4th Annual RiskMinds Insurance Conference - Stream B: The future of Insurance Regulation

4th Annual RiskMinds Insurance Conference Stream B: The future of Insurance Regulation

“What will the market look like and how will it behave?

Drivers of change and opportunities for Insurers”

Eric Jeanne & Markus Salchegger

Drivers Of Change and Opportunities for Big InsurersAgenda

Major trends, risks and opportunities to address1

What should Insurers be capable of to face this?

Key enablers and helpers

2

3

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Market trends & perspectivesBig Insurers Face an Unprecedented Business Context

Pressure on

profitabilityPerfect

storm

Regulatory

escalation

Digital

revolution

(SMAC)

Fast changing

economic

environment


Market trends and perspectives1 - Fast-changing economic environment

Big Insurers face a deep evolution of clients’ utilization of insurance, and

a corresponding reshuffling of market forces and regulation

Revamping of

market forces

Radical

evolutions in

clients

behavior

Building

industry

boundaries

Pressure on

profitability

Emerging

regulation

(data privacy)

New

competitors in

the digital era

Insure profiles

& uses, not

persons &

goods

Increased

client volatility


Market trends and perspectives2 - Pressure on Profitability

Through Innovation CFO and CRO are changing their mission from

excellent Business Operator to Trusted Advisors, helping CEOs to

navigate current industry challenges

“Back to Insurance basics”

Better pricing, underwriting discipline,

portfolio management…

Low-yield environment

Persisting low yields in most traditional

asset classes, limiting financial

performance

Capital Management Optimization

Investment / Disinvestment decisions, Risk

Portfolio’s deleveraging….

Lack of profit opportunities

‘Saving glut’, heavy capital charges for

traditionally profitable investments

Flexible Operating Models

Innovative sourcing arrangements,

industrialization and cost-effectiveness…

Additional performance levers

necessary

Sourcing & flexible cross-industries

collaboration / internal cost effectiveness


More accurate performance

management

• Faster, richer, more relevant MI

• Improved decision-making

New prospective capabilities

• Anticipate social / customer trends

and expectations

Market trends and perspectives3 - Digital revolution

Digital pervades all business domains, and its implications carry new

opportunities and risks


In-depth client understanding

• Customer behavior and habits

• Customer expectations and

new products / services

• Customer interactions

Embedded Risk Management

• Informed understanding of risk

• ‘Natural’ inclusion in key business

decisions

Market trends and perspectives4 - Regulatory escalation

Increasing regulatory complexity tackling both Finance & Risk

Management and Business sides


Key value drivers for insurers are:

• Speed and accuracy

• Implementation synergies between different regulations (e.g. Solvency II and IFRS)

Selected insurance compliance areas

Insurer

Solvency II

Financial Reporting (IFRS 4)

G-SIIs

ICS

Unclaimed policies

Data Security and Privacy

Tax

Fraud, AML

Stakeholders-

driven

regulation

(social protection)

Financial

stability and

prudential-

driven

regulation

(sustainability)





2

3


Required capabilitiesHigh performance insurers in the digital age demonstrate four fundamental characteristics

Agile

Client centric

Innovative

Analytic


The ‘Agile’ Insurer• Intelligent sourcing approach

• Early warning and rapid response mechanisms

• Greater, faster and cheaper change

The ‘Analytic’ Insurer• Richer insights, smarter decisions

• Next gen predictive tools and techniques

• Real-time decision support

The ‘Client-centric’ Insurer• Brand new client experience

• Richer, real-time interaction with clients…

• …leveraged to develop client bases

The ‘Innovative’ Insurer• Leverage on new capabilities

• Develop innovative products (e.g. UBI)

• Bring new services to the market

Required capabilities1 - The ‘Agile’ Insurer shall reshape its organization to reconcile management of stocks and flows


Reinvent The ModelBecome A Utility

Capture all growth

opportunities

• Differentiation of client

experience

• Multiple interactions,

tailored solutions

• Innovative go-to-market

processes

• Real-time analytics

Optimize current

business portfolio

• Industrialization

of key business

processes

• Underwriting excellence

• Capital efficiency and

optimization

• Beyond compliance –

operational efficiency

Required capabilities2 - The ‘Analytic’ Insurer will drive business impact from big data and advanced analytics


Auto Insurer

10+ billion driving

miles, more captured

every second

Competitive rates

Low claims ratio

Usage-based

Pricing

Life Insurer

More precise risk

estimates using big

data (e.g. clinical,

drug & customer

history)

Underwriting

New Risks

Underwriting

HIV Patients

Medical

Insurer

Leveraging extensive

data (demographics,

policy, surveyor,

provider etc.) to

identify fraud in

accident portfolio

5% reduction

in loss

Fraud

P&C Insurer

Combining live

weather data with

historical patterns to

optimize catastrophe

loss rates

Optimal rates

Underwriting

Life Insurer

Predictive Models

Selectively

Replacing Medical

Tests

Lower Cost of

Underwriting

Automating

Underwriting

Required capabilities3 - The ‘Client-centric’ Insurer will leverage Digital enablers of the customer-centricity journey

Customer

Knowledge


Customer

Satisfaction

Organization redesign and change management

Customer

understanding

• Social Media

• Mobility

• Digital Marketing

• Analysis

Customer-oriented

offering

• Social Media

• Mobility


• Analytics

Multi-modal interaction

management

• Social Media

• Mobility


• Analytics

Customer experience

management

• Social Media

• Mobility


• Analytics

Digital Foundation(Global network, unified communication and collaboration, multi-channel contact center)

