segment, non-life insurance themselves against risks related to connected home devices. As a result, products will grow at a faster pace these ecosystems. GWP in these sectors would fall. than life products. Regulation. In general, the CIRC Technology enabled upgrades RISKS AND has been supportive of innovation, of existing insurance products UNCERTAINTIES FACING but there are times when it has (e.g. new health insurance policies been too conservative. For instance, or prices based on wearable THE INSURTECH the regulator may put a limit on devices, telematics). GWP for this INDUSTRY guaranteed return of universal segment is expected to grow from life insurance distributed online. about 28 billion yuan in 2015 to Notwithstanding the tremendous Online universal life was recently about 197 billion yuan in 2020. scope and opportunity for certain stopped by the regulator (which is Auto insurance will be the highest simple products – such as travel considered a temporary measure contributor to this growth, followed insurance and shipping return to curb increasing risk). In another by health insurance products. insurance – in the Chinese insurtech case, we observed that the slow

30 Marsh & McLennan Companies BRINK Perspective adoption of telematics is caused by For example, auto or 3C (computer, the tariff set by the regulator even communication and consumer after the recent pricing reform for electronics) manufacturers could auto insurance. In another case of set up insurance companies to regulatory back-and-forth, smog insure their own products. Similarly, travel insurance, which compensates peer-to-peer insurers may rise to travelers during bad weather caused cover online communities and large by smog, has been stopped by the ecosystems might also self-insure. regulator. Despite these uncertainties and Technology. Future development of possible risks, there is potential technologies such as big data, cloud for the insurtech industry in computing, block chain and artificial China, with the forecasts clearly intelligence are critical to insurtech. suggesting a growing opportunity Therefore, technological failures set for businesses in this space. of particular platforms can pose The question is whether it will meet risks for companies, particularly or exceed expectations. when they are looking to ramp-up operations. This article first appeared on BRINK on November 7, 2016. Competition. Traditional insurers and disruptors currently dominate the industry. Traditional insurers may set up joint ventures with tech companies to compete with disruptors, or they might set up subsidiaries to attack this market. New players could also emerge, increasing competition.

31 Marsh & McLennan Companies BRINK Perspective CYBER RISK AND SECURITY CYBER RISK IN ASIA: INCREASING TRANSPARENCY TO LIMIT VULNERABILITY

Wolfram Hedrich Executive Director of the Asia Pacific Risk Center and Partner in the Finance and Risk practice at Oliver Wyman

Jaclyn Yeo Senior Research Analyst at the Asia Pacific Risk Center

Asia is an ideal environment for are ranked among the top five risks there are deeper issues lurking. cybercriminals to thrive in due of doing business in the region. “The majority of cyberattacks in to high digital connectivity and the region usually go unreported as the accelerating pace of digital The need to combat cyber threats companies are neither incentivized transformation, contrasted with low has never been more urgent in Asia, nor required to do so,” said Cheah cybersecurity awareness, growing and many major industries in the Wei Ying, an expert on non-financial cross-border data transfers and region – including construction and risk at Oliver Wyman. “This lack evolving but still weak regulations. engineering, financial, high-tech of transparency underpins Asia’s and electronics – are especially susceptibility to cyberattacks.” Compounding problems is a lack susceptible, according to a new of transparency, which leads to the report from Marsh & McLennan TRANSPARENCY inaccurate general perception that Companies’ Asia Pacific Risk Center the cyber threat level is lower in Asia (APRC). A series of recent, high- TRENDS IN ASIA than other regions. profile cyberattacks have touched We argue that there is still a multiple countries and industries lack of transparency in Asia that According to the Global Risks Report across the region, highlighting reduces visibility about the level 2017, concerns around the likelihood the issue. and impact of technological threats and frequency of cyber attacks, has sharpened among business The worrying factor is that although resulting in the perception that executives in Asia, and cyberattacks these breaches grab the headlines, cyber threat is lower in Asia than

32 Marsh & McLennan Companies BRINK Perspective EXHIBIT 13 RISING CYBER RISK TRENDS IN ASIA AND KEY CHALLENGES IN MANAGING CYBERSECURITY Source: Asia-Pacific Risk Center, “Cyber Risk in Asia-Pacific: The Case for Greater Transparency”

THE SEVERITY RECENT CYBERATTACKS OF CYBERATTACKS EXAMPLES IN ASIA

PERSONAL DATA OF Hackers are 80% more likely to attack 850 81 3 68 organizations in Asia 64

personnel stolen from stolen from children’s data Philippine Singapore’s defense cyberattack stolen in Hong Kong government ministry online on a bank in hacking of a digital websites database portal Bangladesh toymaker firm in simultaneously in Feb 20174 in May 20165 in Dec 20157 hacked in July 20166

CHALLENGES FOR FIRMS 81 Ranked 5 IN MANAGING CYBERSECURITY among Asian top risks2 in business Ranked 6 revenues lost among Global to cyberattacks1 top risks2 70% of firms do not have a strong understanding of their cyber posture ASIAN FIRMS LAG IN CYBERSECURITY 74 %

Asian organisations take 17 longer than the global median to discover a breach8 of organisations found it 78% “dicult-to-extremely-dicult” to recruit cyber talent11 of Internet users Asian firms spent 47% in Asia have Primary insurers are reluctant to less on information security not received provide single coverage above than North American firms9 any education on cybersecurity10 100

33 Marsh & McLennan Companies BRINK Perspective EXHIBIT 14 THE ROLE OF TRANSPARENCY IN MITIGATING CYBER RISK Source: Asia-Pacific Risk Center, “Cyber Risk in Asia-Pacific: The Case for Greater Transparency”

Icrese Rise Iitite verce transparency steer steer cees 1 t steers 2 awareness 3 action t 4 t mitigate cceri cer secrit ct cer ris certtcs sitti cer tret

it actually is. That, in turn, leads breach of security or confidentiality result directly and indirectly from to insufficient investment in of customer information, or any breaches in the cyber architecture. cybersecurity among corporations events that can potentially lead to and erodes the urgency for tighter prolonged service disruption. Another challenge that Asian cybersecurity among regulators. governments face is that even when This indicates that some willing to put in place legislation to The degree to which Asia lags governments and policymakers ensure transparency, they have been behind the rest of the world is have yet to recognize the slow in doing so, compared to the highlighted in recent research, which importance of transparency in rapid pace of digital transformation found the median time between a the battle against cyberattacks, in Asia. This is in contrast to the breach and its discovery for Asian which shrouds perceptions West, where digital progress was organizations is almost double the and influences the behavior of slightly more incremental and global average – 172 versus 99 days. corporations, resulting in inaction allowed regulators somewhat or inadequate mitigation efforts. more time to adapt, assess and Underpinning the region’s implement necessary safeguards. transparency issue is its lack of data Detailed and clear data breach breach notification laws – which notification laws, supported by GOVERNMENT ACTIONS typically require companies that are enforcement, and a culture of compromised to inform regulators compliance within organizations are TO ENHANCE CYBER and stakeholders and take steps to critical to improving transparency TRANSPARENCY remediate or face a heavy penalty, and improved risk mitigation. with the exception of Japan, Beyond legislation of detailed and Australia, South Korea and the Although this breaks the opacity clear data breach notification laws, Philippines, for example. In some that most organizations would governments in the region can countries, breach notification prefer, such legislation keeps further mitigate cyber risk through may be industry-specific; for companies accountable to their public-private information sharing, example, the Monetary Authority stakeholders, allowing them to the development of cybersecurity of Singapore requires financial protect their reputations and knowledge hubs and growing institutions to notify them of any also minimize losses that could the cybersecurity talent pool.

34 Marsh & McLennan Companies BRINK Perspective Public-private information sharing Clearly, a lot more work is is a useful and necessary defense required. Governments need to tool against cyberattacks; both find ways to effectively implement the public and private sector and enforce breach disclosure hold critical information in the laws, companies must renew fight against cybercrime, and long-entrenched approaches to there is growing recognition cybersecurity and individuals of the need to consolidate this have to play their part and practice information to obtain a fuller view good cybersecurity habits. of the cyber-risk landscape. The progress towards transparency Governments should also develop is currently piecemeal across cybersecurity knowledge hubs, stakeholders. The lack of which go hand-in-hand with convergence on breach notification growing the cybersecurity talent regulations in the region suggests pool. Building cyber resilience that governments have yet requires experience and technical to recognize the key role that expertise, and the development of transparency plays in the fight cybersecurity hubs can act as central against cyber risk. That needs to knowledge and talent repositories change urgently if the region wants for cutting-edge innovation, to become more cybersecure. technologies and personnel expertise to bridge the gap necessary This article first appeared on BRINK to build an effective cyber defense. on March 31, 2017. THE NEED TO ACT

Asia has never been more vulnerable to cyber attacks, and the exposure to cyber threat is disproportionately large compared to the amount of investments in cybersecurity and risk management strategies by governments and corporations.

