Too many fintech and insurtech innovations seem to be solutions looking for a problem. At Futureproof, we identify real life problems needing a solution.
When it comes to innovation, there’s incremental innovation and then there’s disruptive innovation.
All of us enjoy the better customer experiences offered by a mobile app or a new tech platform-enabled business or a clever UI, when it comes conducting our banking or insurance business.
However, if a digital challenger or innovator thinks only in terms of tech differentiation and not product differentiation, then their competitive advantage simply is not sustainable for the long term. This opportunity lies in the lack of flexibility and the constraints of legacy systems. It is, however, a limited window of opportunity. At best, a fintech or insurtech can set itself up for a tradesale to a traditional incumbent, carve out sufficient market-share using their limited first-to-market advantage for a quick IPO or to join the pack selling the same old products.
But this is not disruptive innovation.
Of course, there are some exceptional financial technologies that are disruptive – blockchain, cryptocurrencies, NFTs and payment technologies to name a few.
But for platform-enabled financial and insurance businesses, a smart front-end selling the same traditional financial products that have and continue to be, widely available for many decades through multiple distribution channels, is not sufficient to dominate or disrupt the market.
For example, take forward mortgages which have been commoditized for decades, leaving no opportunity to even compete on price.
Another example is Buy-Now-Pay-Later, an old-fashioned form of credit previously known as Lay-By, now dressed up as a new financial product. A digital player in this space has only a short window to capture market share and, as we have witnessed, within months there are now a half-dozen competitors facing depressed company valuations and share price.
In our experience, differentiation based on tech alone, might be an easier path, but simply buys a limited window of opportunity for a fintech or insurtech.
Incumbent competitors and financial institutions do not, of course, sit idle in the face of these challenges. It is too easy to under-estimate their depth of capital, strong IT capabilities and ability to quickly spin-off digital bank and insurance subsidiaries to either compete head-on in the digital space or their financial capacity to buy-out the technology or provider.
The real opportunity to disrupt a market, lies in exploiting the weak spot of the incumbents and financial institutions – product innovation. Financial institutions are not, by nature, first-movers let alone product innovators. They lack the innovation culture, are not nimble, they lack business efficiencies due to size, are overly risk averse and heavily focused on remediation of legacy business issues. Ultimately, though, they are simply product-sellers, not product manufacturers.
Product-focused innovation is far more challenging – especially in the highly regulated banking and insurance industries. It requires deep domain knowledge, understanding of regulatory and risk issues with a focus on both the requirements of the Product Issuer and on the needs of the Customer – that’s why so few fintechs and insurtechs even attempt it.
The team at Futureproof choose to focus on disruptive innovation that changes the world by improving people’s lives in retirement.
Our elevator pitch
The big picture story explains why our Equity Preservation Mortgage™ is a disruptive innovation.
Right now, there is a massive pool of untouched home capital of US$20 trillion in Australia, UK and USA – this is the last remaining untouched asset class.
However, the only financial instrument in the world capable of accessing and releasing home capital are equity release mortgages. Traditional equity release mortgage products include reverse mortgages, shared appreciation mortgages, shared equity mortgages and retirement interest-only mortgages.
Of these existing types of equity release mortgages, the reverse mortgage dominates the market. A reverse mortgage is 100% risk-weighted with the average reverse mortgage loan around USD$80,000. The market uptake of reverse mortgages is currently around USD$2 billion per year in those markets.
In contrast, our average Equity Preservation Mortgage™ equity release mortgage, is a proprietary new form of equity release mortgage with a lower risk weighting and an average loan size of USD$500,000 with none of the downsides of existing equity release mortgages (such as reverse mortgages) for either the Lender or the Borrower.
Futureproof’s breakthrough Equity preservation Mortgage™ – an entirely new type of equity release mortgage – will see very substantial new capital inflows into the capital markets through new mortgage lending, asset management and RMBS securitzation. With central banks quantitative easing being exhausted and a decade ahead of low interest rates, this new capital cannot come into the global economy soon enough.
