Year: 2019

How AVANGRID is working to meet the world’s growing electricity demands

Posted on by Ashton Wenborn

Electricity is essential to our lives today: our connected world, our economy and our society depend on it in a way we never have before, and this will intensify as we embrace innovations like electric vehicles. At the same time, more intense weather patterns are testing our infrastructure in new and challenging ways. Meanwhile, policymakers are looking for ways to lower CO2 emissions and employ clean energy solutions. These trends provide an amazing opportunity for energy companies like AVANGRID to lead the way in delivering safe, reliable and clean energy to meet changing demand.

According to the US Energy Information Administration, the use of wind, solar and other renewables is projected to increase by nearly a third by 2050. However, the shift to renewable energy brings its own set of technical challenges, to which the industry must adapt. Responding to these challenges – and capitalising on the opportunities that arrive with them – requires us to think differently. That’s why AVANGRID embraces innovation as a core value. We invest significantly in talent and technology to unlock innovation across our businesses. Moreover, we have implemented a corporate governance system that firmly entrenches a commitment to sustainable development and ethical conduct – guiding everything we do.

Clean future
AVANGRID is a young company, formed in 2015 from the merger of Iberdrola USA and UIL Holdings. Today, it is listed on the New York Stock Exchange and has approximately $32bn in assets and operations across 24 US states. While AVANGRID’s utilities have been providing electric and gas services to communities on the East Coast for more than 150 years, we are also at the forefront of the transition to a clean energy future. In addition to our focus on bringing innovation to our utility business, the company is a leader in renewable energy through Avangrid Renewables, which owns and operates 7.1GW of electricity capacity and is the third-largest generator of wind power in the US.

More intense weather patterns are testing our infrastructure in new and challenging ways

At almost nine times lower than the US utility average in terms of CO2 emissions intensity, AVANGRID is among the cleanest energy generation companies in the country. We have also pledged to achieve carbon neutrality by 2035. Further, we are investing in better, smarter, stronger power grids that are hardened against extreme weather and can be restored quickly after sustaining damage.

As one of the largest US operators of renewable energy facilities, with approximately 6.5GW of installed renewable capacity, AVANGRID is already at the cutting edge of the clean energy revolution. Now, we’re turning our attention to the largely untapped resource of offshore wind.

The US is ripe for development in this field, particularly in the Northeast corridor, where wind potential is among the best in the country. Currently in the permitting stage, Vineyard Wind – Avangrid Renewables’ joint venture with Copenhagen Infrastructure Partners – is poised to develop an 800MW offshore wind farm off the coast of Massachusetts. With construction due to begin later this year, it’s expected to be the first large-scale offshore wind farm in the US at the start of operations in 2021.

Vineyard Wind and AVANGRID have also won Bureau of Ocean Energy Management lease sales and rights to develop wind farms on additional sites off the coast of Massachusetts and North Carolina. Meanwhile, other East Coast states, including Connecticut, New York and New Jersey, have announced requests for proposal in a bid to bring more offshore wind energy to their power grids.

As part of the global Iberdrola Group, AVANGRID is well positioned to kick-start the industry’s development. Indeed, Iberdrola has the global experience and expertise to help develop offshore wind capacity in the US. Incidentally, offshore wind power is one of the key drivers of Iberdrola’s growth, with 544MW of installed capacity as of 2017, mainly in the UK, Germany and France.

Pioneering solutions
As renewables account for an ever-growing share of the national energy portfolio, we’re imagining new ways to deliver their full benefits to our customers. One such initiative is Avangrid Renewables’ new ‘green’ Balancing Authority, which launched in 2018. The Balancing Authority allows Avangrid Renewables to deliver a tailored blend of energy from various sources to customers in western US states, thereby ensuring a stable, low-carbon supply.

$32bn

AVANGRID assets

24

Number of US states in which AVANGRID has operations

6.5GW

AVANGRID’s installed renewable energy capacity

Another project, still in the approval phase, seeks to capitalise on the growing demand for clean energy in New England and the availability of abundant hydropower resources in Canada’s Quebec province. New England Clean Energy Connect proposes to deliver up to 1,200MW of clean, reliable hydropower via a transmission line running from the Quebec border to Lewiston, Maine. If approved, the project will be New England’s largest source of carbon-free electricity through 2063 and beyond. Moreover, it is expected to produce nearly $1bn in economic benefits for Maine through to 2027.

As the energy industry responds to the call for more clean generation, transformational change is also underway on the distribution side of the business, which manages the grid that brings electricity to homes and businesses. The proliferation of private solar power and the rise of electric vehicles, among other trends, threaten to upend decades of conventional wisdom about managing demand and loads on electric grids. Energy companies are challenged to accommodate these new demands on existing infrastructure, while providing customers with opportunities to reduce their energy usage too.

In New York, Avangrid Networks companies recently launched four pilot programmes to evaluate how energy storage systems can help offset load during system ‘peaks’ – when grids are near capacity and energy prices are high – and take advantage of low-cost energy supplies available during low-demand periods.

These systems use batteries to store energy when demand and costs are low, and either return that energy to the power grid or deliver it directly to end users to offset system peaks. For instance, the battery-supported electric vehicle chargers recently installed in Rochester, New York, can provide a quick charge without taxing the grid, and then recharge when demand is low. A similar concept is being tested at the circuit, substation and individual customer level. Broadly applied, these technologies could help Avangrid Networks companies to use existing infrastructure more efficiently, thus avoiding the need for costly upgrades, while also helping to shift demand to periods when clean energy is available at low cost.

We’re also employing new technology to empower customers to better manage how they use energy, thus helping them to reduce their overall usage and lower their costs. Digital smart meters, coupled with web-based customer portals, provide customers with insights into how they use energy, so they can discover opportunities to save. These tools also support programmes and technologies that can incentivise customers to shift some of their energy usage away from peak times. They can even unlock the prospect of improving grid efficiency through remote energy management.

Safe, reliable service
All of these efforts contribute to our provision of a modern and resilient grid that is capable of delivering energy to customers safely and reliably. We are already seeing the impact of increasingly frequent and severe storms on the power grids we operate, so we’re taking action to protect our customers from absorbing the brunt of these weather effects.

In 2013, floodwaters from Hurricane Sandy threatened to inundate a critical power substation in Bridgeport, Connecticut, which could have potentially left thousands without power for weeks. Since then, we’ve launched a project to relocate that substation to higher ground. It is expected to be in service at its new location by 2021.

In New York and Maine, we’ve proposed a $2.5bn, 10-year ‘transforming energy’ initiative to harden our power grids against storms. These measures aim to reduce storm-related outages through accelerated pole replacement, increased preventative vegetation management, and the installation of independently powered microgrids that can keep critical facilities up and running, even when the surrounding power grid goes dark. This initiative includes a full rollout of smart meter systems to electric
customers in New York.

AVANGRID is also taking action to protect customers from the growing threat of cyberattacks, which, if unchecked, could disrupt our systems or even damage our electric and natural gas infrastructure. Through ongoing collaboration with our industry peers, regulators and other partners, we are working to detect attacks and prevent them from endangering the energy grid we all rely on.

Our leadership team is engaged with industry groups, such as the Edison Electric Institute, the American Gas Association and the North American Electric Reliability Corporation (NERC), to combat this issue. We also participate in joint training and drills, such as NERC’s biennial GridEx grid security exercise, to share information and maintain a high level of readiness. Meanwhile, our employees receive annual cybersecurity training that teaches them to recognise and report potential cyberthreats, including malware spread by email, which could leave the organisation vulnerable to intrusion.

Through our scholarships, internships, partnerships with top universities and employee development programmes, AVANGRID actively invests in the next generation of energy leaders, who have the skills and talent to rise to the energy challenges of the future. At our annual Innovation Challenge, AVANGRID employees partner with students from top universities to compete for scholarships and cash prizes in a competition, where they propose solutions to some of the sector’s most profound issues. We see this as a model for how our company and the industry can develop the forward-thinking mindset necessary to adapt to a fast-changing energy landscape.

We live in a world that’s rich in resources and alive with energy. Our challenge is to have the vision and imagination to use them productively and wisely. By harnessing renewable technology, investing in modern, reliable infrastructure and focusing on innovation, AVANGRID is well positioned to lead the industry into a clean energy future.

Major corporations anticipate $1trn climate hit

Posted on by Max Tomlin

More than 200 of the world’s largest companies expect that climate change will cost them a combined total of $1trn, according to a new report by the CDP. The research, which was published on June 4 and analysed data from major corporations, including Apple, Unilever and JPMorgan Chase, revealed that much of this outlay is expected to come in the next five years.

The firms surveyed attributed the cost to extreme weather conditions, the pricing of greenhouse gas emissions and the need to update company infrastructure. For example, Google’s parent company, Alphabet, expects rising temperatures to increase the cost of cooling data centres, while Banco Santander Brasil anticipates that severe droughts could prevent borrowers from repaying their loans.

The CDP has warned that the $1trn cost disclosed in the report may only be the tip of the iceberg

The agency behind the report, the CDP (previously the Carbon Disclosure Project), represents pressure groups, fund managers, central bankers and politicians who believe climate change poses a significant threat to the financial system. In the report, the CDP noted that companies still have a long way to go in terms of evaluating climate risks. The $1trn cost disclosed, it warned, may only be the tip of the iceberg.

Many companies also predict that climate change will present significant opportunities. Across the 215 companies surveyed, an estimated $2.1trn worth of possible opportunities were identified, mainly as a result of increased demand for electric vehicles and investment in renewables.

That said, the CDP warned that some companies could be overstating the potential benefits and underestimating the risks. For example, fossil fuel companies predicted opportunities in the low-carbon economy to be worth $140bn – more than five times the $25bn value of the risks they identified. The CDP advised investors to be wary of such overconfidence, especially considering the fact renewables pose a significant threat to fossil fuel companies’ current business models.

