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InsuranceMarket views

Connected world will transform the industry

Reputation, brand and improving customer intimacy are top concerns of insurers

Just 2% of large firms have explicit cyber cover

Overall auto insurance premiums expected to be reduced by 25% by 2025

Expected that half of premiums will have a telematics component by 2025

68% of consumers willing to download and use an insurance app

Data and analytics empowering the insurance industry

Auto insurance market being impacted strongly

The new digital era is putting pressure on both life and pensions (L&P) and property and casualty (P&C) insurers. On the L&P side, digitization is opening up a new ‘online advisor’ space, for example, while mobile devices have reduced the sales cycle by giving customer direct access to brokers and aggregators. Digitization is also helping agents to understand their clients’ behaviors better which, in turn, allows – and forces – them to offer a more proactive and engaging customer experience.

Meanwhile, P&C insurers are fighting to engage with their personal lines customers because the insurance policy has become increasingly commoditized. Purchase decisions are driven almost entirely by price. Digitization means customers have access to more information than ever before, using social media and price comparison sites to compare policies, prices and claims experience.

It also means customers might be ready to share much more information provided the insurer proves itself a trusted intermediary. They will expect to see a real connection between giving up information and access to a simpler, more convenient, personalized and transparent experience. Profitability will come from insurers’ ability to deliver on these requirements.

At the end of the day, P&C customers want quotes and prices when they want them, fully adapted to their needs and via their channel of choice alongside access to help when required to reduce the overall

Insurance, at its very core, is an agreement between the customer, who needs protection from an unlikely event or to

CustomerExperience

Business Reinvention

hassle of dealing with insurance (especially in the claims process) all the way from subscription to billing.

Customers across both sectors want self-service tools for managing their own insurance and savings needs, particularly at expiration, when payments are due or when making additional investments. To deliver these – and other personalized tools and services – insurers need a single view of their customers along with their customers’ needs and ambitions. Furthermore, coverage flexibility, simplicity and transparency are also important.

Personal lines business through mobile and online channels not only continues to expand, but is expected to accelerate, particularly in relation to ‘in the moment’ cover (short-term insurance policies with by the minute, hour or day coverage) and standardized P&C policies. Customers will soon expect to be able to interact with their provider through mobile, for uploading photos relating to claims or insurance on the go (including at the retailer or service provider), for instance.

Customer experience needs to be mobile and digital by default. Insurers are, however, lagging behind when it comes to the mobile experience. According to various sources, in 2014 only 30 percent of insurers had a mobile responsive website and only a similar percentage had one or more mobile apps.

Insurers need to employ the personal finance and sales force automation tools already available to help them move away from simply competing on price. These tools will help them control risks more effectively and to match the engaging

experience offered by the new market entrants who will claim market share if incumbents don’t get closer to their customers and build the loyalty needed to reduce churn.

Social media, meanwhile, could potentially rapidly become insurers’ channel of choice, either integrating with or virtually replacing current multi-channel approaches. Insurers are already exploiting social media for referrals, particularly related to complex car or life and savings insurance. They need to be leveraged for advanced analytics (to combat fraud, for example), customer service, product development as well as many other processes.

Tied agents continue to be a significant sales channel, playing a key role within the insurance distribution value chain. This channel must be integrated and supported to offer a seamless omni-channel customer experience and to ensure greater efficiency. Insurers are, however, feeling tension between the pressure to disintermediate, a customer journey that is by essence multi-channel and the pressure from brokers and aggregators to stay relevant. A combination of greater focus and greater efficiency and coherence is needed, while revisiting business and operating models that are progressively tested, but potentially not evolving fast enough.

Key Market Challenges

111Ascent Look Out

‘‘For all lines of business, the next decade will be defined by increasing connectivity and growing volumes of data. Business model innovation will be driven by collaboration across broader ecosystems.’’

Laurent Gibert Global Insurance Market Executive

preserve his own and his family’s health or wealth, and the company, who must have the right financial assets, reputation and tools to support the customer during his whole lifespan. It is, in fact, a matter of long term strategies.

For all lines of business, the next decade will be defined by increasing connectivity and growing volumes of data. Business model innovation will be driven by collaboration across broader ecosystems that include, amongst others, the technology giants that are driving disruption across many industries. On the positive side, car, health and home insurers are already collaborating with these technology players to leverage the growing volumes of data they have available to further enhance and personalize policies. On the downside, they could separate insurers from the ownership of customer relationships.