Required capabilities4 - The ‘Innovative’ Insurer will develop offers, services and sales approach that address changing expectations in the marketplace


New Products

& ServicesFrom “product”

to “usage”

approach

• Usage-based insurance to account

for >6% of auto premium within 3 years

• Enhanced understanding of clients

behaviors through utilization of internal

data and/or cross-check with external

sources (Google, Facebook…)

New Distribution

Channels From selling

products to

providing

solutions

• Comprehensive / reactive strategy for

emerging social media

• Integrated approach to client interactions,

allowing for co-construction of client

experience





2

3


Key enablers and helpersBig Insurers will leverage on 4 key enablers to develop the capabilities allowing them to navigate this ‘perfect storm’

Adoption of new digital and technological enablers by process

and technology innovation and integration in a broader risk

management contextTechnology

Value and competitive advantage generation with the

development and implementation of a reactive and cost-effective

approach on compliance

Risk &

Compliance

Operating model transformation for enhanced profitability,

reduced costs, increased collaboration among functions as well

as value enhancing usage of digitalization trends

Operating

Model

Workforce transformation to ensure the optimal mix of skills and

talent in the “new” environment and is the precondition for future

growth

Talent &

Organization


Key enablers and helpers1 - Leverage regulatory efforts to improve performance, reduce costs and complexity and generate value with a Risk-Adjusted Operating Model (=RAOM)

Developing and implementing a RAOM requires transformation at

multiple levels

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Key components of a

Risk-Adjusted Operating Model Transformation of Strategy, Risk,

Capital, Financial and Performance

Management by alignment of

organization, processes, technology,

data

Tailored implementation of key

measures: e.g.: risk-adjusted strategic

planning, risk-based capital optimization

and risk-adjusted performance

management

Adaptation of a centralized capital

optimization and steering approach

covering all phases from planning, to

evaluation and monitoring, to execution.

In order to make use of digital enablers Insurers will have to respond to

Digital Enablers

Key enablers and helpers2 - Technology is empowering Digital Transformation inclient interaction

Mobility

Multi-devices, anytime and anywhere access are drivers for interaction and engagement

* eg.: EU, Dir 95/46 EC and forthcoming EU General Data Protection Regulation


Cloud

Enabler of operating model scalability as well as reducing transaction unit cost

Analytics

From transactional and open data sources enabling scientific decision making

Social

Manage social to influence and build communities, listen to social for needs

Interactive

Leverage to build new products aimed at specific segment and user experiences across digital touchpoints

New regulatory developmentsmanage compliance with upcoming

regulatory frameworks in the area of data

protection and privacy *

Enhanced risk management methods new risk landscape such as reputation, business

continuity/operational, cyber risk and IT security

management as well respective risk transfer

capabilities

Key enablers and helpers3 - The transformation can only be delivered through a workforce with the right culture, skills and empowerment to execute the strategy


Optimal mix of skills & talents – precondition for the effective execution of strategy

• Companywide understanding of strategic implications and “how to put the strategy into practice” for leaders and

managers

• Anticipate the competency demand for tomorrow and develop ad-hoc programs and recruitment plans to ensure the

adequate mix of skills and talents

• Empower managers and the workforce to innovate continuously

Integration of regulation, compliance and risk management aspects requires the establishment of a risk and compliance culture within all levels of the organization

Strategictransformation

Define adapted strategic setup

under consideration of new risks

and challenges including top-down

communication of strategic impacts

Culturaltransformation

Implement new companywide

mindset reflecting strategic changes

(e.g. agility, client centricity,

digitalization, innovation, new risks)

Workforce transformation

Competency model alignment and

specific skills ramp up programs

with a focus on new dimensions

(regulation, digital, analytics, data,

new emerging risk capabilities) as

well as focus ion enhanced

collaboration between risk and

business functions

Key enablers and helpers 4 - An integrated approach to compliance will leverage on synergies between frameworks and ensure cost-effective implementation


A comprehensive ‘Compliance Office’ Capability

• Ability to identify and assess new requirements - and design a proper response

• Capability to roll-out operational solutions and revamp the ongoing operating model

• Change management – ability to drive people towards new processes, tools, behaviors

Infusing a companywide compliance culture, executing operational excellence in managing multiple regulatory frameworks and effectively integrate and adopt risk management capabilities can turn compliance and risk into a competitive advantage

Compliance objectives and culture

Defintion of rules and

objectives as well as

enhance importance of

compliance („tone from

the top“)

Adopt changing regulatory landscape

Implementation of

effective measures and

processes to ensure

ongoing compliance with

changing regulation

Risk and Compliance framework

Integrated risk and

compliance organizational

setup and centralization of

competence

Risk assessment and controls culture

Identification of substantial

compliance risks,

systematic control and risk

assessment

ConclusionProper management of risk & regulatory evolutions is key to harvest benefits from new technologies and operating model transformations


Improve customer satisfaction

Help identify gaps for products and services

Maintain shareholder value

Avoid legal issues

Better work environment

• Better client retention

• Higher purchase rates

• Trust in products and advertising

• Improve products and services

• Market and trends awareness

• Maintain stock price

• Lower credit cost

• Better access to capital markets

• Reduce risk of litigation

• Reduce legal losses

• Better employees retention

• Higher productivity

Sound risk & regulatory management

4th Annual RiskMinds Insurance Conference - Stream B: The future of Insurance Regulation

Economy & Finance

Transcript of 4th Annual RiskMinds Insurance Conference - Stream B: The future of Insurance Regulation