Firms are under more pressure than ever to disclose the cost that climate change could have on their businesses. In October 2018, the Network for Greening the Financial System called on the financial sector to improve its transparency around climate risks. Interestingly, the CDP noted that financial services companies tended to be more forthcoming about the impact of climate change than other industries. Certain sectors, it would seem, are beginning to acknowledge that failure to disclose climate risks to shareholders and regulators could prove even more costly in the long term.

The booming battery market brings significant opportunities to mineral-rich Finland

Posted on by Ashton Wenborn

The forecasted increase of electric vehicles (EVs) is huge: according to the International Energy Agency, there will be around 125 million EVs on the road globally by 2030. The battery market is surging in parallel, with the raw materials market set to join it. However, until circulation technology is developed further and totally new battery technologies appear, there is sure to be a shortage of primary raw materials, such as cobalt.

The Finnish mineral potential is substantial, particularly for lithium, cobalt, nickel and graphite

In Europe, Norway is racing ahead in terms of EVs, but China will soon become the frontrunner on a global level. Even so, other markets are making progress of their own. Finland may only be a small economy, but it has notable strengths in the development of battery technology, particularly in terms of raw materials, chemicals, control systems and industry machinery. Collectively, Finland and Sweden control close to 80 percent of the global underground mining equipment market. Nevertheless, the battery challenge facing the EV market is a global one, meaning that all countries, big and small, must contribute to solving it.

Buried treasure
Finland is already a major producer of battery metals in Europe. For mobile batteries, the Finnish mineral potential is substantial, particularly for lithium, cobalt, nickel and graphite. The known lithium reserves in Finland are around 20 percent of the global total. Further, Finnish mining company Keliber is now developing a new lithium mine in the west of the country and estimates that it will start production in 2020.

125m

Electric vehicles globally by 2030

80%

of the global underground mining equipment market is controlled by Finland and Sweden

20%

of global lithium reserves are located in Finland

13%

of global cobalt chemicals are produced in Finland

At present, global cobalt production is very much concentrated in the Democratic Republic of Congo, which contributes more than 50 percent of overall global production – a figure approximately equal to the amount currently used by the battery industry. The supply risk of depending so heavily on one market is obvious. Further, if the current growth scenarios for EVs materialise, primary cobalt production must increase by more than 10 times what it is today.

Globally, only one percent of cobalt supply is obtained from primary cobalt mines – the rest is a by-product of copper and nickel ores. Currently, Finland is the biggest producer of cobalt in Europe, with all the country’s cobalt associated with copper and nickel ore minerals. Annual cobalt production in Finland is approximately 2,000 tonnes, and is mainly produced by mines in Sotkamo and Kevitsa. If all reserves are converted to useful resources, Finnish cobalt production could reach approximately two percent of global production within a few years.

Today, the most promising exploration and mine development project is Anglo American’s Sakatti multi-metal mineralisation in central Lapland: the reported grades are high, and the potential reserves are large. In addition, the Geological Survey of Finland is currently mapping potential ore reserves for cobalt, copper and nickel across possible metallogenic areas. In addition to lithium, nickel and cobalt, Finland is also likely to have graphite reserves on a significant scale.

Unearthing potential
Freeport Cobalt in Kokkola, located in the west of Finland, is the biggest cobalt refinery in the world, with an annual production of 10,000 tonnes – slightly less than 10 percent of global production. Alongside Nornickel’s refinery in Harjavalta, this means that Finland is producing approximately 13 percent of global cobalt chemicals. Currently, Terrafame’s cobalt is sold as part of nickel concentrate, but the company has decided to invest close to €300m ($339m) for a cobalt and nickel sulphate plant, with production scheduled to start in 2021. In addition to its mining operation, Keliber is also constructing a chemical plant to produce battery-grade lithium hydroxide, which is also scheduled to start production by 2021.

Given these developments, I believe Finland is well on track to further develop its battery sector. In the fields of primary mineral production, chemical production, battery control systems, and the electrification of machinery in mining, forest and maritime environments, Finland can be a leader in Europe. That being said, car production in Finland is marginal, and having a battery gigafactory in the country could be challenging.

In Finland’s favour is its enviable investment environment: the country has good infrastructure, is politically and economic stable, and the corporate tax rate is very attractive, at only 20 percent. The research and development landscape and accompanying financing routes are well developed, and the country’s entrepreneurial mindset is engineering-focused. These ingredients are necessary for any industry cluster, and especially for the complex battery value chain.

Electrification and green energy solutions are essential and are sure to happen sooner or later. We will see new technological breakthroughs and their deployment in industrial products faster than we thought possible. The future offers a lot of opportunities to create new innovations and businesses in this area – when it arrives, Finland will be leading the way.

US confirms drone sale to South China Sea allies

Posted on by Max Tomlin

The US has announced the sale of 34 ScanEagle drones to its allies in the South China Sea, in a move that could increase its intelligence gathering capabilities amid growing tensions with China. The drones are unarmed, but are best known for their surveillance capabilities, which will enable US allies to better monitor – and potentially curb – China’s influence in the region. The Pentagon confirmed the drones were sold to Malaysia, Indonesia, the Philippines and Vietnam for a total of $47m on May 31.

At the Shangri-La Dialogue, a regional defence summit in Singapore, acting US Defence Secretary Patrick Shanahan said that Washington would not “tiptoe” around China’s behaviour in Asia. The South China Sea is a region of great strategic and economic importance, with $3trn worth of trade passing through its waters in 2016 alone. China lays claim to almost the entire region, and has built and armed artificial islands in order to reinforce this claim. The US, however, is committed to enforcing a free and open Indo-Pacific.

Under the Trump administration, the US has grown its naval presence in the South China Sea by conducting an increasing number of freedom of navigation exercises

On June 2, China’s Defence Minister, Wei Fenghe, delivered a strong rebuke of the US. Speaking of both the ongoing trade war between the countries and of US interference in the South China Sea, he said that the Chinese Government “would not let others prey on or divide us”.

Under the Trump administration, the US has grown its naval presence in the region by conducting an increasing number of freedom of navigation exercises. One such exercise occurred last month, when two US Navy warships sailed near islands claimed by China in the South China Sea. This particular exercise came at a sensitive time for US-China relations, as the US had just retracted China’s invite to a major US-hosted naval drill. China has since condemned the operation.

The recent drone deal is likely to escalate tensions between the two superpowers. China will almost certainly perceive any reconnaissance missions conducted by ScanEagle drones as a hostile action against its territory and could retaliate in turn. As the number of provocative vessels in the South China Sea increases, so too does the threat to peace in the region. With more opposing aircraft and warships coming into close contact, there is a heightened risk that one day a misunderstanding could develop, igniting a more serious conflict.

Cities must adapt quickly to accommodate the flood of people moving to urban areas

Posted on by Ashton Wenborn

Dick Whittington was by no means the first or last person to journey to London to discover whether the streets really were paved with gold. According to Trust for London, an estimated 426,637 people from both the UK and abroad moved to the city between 2014 and 2015, the latest period for which figures are available. The trend is not limited to the UK either: according to StreetEasy, more than 264,000 people moved to New York between 2017 and 2018, while, according to Federal Reserve Economic Data, 146,542 made Hong Kong their home in the first six months of 2017.

This influx of opportunity-seeking people has left many cities bursting at the seams, with ageing public and private infrastructure creaking under the weight of new residents. From transport to irrigation, education to healthcare, it’s clear that a wide variety of facilities are in need of modernisation. What is less certain is who is responsible, or how best to go about it. The answer to these questions may lie in consultation and collaboration, in order to ensure that urban landscapes advance in a way that improves the lives of residents.

Talking it out
One of the greatest issues that befalls cities today is a lack of engagement between those building infrastructure and those they are building it for. When this feedback loop functions effectively, it’s a powerful tool that can be used to shape the fabric of cities. In France, for instance, the Commission Nationale du Débat Public (CNDP) hosts early-stage debates on potentially contentious developments, with all interested parties given equal resources to make a case. Of the 61 projects debated by the CNDP between 2002 and 2012, 38 were significantly modified.

“One of the issues is a lack of engagement between those building infrastructure and those they are building it for”

However, in many cases, these consultation structures are not so well implemented. In AECOM’s 2019 The Future of Infrastructure report, which surveyed more than 10,000 residents in 10 global cities, 52 percent of respondents said that requests for feedback on infrastructure improvement or investment came at too late a stage to be meaningful. By having the opportunity to comment, but not enact change, on ill-designed or poorly suited projects, urban residents have the worst of both worlds – they may be forced to live with infrastructure that they know could do more harm than good.

When it comes to commercial and residential projects, the picture is bleaker still. While some considerate developers do take the time to consult with local residents, these companies’ own business interests remain the predominant driving force. “The commercial fundamentals for each side are: what the developer can get planning permission for; how much it would cost to deliver the finished project; [whether] there is a market for the proposed development and how much income will be generated; and [whether] the site can be bought at a price that leaves a sufficient margin…to make it viable,” explained Don O’Sullivan, CEO at property developer Galliard Group.

Generating profit in urban landscapes, though, is hugely challenging. Availability of land stock is often very limited, and developers can be forced to pay extortionate amounts for plots, which is then transferred to the final purchase price. In San Francisco, for example, land is so scarce that the plot itself can account for up to 80 percent of a home’s cost.

This often results in an affordability gap between what potential tenants or buyers can afford and what developers are willing to accept for newly constructed properties. Some developers are dissuaded from taking on new projects in the fear that they will not draw profit or even recuperate the significant upfront costs involved in development; this then leads to a shortage of available homes. “The massive undersupply of housing is what drives up the price of sites and – by consequence – the finished homes,” said O’Sullivan.

Conflict of interests
In urban areas, developers must also ensure that land is safe and ready to be built upon. “Every site is ‘brownfield’ in London, and the other urban locations where Galliard work, so there is always some element of demolition and contamination to manage,” said O’Sullivan. This previously developed land not currently in use generates an additional cost burden: in the US, for instance, the average per-site cost for brownfield treatment is an estimated $602,000, less than a third of which is covered by a government grant.