New players with innovative new business models and insurance products and services will emerge, some disrupting traditional distribution models by offering customers integrated value propositions that encourage a healthier lifestyle (Vitality, Oscar) or help to protect their property better, for example.

Social (peer-to-peer) insurance is also increasing. German Friendsurance is five years’ old while Guevara, a peer-to-peer car insurance service, has only recently launched in the UK. Radically integrated value propositions that combine personal, family and business lives are also becoming more commonplace.

Meanwhile, the traditional car insurance business within the P&C market is shifting to a new business model based on online

risk coverage. Individual usage based insurance (UBI) models – where car makers share relevant driver data gather from their connected cars with insurance companies (with drivers’ permission) – are emerging in new motor insurance products. These allow insurance companies to offer lower premiums to safe drivers along with pay-per-use models.

Furthermore, the emergence of the connected and autonomous car has the potential to transform car insurance further. Companies are thinking about its implications. It may reduce risk but, even in the new world, somebody will need to be held liable if the autonomous car malfunctions. Premiums may decrease and shift from individual property to collective liability insurance or to more commercial lines cover as ownership shifts from private individual to fleet or corporate hire provision.

The combination of sustained period of low interest rates, which is yielding low investment returns, and increased regulation is hurting profitability for L&P insurance companies, as it is banks. To increase their top line, L&P companies need to turn their focus back to driving profit margins from underwriting and new product development rather than investment. That means going back on the offensive and reaching out to the customer with the products they need and desire, by using de-regulation in the pension markets to come up with new and innovative retirement plans, for example. At the same time, L&P companies must focus on improving operational efficiency to cut their bottom lines, OPEX in particular, and capital efficiency through reinvented ERM, leveraging Big Data and new platforms.

Insurance companies are adopting technological solutions to automate and increase the accuracy of the underwriting process, support variable pricing, help maximize the efficacy of scarce underwriting resources and increase direct sales. But this is not enough. Only by completely re-engineering their business processes can they ensure they’re aligned with best practices and able to adopt more and more straight through processing within their environments. Front office digitization – including connected devices, self-service and an omni-channel environment – promises to give customers secure and high speed access to the heart of insurance business systems. It allows customers to manage their own accounts and interact with the

OperationalExcellence

On the flip side of a lower interest rate environment, hedge funds and other alternative sources of capital are becoming part of the insurance value chain. Driven by low interest rates, they’re increasingly providing additional funding options for insurers and, in doing so, transferring investment risks outside of the insurance company.

This business reinvention is happening fast in an industry not used to drastic change and will require an ability to change some key aspects of corporate and industry culture towards a more open, participative culture, internally and externally integrating open innovation and new types of partners.

Insurance

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Insurance

Trust and Compliance

company when it suits them, on their preferred channels and in way that is intuitive and engaging. In addition, it’s helping insurance companies reduce capital expenditure and cost while freeing up personnel so they can focus on more valuable customer relationship management and sales tasks.

Back office digitization, on the other hand, promises to boost returns on investment, with the greatest value coming from process automation. By digitizing manual processes and paper documents, insurers can increase efficiency and agility while reducing cost by up to 40 percent. Documents can be shared more easily and non-core functions such as IT, human resources and finance can be moved to a more efficient and more cost-effective centralized role.

Those looking anew at their processes and thinking front to back digitalization will be the ones reaping the most benefits from the digital revolution. They will also be most likely to respond effectively to the digital disruptors and to customer expectations.

Meanwhile, industry-wide consolidation is extending demand for the low-cost business models that are helping companies across all geographies to manage their legacy closed block portfolios more effectively. That consolidation is also increasing pressure for the greater ‘economy of scale’ that will help companies gain market share in specific geographies (particularly in advanced western countries) and fight against margin reduction. Greater economy of scale does, however, bring

Insurance companies must take steps to ensure they’re compliant with intensifying consumer protection legislation and to avoid a repeat of the miss-selling that has dented consumers’ confidence in the industry. Accelerating information risk management in the front office will help to ensure consumer data protection, with the appropriate ‘touch’ on risk and underwriting to meet new consumer expectations.

Insurers are increasing their focus on Anti Money Laundering and Counter Terrorist Financing legislation in a way that is natural to banks but new to insurers. New solvency regulations coming into play across Europe, for example, mean insurers will have to screen customers before underwriting their policies.