So, here is our simple elevator pitch:
Our Equity Preservation Mortgage™ – a new proprietary type of equity release mortgage – monetizes home capital into tax-free annuity income without depleting existing or future home equity, has to be an absolute game-changer in financial services !
Our Equity Preservation Mortgage™ is only made available under license as a white-labelled equity release mortgage, to regulated financial institutions.
It is decades since existing equity release products (reverse mortgages, shared appreciation mortgages, shared equity mortgages and retirement interest-only mortgages) were invented.
This is also true of the traditional insurance and investment products designed for retirement income such as guaranteed income products and annuities. Of these, guaranteed income products and annuities require payment of a substantial upfront premium when the market reality is that most retirees are asset-rich and cash-poor.
These retirees are left with traditional equity release mortgage products, most commonly reverse mortgages, which are not fit-for-purpose.
Guaranteed income products and annuities are regarded as poor value and are not selling despite a rapidly ageing population and growth market of potential Customers to 2050 – the market is telling us something.
Over the past 35 years, no one has been able to come up with better financial products for retirement funding.
The retirement funding space is well overdue for some re-thinking, intelligent innovation.
Futureproof’s new Equity Preservation Mortgage™ equity release mortgage underpins a new generation of ethical, low-risk financial products offering real value for the ageing Customers of banks and insurers to better meet their retirement and aged care funding needs.
Who are we
Futureproof Financial Group Limited is an unlisted public company with corporate offices in Hong Kong, research & development team based in Sydney, licensing & operations based in Guernsey and commercial representation in London.
It is a portfolio company of Business Innovation Group Limited, a disruptive technologies innovation hub.
Futureproof is among a select group of innovators focused on product innovation to deliver better Customer value.
EY 2021 Insurtech EcoSystem Map (4th Edition)
What we do
Futureproof is a disrupter of the retail banking, life insurance and wealth management industries in the retirement and aged care funding space.
We develop low-risk financial instruments and nextgen smart mortgages to support new fiscally responsible financial products that are focused on the financial needs of the ageing population.
Futureproof is not a retailer of mortgages nor a financial product issuer.
Whilst in the category of equity release, our new soon-to-be launched smart mortgages are fundamentally different from traditional equity release products such as reverse mortgages, shared appreciation mortgages, shared equity mortgages, home reversionary schemes or fractional property ownership.
Futureproof’s three new types of equity release mortgages include:
- Equity Preservation Mortgage™ – interest only
- Equity Growth Mortgage™ – principal + interest
- Equity Access Mortgage™ – interest-free
These smart mortgages are designed to monetize home capital without equity depletion.
These nextgen smart mortgages will deliver an entirely new approach to retirement funding, transforming the equity release market and the financial advice industry.
Our global challenge
Retirement funding gap
The retirement funding shortfall that already exists world-wide is growing by 5% per year.
“…the (retirement funding) gap at 2015 was already at $70 trillion…we project this gap to grow to $400 trillion by 2050.”
World Economic Forum
White Paper (June 2019)
The World Economic Forum reports the size of the global retirement funding shortfall is calculated by Mercers to grow 5% annually:
- USA – $US28 trillion (2015) growing to $US137 trillion (2050)
- United Kingdom – $US8 trillion (2015) growing to $US33 trillion (2050)
- Australia – $US 1 trillion (2015) growing to $US9 trillion (2050)
The statistics are plainly telling us there is a problem in all major markets, needing an urgent solution.
A wicked problem
A wicked problem is a complex and intractable social, economic or cultural problem that defies a solution for four reasons:
- incomplete or contradictory knowledge
- number of people and opinions involved
- large economic burden
- interconnected nature of these problems with other problems
In looking for solutions, it is clear that most think-tanks, policy research centres, industry consultative bodies and consulting actuaries naturally focus on changes or improvements to existing frameworks, whether they be government policy, pension funds, superannuation rules, social security pension entitlements or retirement financial products.
Futureproof does not believe this approach is anywhere near sufficient. Indeed, it reflects traditional thinking and a narrow approach to the problem.