426,637

people moved to London between 2014 and 2015

264,000+

people moved to New York between mid-2017 and mid-2018

146,542

people moved to Hong Kong in the first six months of 2017

In a bid to obtain lower-cost land, some contractors have advocated for the development of green space – an option that is unpopular with city residents. There are a huge number of benefits in preserving urban parks, from providing outside areas for exercise to reducing city pollution and boosting the mental health of residents.

The fact remains, though, that they are expensive to maintain, and do occupy valuable land that could be utilised for high-density housing. For instance, the average size of a studio apartment in Manhattan is 550sq ft – if Central Park, which is around 34 million square feet, were to be completely developed, there would be space for almost 62,000 studio apartments just at ground level, without accounting for skyscrapers.

On the other hand, New York residents would lose all of the health and environmental benefits derived from urban green space. Aligning social, ecological and economic goals is near impossible in this regard.

Another option for developers is to build homes further away from transport links. Again, this is problematic as prospective buyers or tenants are then forced to endure longer commutes – and they expect a price reduction on housing as a result. Additionally, developers are less likely to obtain planning permission for inaccessible sites. “Access to transport links always positively influences sales prices, but in London it also affects planning – there is extra weighting attributed to sites with good public transport options nearby,” O’Sullivan explained to World Finance.

In pursuit of collaboration
It’s clear that more alignment between commercial, governmental and public interest is needed – and that begins with creating opportunities for all stakeholders to have their say. Similarly, the success of this endeavour relies on an understanding that the growing popularity of cities necessitates additional infrastructure development, and any reticence about that is simply not a productive attitude. “Our general experience is that almost every politician wants more housing built – as long as it is not next to where their voters live,” said O’Sullivan. “If communities campaigned to encourage development in their area, the world would look very different.”

One potential solution is increasing private sector involvement in public infrastructure projects. This would allow developers to have their say on proposals relating to transport or energy systems, for example, and would remove some of the logistical barriers to residential construction and building management. It’s certainly popular with urban residents – 63 percent of respondents in AECOM’s survey wanted more private sector involvement in city infrastructure. They hoped this could contribute to better financing, development, delivery and management in public facilities, which – given that 61 percent of respondents experienced power outages and 43 percent suffered an interruption to their water supply in the past year – is clearly needed.

63%

of AECOM survey respondents want more private sector involvement in city infrastructure

61%

of AECOM survey respondents have experienced power outages in the past year

43%

of AECOM survey respondents have experienced interruptions to water supply in the past year

O’Sullivan explained that Galliard already contribute financially to infrastructure development in the form of tax, which amounts to “tens of millions [of pounds] annually”. As for delivery and management, he told World Finance that there used to be a private finance initiative (PFI) to do just that, but it was “formally killed off by the UK Government in 2018”.

PFIs, which allow private sector companies to invest in public infrastructure, were pioneered by the UK and Australian governments and have found particular success in Spain: both the Parque Forestal de Valdebebas in Madrid and the Ciutat de la Justícia in Barcelona were built under PFI contracts. The Parque in particular has significantly boosted Madrid’s environmental credentials: built on the site of a former illegal dump, it now removes an estimated 1,250 tonnes of carbon dioxide from the air every year, according to Foro Consultores Inmobiliarios. This not only alleviates pollution for city residents, but also facilitates property development in the area by replacing what was previously an eyesore with a selling point for construction firms. However, if PFIs are mismanaged – as was the case in the UK with companies like Carillion – they can collapse, leaving the taxpayer to foot an extortionate bill.

The success of joint projects like PFIs relies upon all stakeholders working collaboratively to ensure that urban infrastructure is fit for purpose for both current and future residents. After all, in the majority of countries, thriving cities are the lifeblood of the national economy – they are the birthplace of technological innovation, the lynchpin of financial markets and the setting for transformative political decisions. It is imperative that urban spaces are constructed to underpin their purpose.

Top 5 emerging fintech hubs across the globe right now

Posted on by Ashton Wenborn

Fintech is proving to be one of the most fruitful sectors for venture returns. According to Juniper Research, fintech companies will generate $638bn in revenue in 2024, a 143 percent growth on estimated revenues for 2019.

As Brexit uncertainty clouds the prospects of one of the world’s financial capitals, London, there is a growing interest in the fintech hubs emerging elsewhere. Around the globe, cities are opening their doors to foreign investment and creating incentives for start-up creation, all in the hope of tapping into this burgeoning market. According to a survey by Startup Genome, these are among the top emerging fintech hubs to watch right now:

 

1 – São Paulo
Brazil has more fintech start-ups than any other Latin American country, and most of them are consolidated in the country’s financial centre, São Paulo.

Home to the European Central Bank and more than 200 banks – most of which are foreign – Frankfurt plays an important role in the EU’s financial system

Owing partly to a decade-long financial crisis and the high concentration of power in the country’s five largest banks, many Brazilians have become distrustful of traditional banks, having come to associate them with high interest rates and bureaucracy. As a result, approximately 40 percent of Brazilians are excluded from traditional banking services. This has made the city a thriving space for disruptive fintech start-ups.

One such start-up is Nubank, a Brazilian online bank and credit card operator, which is currently one of the most highly valued privately held start-ups in Latin America. Over the next 10 years, Brazil’s fintech market is projected to generate potential revenue of up to $24bn.

 

2 – Lithuania
One country poised to see an explosion of opportunities after Brexit is Lithuania. In February of this year, the country saw around 100 British financial companies apply for a licence in the country. This is in part because Lithuania has been creating a favourable regulatory environment to help start-ups flourish. For instance, the Bank of Lithuania’s regulatory sandbox allows firms to test new technology before releasing their products to the market.

The country also has the shortest waiting time for e-money or payment licences in the EU. As such, the World Bank placed Lithuania 14th out of 190 countries in its Ease of Doing Business index in 2019. With the number of fintech firms in Lithuania having doubled between 2016 and 2018, the country appears to be well on its way to becoming a leading fintech hub.

 

3 – Estonia
Estonia has one of the highest rates of start-ups per capita in Europe. According to Startup Genome, 29 percent of all jobs created by these start-ups are within the country’s fintech industry. One of the most prolific unicorns to emerge from the Baltic country is international money transfer company TransferWise, which raised $280m in investment in 2017.

This surge in start-ups has in part been driven by Estonia’s e-residency programme, launched four years ago, which allows people to register a business in Estonia from anywhere and run it remotely. The government also created the Startup Estonia initiative, which provides training programmes for start-ups and education for investors.

Furthermore, Estonia is considered to be one of the world’s most advanced digital societies. According to CNBC, 99 percent of its public services are available online and it has stronger broadband than many countries across the developed world.

 

4 – Frankfurt
Home to the European Central Bank and more than 200 banks – most of which are foreign – Frankfurt plays an important role in the EU’s financial system. As a result, the city is well-placed to attract cutting edge start-ups. The business community in the country encourages such ventures through a number of programmes, including accelerators and corporate involvement initiatives. In 2016, Deutsche Bank launched Digitalfabrik, which supports the development of digital banking products, while platforms like TechQuartier have been created to connect start-ups with banks, investors and mentors.

Financial institutions and newcomers alike are keen to drive innovation, partly inspired by the city’s start-up success stories. Perhaps the most well known of these is 360T, a foreign exchange trading platform. In 2015, Deutsche Böerse bought 360T for $796m in Germany’s largest start-up acquisition at the time. Although Berlin is still largely considered the tech centre of Germany, it appears Frankfurt is quietly fostering a start-up ecosystem that could one day rival the capital’s.

 

5 – Bengaluru
Bengaluru (previously Bangalore) is anticipated to become one of the next big tech hubs. One of Asia’s fastest growing start-up ecosystems, the city is home to 438 fintech start-ups and has been dubbed the ‘Silicon Valley of India’. One such start-up is Bengaluru-based Zerodha, an online broker that has transformed stock trading in India.

While fintech is in its early stages in India, the opportunities are rapidly growing. The country recently overtook China as Asia’s top fundraising hub for fintech. These opportunities are especially exciting in areas such as payments, which constitute the largest share of fintech start-ups in India. As a testament to the country’s potential, Mastercard is planning to invest $1bn in India over the next five years and has opened offices in Gurgaon and Bengaluru.

Zurich Insurance takes care of Turkey’s population

Posted on by Ashton Wenborn

Last year was challenging for all emerging markets, including Turkey. A strong dollar, high interest rates in the US, trade wars and political uncertainties in developed markets all led to deterioration in risk perception. In response, emerging market currencies were negatively impacted due to massive capital outflows by the third quarter of 2018. Fortunately, however, thanks to its economic attributes and resiliency, Turkey recovered quickly and returned to its growth path.

Turkey boasts an extremely favourable demography: its 80-million-strong population, which includes a young, educated and tech-savvy workforce of 32 million, creates momentum for the economy. The government has also implemented crucial structural economic reforms in recent years, which have contributed to a strong banking sector and have had a major impact on Turkey’s resistance to economic shocks. Turkey now has Europe’s lowest debt-to-GDP ratio at around 35 percent, a budget deficit of around 1.8 percent, and low household debt of 17 percent. Overall, the Turkish economy is well diversified, with no dependence on any single industry, commodity or country.

Performance of the non-life insurance segment is directly linked to overall economic activity in Turkey

The Turkish insurance market, which is currently worth around $25bn, consists of three main segments: non-life, life and private pensions. The non-life segment is valued at $10m, making up around 40 percent of the Turkish insurance market. Performance of the non-life insurance segment is directly linked to overall economic activity in Turkey, which has experienced 15 percent annual growth in the past decade, as the economy itself has grown at an impressive rate.

There is potential for further growth, as non-life insurance penetration currently stands at only 1.3 percent of GDP – much lower than the average for OECD countries. Most insurers operating in the segment are foreign-owned or partnered, showing it is a popular area of investment for foreign companies.

The success story
As the result of an acquisition, we entered into this high-potential non-life segment as Zurich Insurance Group in 2008. Since then, we have invested over $500m in the sector. Through a very effective restructuring programme that launched in 2013, our performance has become a huge success story. Based on the latest market results, today we are the most profitable company among international players in Turkey’s non-life market.

