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. a clever UI or an improved UX, 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. Whilst their immediate opportunity lies in the lack of flexibility and the constraints of legacy systems, it is a limited window of opportunity. At best, a fintech or insurtech can set itself up for a trade sale to a traditional incumbent, carve out sufficient market-share using a finite first-to-market advantage for a quick IPO or they can join the pack selling the same old products.
But, generally, this is not disruptive innovation.
Of course, there are some exceptional financial technologies that are disruptive – Web3.0, blockchain, cryptocurrencies, digital assets and payment technologies, to name a few.
But for platform-enabled financial and insurance businesses, a smart front-end that sells same traditional financial products that have and continue to be, widely available through multiple distribution channels, is not sufficient to dominate or disrupt the market.
For example, take forward mortgages which have been commoditised 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 disruptive financial play. A BNPL player in this space has only a short window to capture market share and, as we have witnessed, within a few short months there are a half-dozen competitors trying to scale at any cost and now facing unacceptably high credit risks and depressed company valuations or share price.
In our experience, differentiation based on tech alone, might be an easier path, but it simply buys some time for a fintech or insurtech.
Incumbent competitors and financial institutions do not, of course, sit idle in the face of these digital challengers. It is too easy to under-estimate their depth of capital, strong IT capabilities and ability to quickly spin-off digital bank and insurance brands to either compete head-on in the digital space or their financial capacity to buy-out the challenger 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.
So why aren’t there more fintechs and insurtechs taking these obvious opportunities? 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 even attempt it.
The team at Futureproof choose to focus on disruptive innovation that changes the world by addressing not one, but two global issues:
- the growing retirement funding gap as the population ages
- inter-generational unfairness in wealth transfer making it difficult for the next generation to get into the housing market
We are the only fintech world-wide innovating with entirely new product solutions that improve people’s lives in retirement.
Our elevator pitch
Futureproof was founded by Allianz Insurance alumni as a B2B2C platform-enabled SaaS business delivering the Product Platform to write the new Equity Preservation Mortgage®.
Futureproof does not provide financial services nor is the Company a retail lender or originator of mortgages.
We lie at the intersect of financial technology and financial product innovation for retail banks, life insurance carriers and regulated non-bank lenders.
Our Software-as-a-Service is a product plug-in that makes the Equity Preservation Mortgage™ available to these regulated financial institutions to enable them to better meet the financial needs of their ageing customers at every life stage.
This is a disruptive innovation delivering better financial outcomes to both lenders and borrowers.
There has always been 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 capable of accessing and releasing home capital has, up to now, been traditional equity release mortgages – 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 for Lenders, with the average reverse mortgage loan around USD$80,000-$100,000 only. The market uptake of reverse mortgages is currently around USD$20 billion per year across these 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 of only 50% and an average loan size that is 5x the size, with none of the downsides of reverse mortgages for the Borrower.
Futureproof’s breakthrough Equity Preservation Mortgage® – a proprietary and entirely new type of equity release mortgage – will see very substantial new capital inflows into the capital markets through mortgage lending, asset management and RMBS securitisation. With central banks quantitative easing being exhausted and a decade of historically low interest rates, this new capital cannot flow into the global economy soon enough.
So, here is our simple elevator pitch:
Our Equity Preservation Mortgage® – a new type of equity release mortgage that monetises 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 made available through our SaaS product platform as a white-labelled equity release mortgage, only 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. These haven’t changed in that time and each remains inherently defective in its product design.
This is also true of the most traditional insurance and investment products that have been designed for retirement income – such as guaranteed income products, investment products such as buffered ETFs and annuities.
These all require cash capital for payment of a substantial upfront premium. However, the reality is that the around 70% of the market are asset-rich and cash-poor home-owning retirees who are under-funded for their retirement – they are simply unable to buy these products.
These retirees are left few choices other than a reverse mortgage.
Guaranteed income products deliver poor returns and annuities are regarded as poor value and inflexible. These existing products are seeing rapidly increasing sales despite the aging population and a growth market of potential Customers to 2050 – the market is clearly telling us something.