When it comes to internal and external stakeholder information requests, insurers need to be more efficient in how they deliver the information wanted. Only then will they be sure they can respond to the requests within the timescales required.

Accurate, reliable, consistent and timely compliance data requires reporting to be more transparent. Combining information from diverse, siloed systems will enhance

visibility – particularly in relation to the reserve and solvency information that rating agencies need to understand. But merging data silos to create a single view of the truth, in real time, will help not only to address regulation such as Solvency II and Markets in Financial Instruments Directive ; it also offers competitive advantage by allowing insurers to offer more personally tailored products to the customers that really need them.

Generation Y consumers are more prepared than their parents to trade personal data for financial reward such as discounts, vouchers or access to services. Advances in security, data governance and data usage transparency are needed to help them stay secure while they do this.

New cyber-risks and the ‘cloudification’ of IT mean insurance companies need to rapidly adopt new security technologies to ensure proper data and consumer protection. Cyber-risks offer new opportunities too: cyber-risk insurance.

All in all, building trust especially on how data is protected and used is absolutely critical, not only for the obvious sense of safety but also to allow companies to continue to play in a world where access to data is becoming vital at each step of the insurance value chain.

with it significant challenges, including outsourcing management, continuous integration, the closure of entire business lines and product displacement.

113Ascent Look Out

DevOps To develop and deliver new products quickly, cost-effectively and to a high standard, insurers are adopting a DevOps approach to software development. By enhancing collaboration between software developers and IT operations the DevOps approach reduces time-to-market and cost while improving quality.

Distributed analytics By exploiting data from predictive models such as weather, insight from social media, data from geo-positioning systems and a wealth of broader information sources, the IoT is allowing insurers to enrich individual usage based insurance (UBI), tuning it closer to the needs of the individual. Distributed analytics allows diverse data sources to be analyzed together without the need to first copy the data to a central location. This impacts everything from wearables (such as wristbands) right up to oil rigs.

Key Enablers

5G networks Customers access cloud services from wherever they are. Moreover, mobile solutions combined with a secure and pervasive 5G networks are extending the reach of business services, attracting new customers who prefer self-service tools to other forms of interaction. These modern customer service tools significant increase policyholder satisfaction, while reducing agent workloads.

Blockchain Blockchain technology applies as well to fraud management, payments, identification, document authentication, claims management and M2M security (IoT). It significantly reduces the cost of performing these activities while improving security.

Cloud Service Integration Already on the landscape, cloud computing has just touched the tip of the iceberg when it comes to the role it will play in insurances. Insurance companies are increasingly hosting their systems in the cloud, from where they're delivered as cloud services. Cloud Service Integration ensures tight integration between all the different cloud services, from standard policy underwriting and to claims processes.

Context-rich systems Increasingly sophisticated digital advisors enhance the customer support experience: the truly omni-channel avatar can engage seamlessly with the policy-holder through a multitude of online channels. Behind the scene context-rich systems combine intelligence from diverse systems to proactively anticipate each customer’s specific needs.

Emerging

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2016 2017 2018 2019+© Atos 2016. All rights reserved.

Sentiment analytics

Mobile first & real-time interfaces

Rules engines

Software-defined technologies

DevOps

Hybrid cloud

Internet of Things

Wearable computing

Streaming analytics

Pattern-matching technologiesHigh performance computing

Web-scale computing

Privacy-enhancing technologies

Context-rich systems

Robotics / Intelligent automation

5G networks

Distributed analytics

Blockchain

Prescriptive analytics

Virtual assistants

Semantic technologies

Cloud Service Integration

Self-adaptive security

Insurance

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Insurance

High performance computingHigh performance computing allows insurance companies to take full advantage of the benefits offered by IoT data.Models help them anticipate and prevent catastrophes, eliminating the need to pay out for damages created by such events.

Hybrid cloud Private clouds allow insurers to make resources – both data and applications – available from anywhere and on any device. No matter where the customer engages from or where an employee or partner is working from, the systems that they interact with and the data these systems use will be the same. Hybrid cloud then allows companies to augment their own omni-channel services with relevant third-party services – such as news, hints and tips or even weather forecasts – further enhancing the experience.

Internet of Things A few years from now and the Internet of Things (IoT) will have transformed not only the health, motor and home markets but also commercial lines with its widespread use of sensor technology, advanced analytics and new ecosystems.

Mobile first and real-time customer interfaces New customer usages require investment in mobile first and real-time customer interfaces that link seamlessly with backend systems.