35 Marsh & McLennan Companies BRINK Perspective CYBER RISK AND SECURITY ASEAN: THERE CAN BE NO DIGITAL ECONOMY WITHOUT SECURITY

Naveen Menon President, ASEAN of Cisco Systems, Singapore

Across the world, digital economic player by 2025. To achieve reaping the benefits of improved technologies are disrupting this, the ASEAN needs to implement efficiency, flexibility and widespread industries, improving lives and a comprehensive digital agenda customization. propelling progress. Similarly, we and strategy. Doing so could add see these changes taking place in $1 trillion to ASEAN’s GDP over the THE CORNERSTONE OF ASEAN (Association of Southeast next decade. DIGITIZATION Asian Nations) countries, building This is why digitization is on the fundamentals for digitization While it’s clear that digitization is incredibly relevant for the region. that are in place – such as the paramount, there are many aspects By pioneering the development of growing economies of Thailand and to consider. But underlying all of new digital services and business Indonesia, which have highly digital that is security, which is absolutely models, ASEAN countries will and young populations (50 percent fundamental. To fully realize the create new areas for economic of ASEAN’s population is under opportunities that are described growth. The clearest example today 30 years of age) and an extremely above, security needs to be a core is the tech sector – it’s changing high literacy rate of 94 percent. part of any digital transformation the way citizens work, live and Infrastructure is also well developed strategy. Today, we have a diverse play through businesses that are – 90 percent of people in the region and growing threat landscape. And built on the sharing economy. But have Internet access. as business goes digital, the number beyond that we are also seeing of external touchpoints will only The conditions are ripe for ASEAN the rejuvenation of old sectors, grow, making them increasingly to become one of the world’s top five such as manufacturing, which is vulnerable. digital economies and a major global moving toward “Industry 5.0” and

36 Marsh & McLennan Companies BRINK Perspective Security is what protects businesses, the environment?” This means It should be the allowing them to innovate and thinking about security end-to- build new products and services. end, throughout the organization, responsibility from the network to the cloud Beyond a defensive role, security to the customer endpoints. of tech industry provides businesses with a strategic growth advantage. Here’s an An architectural approach allows players and example: customer data – imagine products to be integrated and built you’re a business like Go-Jek, an to share context and information government Indonesian transport, logistics and on threats. Such an approach takes payments startup. Regardless of the advantage of investments and bodies to value you add to the market, do you network infrastructure already in think customers would willingly use place, which means that scaling drive the your service if they didn’t trust you to security alongside business growth handle their sensitive information? is simple and straightforward. cyber security Trust creates widespread use of the It creates a multiplier effect and service, which in turn generates reduces cost by over 30 percent agenda. valuable data, allowing Go-Jek vis-a-vis a point-product approach. to identify growth opportunities For example, the western Australian in terms of creating new services education department is able to or improving existing ones. centrally manage security for 798 school sites without having This is just one example of the to worry about scalability. importance of security – Cisco has identified 414 security- From a technology standpoint, enabled digital use cases that a company needs technology will drive $7.6 trillion in value that visualizes what’s happening over the next decade. across the entire network. With that, a company can respond to GETTING STARTED threats before they occur. That said, when breaches do occur, There are three key areas for security needs to be automated organizations to focus on when across physical, virtual and cloud it comes to security: strategy/ touchpoints to reduce complexity policy, technology and people. and quickly remediate attacks.

Businesses need to look at security Besides processes and technologies, from a big picture perspective. It’s organizations will also need to invest about saying “let me have a security in people to become more resilient blueprint to enable the business” in the face of new attacks. It’s evident more so than worrying about the that many high-profile security tactical aspect of “how do we detect breaches in recent times began with a where the vulnerabilities are within phishing attack on a single employee.

37 Marsh & McLennan Companies BRINK Perspective Only increased employee awareness BUILDING AWARENESS could have prevented these events. Hence, personal responsibility Given that ASEAN is such a diverse with respect to security must and complex region, political and become a business priority, too. cultural differences and variations And as the lines between personal in economic behavior can make and enterprise technology blur, awareness-building a challenge. organizations can also consider It should be the responsibility of extending protection to employees industry players and government in their personal use of technology. bodies to drive the security agenda through comprehensive awareness- building programs. By doing so, we empower ASEAN to achieve its potential and claim its rightful place as one of the leading lights of the global digital economy.

This article first appeared on the World Economic Forum Agenda blog and BRINK on May 16, 2017.

38 Marsh & McLennan Companies BRINK Perspective CYBER RISK AND SECURITY A GROWING CYBER VULNERABILITY: THE COMPETITION FOR TALENT

Tom Jacob Senior Partner and Global Leader of Research & Insights in the Information Solutions group of Mercer’s Talent Division

Karen Shellenback Principal and Leader of Research and Insights for Mercer Select Intelligence

The rise of the Internet, data and But to view the challenges through for organizational resiliency and communication technologies in only a technological lens is missing competitiveness. concert with the proliferation half of the equation. of mobile and interconnected A CONVERGENCE OF ecosystems has revolutionized Fundamentally, cybersecurity CHALLENGING FACTORS: every aspect of modern society. remains a human problem, and However, our never-ending reliance the solution to that problem THE CYBERSECURITY on technology has also created new lies with human beings. Thus, LABOR POOL vulnerabilities and avenues for harm understanding the role of human for those who wish to capitalize on capital is critical in the development The cybersecurity field is growing financial and otherwise nefarious of innovative security solutions. exponentially, and the demand for schemes. The cyber vulnerabilities In 2015, competition for talent in skilled tech workers exceeds the that organizations face today are this field is a make-or-break factor supply. pervasive and formidable.

39 Marsh & McLennan Companies BRINK Perspective The supply of talent, however, entry-level positions, which are Understanding is hampered by a convergence necessary for building a robust of factors that have placed an pipeline. Finally, cybersecurity the role of unintentional stranglehold on the leadership requires a focus on the workforce. Consider the following people issues, calling for executive human capital challenges organizations face in communication skills, negotiation hiring cybersecurity talent in 2015: skills and gravitas along with is critical in the operational, legal or line-of- • Exponential growth: business exposure. Finding talent development Cybersecurity jobs postings with the right mix of these skills is have grown 74 percent between extremely difficult of innovative 2007 and 2013. This growth rate is more than two times THE UNINTENDED security faster than all other IT jobs. In particular, cloud computing CONSEQUENCES – solutions. and mobile connectivity are LABOR MARKET RESULTS experiencing exceedingly rapid growth trajectories. These new The unintended consequences of the globally adopted technologies above educational, experiential and are driving the need to address hiring requirements have, in part, a new set of security concerns resulted in the following: and are propelling cybersecurity job growth in the professional Building your cybersecurity talent services, public administration, pool takes longer than other manufacturing, defense and IT positions: retail sectors According to Burning Glass, cybersecurity job postings take, on • Demand exceeds supply: average, 24 percent longer to fill than Although the cybersecurity field other IT job postings and 36 percent is growing rapidly and offers very longer to fill than all other job competitive pay, demand for these postings. Senior level cybersecurity IT specialists exceeds the supply positions take even longer to fill: of credentialed, experienced On average, filling a cybersecurity professionals. Research at Cisco position at the senior level takes Systems Inc. in 2014 linked recent 9.2 months. high-profile security breaches to the shortage of nearly one million Cybersecurity talent costs more than skilled cybersecurity professionals other IT positions: Cybersecurity jobs pay • Supply is hampered by multiple approximately $10,000 to interwoven challenges: $20,000 more annually than There are many educational comparable IT jobs and salaries are and experiential barriers for increasing at a faster rate than the those interested in moving into average IT position. In addition, cybersecurity roles, including the 83 percent of cybersecurity new need for four years of education hires are receiving more-than- and four to five years of work average pay increases. experience or certification. Yet, only 186 institutions offer Companies that have a hard cybersecurity coursework, which time attracting and retaining accounts for less than 5 percent cybersecurity talent risk falling of all American colleges and behind in terms of competiveness universities. These requirements and add more uncertainty to the effectively eliminate new ever-growing equation of holistic graduates and create a dearth of organizational risk. So, what can