Our strategy of focusing on bancassurance and partnerships plays a key role in this best-in-class performance. Zurich’s mission is to be the most successful insurer in terms of initiating and managing partnerships. As the only company with two exclusive bancassurance partners in the market, we reach almost six million customers across 2,000 points of distribution. We are also second in Turkey’s insurance market in terms of branch productivity, and have almost a 10 percent market share in bancassurance in the lines of business in which we are strategically active.

35%

Turkey’s debt-to-GDP ratio

1.8%

Turkey’s budget deficit

17%

Turkey’s household debt level

Our success is not limited to financial performance either. Over the past five years, our Net Promoter Scores have improved by almost 60 percent, as we actively listen to our customers and take action accordingly. This high-quality performance has been recognised externally as well: Turkey’s most popular online customer request communication platform, Sikayetvar, recognised us as the top insurer in their Achievement in Customer Excellence Awards in both 2017 and 2018.

At Zurich Turkey, we have a broader view of our customers: ‘external customers’ are our end customers and distribution partners, whereas ‘internal customers’ are our employees. As a result, we give equal weight to ensuring our internal customers are happy, and we aim to help them achieve their very best – something that is crucial to our success.

The numbers speak for themselves: since 2013, our employee engagement scores have improved by almost 65 percent, which made us the best rated in terms of employee engagement among all Zurich Group markets and a case study for global best practice. Furthermore, our voluntary turnover ratio has decreased from 25 percent in 2013 to around 10 percent in 2018.

A crucial aspect of this success story is sustainability, which is only possible with a strong governance environment. Our risk and internal control teams work very closely with the business, actively managing risks and proactively taking necessary measures. This environment ensures best performance in a sustainable manner.

An innovation pioneer
Actively listening to customers is not the only reason behind Zurich Turkey’s excellence in customer satisfaction. Our goal is to always offer the most innovative products and services to our customers. For instance, with digitalisation becoming increasingly common in the Turkish market and cybersecurity becoming a big concern as a result, we have acted swiftly to become a pioneer in cyber insurance.

We are the first company in the market to have developed and launched a cybersecurity insurance product for individuals and small-business owners. This is a new-generation product, which not only provides coverage for cyber risks, but also helps customers protect their critical information, such as credit card numbers and passwords, from cyberthreats through a web radar service.

As another example, we have developed Turkey’s first all-risk-type product for small-business owners, therefore providing a one-stop shop for their insurance needs. We have also developed a new health insurance product that is unique in the market thanks to its focus on inpatient treatments.

Over the past five years, we have taken a number of actions to foster innovative and customer-orientated service processes. Through the use of artificial intelligence and cutting-edge redesign technologies, we are now able to make claim payments in as little as two days. Further, our average end-customer request resolution time has improved by 70 percent, to less than two days.

Meanwhile, our average bancassurance partner request resolution time has decreased by 60 percent, to less than one hour. We deliver almost all of our policies to our retail customers digitally via SMS, and we have also developed a new mobile interface for our customers, from which they can access our assistance services with just one click. Our customers appreciate all these efforts, as reflected in the improvement of our Net Promoter Scores.

Investing in society’s future
At Zurich Turkey, we strongly believe that business is not just about making profit. We strive to carry out numerous corporate social responsibility (CSR) projects that reflect our values. Our CSR activities are focused primarily on women and children, as we strongly believe that the best form of insurance for a society is the wellbeing and empowerment of these social groups. In this context, we are proud to announce that we have recently started a six-year CSR project that will have a nationwide impact: in collaboration with the Ministry of National Education and the Turkish Education Association, we will be supporting female teachers who are assigned to work in rural villages and towns in remote parts of Turkey.

The objective is to try and reduce the environmental, physical and professional challenges experienced by teachers, to enhance their knowledge, to improve their confidence, and to nurture them as ‘social entrepreneurs’ in their own communities. With this initiative, we aim to reach 1,000 female teachers, more than 30,000 students and 150,000 family members in Turkey by the 100th anniversary of the Turkish Republic in 2023.

We play a vital role in Turkey’s arts and culture scene as well. Since 2014, we have been the insurance sponsor of the Istanbul Foundation for Culture and Arts (IKSV), a leading art foundation in Turkey. Through this partnership, many projects and festivals have been jointly organised. For instance, during the International Istanbul Film Festival in 2018, more than 100,000 people watched around 230 international films.

In the same year, the Istanbul Music Festival hosted around 500 local and foreign artists and was attended by some 16,000 art lovers. Then there was the Istanbul Jazz Festival, which had an audience of 52,000 people watching 450 artists across more than 50 different concerts.

Our partnership with IKSV is not limited to organisation-based sponsorships. At present, we are working together to restore old Turkish movies: we recently restored Silky (ipekce in Turkish) and this year we plan to work on 10 Women (10 Kadin), in which one of Turkey’s most popular actors, Turkan Soray, played a leading role.

We were able to achieve so much in the past six years thanks to our vision, and are well on track to becoming the country’s best insurance company as rated by our clients, shareholders, business partners and employees. As we arrive at this significant milestone, we have also been named as Turkey’s best general insurance company in the World Finance Global Insurance Awards, the sixth year in a row we have been honoured in these awards listings.

Going forward, with our 150 years of insurance know-how and global expertise, we will continue to offer the very best to our customers, providing them with the confidence that they are being well looked after.

Identity economics: how financial decisions are driven by our sense of self

Posted on by Max Tomlin

Almost 20 years ago, George A Akerlof, winner of the 2001 Nobel Memorial Prize in Economic Sciences, and Rachel E Kranton, Professor of Economics at Duke University, published a paper in the Quarterly Journal of Economics titled ‘Economics and Identity’. The paper outlined an exciting new concept for economic analysis. The theory – one that had too long been missing from the field – explains that people make economic choices based not just on financial incentives, but also on their identity. In doing so, they avoid actions that would conflict with their own concept of self.

People make economic choices based not just on financial incentives, but also on their identity

Identity economics put forward a school of thought wildly different to what was believed at the time. Kranton told World Finance that she believes her academic background in Middle Eastern studies and her husband’s work on political identity in Egypt were significant influences. She noticed a marked difference between how her husband’s field and her own dealt with identity: “The way we define who we are, the way we define who others are, the way that impacts how we make decisions, was not present [in economics].”

This absence resurfaced when Kranton’s former PhD advisor, Akerlof, published a paper that attempted to deal with the issues arising when people from different social groups interact. “He didn’t have this as a central notion of identity,” Kranton told World Finance. “So I then wrote to him and said, ‘Well I really think this is what is needed in such a study’, and that’s how the collaboration started.”

Kranton described what followed as a “very long and torturous process”, due to the complexity of studying identity across so many fields – from history and anthropology to philosophy and the social sciences. “The big difficulty was how to translate this very, very rich intellectual tradition in so many places into something that would work in an economics context and economics model.”

Explaining this complex notion in a simple – but not simplistic – way was a vital part of applying it to economic analysis. “A historian would say we’re too simplistic, for example, but [it needed to be] sufficiently rich so that we did not throw away the richness of the concept, but it was sufficiently tractable so that economists may be able to work with it and understand it,” said Kranton.

Making decisions
To apply the theory to economics, the pair had to create a new utility function – a central concept in economics that measures an individual’s preferences over goods and services. “That’s the workhorse of economics and so we thought we would use that and modify it or add ingredients, and explain these ingredients in a sufficiently precise way so that it could be operationalised,” Kranton explained.

Often in economics, the example of apples and oranges is used to explain utility function. In other words, one’s preference of apples over oranges will be considered, along with price, when making a purchase. For identity economics, the example of meat and vegetables is of greater use, because this choice may not necessarily be confined to one of taste. One’s identity also plays an important role. Namely, if someone is vegetarian, or has an ethnic or religious background associated with vegetarianism, this choice is linked to who they are and how they understand their place in the world.

“You’re moving from preferences, which is ‘I like this’ versus ‘I like that’… to actions that have a social and cultural meaning to them,” Kranton told World Finance. This model works with all kinds of choices we make. In a division of labour context, for example, it’s ‘I wanted to stay home and look after my children’ versus ‘I want to rejoin the workforce after maternity leave’. Essentially, how someone is raised influences what they believe is appropriate or inappropriate. “If I’ve grown up in a particular context then I will think it’s more or less appropriate for a woman to be taking on a leadership role in an organisation,” said Kranton.

This move from preference to what one should do or how they should act is a key tenet of identity economics. “That’s the big leap – your preferences become socially driven,” said Kranton. “So we have arguments over whether it’s appropriate for women to do X, Y and Z. We argue whether it’s appropriate to raise animals for food, and not just on economics grounds, on other grounds – religious grounds, ethical grounds [and] so forth.” As these preferences are socially driven, they can change over time – another departure from the classic utility function in economics.

Gender politics is a great example of the theory in action, particularly regarding how norms have changed over the years. What’s appropriate for a woman today, for example, is very different from what was appropriate just two generations ago. “It’s not that the brains and the bodies of women have changed,” said Kranton. “It’s how we understand gender [that has changed].”

According to the theory, deciding to work hard in school or picking a profession isn’t just about personal taste. Such decisions are invariably linked to how one sees oneself. Kranton told World Finance: “To say ‘how does identity affect decision-making?’, it’s just an ingredient that more or less consciously people have in their minds when they decide whether to buy a product, to pursue a career or to start a family.”

Kranton provides the example of men who work as nurses. Despite requiring stereotypically masculine traits such as physical strength, nursing is broadly viewed as a feminine profession entailing so-called feminine traits, such as being caring and nurturing. Though the demand for skilled jobs in the US persists, the nursing profession remains understaffed due to a common unwillingness of men to enter the field. “Sometimes it’s not necessarily conscious and reasoned in that sense, but there are a lot of men who would feel that [being a nurse] is not something [they] would do.” The problem is, of course, related to how society views masculinity. But, as identity economics teaches us, concepts of masculinity change over time, making it likely that more men will be drawn to the field in the future.