Over the past 35 years since reverse mortgages were invented in the UK, 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 and intelligent innovation.
Futureproof’s new Equity Preservation Mortgage® underpins a new generation of ethical, low-risk financial products that offer real value for the ageing Customers of banks and insurance carriers to better meet their retirement and aged care funding needs.
What problems are we solving
Futureproof addresses not one but two global problems that continue to grow as the population ages:
- Retirement funding gap
- Inter-generational unfairness
Firstly, the Equity Preservation Mortgage® is designed to create a new 5th pillar of retirement funding by monetising home equity in a fiscally responsible way to make it work to fund retirement and aged care.
Secondly, this fintech innovation ensures all home wealth is preserved and transfers to the family, enabling the next generation to overcome the increasing difficulty they face in entering the housing market and, in turn, fund their own future retirement.
Who are we
Futureproof Financial Group Limited is an unlisted public company with principal offices in Hong Kong, a research & development team based in Sydney, a licensing & corporate operations team in Guernsey and a commercial team in London.
Futureproof is a portfolio company of IMS Digital Ventures, a leading VC and builder of SaaS platforms and focused on global scaling of tech-led businesses.
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 broad category of equity release, our new smart mortgages are fundamentally different from traditional equity release products such as reverse mortgages shared appreciation mortgages or shared equity mortgages.
Futureproof’s three new types of Equity Preservation Mortgage® are:
- Principal + Interest
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, financial advice industry and wealth management.
The 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 gap (2015) growing to $US137 trillion (2050)
- United Kingdom = $US8 trillion gap (2015) growing to $US33 trillion (2050)
- Australia = $US 1 trillion gap (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
Futureproof is focused on addressing three of the world’s Top 5 wicked problems all inter-connected symptoms of the aging population:
- retirement income gap caused by the aging population
- funding of aged care
- inter-generational wealth inequality
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 changes will obviously have a role to play in mitigating the funding gap, they address the symptoms and provide only a partial solution or temporary fiscal relief at best.
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 historically low-interest environment. This means any gains made through reforms that ‘tinker around the edges’ of existing retirement products, schemes or pension funds trying ever more desperately to chase better investment returns in either the accumulation or decumulation phases of retirement, are not a solution.
These gains will not only be quickly eroded by longevity increases, but defeated by the continuing low interest-rates and volatile investment markets.
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 fiscally-responsible 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, banking and financial services veterans to develop a next-generation financial instrument that can under-pin new and fund 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 product design.
When it comes to retirement funding, these traditional retirement funding products are simply not fit-for-purpose.
The bottom-line is that the retirement funding needs of the vast majority of retirees who are ageing Customers are not being adequately met by retail banks, life insurance or wealth managers.
What we achieve
Home capital, accessed responsibly, can be used to better fund retirement provided there is no depletion of home equity.
This leaves retirement wealth intact to fund health services and aged care, if it is needed, or to bequeath to the family.
Reverse mortgages, shared appreciation mortgages and shared equity mortgages are all highly risk-weighted under BASEL II & III and SOLVENCY II and capital intensive for Lender to write.
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 have a far lower risk weighting, deliver a more profitable return on bank assets, offer more efficient use of Tier One regulated capital and ensure Customer retention for life.
We all know existing retirement funding products such as Deferred Annuities, Insurance Bonds, Private Pension and Guaranteed Income products are not enjoying spectacular sales growth as the population ages.
Our new mortgages can re-position these legacy products into a much wider market – turbo-charging sales by funding the purchase of existing 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 do it
- Use an intelligently designed low-risk financial instrument to provide a unique mechanism to monetise home capital, use simple interest not compounding interest and pay loan interest as its incurred.
- Use this new mortgage-based financial instrument as the funding engine to under-pin a range of bespoke financial products for each life stage.
- Make this mortgage available at no cost and 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 SaaS product platform to write the mortgages, which is managed, hosted securely and supported by the world’s leading professional services & technology consulting group, enabling a simple product plug-in to cloud-based open-banking & open-insurance core enterprise platforms or via secure APIs to legacy systems and existing technology stacks.