40 Marsh & McLennan Companies BRINK Perspective organizations do to increase the streams, patterns of attrition, bench Increase the use of open-source flow of cybersecurity talent into strength, career path mapping and collaboration and external networks. their organization? Like any other avenues for bringing critical talent in Consider the use of community job category with hard-to-find the door. collaboration models, including skills, companies must create a design challenges, hackathons and comprehensive talent strategy and Partner with universities to develop open-source community platforms to action plan. emerging curriculums and open up tap into external networks and locate access to potential new hires. potential talent. 11 WAYS TO ATTRACT Providing real-world curriculum AND RETAIN challenges as well as on-site job Build line-of-business experience. rotations, networking opportunities, Provide training opportunities CYBERSECURITY TALENT co-ops and internship opportunities to IT staff on business strategy, allows young workers the negotiation, legal considerations and In the 2015 marketplace, where development experience they communications, along with stronger demand is high and supply is low need and the exposure hiring ties to senior management, to enable and cybersecurity professionals organizations require. cybersecurity leaders to translate are poached daily, a well-executed corporate business strategy into risk talent strategy with progressive Provide training and more training. and cybersecurity resource plans. attraction and retention incentives Companies must make the is a must. A strategic cybersecurity most out of the talent already in Open the door to all talent. place. Providing specific training talent action plan should include the Increase talent acquisition opportunities to current staff following elements: channels to look beyond what on emerging technologies is HR and recruiters may deem Evaluate your company brand. a requirement that cannot be as the appropriate experiential What is it that makes the overlooked. organization stand out from the rest requirements (B.S. degree, four years and how is the company perceived Create enticing career of experience and certifications). in the larger arena of social media path trajectories. The cybersecurity field is growing and the crowd-sourced blogosphere? In a field where talent is in short by leaps and bounds. The need If your organizational presence is supply and one can jump ship for to stay in front of a rapid and nonexistent or negative, it is time added responsibilities and pay, exponential technological landscape to dedicate resources (financial and having a visible, enticing, attainable otherwise) to change that image. and tangible internal career map with astounding opportunities and is essential. vulnerabilities is simply… daunting. Understand current engagement levels. Focus on creative career The demand is exceedingly high Engage cybersecurity staff in growth opportunities. and the pressure to find critically brainstorming solutions and action Create opportunities to highlight specialized talent to address planning, so as to increase the significant accomplishments and the inherent challenges and excitement and engagement of your provide a clear line of sight and vulnerabilities is not about to go critical team members. accelerated growth paths that align away. Organizations that want to with career goals, passions and remain competitive and reduce Harness strategic workforce planning personal aspirations. substantial organizational risk and metrics. must invest in cybersecurity talent Using data analytics and workforce Improve processes, communication practices to open up, energize and planning applications, the human and productivity. direct the flow of essential talent into resources (HR) function must Increase the productivity among and within the organization. work with cybersecurity leadership the cybersecurity team by using new to create a plan that lays out the technologies to manage day-to-day This article first appeared on BRINK anticipated ebbs and flows of talent workflow processes and efficiencies. on October 22, 2015.

41 Marsh & McLennan Companies BRINK Perspective CYBER RISK AND SECURITY ARE ASIAN SMEs PREPARED FOR GROWING CYBER THREAT?

Wolfram Hedrich Executive Director of the Asia Pacific Risk Center and Partner in the Finance and Risk practice at Oliver Wyman

Jaclyn Yeo Senior Research Analyst at the Asia Pacific Risk Center

A recent cybersecurity investigation ASIA ALMOST TWICE AS The worrying cyber-risk trend in conducted by Singapore-based LIKELY TO BE TARGETED recent years has caught the attention Interpol Global Complex for of several APAC lawmakers; Innovation revealed significant cyber BY CYBER ATTACKERS Singapore, Malaysia, China and threats across the Association of Australia have either introduced or Southeast Asian Nations (ASEAN) – The revelation by Interpol is one updated their data privacy laws to approximately 9,000 servers across of the many investigations that ensure better management, security the region were laden with malware, confirms the growing cyber threat and control of data (Exhibit 15). which compromised several websites in the region. Asia-Pacific (APAC) and government portals. is becoming a prime target for In Singapore, apart from updating cybercrime due to its higher threat the existing Computer Misuse and A more significant cyber event potential and weaker cyber risk Cybersecurity Act in March 2017, a took place in February, when the mitigation efforts, as detailed in the new stand-alone Cybersecurity Act Singapore Ministry of Defence recent cyber risk report published by will be introduced later this year that reported a security breach resulting the Asia Pacific Risk Center. will mandate Critical Information in the theft of the staff’s personal Infrastructure (CII) facilities to data. The speed of digital transformation report any cybersecurity breach has evolved, enabling cyber attacks and incidents. to become more sophisticated and increase in frequency, with attackers The bill is currently in discussion and becoming bolder with every debate in the Parliament; it remains successful attempt on relatively uncertain whether the legislation will easy targets. ultimately cover sectors beyond CII.

42 Marsh & McLennan Companies BRINK Perspective EXHIBIT 15 RECENT DEVELOPMENTS IN THE APAC REGION IN TERMS OF DATA PRIVACY AND BREACH DISCLOSURE REGULATIONS Source: Asia-Pacific Risk Center, “Cyber Risk in Asia-Pacific: The Case for Greater Transparency”

CHINA HONG KONG • Introduced a sequence of legislative reforms • The Personal Data (Privacy) Ordinance has been in in recent years that seek to ensure stronger eect since 1995, but it has not been strongly enforced data protection • Enforcement has picked up in recent years with • Complex overlay of piecemeal regulations reported incidents to the Commissioner increasing by as there is no single dedicated regulator, 40 percent year-on-year in 2015 and four oenders rendering it di cult to interpret and implement being convicted and fined THAILAND • Hong Kong Monetary Authority, in collaboration with the banking industry, launched the “Cybersecurity • Drew up a draft data protection bill in 2015, Fortification Initiative”, where the Cer esiience but that has come under criticism for ssessmen rameor will be completed by mid-2018 placing undue responsibility on third-party providers to ensure data privacy VIETNAM • Bill is still in the midst of revisions • Introduced the Law on Cyber Information MALAYSIA Security in July 2016, although there are questions about what constitutes compliance • Introduced Personal Data Protection for many of the standards Regulations in 2013 but only came into eect in December 2015, with penalties of up to US$70,000 AUSTRALIA

SINGAPORE • The Privacy Amendment (Notifiable Data Breaches) Bill 2016 was enacted in February 201731 • Introduced the Personal Data Protection Act (PDPA) in 2014 that has a penalty of up to $800,000 • Australian organizations will now have to publicly disclose any data breaches, with penalties ranging • Singapore’s central bank, the Monetary Authority of Singapore, from $360,000 for responsible individuals to requires that financial institutions notify it of any “adverse $1.8 million for organizations development” – events that could lead to prolonged service failure or disruption, or any breach of customer information INDONESIA • New standalone Cybersecurity Act to be enacted in 2017 to report • No general law on data protection, although discussions of incidents and proactively secure critical information infrastructure a draft bill have been in progress for over a year

However, what is clear is the be less resilient than their larger While 25 percent of respondents recognition by authorities and counterparts. Less sophisticated have either experienced an governments of the growing cyber systems and technology, a lack of attempted or actual data breach or risk in the region and the proactive internal cybersecurity resources, cyber attack in 2016, a fifth of the steps already taken in the region’s potentially relying on less-than- respondents were uncertain about battle against cybercrime. cutting-edge outsourcing partners, whether they had experienced any and greater dependence on a smaller compromise (Exhibit 16). CYBERSECURITY number of customers all highlight A GROWING RISK the heightened risk and overall Despite the rising vulnerability to resilience requirements for SMEs cybersecurity breaches, a lack of CONCERN FOR SMEs to better protect themselves and awareness and high investment costs recover quickly in the event of a remain the two immense challenges While cyber is a growing risk cybersecurity breach. for large companies, it may be faced by SMEs. Cybercrime poses a a relatively more elevated risk According to a recent survey, greater threat to SMEs, since they concern for small- or medium-sized cybersecurity is one of the biggest have significantly fewer resources as enterprises (SMEs), which may concerns to Singapore-based SMEs. a buffer, unlike larger organizations.

43 Marsh & McLennan Companies BRINK Perspective HOW CAN SMEs Employee Cybersecurity Kit and the into the enterprise-wide risk ADDRESS CYBER Cyber Security Awareness Alliance, management plans. which were both launched in 2015 THREATS? to help local businesses enhance Finally, besides putting in place the awareness and adopt essential appropriate cyber risk management To address cybersecurity concerns, cybersecurity practices. processes, SMEs must also consider SMEs will first have to understand the extent of risk transfer cover they the types of cyber threats In fact, identifying potential cyber need in response to a cyber attack confronting them. They can start by threats is the crucial first step that since cyber risk cannot be fully making use of available resources businesses should undertake, and it eliminated and the question will and support platforms provided is part of integrating cybersecurity often remain: when and not if. by the government, such as the

EXHIBIT 16 INSIGHTS FROM THE BEAZLEY-SBF (SINGAPORE BUSINESS FEDERATION) SURVEY ON THE PERCEPTION OF CYBER SECURITY RISK BASED UPON 76 SINGAPORE-BASED SMEs Source: Asia-Pacific Risk Center adaptation of the Beazley-SBF survey results

CYBERSECURITY IS ONE OF THE BIGGEST CONCERNS TO LOCAL SMEs BUT ONLY A HANDFUL ARE CONFIDENT THEY ARE ADEQUATELY PROTECTED

PERCEPTIONS PROTECTION AGAINST CYBERSECURITY RISKS IMPORTANCE OF CYBERSECURITY

81 responds % 40% 60% cybersecurity of Singapore SMEs left exposed has increased believes it will get think they are and vulnerable 75% in importance more important adequately protected since 2014