Micro and macro applications
Understanding identity economics can be tremendously beneficial on the micro and macroeconomic level. For instance, assessing how employees identify themselves within a company and how strong corporate culture is can make a marked difference in terms of performance and loyalty. “You want somebody to feel invested in their company, you want people to feel part of it, you want them to see their success as the company’s success,” Kranton explained. The aim, therefore, is to ensure people feel like they play an important role in an organisation, that it is a place they feel proud to work at, and that objectives align throughout. This, again, is a notable difference from traditional economics, in which work incentives fail to acknowledge the vital role that company culture plays. Kranton said: “A lot of management folks will know this and, in fact, we read a lot of management literature, but the economic modelling just didn’t have this as an important variable.”

Akerlof and Kranton use the military to explain how motivational a strong sense of identity can be, even with the flat wage structure and relatively low pay of army roles. The extraordinarily strong sense of identity, work ethic and loyalty found throughout the armed forces cannot be explained by standard economic analysis. The military, as such, provides a number of important lessons. Kranton added: “In the military, you want people to have a very intense loyalty to your squadron, but this fighting unit also has to work in the service of the larger objective.”

This strong intra-unit culture can also lead to problems. For example, mistakes may not be reported to senior officers. “There’s these trade-offs that need to be managed in a particularly skilful way,” said Kranton. “But if you didn’t know that identity is a part of people’s work incentives, then you wouldn’t be aware that there are these trade-offs [that need] to be managed.”

The theory also applies to education. When students strongly identify with their school, they are more likely to work hard and continue their education at that institution. Teachers too are more inclined to help their students reach their full potential if they feel an alignment with their school. Education policy should, therefore, help schools establish an identity, a strategy that will see teachers and students working towards a common purpose, and will ultimately produce better results. On a bigger scale, Kranton noted: “[The] economy is going to be better off because then you’re going to be taking advantage of your human capital.”

Sense of self
According to the theory, our choice of identity may well be the biggest influence on the economic decisions we make. “Everything follows from it,” Kranton explained, referring to her career as an example. “I conceive of myself as an economist. A lot of my life choices follow from that. I could have conceived of myself as a different type of economist. I could have worked in a bank or on Wall Street, but I was more of a publicly minded person. That choice of who I am shapes the rest of my decisions.”

For most people, sadly, boundaries related to their identity impact their economic wellbeing. Kranton explained that all people exist within a social structure; childhood, ethnicity, race and class all feed into this construct. “You grow up in a place with a particular set of parents, a particular set of neighbours, a particular religious environment and socioeconomic strata, and in some sense that is very determinant, not of the opportunities you have, but how you think of yourself.” The social hurdles we encounter throughout life also shape how we think of ourselves and, as a result, the decisions we make.

How someone conceives of themself impacts how they perform at school, the career they pursue, where they live and what they buy. It all starts with identity. Knowing this can bring a greater understanding of what can be done to make improvements to a company, school and even the wider economy. Identity economics doesn’t just help us better comprehend our own economic decisions – it provides a foundation from which we can make the world a better place for one and for all.

Gasser Partner’s expertise is more valuable than ever in the CRS age

Posted on by Max Tomlin

As a member state of the European Economic Area, Liechtenstein shares in the regulated framework of the European financial market. In recent years, the country has become a leading area for investment and asset management, due to its high standard of regulation and quality of service. Even the global financial crisis did not affect Liechtenstein as much as it did other small states in Europe, such as Ireland or Iceland.

Contrary to the fears of some, the CRS did not lead to the significant withdrawal of assets or a relocation of asset protection vehicles

As such, Liechtenstein has become known as a tax haven. In fact, over the years, this small nation has accumulated more registered companies than citizens due to its low tax rates. In order to maintain its position as a leading financial market within the global community, Liechtenstein has already undertaken numerous initiatives to fight illegal activity. The Financial Action Task Force and the IMF are among the organisations that had positively evaluated the country’s legislative and administrative practices prior to the introduction of the Common Reporting Standard (CRS) in 2014.

An advantageous milieu
As far back as 2009, Liechtenstein declared it would pursue a ‘white money strategy’ to combat money laundering and tax crimes. Additionally, the nation strived for cooperation in tax issues in accordance with the standards of the OECD.

Following the conclusion of the respective bilateral and multilateral treaties – including the Convention on Mutual Administrative Assistance in Tax Matters, the Multilateral Competent Authority Agreement and the agreement between the EU and Liechtenstein on the automatic exchange of information on financial accounts to promote tax honesty – Liechtenstein enacted national laws for the CRS in 2016. As an early adopter of the standards, the nation began reporting information on its residents’ assets in 2017.

The implementation of the CRS was a logical outcome and foreseeable by all market participants. Contrary to the fears of some, the CRS did not lead to a significant withdrawal of assets or the relocation of typical asset protection vehicles, such as foundations and trusts. Today, many jurisdictions struggle with the CRS because the administrative practice changes frequently and supervisory authorities do not issue guidelines. However, the situation in Liechtenstein is different.

As a financial centre of international importance, Liechtenstein has an interest in complying with its CRS obligations, especially with regards to its reputation within the global community. As a result, the Liechtenstein tax authorities have issued extensive guidelines on the CRS and its application. These guidelines, which are updated on a regular basis, provide assistance with the interpretation of the law, demonstrate the respective reporting obligations with examples of practical relevance, and outline the applicable administrative practices.

Compared with other jurisdictions that follow the CRS and exchange information on tax matters automatically, market participants in Liechtenstein benefit from a high level of legal security and clearly communicated administrative practices.

Opting in
All legal entities, or Rechtsträger, must classify as financial institutions or non-financial entities (NFE), according to the CRS. At the suggestion of market participants, Liechtenstein has created an opt-in measure, which is not provided by the CRS. This allows domestic foreign entities that classify as passive NFEs to voluntarily classify themselves as investment entities. Consequently, they are considered a reporting Liechtenstein financial institution. However, the opt-in may only be granted under the prerequisite that the voluntary classification will not jeopardise correct reporting.

This option may be particularly advantageous when the balance sheets that are drawn up do not expose, with certainty, how the income of the respective entity will actually be composed. Our experience has shown that the opt-in measure is very well received by market participants.

It also allows an entity to voluntarily classify as an investment entity, and therefore a reporting financial institution, irrespective of whether the necessary tests are fulfilled. The opt-in does not, however, provide an opportunity to voluntarily classify as a depository institution, a custodial institution or a specified insurance company.

Taking control
As Liechtenstein is known as a popular foundation destination, the transposition and interpretation of CRS – and the individuals from whom the respective information has to be procured according to national law – are of considerable interest.

There is no doubt that, according to the national due diligence law, as well as the CRS, the founder of a company is deemed a ‘controlling person’. The founder is explicitly addressed in the CRS commentary with regard to controlling persons of foundations.

More interestingly, Liechtenstein law stipulates that members of the foundation board are considered to be controlling persons irrespective of their specific position. At least within the terms of the EU agreement on the automatic exchange of information, it is questionable whether or not foundation board members must be reported, especially as the members of administrative bodies of other legal entities only have to be reported when no other controlling person can be identified.

However, in the majority of cases, other controlling persons, such as beneficiaries, are identifiable. In addition – and depending on the design of a particular foundation – the board only executes the founder’s intention, or Stifterwille, without making its own decisions. In such cases, the equivalence to a trustee or protector is questionable, or at least disputable.

From a purely CRS perspective, we are of the opinion that the responsibility and authority of the foundation board would have to be assessed on a case-by-case basis in order to determine if the founding board must be reported as a controlling person, and if so, which members. In this regard, Liechtenstein may have transposed CRS excessively. The same is true in terms of supervisory bodies.

In Liechtenstein, information on mandatory beneficiaries and discretionary beneficiaries must be procured. However, prospective beneficiaries are not considered to be controlling persons until they become beneficiaries. According to CRS information, discretionary trust beneficiaries must only be procured and reported in the years when contributions are received.

Because the reporting obligation of a foundation’s beneficiaries is based on the equivalence of the respective position to trust beneficiaries, we believe that the respective exemption must be interpreted in a way that does not put foundation beneficiaries in a less favourable position than trust beneficiaries.

The Liechtenstein tax administration also clearly holds this view: its guidelines stipulate that discretionary beneficiaries, whether they are beneficiaries of a trust or foundation or not, only have to be reported in years when they
receive a contribution.

A helping hand
The implementation of the CRS in Liechtenstein has led to an increased need for legal advice regarding the implications of the new regime.

In order to provide a conclusive overview and sufficient information, all different aspects of Liechtenstein corporate law must be taken into consideration. Gasser Partner is a highly qualified and reliable point of contact in this respect. The firm is significantly involved in advising clients on all aspects of the implementation of the CRS.

As an international independent law firm, Gasser Partner primarily focuses on providing classic attorney-at-law services. This also comprises the legal representation of clients before courts and public authorities, as well as providing advice in all areas of the law.

As one of the leading law firms in Liechtenstein, we have built our knowledge and experience over decades, and we will continue to do so, particularly in the field of business law. We advise private clients, especially high-net-worth individuals, and represent companies from both Liechtenstein and abroad. Our institutional clients include banks, asset managers, fiduciary service providers, insurance companies and fund administrators, as well as local and foreign authorities.

Due to the location of our offices in Vaduz, Zurich and Vienna, and our regular close collaboration with foreign law firms, we have excellent global links. Owing to our size and expertise, we have specialists in every area of the law. In particular, this enables us to efficiently solve complex, international cases.

The gentlemen’s club

Posted on by Max Tomlin

When in late 2018 a New York Times exposé led to the resignation of a leading economist as a result of allegations of sexual harassment, economics experienced its first #MeToo moment. It seemed that economists were finally facing up to gender bias in the profession. During a 2019 panel discussion on gender issues, Janet Yellen even said addressing the issue of sex discrimination “should be the highest priority” for economists. But what is remarkable is that it took so long.