Whilst these sorts of recommended changes will obviously have a role to play in mitigating the funding gap, they address the symptoms not the cause.
Futureproof believes the size of retirement funding problem is set to worsen well beyond even the World Economic Forum projections.
Global economic conditions now dictate that we are likely to face another decade in a low-interest environment. This means any gains made through reforms that ‘tinker around the edges’ of existing retirement products, schemes or pension funds (which are focused on cash, fixed interest, bonds & equities) to now try ever more desperately to chase better investment returns in the accumulation phase ahead of retirement, are not a solution.
These gains will not only be quickly eroded by longevity increases, but defeated by the continuing low interest-rate environment.
What wicked problems need is thought leadership and real innovation.
When looking for solutions, attention has to broaden beyond seeking incremental improvements to the traditional pillars of retirement funding, to a new asset class altogether – home capital.
This asset class remains largely overlooked and certainly under-utilised because of the absence of any workable financial instrument that can truly access home equity. After 35 years, reverse mortgages still remain entrenched in our thinking as the only financial instrument capable of accessing home equity, only ever releasing small amounts of home capital.
Futureproof believes that what is required now more than ever to meet this global challenge, is an entirely new financial instrument – one that can access and monetise the substantial amounts of stagnant unproductive capital locked up in residential property.
This remains the only untapped asset class of sufficient capital size and depth to have the necessary impact to close the retirement funding gap.
Why we do it
Futureproof was established by insurance and financial services veterans to develop a next-generation financial instrument to under-pin new types of low-risk mortgages to fund responsible bespoke financial products for the ageing population.
Our objective is to overcome the deficiencies of traditional equity release products, notably reverse mortgages, resulting from their inherent defects and poor design.
When it comes to retirement funding, these traditional retirement funding products are simply not fit-for-purpose.
The only alternative products available to Customers are fixed income products and annuities, which require payment of a substantial upfront cash premium and are seen as poor value, inflexible and expensive.
The bottom-line is that the retirement funding needs of ageing Customers are not being adequately met by retail banks, life insurers or wealth managers.
What we will achieve
Home capital, accessed responsibly, can be used to better fund retirement provided there is no depletion of existing home equity.
This leaves retirement wealth intact to fund health services and aged care, if it is needed, or to bequeath to the family.
The current generation of equity release products are 40 years old and have never changed.
Reverse mortgages, shared appreciation mortgages and shared equity mortgages are all highly risk-weighted under BASEL II & III, capital intensive to write and expensive to Borrowers.
These products carry serious reputational risk as products of last resort and they should not form part of any retirement plan.
The Equity Preservation Mortgage™ will change everything for Lenders. Our new mortgages will have the lowest risk weighting of all types of mortgages, delivering a more profitable return on bank assets and a more efficient use of their Tier One capital.
Other retirement funding products such as Deferred Annuities, Insurance Bonds,, Private Pension and Guaranteed Income products are simply not selling.
Our new mortgages can re-position legacy products into a much wider market – turbo-charging sales by funding the purchase of products using Customers’ home capital rather than paying premiums in after-tax cash dollars.
Our new mortgages will create an entirely new asset class of sufficient size and depth to become a new fifth pillar of retirement funding – home capital – whilst leaving existing home equity entirely intact as the traditional fourth pillar of retirement funding.
This has significant policy implications for government as the dependency ratio of taxpayers to retirees (currently less than 2:1), further declines, increasing fiscal pressure to find urgent solutions for retirement and aged care funding.
How we will do it
- Use an intelligently designed financial instrument to provide a unique mechanism to monetise home equity and pay loan interest as its incurred.
- Use this new mortgage-based financial instrument as the funding engine under-pinning a range of bespoke financial products for each life stage.
- License our proprietary intellectual property only to regulated financial institutions allowing them to brand, issue and retail Futureproof products to better meet the financial needs of their ageing customers
- Provide a technology platform and managed, hosted securely and supported by the world’s leading professional services & technology consulting group, that plugs into cloud-based open-banking & open-insurance core platforms or via secure APIs to legacy systems and existing technology stacks.