IMPACT EXPENDITURE ATTEMPTED OR ACTUAL DATA BREACH ALLOCATED CYBERSECURITY BUDGET

25% have had experienced of an attempted or actual attack 8% almost 20% were unsure if 56% they had any spent <$20,000 spent >$50,000

KEY CONCERNS PROTECTION ANTI VIRUS SOFTWARE

Protecting 88 Ensuring revenues Protecting data and % Most commonly their info are not used cyber risk reputation compromised Securing new management tool customers

44 Marsh & McLennan Companies BRINK Perspective CONSIDER RISK EXHIBIT 17 COMPARISON OF SELECTED COUNTRIES’ CYBER INSURANCE TRANSFER VIA TAKE-UP RATES Source: Asia-Pacific Risk Center analysis of data from Security Brief AU 2016, Hiscox 2017, INSURANCE COVERAGE and Marsh 2017

SMEs may be overwhelmed by the COMPARISON OF CYBER INSURANCE TAKE UP RATE accelerated pace of technological 2016 change, the extent of investment needed to protect against 55% increasingly sophisticated attacks, and ensuring comprehensive cyber- risk management strategies are 36% implemented. 30% As such, insurance is being seen as a complementary and valuable risk- management tool for SMEs, with 14% some Asia-based insurers (such as <10% AIG and Beazley) developing tailored products for the SME segment. Cyber insurance premiums and coverage will vary, dependent on industry, risk profile and risk controls. MOVING AHEAD Business leaders will also need Nonetheless, cyber insurance WITH RESILIENCE to find the right balance between adoption among Singapore cybersecurity investments and SMEs generally remains below There’s no doubt that insurance securing the appropriate insurance 10 percent, with less than 5 percent plays a key role in cyber risk plans suitable to the unique needs of of manufacturing companies management. However, SMEs as their industry or organization amidst holding such policies, compared to well as large corporations need to changing cyber legislations and a 35 percent or more companies in be cognizant that a cyber insurance changing risk landscape. the financial services, technology, policy is just one of the many This article first appeared on BRINK and telecommunications sectors. strategic response tools that form a on May 4, 2017. Similar to Singapore, only 14 percent holistic cybersecurity management of Australian small businesses held framework. cyber insurance policies in 2016, although 19 percent surveyed are In the fight against cybercrime, looking to purchase cyber insurance the government is more than just a in 2017. regulator – it holds the authority to create and shape a more conducive These statistics are a far cry from the environment to mitigate cyber risks. cyber insurance market in Western In the APAC region, we have seen economies such as the US, the UK most governments step-up efforts and Germany (Exhibit 17). to put in place law enforcement on cybersecurity.

45 Marsh & McLennan Companies BRINK Perspective ASIA IN FOCUS CHALLENGES AROUND THE CYBERSECURITY REGULATORY ENVIRONMENT IN SOUTHEAST ASIA

Simon Piff Vice President of IDC Asia/Pacific’s IT Security Practice Business

Barely a day goes past that the In 2015 and 2016, the International Asian organizations have malware international press does not carry Data Corporation (IDC) undertook sitting within their network a story of a massive data breach – a study of the maturity of the IT environments, for well over a year. whether it is about a billion records security of organizations in the US Traditional burglars could retire taken from a tech company, a health and across the Asia-Pacific region, if they could wander around their insurer’s 80 million records, or a and the comparison provides deep target environments, unnoticed, for bank’s small but significant 9,000. cause for concern. The evidence that long. And yet, rarely do we hear of indicates that very few organizations breaches from Asian organizations. in Asia embrace anywhere near the So why do we not hear of breaches in level of sophistication or general Asia? We could assume they are not Could it be that the information awareness, and have not invested in happening, but that would be naïve. technology (IT) security of Asian the technologies that secure their In reality, the lack of notification organizations is ahead of those of organizations to the degree their is due, almost entirely, to a lack our Western counterparts, or, as Western counterparts have. of breach notification legislation. many in the region think, that Asian Aside from a few countries in organizations are either below A recent report pointed out that the region, breach notification or do not figure on the radar of the global average number of days legislation is non-existent, and as the cybercriminals who steal this taken to discover malware inside such, even if an organization knows information? an organization is 146 days, but in of a data breach (and the above Asia-Pacific the number jumps to statistics would imply that this is Sadly, this is far from the truth. over 500. This means that many unlikely), there is no motivation to

46 Marsh & McLennan Companies BRINK Perspective go public with such news. And why WILL STRONGER If details of would any organization want to in REGULATION MAKE the first place? There is no benefit cybercrime are to telling the world at large that you A DIFFERENCE? are unable to secure your IT security shared more systems… or is there. On the horizon is a piece of legislation coming out of Europe that will have an broadly, the ORGANIZATIONAL impact on a sub-segment of companies in these under-legislated markets, chances of CHALLENGES including in Asia. The General Data Protection Regulation (GDPR) coming Although personal data privacy evading future from the EU will potentially apply laws are on the books in numerous a huge fine to anyone losing data on hacks are much countries, for the most part the a European citizen or resident. The legislation covers the use of such criteria an organization needs to greater. data in terms of marketing outreach. consider here is whether they own Organizations cannot, without the any such data and have an operation individual’s express permission, in Europe. If the answer is “yes” then re-use or sell the data they have an organization will fall under this collected for any other purpose than legislation, regardless of where the that which it was originally collected data is lost (so organizations need for. This makes for a challenge to IT to look closely at their developing managers, who focus on the issue or country operations). storing a wealth of data. Hackers, too, are aware that legislation Business users have a different is missing for the most part, and understanding of the regulations for using this data, but are unlikely to they are leveraging such laws as the know how or where it is being stored EU GDPR to hold data to ransom. within IT systems. So, the promise An emerging crime is that of data theft of big data – the ability to mine the from organizations – cybercriminals data we own and can obtain to gain steal data that can be clearly attributed critical insights to accelerate business to the organization and threaten to growth (or whatever the premise is) post the data to a public site and “name – becomes a regulatory challenge for and shame” the business unless a many, if indeed they understand the ransom is paid. legislation and also accept that the cost of contravening such personal privacy TO TELL OR NOT TO TELL legislation is too much of a business risk to take. So, to the question of “why tell the world about your data loss?” The issue But this is not always the case. Some is that hackers get away with far more countries do have strong legislation if their “modus operandi” is unknown. around the protection of personal If a perfect theft is one where nobody data, but they don’t have a way to realizes anything is stolen, then enforce this legislation, making it data theft is likely at the top of that ineffective at best or totally ignored at list, since the victim still retains a worst. And as it has been mentioned, copy of the data and potentially has even if such personal identifiable no knowledge of the theft. But, if information is misused, leaked, lost the details of how such crimes are or stolen, there is no motivation to committed get shared with the inform anyone, leaving the individual broader community, then the chances to blow the whistle on any misuse or of evading the next hack are much data loss they become aware of. greater.

47 Marsh & McLennan Companies BRINK Perspective This, perhaps, is where government Whether or not a newspaper legislation should focus itself. headline is required is very much Issuing a punitive fine because a a cultural question. The concept of better-funded, better-organized “face” carries far more value in Asia criminal with access to more than elsewhere, and so perhaps we financing and computer resources will never see these headlines… but than the average CIO is able to steal the data loss and hacks will continue data is perhaps not the best approach regardless. to take. Encouraging organizations to share details of any data breach This article first appeared on BRINK or hack into their environment, on March 30, 2017. perhaps even offering some form of amnesty program, will provide countries with far better knowledge that can be used to better protect their IT infrastructure in the future.

48 Marsh & McLennan Companies BRINK Perspective ASIA IN FOCUS BANKING THE UNBANKED IN SOUTHEAST ASIA: HOW CAN DIGITAL FINANCE HELP?

Duncan Woods Partner in the Retail & Business Banking Practice, Asia Pacific at Oliver Wyman

Ritwik Ghosh Principal, Retail and Business Banking Practice, Asia Pacific at Oliver Wyman

Worldwide bank account ownership pay utility bills, and only 11 percent BANKING ON rocketed by 700 million between borrow from formal sources. TECHNOLOGY 2011 and 2014, and as of 2014, The study, which is focused on 62 percent of adults globally The effect of leveraging digital financial inclusion, finds that reported having a bank account technology to bank the unbanked digital financial solutions can play with a formal financial institution. could boost GDP by 2-3 percent in a significant role in closing these This represents significant success in markets such as Indonesia and the gaps in financial inclusion by extending access to formal financial Philippines, and by 6 percent in promoting regular use of various services. However, promoting the Cambodia. use of formal financial services financial services products. Digital continues to be a challenge across applications can address 40 percent Making the most of this opportunity developing economies (including of the volume of unmet demand for could shape the future growth a number of ASEAN markets), and payment services and 20 percent trajectory of the financial services the depth of engagement varies with of unmet credit needs in the “Base industry, particularly in smaller different financial products. of Pyramid” and the micro, small, markets such as Cambodia and and medium enterprise (MSMEs) Myanmar, where only a small For example, a recent study of four segments, according to the study, percentage of the current needs for Southeast Asian markets shows which assesses the impact of digital financial services are met by formal that only 18 percent of adults use finance in Cambodia, Indonesia, providers. a bank account to receive wages or Myanmar and the Philippines.