One problem is simply the numbers – there aren’t enough women in economics, especially at the higher levels. For example, in 2011, when the American Economic Review selected the 20 most influential articles from the last 100 years, only one of the 30 authors was a woman. When The Economist chose the 25 most influential economists of 2014, none were women (they excluded active central bankers, so Yellen didn’t make the list).

Between the IMF and World Bank, one of 16 chief economists has been a woman (though Christine Lagarde has been managing director of the IMF since 2011), and of the 81 people to have been awarded the Nobel Memorial Prize in Economic Sciences since 1969, one – Elinor Ostrom, who was a political scientist and not an economist – was a woman.

It is therefore unsurprising that Frances Weetman’s study comparing gender balance in different academic fields concluded: “Economics is an outlier, with a persistent sex gap in promotion that cannot be readily explained by productivity differences.”

In short: economics has too many guys.

Rational economic man
So why is it, in the words of sociologist Elaine Coburn, that “mainstream economics remains remarkably ‘pre-feminist’”? And why did it take so long for people to call it out?

One reason, perhaps, is that economics maintains an illusion of objectivity and rationality, where complex social issues – such as power and gender – are ignored or downplayed. As Yellen said of her male colleagues: “I think they regard themselves as rational and the field as being highly meritocratic.” A related reason, though, is that economics, as traditionally taught, has a pre-feminist view of the world – which is why it attracts few women. This in turn makes its ideas more ‘male’.

Consider, for example, the old canard of ‘rational economic man’, which has long dominated introductory (and other) economics texts. When I wrote a chapter about feminist economics in Economyths back in 2010, I noted: “While feminist thought has reshaped areas of study such as literary criticism and law, I still find it surprising how economics seems to have largely bypassed criticism – what could be less politically correct than rational economic man?”
Indeed, according to the anthropologist Mary Catherine Bateson: “The dangerous idea that lies behind ‘economic man’ is the idea that anyone can be entirely rational or entirely self-interested. One of the corollaries, generally unspoken in economics texts, was that such clarity could not be expected of women who were liable to be distracted by such things as emotions or concern for others.”

As The New York Times reported in 2016: “Economics remains a stubbornly male-dominated profession, a fact that members of the profession have struggled to understand.” But it’s not that hard – maybe economists should read some of their own books.

The gendered economy
This bias in economics has had real effects not just in academia, but on the economy. For example, it has long been noted that measures of economic activity such as GDP do not account for unpaid work, most of which is done by women. As the economist Cecil Pigou noted in 1920: “If a man marries his housekeeper or his cook, the national dividend is diminished.” In her 1988 book If Women Counted: A New Feminist Economics, Marilyn Waring estimated that unpaid labour of the sort often carried out by women – such as care for the young, old or sick, running the household, and so on – was equivalent to 25 to 40 percent of the economy in industrialised countries and even more in developing ones.

One implication is that economic growth is illusory if it only represents a shift from unpaid to paid work. A paper from the US Bureau of Economic Analysis, for instance, found that unpaid work increased GDP in the US by 39 per cent in 1965, but only by 26 percent in 2010, thus lowering the average annual nominal growth rate from 6.9 percent to 6.7 percent. Biasing policy to favour paid work therefore comes at a measurable cost.

Women are also impacted more by government austerity programmes, such as the benefit cuts that followed the financial crisis. In the UK, for example, they bore an estimated 85 percent of the brunt, while the distribution of bailout payments to male-dominated banks presumably had the opposite skew.

A bully pulpit
More controversial, perhaps, is the idea that mainstream economic thought itself incorporates a male bias in its selection of approaches and techniques. An example is the question of theory versus concrete data, which is related to a broader dichotomy between the abstract and physical reality. “Statistically, men and women are not drawn to the same fields within economics,” wrote economist Miles Kimball and an untenured female economist, who didn’t want to be identified in case it hurt her career. “And even within a field, women are drawn to a different balance between immediate real-world relevance and theoretical elegance.”

Of course, this might be due to cultural conditioning, given that since the time of the ancient Greeks, mathematics has been viewed – according to science writer Margaret Wertheim – as “an inherently masculine task. Mathematics was associated with the gods, and with transcendence from the material world; women, by their nature, were supposedly rooted in this latter, baser realm”.

To encourage more female participation, wrote Kimball and colleague, economics needs to “become open to a wider range of scientific approaches and topics”, and also promote “a better power balance among colleagues”. Or, as Stanford economist Susan Athey put it: “The bullying culture of economics is one of our biggest problems.”

If and when more women go into economics, it will be interesting to see how this changes the profession. This may be the year when it starts to happen – after all, for a field that favours ideas such as competition and disruption, it seems odd to be running itself like a 19th-century gentlemen’s club.

How technology is driving financial inclusion around the world

Posted on by Max Tomlin

Financial inclusion has gained real ground over the past few years. More than half a billion people got access to financial services for the very first time between 2014 and 2017, according to the World Bank’s Global Findex Database 2017. In 2011, the global ‘unbanked’ population stood at about 2.5 billion, but just six years later that figure has dropped to 1.7 billion.

Cash transactions are more likely to be unsafe, expensive and inconvenient

Over the past decade, more than 55 countries have made commitments to financial inclusion, including Pakistan, which accounts for six percent of the global unbanked population alone (see Fig 1). Nevertheless, while countries like Pakistan are beginning to show exciting prospects for growth, unbanked citizens still cost the global economy $600bn a year.

Those who rely on the unregulated informal sector have difficulty saving money for the future, paying for education and investing in businesses. Cash transactions are more likely to be unsafe, expensive and inconvenient, according to the United Nations’ Better Than Cash Alliance. This “traps the vulnerable segments of society in a cycle of poverty”, Tidhar Wald, the group’s head of government relations and public policy, told World Finance.

The digital edge
The vast majority of unbanked adults live in developing economies. Compared with developed nations, banks in these regions tend to have far fewer branches. For instance, in Pakistan there were fewer than 11 commercial bank branches per 100,000 adults in 2017, compared with 31 in the US, according to the World Bank.

The significance of physical bank branches has begun to diminish, however, due to the rise of the internet and mobile phones. Today, two thirds of the global unbanked population owns a mobile phone. Between 2014 and 2017, growing mobile phone and internet usage boosted the total number of people sending or receiving payments digitally from 67 percent to 76 percent. In the developing world, this upswing was even more pronounced: digital payments made to and from account holders climbed from 57 to 70 percent.

Steve Smith, the CEO of US-based fintech company Finicity, explained to World Finance how technology was erasing traditional blockers to financial access. “As people get a mobile device, they can connect to a financial institution. They can set up a checking account. They can have access to mobile banking. They don’t have to go into a branch; they can get a direct deposit of their income to that checking account.”

This financial flexibility helps families meet unexpected economic setbacks and allows entrepreneurs to invest in their businesses and create jobs, Wald added. “Most importantly, digital financial inclusion allows economies to grow stronger and more inclusive.” For this reason, countries like Pakistan have come up with financial inclusion strategies in recent years. Pakistan’s government adopted a National Financial Inclusion Strategy (NFIS) in 2015 that aims for 50 percent of adults to have bank accounts by 2020 – including 25 percent of women.

Out of Pakistan’s population of around 210 million, only 21 percent of adults had bank accounts in 2017, according to the World Bank. But with high mobile penetration rates, this could soon change: research by Financial Inclusion Insights (Fii) found that 84 percent of men and 71 percent of women in the country have access to a mobile phone.

$600bn

Cost of the unbanked to the global economy each year

201m

Population of Pakistan

21%

of adults in Pakistan had a bank account in 2017

34%

of men in Pakistan had a bank account in 2017

7%

of women in Pakistan had a bank account in 2017

Financing growth
Both Smith and Wald cited India as something of a success story for financial inclusion. Its cash-based economy quickly digitalised over recent years, and the rate of bank accounts opening has been “absolutely extraordinary”, Smith said.

In neighbouring Pakistan, however, many locals are still wary of financial institutions. In a 2015 survey by Gallup Pakistan, 65 percent of respondents said they would rather deal with someone they knew than a bank.

Rehan Akhtar is the chief digital officer of Karandaaz, a non-profit that promotes financial inclusion and access to finance for micro, small and medium-sized enterprises (SMEs) in Pakistan. He told World Finance that convincing Pakistanis to adopt digital financial services over cash would require new policies, including digitalising all government transactions and enabling an environment for e-commerce transactions.

NFIS has prompted a number of new initiatives, including mobile bank account schemes, biometric identity verification and the promotion of fintech services. These policies have already strengthened the country’s microfinance sector.
In Pakistan, Akhtar said SMEs account for over 90 percent of the country’s 3.2 million businesses and 30 percent of GDP. “As a consequence, growth of SMEs can have a direct impact on achieving the targets of poverty alleviation and sustainable growth for Pakistan’s economy.”

Finicity is also working to make the process of obtaining a loan easier for unbanked populations. Its new scoring methodology in the US generates credit scores for those who are unable to provide a standard credit history. Extending that concept to areas of the world where new bank accounts are opening quickly could provide more people with lower-cost access to money. “And when you do that, it just continues to accelerate economic expansion,” Smith said.

The gender divide
Although financial inclusion in Pakistan is improving, doubts remain that it will reach its 50 percent target by 2020. One reason is the continued exclusion of women from the financial system – today, men are about five times more likely than women to have a bank account.

What’s more, Pakistan’s gender gap in financial inclusion has actually widened in recent years. In 2017, 34 percent of men had bank accounts, up from 21 percent in 2014. Just seven percent of women had accounts in 2017, however, up from five percent three years earlier. India, comparatively, has made impressive strides in gender equality: the number of women with accounts rose from 43 percent in 2014 to 77 percent in 2017. Overall, total account ownership is now 80 percent.

Pakistan’s gender gap in financial inclusion has actually widened in recent years

Gender disparities exist in many aspects of life in Pakistan, including education, health and every economic sector. Furthermore, less than a quarter of the female population is involved in the workforce. Fii attributed poor financial inclusion to “the lack of women-owned physical capital, as well as cultural norms that limit women’s economic empowerment”.