Pattern-matching technologies Pattern-matching technologies help companies leverage the vast volumes of data available today to identify and then address unusual behavior patterns, including potentially fraudulent behaviors.

Prescriptive analytics This dynamic customer profiling allows for more sophisticated segmentation that has improved cross-segment sales and cut response times for origination and claims. The prescriptive analytics that can decipher what customers want even before they know themselves provides ‘next best offer’ capabilities.

Privacy-enhancing technologies As customers share more information with insurers, insurers must ensure robust compliance with consumer protection legislation. Privacy-enhancing technologies (PET) control disclosure of data, helping companies to manage privacy risk by ensuring compliance with

data protection legislation and regulation.

Robotics/intelligent automation Workplace robotics, as automated virtual workers, that can be deployed across unstable architectures or multiple legacy systems as easily as a human operative take on a lot of the dull, time sensitive and repetitive back office tasks at a much lower cost. 100 per cent auditable and reliable, they can be deployed with minimum disruption and, unlike the human workforce, never make mistakes, work 24/7 and can be programmed for a multitude of variable tasks.

Rules engines Resilient and agile frontend tools need powerful and extremely flexible rules engines to deliver ultra-personalized products and pricing.

Insurers are achieving their goals of 100 percent straight through processing now that core insurance IT systems are aligned with the best-in-class automatic process solutions. Business-rules based configuration that leverages advanced analytics is allowing standard policy underwriting and claims processes to be automated, eliminating manual work activities at an enterprise scale.

This increases the accuracy of underwriting decisions, supports variable pricing and helps insurers to maximize the efficacy of scarce underwriting resources. Able to handle multiple product lines simultaneously, rules-based configuration is accelerating time-to-market for new products.

Semantic technologies Companies are storing both operational and customer data in private clouds, providing secure and robust access to the information they need to improve efficiency and decision-making as well as enhance customer experience. Behind the scenes semantic technologies help their intelligence systems to understand the relationships within and across data.

Sentiment analyticsThe lifestyle, behavioral and health data collected from mobile devices and wearables gives insurers a deeper understanding of their customers. What’s more, with social networks now well integrated into our everyday lives, insurers are using advanced social media analytics with its sentiment analytics to enhance this insight even further.

Software-defined technologies Cloud native applications allow companies to take full advantage of web-scale computing and software-defined technologies. They allow new products to be tested and launched within significantly shortened project lifecycles.

Streaming analytics Big Data is helping leading insurance companies outperform their peers. Its advanced streaming analytics enables insurers to leverage real-time data, for example about properties likely to be affected by weather data for claims initiation, optimization or prevention. These dynamic customer profiles signal insurers moving away from the generic customer profiles that cater for millions of customers to individual 360° customer profiling.

Self-adaptive securityWhile trusted information brokers provide insurers with the confidence to share more information with agents, the dynamic access control enabled by self-adaptive security and a new generation of collaborative tools ensures they have access to the information, systems and locations they need to access, but only when they need it.

Virtual assistants Digital advisors have a vital role to play in helping insurers avoid scandals such as the miss-selling saga that dented consumers’ trust. These intelligent virtual assistants provide accurate, consistent and compliant information throughout the sales processes and listen in on call center agents to ensure they do the same.

Wearable computingHealth wearables, such as smartwatches and sensors embedded in clothing, have created a huge health insurance market, with policies that include preventive medical assistance provision and connections to health professional doctors and medics.

Web-scale computingThe IT organization and architecture has been redesigned for web-scale computing, underpinned by a software-defined architecture. This has allowed a more profound digital transformation of insurance operating models, from front to back. Its operational simplicity allows insurers to be more agile while optimizing investments.

115Ascent Look Out

Sentiment analyticsDevOps

Prescriptive analytics

Cloud Service Integration

High performance computing

Semantic technologies

Streaming analytics

Hybrid cloud

Mobile first & real-time interfaces

Rules engines

Virtual assistants

Context-rich systems

Privacy-enhancing technologies

Distributed analytics

5G networks

Self-adaptive security

Pattern-matching technologies

Blockchain Robotics/intelligent automation

Internet of Things

Web-scale computing

Wearable computing

Software-defined technologies

Key Enablers in Insurance

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They have the agility they need to rapidly and successfully launch and support new products and new mobile apps. In other words legacy systems will need to be dramatically reduced in scope and perimeter, core processes and business rules taken out by dedicated modern, flexible, real-time architectures.

Insurance