49 Marsh & McLennan Companies BRINK Perspective Digital financial solutions will have (wages and pensions) and social product designs, such as mobile the most significant impact on transfers – and remittance flows wallets connected to savings financial inclusion in five key areas: can create the initial momentum accounts and intuitive goal-based for electronic payments, thereby savings products. An easy KYC 1. They can enable fast, low-cost supporting the development of and on-boarding process can also and convenient customer viable supply-side business cases. contribute to savings. identification and verification These can be sustained and further processes – especially when developed through person-to-all Exhibit 18 provides an assessment powered by unique national payment systems (which include of the financial inclusion gap across identification numbers, a real- all payments made by individuals, four focus markets and the potential time verification infrastructure including to businesses or the impact of digital finance across and supporting regulatory government), combined with different need categories. frameworks such as tiered know- interoperable networks and your-customer (KYC) schemes. open application programming THE NEED FOR interface platforms. 2. They can meaningfully alter the REGULATORY SUPPORT economics of the supply side by 4. They can significantly enhance addressing last-mile distribution access to credit by using Since much of the digital enablement and servicing issues through low- alternative sources of data, such will be driven by the supply side, cost, widespread, digitally enabled as payment transactions and regulatory and public policy actions points of physical access such as telecoms data, as well as analytics. will play a significant role in creating mobile phones and point-of-sale These improve customer profiling, a favorable environment. There is a devices. credit risk assessment and fraud need for action in the following three detection. areas. 3. They can become prevalent throughout the payments value 5. Savings can be mobilized digitally Supply-side entry barriers. Create chain and ecosystem. Digital through alternative, lower-cost a level playing field by allowing government-to-person payments origination and distribution collaboration and competition – such as employee payments channels and more-convenient between traditional financial

EXHIBIT 18 GAP BETWEEN DEMAND AND FORMAL SUPPLY, AND IMPACT OF DIGITAL APPLICATIONS Note: We were not able to reliably estimate formal savings and insurance supply in Myanmar that targets financial inclusion sub-segments Source: Oliver Wyman analysis

% of Need met by formal FS providers Need vs. Formal Supply Gap Gap addressable by digital finance ccte s tt ee i I Bii tt p te seet I I I P P P PAYMENTS/ B B B TRANSFERS

I I I P P P SAVINGS B B B

I I I P P P B B B CREDITS

I I Not estimated due to nascent P P stage of Micro-insurance market development INSURANCE B B

50 Marsh & McLennan Companies BRINK Perspective services players and new types of The end result is the ability to extend supply-side participants such as access to the unbanked/under- mobile network operators. banked population by significantly reducing the cost of KYC, customer Suitable solution design and due diligence and on-boarding delivery. Develop a “safe space” for processes. businesses to test new ideas in a live environment with more permissive This is not a pipe dream of a digital regulations that provide clear future. India is a case in point where guidance on the development and much of this is now being realized on role of agent networks, and allows the back of a universal national ID different supply-side operators project (called Aadhaar). Indonesia’s to use these alternative channels; national ID program (e-KTP) is also and promote low cost and more being developed to enable a similar convenient payment channels and end-state solution. network infrastructure, for example, by advocating and mandating The opportunity to accelerate transfer of money between mobile financial inclusion through digital money platforms. finance is clear, and the impact would be significant on both the lives Shared vision. Produce a unified of financially excluded people and roadmap for financial inclusion the broader economy. Regulators to focus the efforts of various and policymakers have critical roles stakeholders; and put in place to play in supporting and enabling a governance mechanism to this digital innovation. facilitate coordination and ensure accountability for action in all This article first appeared on BRINK relevant government departments. on February 3, 2017. A DIGITAL FUTURE?

When all of these elements fall in place in a mutually reinforcing manner, rapid change in the level of financial access and usage can be achieved. The graphic below illustrates how such a digitally enabled solution can take shape in customer identification and verification. The user possesses a universal unique ID that is verifiable with biometric information stored in a public utility database. This is accessed in real time by various service providers via different channels, ranging from agents to fully digital customer-initiated requests.

51 Marsh & McLennan Companies BRINK Perspective EXHIBIT 19 MAPPING DIGITAL KYC ENHANCEMENTS TO PRODUCT VALUE CHAINS CAPTURE Source: Oliver Wyman analysis

PRODUCT CUSTOMER CUSTOMER SERVICING & DEVELOPMENT ACQUISITION ON BOARDING PROCESSING CLEARING MAINTENANCE

USER

PASSPORT OTHER ID Image and data aggregation One or more form of ID software AGENT LED INDIVIDUAL

Submits Capture documents Biometrics Data Verified & approved Verified & approved

Automated KYC verification MOBILE AGENT DEVICES Biometrics Data query Data matching

Integrated with banking system

BANK REAL TIME DATABASE

FINTECH EXAMPLES rher eais in ppeni Lenddo Digital enhancements

52 Marsh & McLennan Companies BRINK Perspective ASIA IN FOCUS HERE’S HOW ASIA’S CITIES CAN BE SMART AND SUSTAINABLE

Todd Ashton President of Ericsson Malaysia and Sri Lanka

A quick online search of the world’s In some respects, this elevates cities knowledge and devices to be top 10 most populous cities will above nation states as significant networked in new ways, and cities reveal that more than half are in incubators of innovation, enterprise that embrace ICT’s potential can Asia. If you were to walk down and social progress. At the same create new value, operate efficiently the busy streets of Jakarta, Tokyo, time, the required pace of change and benefit from significant return Manila or Seoul, you might think – especially now where we face on investments. All this adds up to that everyone has moved to the city global economic, environmental more livable, more attractive and – and you wouldn’t be far from the and social uncertainty – creates ultimately more competitive cities, truth. a raft of challenges to sustainable as well as the potential for people development. to pursue a more sustainable urban We are undergoing a major rural-to- future. urban demographic shift. There are CONNECTING THE CITY already more people living in cities The significance of cities is well than in rural areas, and the United It’s crucial that cities adopt smart, recognized in the UN Sustainable Nations estimates that by 2050, sustainable development practices. Development Goal 11 about almost 70 percent of the world’s Harnessing the potential of sustainable cities and communities. population will be city dwellers. information and communication If we go back to considering the technology (ICT) will enable cities most populous cities in Asia, each With so many people moving to to thrive without their development city faces many complex problems cities, the way these cities are taking a major toll on already-scarce that require different types of structured will impact the lives of resources. ICT allows people, action – but we see that a common billions of people. enabler across the board is ICT.

53 Marsh & McLennan Companies BRINK Perspective A paper published in 2015 by the Earth Partnership, planning and engagement Investment in Institute at Columbia University and can make all the difference between Ericsson states that ICT can accelerate a city that owns and controls its information and the achievement of these Sustainable transformation and one that is a victim Development Goals. Higher ICT of fragmented, unsustainable change. communication maturity levels for cities are associated with more opportunities to transform Forming strong partnerships with ICT technology lifestyles and economic prospects. companies and non-governmental organizations (NGOs) with a global will make For ASEAN countries, broadband, presence and high levels of expertise, based on a combination of both fixed particularly in systems integration, cities smarter and wireless technologies, can help can allow cities to accelerate their significantly accelerate sustainable transformation journey. and more growth in cities. Therefore, there should be a national agenda when it Early last year, we announced sustainable. comes to broadband and concerted our partnership with Arup, an efforts to improve the business case for independent firm of planners, these investments. By releasing more designers, engineers, consultants and spectrum with sustainable economics technical specialists working across to the key players in the market, the built environment to transform governments will be able to better a pilot district in Hong Kong into a enable broadband investment from smart and sustainable neighborhood. private industry. Education in terms of The feasibility study focuses on digital literacy and new technologies transforming the 488-hectare is also needed. This combination of Kowloon East into an additional infrastructure and capability will help Central Business District of create smart cities. Hong Kong, which will further support economic growth and strengthen CAN SMART CITIES ALSO global competitiveness. BE SUSTAINABLE?

So, what of sustainability? ICT projects alone won’t necessarily make cities more sustainable.