Women’s economic empowerment is a key area that must be addressed by government policies if Pakistan’s financial inclusion goals are to be met. CGAP, a global partnership focusing on financial inclusion, said Pakistan was among the countries that should adopt policies addressing barriers to women’s economic inclusion.

Return on investment
Pakistan is home to several innovative fintech companies, including digital financial services firms Easypaisa and JazzCash. But Akhtar said market players must be encouraged to expand, and this will take a significant amount of investment. “[This is a] difficult task to achieve, and financial inclusion as a result lacks political ownership,” he observed.

Recent research by CGAP outlined how vital investment is for digital financial services companies building extensive new networks: “While achieving profitability can take several years, these investments set the foundation for a successful market by solving problems related to use cases, customer education and agent recruitment/training.”

Investors are increasingly realising the opportunity unbanked populations offer. For instance, Chinese payment provider Ant Financial bought a 45 percent stake in Pakistan’s Telenor Microfinance Bank (TMB) for $184.5m in 2018. Ant Financial aims to develop mobile payments and digital financial services at TMB, which owns Easypaisa.

Stephen Rasmussen, who leads CGAP’s work on sustainable digital financial-services ecosystems, argued in a blog post that Ant Financial’s interest in Pakistan could be a game-changer by “spurring other businesses to become more ambitious about increasing mobile wallet uptake and use” and “[establishing] an investment benchmark in the market that could encourage additional investment into other fintech businesses”.

Further investment in Pakistan could be what pushes the country towards greater financial inclusivity, which is intrinsically tied to economic growth and prosperity. “What we need is coherence at the policy level, and for the industry to come together to develop the market for financial services,” Akhtar told World Finance. “This requires a mindset of collaboration and investment in new technologies and business models, which, with the right nudges by the policymakers, will enable the much-needed financial inclusion.”

With technology continuing its swift transformation of the banking sector, it appears to only be a matter of time until the vast majority of the world’s population is included in the financial industry.

Top 5 ways that the finance industry can prepare for AI

Posted on by Max Tomlin

Artificial intelligence (AI) is set to revolutionise every industry, and the finance sector is no exception. AI will make businesses faster and cheaper to operate, creating new opportunities and adding an additional estimated $13trn to global economic activity by 2030.

Financial institutions are increasingly looking to AI to aid further operations

Despite the rise of AI, Digital Realty’s latest research has shown that over a third of IT decision makers in the UK’s largest financial services companies are not ready to implement the technology into their business. Elsewhere, the figures are similarly high. For instance, they are calculated at 27 percent in Ireland, 18 percent Germany and 23 percent in the Netherlands.

Processes that are already seen as the norm in the financial services industry, such as fraud detection and stock trading, are made possible by AI, and financial institutions are increasingly looking to AI to aid further operations. These include customer communication, predictive analytics, trade processing, and intelligent investment solutions. Listed below are the top five ways your business can prepare for the surge in AI.

 

1 – Identify key areas that would benefit from AI
Before taking the first step to introduce AI into your business, it is crucial to review and evaluate existing processes to determine which existing processes can and should be automated to free up time for employees to focus on higher-value tasks. It is important to hold discussions with your workforce to identify the processes that are repetitive and tedious, and those that can be carried out with automated methods.

In the financial services industry, tailored customer service, risk model improvements, and day-to-day transactions have been made possible by AI; firms in the sector should continue to iteratively evaluate their processes so that AI can be implemented to maximise process efficiency across the business.

 

2 – Educate your workforce
It is important to involve the workforce in the initial planning stages of AI implementation for the reasons laid out above. However, it is often recognised that automated processes, such as AI, can be seen as a threat by employees with regards to being replaced and losing their job. Whilst this may be true to some extent, this can be mitigated if they are educated on how AI can, and will, be introduced in the near future, and how it should not be seen as their replacement, but rather, should be welcomed as it will free up time to focus on other key activities.

In the case of the finance industry, employers should reiterate the fact that the more mundane tasks, or tasks that require uninterrupted manpower, such as around-the-clock monitoring for security attacks, are not the most valuable use of time. It is equally important to instil a culture that promotes a harmonious relationship between colleagues and AI to ensure that change is accepted.

 

3 – Upgrade your infrastructure
The rise in AI applications will bring about a host of new demands for data.  Complex data processing is required to ensure that businesses welcome AI with functioning arms. This shift can be costly if outdated infrastructure must be upgraded to the standard required to facilitate AI operations.

Outsourcing providers, on the other hand, build their infrastructure with the focus on interconnection – they are constantly redesigning their infrastructure to evolve with new technologies, so businesses can benefit from a purpose-built environment without having to worry about costly ongoing updates to their own infrastructure.

Upgrading infrastructure introduces a host of benefits, such as lowered operation costs, scalability, increased security, a centralised integration platform, and improved functionality. These benefits will further assist in streamlining operations, such as analysing large amounts of data, customer support, and real-time data transaction views, to name a few. Companies, especially those in trading or stockbroking, benefit from faster and better service for customers, together with efficient end-to-end data flows.

 

4 – Set out a clear AI strategy
As with anything, financial services firms need a clear AI implementation strategy from the outset to ensure that whilst AI is being developed and incorporated into processes, there is a clear deployment strategy, which includes a rollout plan for key stakeholders, like customers.

A well-planned strategy is vital in ensuring that the incorporation of AI delivers optimum benefits for the business, such as better-tailored and more accurate services for customers at a lower cost, as well as enhanced prevention of criminal activities and improved detection of fraud and money laundering.

 

5 – Look at other firms’ strategies
It is important to determine parallels in the AI-led systems with other companies; and learn from the mistakes of others! In order to ensure that your company is keeping abreast of its competitors, and maintaining their competitive edge, financial services companies should look not only to their direct competitors for learnings, but beyond the industry.

AI is a versatile and powerful technology but is not without its teething problems. With regards to the financial services industry, previous encounters with AI have resulted in biased consumer targeting. When looking to adopt AI, it is wise to look at previous mishaps to ensure that future processes are developed which incorporate best practices.

To fully embrace the benefits of AI, companies will need to meet new processing and interconnectivity demands. The challenge is forcing them to look to cloud and data centre partners for the purpose-built infrastructure, rapid low-cost interconnection, and simple management of these complex data environments that can underpin their AI ambitions.

Iberdrola is using innovative technology to take the fight to global warming

Posted on by Max Tomlin

Sometimes society’s most important advances come from the most counter-intuitive ideas. In the 1970s, marine conservationist Bill Ballantine won a battle to open a protected marine reserve off the coast of New Zealand, overcoming concerns that it would harm the region’s fishing trade. Within a few years, the protected zone witnessed the desired increase in marine life. Yet it was what happened beyond the zone that amazed all concerned: the opportunity for catches outside the protected area increased to levels higher than fishermen had previously enjoyed inside it. Such was the rate of breeding inside the zone that fish had spilled out into the areas beyond in great numbers.

In the battle against global warming, our best hope could well be to use more electricity, not less

In the world of energy, it is high time for a similar piece of counter-intuitive thinking, as the fight against climate change grows more urgent every day. Whole countries are starting to feel the effects of global warming on their economies, while progress on the 1.5 degree warming target set in the Paris Agreement remains too slow. As the world continues to talk about decarbonisation, reducing emissions and increasing energy efficiency, electricity would seem to be a natural enemy. After all, just under 40 percent of it is still generated by burning coal, according to the International Energy Agency (IEA).

And yet, in the battle against global warming, our best hope could well be to use more electricity, not less. By increasing the amount we use, the world can finally kick its fossil fuel habit. This is because our cars have always run on oil-based fuels like petrol and diesel, our homes are still heated by burning gas, oil or coal, and our lives have long been powered by electricity generated in fossil fuel plants.

But this doesn’t need to be the case anymore. Advances in technology mean that by switching our transport and heat to methods powered by electricity and by taking advantage of the reduced price of the renewable energy used to create this electricity, we can make a decisive shift away from polluting fossil fuels. Globally, the IEA says that only 20 percent of energy demand today is met by electricity. Yet the winds of change are blowing.

A case for renewables
The fall in the cost of renewable energy generation has been spectacular. Iberdrola made a decision 18 years ago to invest in this opportunity, and today – with almost 30,000MW of renewable generation capacity to its name – the company is one of the world’s largest clean energy producers. Its UK business, Scottish Power, generates 100 percent of its energy from renewable sources, while the application of blockchain technology in Spain means that customers can track how their energy is generated and be assured that it is from renewable sources.

20%

of energy demand is met by electricity

37.4%

of electricity is still generated by burning coal

73%

Drop in the cost of solar energy since 2010

Today, others are following suit, driving the cost of renewable electricity down further. This revolution has been so effective that in 2017, the UK enjoyed its first ever day of electricity generation without coal. Globally, the closure of coal-fired power plants continues apace, while Bloomberg New Energy Finance has recently predicted that wind and solar will account for half of the world’s energy generation by 2050.

The contribution that wind and solar are making to the global energy system and the transition away from fossil fuels demonstrates that government and bill-payer backing for renewable technologies has been well spent.

Projects can now be built quickly, are reliable, and are proven to both operate at scale and reduce carbon emissions. Today, onshore wind is the cheapest of any new-build energy-generation technology, while the cost of offshore wind has been reduced by over 50 percent in a short space of time, generating affordable power for thousands of households worldwide. The potential is enormous. Iberdrola’s East Anglia ONE offshore wind farm in the North Sea will power 500,000 homes once it is fully operational.

Solar energy, too, is coming of age. Previously a technology that relied on government subsidies, it is now an attractive commercial proposition. A 2018 report by the International Renewable Energy Agency found that the cost of solar energy has fallen by 73 percent since 2010, with further drops expected.

The battle for clean generation over fossil fuels is being won, but there remains much to do. Energy demand is still rising, and increasing the electrification of the economy is the only effective way to cater for rising energy demand while delivering on emissions reduction commitments.

Driving electrification
Today, there are clear areas of the economy that are responsible for high CO2 emissions and are ripe for mass electrification. A prime example is transportation: electric vehicles have taken time to gather momentum, but the pace of adoption is accelerating. Fortunately, advances in motor technology and ambitious government targets to phase out internal combustion engines and reduce air pollution are driving the development of electric vehicles forward.

Barriers remain, though. For instance, building sufficient charging infrastructure for a world where entire societies will shift to electric cars is a huge challenge. Another is how we will design electricity grids to cope with surges in demand when everyone plugs in at the same time.

Collectively, we must solve these challenges in order to ensure that the mass transition to electric vehicles runs smoothly. And crucially, this will require both private sector investment and supportive government policy. Get this right, and other sectors of the economy will quickly open up to the potential of electrification.

Iberdrola is already making great strides. In early 2019, a joint partnership with car manufacturer Nissan was announced to develop chargers for their electric vehicles, drawing on Iberdrola’s network infrastructure. The project will initially begin in Spain and will then be extended to other countries, including the UK and the US.

Heating, which is still driven almost exclusively by burning fuels, is another prime candidate for electrification. Heat pumps offer the most logical solution here, but the technology remains in its infancy and lacks the policy support required for it to fully take root. A successful transition to an electrified transport system could provide the much-needed confidence to help move things forward in other areas as well.

The storage conundrum
We also need a better solution for storing the renewable energy that is produced, which will provide baseload support for when natural resources cannot be relied on. Batteries are the common solution to this problem – however, they are not always the right one.

Current research and development of battery technology is not mature yet, with little consensus as to the best technology for the job. On a domestic level, batteries in homes are unlikely to be the answer for most people, given the size and scale of the installation required to sustain power and the fact that users will still need to be connected to the grid.

It is clear that more development of this technology is required. Happily, an alternative storage solution exists that is cost-effective and proven at scale, with several gigawatts of capacity available. It is called pumped hydro storage, but in many ways it functions like a natural battery.

On days when the wind doesn’t blow or the sun doesn’t shine brightly, water is released from a reservoir and flows downhill to generate power. When a windy, sunny day comes along, the pumps reverse and the opposite happens. Water flows uphill back into the reservoir, acting like a rechargeable battery that is ready to be used again. The potential for this technology is proven, and failure to invest in it at scale would be a huge missed opportunity.

Into the future
In the West, electricity feels central to our lives. Yet, counter-intuitively, the electrification of society has only just begun. And there’s one more ingredient missing: improved regulation.

The right regulatory framework is one that incentivises innovation and the necessary upgrades to power networks to cope with an electrified economy. It is one that takes a progressive approach to financing the development of new electric technologies, and it is a system that accelerates decarbonisation by employing a strong ‘polluter pays’ principle to ensure the costs of climate action are shared evenly.

It has been 270 years since Benjamin Franklin first experimented with electricity and introduced the concept to the world. As the effects of climate change continue to intensify, we cannot wait any longer to complete the journey he started us on.

Carnegie Investment Bank is welcoming a new era of banking transparency

Posted on by Max Tomlin

Public confidence in financial institutions is what forms the foundation of a sustainable financial market and a functioning social economy. In order to maintain confidence, market participants have become accustomed to an increasingly heavy regulatory burden, while the ability to adapt to new legal requirements has become a strong competitive factor for them. Fortunately, higher capital requirements, strengthened monitoring functions, extensive reporting and enhanced money laundering rules can reduce risk and bolster confidence in global financial systems.

In order to maintain confidence, market participants have become accustomed to a heavy regulatory burden

MiFID II has received a lot of attention as one of the more customer-orientated regulations across European financial markets. It aims to improve transparency and strengthen customer protection in securities trading, and is targeted primarily at companies that provide advice and conduct trading in financial instruments. This includes the private banking market.

Among other things, the EU directive enhances the reporting requirements for products, fees and commissions that arise from customer relationships. As such, advisors and providers are required to give more justification for the products and services they sell.

This has led to extensive system adaptations and administrative investments for providers of financial services. In the short term, few are pleased. But from a long-term perspective, it provides a more level playing field in customer relationships while also improving confidence in the sector. In other words, increased transparency is in the industry’s own best interest, and therefore is a considerable benefit to private banking, where trust is the product itself.

Responsible guidance
As part of the stricter reporting requirements, advisors and product providers must do more to clearly justify the suitability of financial products. Essentially, they are obliged to ensure that the instruments they recommend fit an investor’s profile and that they always act in the customer’s best interests. Clearer documentation and monitoring should therefore reinforce pre-existing processes and procedures related to Know Your Customer, reporting and investment advice.

The reasoning behind greater customer protection is based on the complexity of the securities market, where the customer occasionally risks being at a disadvantage in terms of knowledge. Private individuals have a wealth of financial instruments, savings forms or asset types to choose from, while an increasingly multifaceted environment introduces new risks and new opportunities. This means that a great deal of trust and responsibility rests with the advisor.

If MiFID II achieves the desired effect, it should benefit all private banking providers that offer a high degree of independence and transparency in product selection, broad investment knowledge and greater flexibility in portfolio management. Carnegie Private Banking welcomes this transparency as it fits well with what tailor-made wealth advisory should be all about.

Personal finance is one of the most important things we do. Our dreams, security and opportunities for the future all rely on it. It is about the people giving thought to housing, pensions, travel, children and grandchildren, rather than hedge funds or stock index bonds. This is where financial advisors play an important role in translating the customer’s unique wishes and needs into well-founded and managed solutions and investments.

Quality control
MiFID II also stipulates new requirements for how customer fees should be reported separately. This aims to give the customer a better understanding of the underlying costs that drive the overall pricing. It also aids comparability between providers and makes visible any commissions from third parties.

It is not unreasonable to assume that this will entail some price pressure in the marketplace, but there will always be a greater level of acceptance for providers that deliver clear value. Fortunately, greater transparency surrounding costs and fees is also expected to stimulate the quality of products and services in the market. Confidence, therefore, should not be built simply on having a knowledge advantage, but must be earned based on the customer’s experience of the products and services provided to them. Indeed, this is what creates sustainable customer relationships in the long term.

New rules are often met with strong resistance, but the actual spirit of reinforced legal requirements should not meet any objections. It remains to be seen how well the outcome tallies with the aims, but for all serious market participants, MiFID II is set to be a significant boon to long-term customer relationships.

Fubon Life is excelling by combining profitability and social responsibility

Posted on by Max Tomlin

Balancing profitability and responsibility is a key concern for any business, but it is particularly pertinent for companies within the life insurance sector. While life insurance exists to offer protection during worst-case scenarios, companies in this sector also have a duty to encourage their customers to improve their lifestyles. This provides an additional benefit for insurance providers, in that it reduces the number of claims that they must pay out on and allows them to transfer the financial benefits to customers in the form of reductions to premiums.

While life insurance exists for the worst-case scenario, companies also have a duty to encourage customers to improve their lifestyles

Maintaining this fine balance is something that Fubon Life excels in. Not only do we sustain outstanding financial performance, we also continually work to deliver additional value to both our customers and our employees through the principle of sustainable management. Corporate social responsibility is at the heart of our business, and underpins our brand spirit of ‘positive energy’.

A healthy approach
To ensure we are offering the best possible service to our customers across all demographics, Fubon Life maintains a diversified product portfolio, which can be adapted not only to each individual customer, but also to the overarching macroeconomic climate. For instance, to allow us to better cater to Taiwan’s growing elderly population, we have raised the age limit on applications for our insurance products, as well as boosting our coverage in this area. We have also introduced various types of retirement-planning products to ensure all of our senior customers are as financially secure as possible.

Additionally, in recent years Fubon has coined the concept of ‘health promotion’, whereby customers receive discounts to their life insurance policies as an incentive to follow a healthy lifestyle. We launched Taiwan’s first pedometer-linked policy, which allows customers to obtain premium reductions depending on how many steps they take in an average day.

We have also pioneered the Impaired Lives policy, which is designed to cater to those with diabetes – a common ailment among the Taiwanese population. Customers on this policy submit regular blood glucose measurements to Fubon, which are then used as a benchmark for premium discounts: the better the control over blood glucose levels, the higher the discount. In this way, we are able to stand with our policyholders in the fight against diabetes by incentivising them to make positive changes to their physical health. The policy provides an additional benefit for Fubon as it helps to prevent administrative complications and also reduces the overall number of claims.

The business DNA
Alongside these premium-reduction incentives, we also work to improve the lives of our customers, and the rest of the world around us, through a range of social-care initiatives. We are particularly committed to working to improve the care received by the elderly, and have collaborated with the Federation for the Welfare of the Elderly on their bracelet project. Under this scheme, elderly people suffering with dementia are given a wristband with a hotline number and a tracking number. This means that anyone who finds the missing elder can call the hotline and use the information on the bracelet to help that person find their way home.

To foster community spirit, we have launched the Xiao Bang Service Project, which connects our employees with members of the local public. We also organise frequent power walk events for charity causes to encourage the public – particularly the elderly population – to engage in physical activity. When it comes to supporting sporting events, we leave no stone unturned: we host the largest nationwide interdepartmental basketball championship tournament and sponsor UBA college basketball tournaments, along with other student sports events, to promote sports at all levels.

We’re committed to continually improving our customer service, not solely through our social outreach programmes, but also through our pioneering use of technology. We have recently implemented a five-dimensional strategy, whereby we added online policy application and offshore policy options to our existing model, which centres on tied agents, bancassurance and diversified channels. Fubon Life has also actively improved the digital power of its tied agents by introducing video contact options and an ‘easy pay’ smart claim application system.

Taking care of all segments of our society is one of Fubon Life’s core competencies, one that we will not lose sight of in our journey to become Taiwan’s premier life insurance brand. Indeed, we will fulfil our corporate social responsibilities, promote the common good of society and continue to advance towards the goal of becoming a model international enterprise.