Our experience has shown that to successfully transform into a smart, sustainable city, five critical considerations are necessary:

ȫȫDefining an agreed-upon vision, strategy and targets

ȫȫCreating informed networked governance structures

ȫȫDeveloping organizational capacity

ȫȫEngaging with all relevant stakeholders

ȫȫForging and fostering long-term partnerships

54 Marsh & McLennan Companies BRINK Perspective The scope of the study spans a The trial provided a more convenient wide range of subjects that include and enhanced bike-sharing formulating a smart city framework, experience to Mobike users using an implementation strategy and new cellular IoT technologies, a business model that later can allowing users to locate bikes more be expanded to cover the rest of accurately and extending service Hong Kong. It will also advise on to areas that traditional coverage centralized digital infrastructure could not reach, such as basement and cybersecurity to support the parking spaces. In a country like Internet of Things (IoT) and big China, where cities are more densely data applications. populated compared to other cities in Asia, the convenience of While Hong Kong’s ICT maturity bike-sharing – powered by mobile more easily enables ICT-based and IoT technology – will help not transformations with social, only to decongest roads, but will economic and environmental also help to address challenges benefits, ICT-based solutions can from the pollution that heavy road be created to match cities’ levels of traffic brings. development, as long as the right partnerships are in place. These are just two examples of how ICT can help transform cities The use of IoT technology to into becoming smarter and more enhance bike-sharing in China is sustainable, but the possibilities another example of how technology are endless with public and private is transforming cities. Our sector collaboration, broadband partnership with China Mobile infrastructure and the right Shanghai and Mobike, the popular investment in capability. bike-sharing service, gave us the opportunity to trial the latest This article first appeared on the cellular IoT technologies on a World Economic Forum Agenda and live network. BRINK on May 29, 2017.

55 Marsh & McLennan Companies BRINK Perspective ASIA IN FOCUS ELECTRIFYING EMERGING ASEAN THROUGH OFF-GRID DISTRIBUTED RENEWABLE ENERGY SYSTEMS

Han Phoumin Energy Economist at the Economic Research Institute for ASEAN and East Asia

Some 134 million people in the Off-grid DES-related renewable A business-as-usual scenario was Association of Southeast Asian energy sources include biomass, developed for each ASEAN country Nations (ASEAN) region do not solar, and hydro, with generating to outline the current energy policies have access to electricity. At the end capacities ranging from a and the expected foreseeable future of 2015, the ASEAN community few kilowatts to as much as of energy policies and economy-wide declared that lack of power and 50 megawatts. Such renewable energy consumption, assuming no energy access could threaten the energy technologies can either be significant changes in government region’s economic growth and its integrated into local distribution policies. An alternative policy economic transition. grids or used as stand-alone scenario was set to examine the systems in areas where the potential impacts of additional Many industrial and commercial extension of transmission lines energy efficiency goals, action plans, economic zones, and remote areas is not economically viable. or policies that are currently, or in ASEAN’s emerging countries that likely to be, under consideration. contribute to economic growth, are As energy supply from off-grid DES- sometimes faced with an unstable related renewable sources has a large The results show that the electricity energy supply. This can prevent potential to increase in emerging supply from off-grid DES-related companies and households from ASEAN countries, the Economic renewable sources would increase investing and providing economic Research Institute for ASEAN and from 65,608 gigawatt-hours under activities, such as goods and services. East Asia has attempted to estimate the business-as-usual scenario the off-grid DES-related renewable to 91,854 gigawatt-hours in Off-grid distributed energy systems energy potential using both a the alternative policy scenario (DES) using renewable energy could business-as-usual scenario and an (Exhibit 20). be a solution to this problem, thanks alternative policy scenario. to the increasing availability of small power generation and renewable energy technologies.

56 Marsh & McLennan Companies BRINK Perspective income tax, import and export EXHIBIT 20 ESTIMATES OF OFF-GRID DISTRIBUTED RENEWABLE ENERGY SYSTEM INVESTMENT OPPORTUNITIES BY 2040 duties, and local taxes; and the Source: Han (2016) introduction of a carbon tax and accelerated depreciation

Biis ȫȫGrid access aims to give project developers confidence to invest through grid access priority and a transmission discount policy if electricity is produced from renewable energy ȫȫRegulatory instruments aim to provide incentives for investing in renewables through the r eter r P i Biss implementation of energy policies, such as feed-in tariffs, feed-in Bsiessss tertive pic sceri premiums, auctions, net metering, and quotas

ȫȫFinance aims to reduce risk The investment opportunity 64.6 million metric tons under the for investors through the estimated for the combined use of alternative policy scenario. implementation of currency solar, wind, biomass, hydropower, hedging, dedicated funds, eligible and geothermal is about $34 billion But to realize the potential of off-grid funds, and guarantees for the business-as-usual scenario DES-related renewable capacity and investment, an enabling policy and about $56 billion under the In conclusion, the increase in off- framework that provides a long- alternative policy scenario. grid DES-related renewable energy term government commitment supply in the ASEAN region will Among the DES-related renewable and credible targets will be needed. have multiple benefits for people and energy sources, investments in solar ASEAN may need to consider a the environment. and geothermal power are expected wide range of policy options and to double under the alternative instruments, although it is already Its expansion and application policy scenario compared with targeting a 23 percent share of could promote lower-cost, more the business-as-usual scenario, renewable energy in primary energy efficient energy access, and it could while investment in wind energy supply by 2025. also address the challenging issue is expected to increase more than of electricity access for about threefold to meet the expected The following framework of policy 134 million people whose rights generation output by 2040. options is worth considering: have been denied. Its application ȫȫNational policy design aims would also contribute to CO POLICY OPTIONS TO 2 to provide a trajectory for the reduction at the ASEAN level by PROMOTE OFF-GRID DES future energy mix. It includes reducing emissions by as much as a renewable energy target; a nearly 65 million metric tons in the From the potential increase in renewable energy law or strategy; alternative policy scenario. off-grid DES-related renewable a biomass and biofuels law or energy sources in ASEAN, it is also program; and a solar heating, solar ASEAN will enjoy quality growth estimated that the CO2-emissions power, wind, and geothermal law by investing more in off-grid DES- reduction in the ASEAN region as a or program related renewable energy sources. result of the application of off-grid DES-related solar, wind, biomass, ȫȫFiscal incentives aim to reduce This article first appeared on Asia geothermal, and hydropower would the upfront cost by introducing Pathways, the blog of the Asian be about 46.1 million metric tons in fiscal policy instruments, such as Development Bank Institute and the business-as-usual scenario and exemptions of value-added tax, BRINK on July 3, 2017.

57 Marsh & McLennan Companies BRINK Perspective WHAT’S NEXT? THE END-TO-END AUTONOMOUS SUPPLY CHAIN… IS HERE

Wolfgang Lehmacher Head of Supply Chain and Transport Industries at World Economic Forum

From Amazon’s delivery drones As an alternative to drones and an autonomous last-mile solution to self-driving cars, autonomous surface transportation on roads that can move a total of 100 pounds. factory equipment to Elon Musk’s or through tubes, experts in In order to learn to move safely vacuum tubes that will transport Switzerland have presented a plan to alongside other vehicles and citizens, items at 760 miles per hour – move goods across the country in a the robot is equipped with sensors automated vehicles are on the rise. gigantic underground tunnel. On the and artificial intelligence technology. waters, the cargo ships of the future Even beyond the realm of private are expected to be crewless and In Paris, two entrepreneurs are companies, automated transport remote-controlled. building a river shuttle that will has been successfully tested. Six essentially fly above the Seine to convoys of platoons, in groups of two COMPLEXITY OF avoid congestion on the busy streets. or three trucks – communicating Another startup, Parcelhome, has wirelessly and driving closely behind ‘THE LAST MILE’ developed intelligent lockers and one another – arrived by public road boxes to complete the autonomous The so-called last mile, the delivery in Rotterdam in April 2016. The supply chain. to the doors of businesses and Ministry of Transport in Singapore consumers, is probably the most and the port operator, PSA, seek In parallel, engineers are working on complex task in the supply chain – proposals to develop an autonomous building the software to coordinate in particular in the diverse urban truck platooning system. Airbus is thousands of autonomous units on, universe of cars, bicycles and pursuing an autonomous air taxi under and above the ground, on the children playing on the streets. project to deliver parcels to ships in rivers, lakes and oceans – to move As an alternative to drones, the the port of Singapore. passengers and cargo. start-up, Dispatch, has developed

58 Marsh & McLennan Companies BRINK Perspective In summary, the autonomous A SAFER, MORE Less congestion will make the flow of end-to-end supply chain is almost EFFICIENT SUPPLY CHAIN goods and people faster – and those complete. Raw materials extracted countries with driver shortages, such in automated mines reach the smart … AND ITS CHALLENGES as the US, the UK and Germany will industry 4.0 and from there are find relief. transported by truck platoons or The autonomous supply chain will long-distance drones to purchasers, create enormous opportunities These improvements do not come or the automated distribution to make the flow of goods safer, without their challenges. One key centers of wholesalers, retailers or more efficient and environmentally concern is cyber risk. We need to e-commerce warehouses. Drones, friendly: self-driving cars alone ensure that autonomous units cannot robots, or urban tubes deliver the would reduce accidents by be hacked. Ethical questions must products directly into homes or 70 percent, improve fuel-efficiency also be answered. How should we smart boxes – or via self-driving by 20 percent, and save about decide who a vehicle should save in cars, sent to pick up goods from local 1.2 billion hours of pure driving the case of an accident? Policymakers sorting centers. time over a period of ten years. need to consider where to drive

EXHIBIT 21 N I R RRI

tec eectives eperts r te irti cictis tec sectr ere srvee s prt r echnoo ippin oins an ociea mpac reprt

rce r cic r ec ippi Pits ciet Ipct reprt

Technology tipping ponts expected to occur by 2025 Percentage of respondents

10% of people wearing clothes connected to the internet 91.2

The first robotic pharmicist in the U.S. 86.5

The first 3D-printed car in production 84.1

5% of consumer products printed in 3D 81.1

90% of the population with regular access to the internet 78.8

Driverless cars equalling 10% of all cars on U.S. roads 78.2

The first transplant of a 3D-printed liver 76.4

Over 50% of internet trac to homes for appliances and devices 69.9

The first city with more than 50,000 people and no trac lights 63.7

The first AI machine on a corporate board of directors 45.2

59 Marsh & McLennan Companies BRINK Perspective innovation and where to slow down Platoons, drones, tunnels, tubes, the autonomous economy to avoid rolling robots and automated unwanted consequences, such as warehouses will make that constant job losses. flow possible. This requires flexibility and innovation on operator level The autonomous movement, which and investments in technology started in the early 1950s, is now and infrastructure. in full swing. Some 70 percent of 1,433 consumers surveyed in the The realization of the autonomous US think they will order their first supply chain requires close drone-delivered package within the collaboration between next five years. Almost 90 percent of manufacturers, operators, policymakers expect autonomous retailers, developers, policymakers vehicles to gradually become reality and citizens. within the next 10 years, according to a 2015 World Economic Forum The global self-driving vehicle study. Many of the cities interviewed study yielded hopes in respect to consider goods delivery as one of the the environment and our health: key applications for autonomous 66 percent of the 5,500 consumers transportation in their city. surveyed said that, to their minds, self-driving cars would be electric or Some 60 percent of policymakers hybrid. In light of all the benefits and in the study expect a ban for private challenges of the autonomous supply cars in a significant part of the city chain, creating a pilot program over the next 15 years. Will this stay somewhere in the world with fully- limited to private vehicles? Probably fledged autonomous mobility of not. Over time, cities will further goods and people would be a major regulate goods deliveries. One of step toward cleaner, safer and more the pain points for citizens today is efficient cities. daytime deliveries, which regularly come with double parking and add This piece first appeared in to the city’s overall congestion. The Agenda from the World Economic Therefore, shippers, in addition to Forum and BRINK on March 24, 2017. transportation companies, need to prepare for the autonomous future.

Capturing the full potential of the automated supply chain requires rethinking and transforming the mainstream logistics systems: from the fixed “collect in the evening and deliver during the morning” approach to a fluid system of continuous movement and supply.

60 Marsh & McLennan Companies BRINK Perspective WHAT’S NEXT? FACTORIES OF THE PAST ARE THE DATA Data is crucial CENTERS OF THE FUTURE to innovation, but also Graham Pickren Assistant Professor of Sustainability Studies at Roosevelt University enables the displacement of workers through offshoring and automation.

We live in a data-driven world. Buildings where workers once From social media to smart cities processed checks, baked bread and to the Internet of Things, we now printed Sears catalogs now stream generate huge volumes of information Netflix and host servers engaged in about nearly every detail of life. financial trading. This has revolutionized everything from business to government to the The buildings themselves are a kind pursuit of romance. of witness to how the US economy has changed. By observing these changes We tend to focus our attention on what in the landscape, we get a better is new about the era of big data. But sense of how data exist in the physical our digital present is in fact deeply realm. We are also struck with new connected to our industrial past. questions about what the rise of an information-based economy means In Chicago, where I teach and do for the physical, social and economic research, I’ve been looking at the development of cities. The decline of transformation of the city’s industrial industry can actually create conditions building stock to serve the needs of the ripe for growth – but the benefits of data industry. that growth may not reach everyone in the city.

61 Marsh & McLennan Companies BRINK Perspective FACTORIES OF THE In Chicago’s South Loop sits the closed down in recent decades, the 21st CENTURY former R.R. Donnelley & Sons nearby power substations actually printing factory. At one time, it was had plenty of idle capacity to meet Data centers have been described one of the largest printers in the US, the data center’s needs. as the factories of the 21st century. producing everything from Bibles Examples of this “adaptive reuse” These facilities contain servers that to Sears catalogs. Now, it is the of industrial building stock store and process digital information. Lakeside Technology Center, one of abound. The former Chicago Sun- When we hear about data being the largest data centers in the world, Times printing facility became a stored “in the cloud,” those data are and the second-largest consumer of 320,000-square-foot data center in really being stored in a data center. electricity in the state of Illinois. early 2016. A Motorola office building But contrary to the ephemeral- The eight-story Gothic-style and former television factory in the sounding term “cloud,” data centers building is well-suited to the needs suburbs has been bought by one of are actually incredibly energy- and of a massive data center. Its vertical the large data center companies. capital-intensive infrastructure. shafts, formerly used to haul heavy Even the once mighty retailer Sears, Servers use tremendous amounts stacks of printed material between which has one of the largest real of electricity and generate large floors, are now used to run fiber- estate portfolios in the country, has amounts of heat, which in turn optic cabling through the building. created a real estate division tasked requires extensive investments in (Those cables come in from the with spinning off some of its stores cooling systems to keep servers railroad spur outside.) Heavy floors into data center properties. Beyond operating. These facilities also built to withstand the weight of Chicago, Amazon is in the process need to be connected to fiber-optic printing presses are now used to of turning an old biscuit factory in cables, which deliver information support rack upon rack of server Ireland into a data center, and in via beams of light. In most places, equipment. What was once the New York, some of the world’s most these cables – the “highway” part pinnacle of the analog world is now significant data center properties of the “information superhighway” a central node in global financial are housed in the former homes – are buried along the rights of networks. of Western Union and the Port way provided by existing road Authority, two giants of 20th- and railroad networks. In other Just a few miles south of Lakeside century modernity. words, the pathways of the internet Technology Center is the former are shaped by previous rounds home of Schulze Baking Company What we see here in these stories is of development. in the South Side neighborhood of the seesaw of urban development. Washington Park. Once famous for As certain industries and regions An economy based on information, its butternut bread, the five-story decline, some of the infrastructure just like one based on manufacturing, terra-cotta bakery is currently retains its value. That provides still requires a human-made being renovated into the Midway an opportunity for future savvy environment. For the data industry, Technology Centre, a data center. investors to seize upon. taking advantage of the places that Like the South Loop printing factory, have the power capacity, the building the Schulze bakery contains features DATA CENTERS AND stock, the fiber optic connectivity and useful to the data industry. The PUBLIC POLICY the proximity to both customers and building also has heavy-load bearing other data centers is often central to floors as well as louvered windows What broader lessons can be drawn their real estate strategy. designed to dissipate the heat from from the way our data-rich lives bread ovens – or, in this case, servers. are transforming our physical and FROM ANALOG social landscape? TO DIGITAL It isn’t just the building itself that makes Schulze desirable, First, there is the issue of labor and As this real estate strategy plays but the neighborhood as a whole. employment. Data centers generate out, what is particularly fascinating A developer working on the Schulze tax revenues but don’t employ many is the way in which infrastructure redevelopment project told me that, people, so their relocation to places constructed to meet the needs of a because the surrounding area had like Washington Park is unlikely to different era is now being repurposed been deindustrialized, and because change the economic fortunes of for the data sector. a large public housing project had local residents.

62 Marsh & McLennan Companies BRINK Perspective If the data center is the “factory For example, an Oregon law targeting of the 21st century,” what will that data centers provides property tax mean for the working class? relief on facilities, equipment, and employment for up to five years Data centers are crucial to in exchange for creating one job. innovations such as machine The costs and benefits of these learning, which threatens to kinds of subsidies have not been automate many routine tasks in both systematically studied. high- and low-skilled jobs. By one measure, as much as 47 percent of More philosophically, as a US employment is at risk of being geographer, I’ve been influenced automated. Both low- and high- by people like David Harvey and skilled jobs that are non-routine – Neil Smith, who have theorized in other words, difficult to automate capitalist development as inherently – are growing in the US. Some of uneven across time and space. these jobs will be supported by data Boom and bust, growth and decline: centers, freeing up workers from They are two sides of the same coin. repetitive tasks so that they can focus on other skills. The implication is that the landscapes we construct to serve the On the flip side, employment in the needs of today are always temporary. manufacturing sector – which has The smells of butternut bread defined provided so many people with a part of everyday life in Washington ladder into the middle class – is in Park for nearly a century. Today, data decline in terms of employment. is in the ascendancy, constructing The data center embodies that landscapes suitable to its needs. economic shift, as data management But those landscapes will also be enables the displacement of workers impermanent, and predicting what through offshoring and automation. comes next is difficult. Whatever the future holds for cities, we can be So buried within the question of sure that what comes next will be a what these facilities will mean for reflection of what came before it. working people is the larger issue of the relationship between automation This piece first appeared on and the polarization of incomes. The Conversation and BRINK on To paraphrase Joseph Schumpeter, February 6, 2017. data centers seem likely to both create and destroy.

Second, data centers present a public policy dilemma for local and state governments. Public officials around the world are eager to grease the skids of data center development.

In many locations, generous tax incentives are often used to entice new data centers. As the Associated Press reported last year, state governments across the US extended nearly $1.5 billion in tax incentives to hundreds of data center projects nationwide during the past decade.

63 Marsh & McLennan Companies BRINK Perspective WHAT’S NEXT? HOW DATA AND TECH WILL FUEL Big Data MEGACITIES OF THE FUTURE collected through the Terry D. Bennett Senior Industry Strategist for Civil Infrastructure at Autodesk Internet of Things will play a key role in growing the megacities of 2050.

What will cities look like by the year which adds pressure to upgrade 2050? Will they be like those in roads, highways, and port/airport South Korea, centered on a digitally infrastructure for vehicle use – connected retrofit of existing society? autonomous or otherwise. Will they parallel the shiny new cities of Dubai or Singapore? Or could they Add to this mix myriad technology possibly move underground or under disruptions, such as sensors, big data, the oceans? and the Internet of Things (IoT), which can help adjacent cities work Today, innovative cities, such as together like cogs in a bigger machine. Curitiba, Brazil, are rethinking entire mass-transportation strategies while But why is that important? Planners debating visions of autonomous have been considering urbanization cars and drones. The most basic pressures, often in areas with infrastructure needs have always been little room to increase building about how people want to live and or infrastructure capacity. One move around. alternative is analyzing collected data to determine how to densify corridors It’s also about how things move of population between neighboring around. FedEx sees e-commerce cities, with mass transit creating increasing by 26 percent from 2016 megaregions that could easily become to $2.4 trillion worldwide by 2018, home to millions more.

64 Marsh & McLennan Companies BRINK Perspective The challenge for cities around can be informed and expedited • Outcomes: Projects that meet the world is: How do they grow? via infrastructure visualization, planning/business-case measures How do they perform and simulation, and analysis. The rise and use cost-benefit analyses to transform simultaneously? of big data and advanced modeling meet economic objectives technology make it possible to DATA AND THE plan and prioritize infrastructure THE FUTURE OF investment with greater foresight, MEGACITIES OF better communicate potential PLANNING IS 3-D THE FUTURE outcomes, and yield measurably Building Information Modeling better results. Neighboring cities are coalescing (BIM) gives meaning to the vast in their shared infrastructure and Creating smart cities means more information available to architects mutual impact of their economies. than using the IoT to optimize and engineers, urban citizens, Power lines, roads, transit, water services or communicate information and decision-makers. Advanced systems, and safety don’t stop at city to residents. It should be a construct 3-D modeling allows people to limits, and municipalities are facing used to frame local government analyze complex information, transformation at unprecedented decision-making around city including risks and problems at a rates. As a result, there’s a lot of transformation. While 2050 seems system-versus-asset level. What debate about who decides the way far off, for existing cities that must that means is thinking about what forward and what that looks like. perform, transform, and compete the whole infrastructure system is with brand-new cities, it’s pretty trying to accomplish versus goals When it comes to designing close at hand. Cities need to evolve of its individual components. That infrastructure, one thing is for to develop sustainably; improve information helps architects and sure: Big data collected through the resilience; meet citizens’ rising engineers enhance designs so IoT will play a key role in growing expectations; and attract investment, individuals, firms, and cities can the megacities of 2050. “Big Data new businesses, and talent. The good meet their “smart” connected goals, is all the information around us news is that data and technology will bringing neighboring cities together. that is being collected in various make work and life better by creating streams,” says Steph Stoppenhagen, a well-connected community. Consistent use of 3-D in-context smart cities business development models coupled with simulation director for Black & Veatch. “If you But smart investment and policy software can create a hypothetical decisions are crucial to planning, use a metrocard to get on a subway, but realistic scenario of the physical and moving to long-term investment then the system knows when you infrastructure’s performance. (versus grant funding) is key. entered, where you went, and the It establishes a concrete vision in To achieve that, cities must connect: route you took. How is this helpful? 3-D, setting the context for discussing goals and performance measures that By recognizing if the subway service • Projects: Developments that build worked. Was it successful? If so, you toward the unified city vision everyone can understand. will do it again and again. That is and meet broader economic Technology lets people see with both one example of using data to watch objectives, such as accessibility, eyes open – gaining perspective and people’s movements – creating jobs, affordable housing, and depth – rather than with one eye smarter mobility.” healthy environments closed, which gives perspective but Not all data easily translates into • Teams: Collaborative efforts no depth. The depth comes from useful or actionable information, functioning across all levels of information streaming through though. To address the changing government to unlock public and technology: Information-rich models urban landscape, information private infrastructure investment, can help stretch infrastructure itself should be seen as a form of leveraging big data to track the investment dollars throughout the infrastructure – one that can be used performance of infrastructure design and construction phases. for better planning to connect cities within a bigger system. • Insights: New technologies that Going forward, using 2-D designs in revolutionize how cities are an ever-changing 3-D world won’t The starting point is people, not planned, function, and grow work. Using 3-D BIM processes will technology. Planning, design, the economy by connecting be a critical skill set to build the right and investment decisions – along everyone at the beginning of infrastructure for a megacities-of- with supportive policymaking – project planning the-future vision.

65 Marsh & McLennan Companies BRINK Perspective CREATING SMART Smart infrastructure connections at a 2050 seems FOUNDATIONS TOGETHER personal, community, metropolitan, or even national level – underpinned far off, but data Cities are often overwhelmed by big by technology – provide the capability data and lack the ability to make the for monitoring and measuring data. and technology information actionable. A benefit of Then the analysis of data feedback can BIM is that it can manage connections yield positive steps to address issues will soon make among all the data useful for complex (whether through human or machine city design projects – from the micro to actions). work and life macro level. This changes the vision of cities better through Through an immersive collaboration, and provides the foundation for the general public will better more holistic planning. In the a well- understand the future of infrastructure connected cities of 2050, all kinds design. This way of stepping into, of infrastructure – energy, water, connected around, and through infrastructure transportation, buildings, and virtually is becoming the norm. It aids governance – will “talk” to each community. in faster design-concept creation, other to prioritize needs, optimize vetting, and approval, and it reduces performance, minimize energy use, stakeholder pushback. and make life more enjoyable and productive for the people who live in In this era of connected BIM – and travel between cities. where information forms the infrastructure for planning, designing, This article originally appeared on and maintaining manufactured and Autodesk’s Redshift, a site dedicated natural systems – the objective is to inspiring designers, engineers, to create integrated and resilient builders and makers, and BRINK on infrastructure. Then, cities will be May 3, 2017. able to withstand and recover more quickly from natural and human- caused disasters – and grow to support their future.

By collecting and analyzing more information, civil engineers will better predict what’s needed to manage bridges, roads, and other infrastructure assets, prolonging their lifecycles. As populations increase and demand for infrastructure rises, future- proofing assets must take into account true lifecycle costs.

66 Marsh & McLennan Companies BRINK Perspective About Marsh & McLennan Companies MARSH & McLENNAN COMPANIES (NYSE: MMC) is a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. Marsh is a leader in insurance broking and risk management; Guy Carpenter is a leader in providing risk and reinsurance intermediary services; Mercer is a leader in talent, health, retirement and investment consulting; and Oliver Wyman is a leader in management consulting. With annual revenue of more than $13 billion and approximately 60,000 colleagues worldwide, Marsh & McLennan Companies provides analysis, advice and transactional capabilities to clients in more than 130 countries. The Company is committed to being a responsible corporate citizen and making a positive impact in the communities in which it operates. Visit www.mmc.com for more information and follow us on LinkedIn and Twitter @MMC_Global.

About Asia Pacific Risk Center Marsh & McLennan Companies’ Asia Pacific Risk Center addresses the major threats facing industries, governments, and societies in the Asia Pacific Region and serves as the regional hub for our Global Risk Center. Our research staff in Singapore draws on the resources of Marsh, Guy Carpenter, Mercer, Oliver Wyman, and leading independent research partners around the world. We gather leaders from different sectors around critical challenges to stimulate new thinking and solutions vital to Asian markets. Our digital news service, BRINK Asia, keeps decision makers current on developing risk issues in the region. c viret epitics ciet ec

BRINK Asia gathers timely perspectives from experts on risk and resilience to inform business and policy decisions on critical challenges in the region. It is the online news service of Marsh & McLennan Companies’ Asia Pacific Risk Center, managed by Atlantic Media Strategies, the digital consultancy of The Atlantic.

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