Understanding customers and risk - emlyon · providing expert assistance to human users Carries a...

©2015 IBM Corporation1 30 November 2015

Understanding customers and risk

Christian Bieck | Insurance Leader, IBM Institute for Business Value

Lyon | November 26th 2015

Your cognitive future in the insurance industry


The IBM Institute for Business Value

2 ©2015 IBM Corporation 30 November 2015

Established in 2001, the IBV team consists of 40+ business consultants experienced in deriving key business insights from data

With deep functional and industry knowledge, our research leaders think beyond borders – representing 14 countries and spanning 15 different industries

The IBV portfolio of 200+ fact-based studies, delivers an essential tool to help drive decision making – revealing insights to gain business advantage


Source for Consulting has named IBM #1 in thought leadership three times in a row starting in 2013

… place the IBM Institute for Business Value as #1 among 24 firms.

Source for Consulting cites "IBM’s unswerving focus on quality at the cost of volume” as how the top spot was earned.

Criteria were- differentiation, - appeal, - resilience and - prompting action

White Space Thought LeadershipRankings for 2013 …

Actionable insights

Source: white space Quality ratings of thought leadership for the second half of 2013 February 2014


Study approach and methodology

Quantitative Insights

� Survey conducted by The Economist Intelligence Unit with 813 respondents

� Survey conducted in February and March of 2015

� Industry cover: Healthcare, Banking, Insurance, Retail, Government, Telco, Life Sciences, Consumer Products, and Oil and Gas

� Geographical cover : Australia, Brazil, Canada, China, Egypt, France, Germany, India, Iran, Israel, Japan, Kuwait, Mexico, Netherlands, Oman, Qatar, Saudi Arabia, Singapore, South Africa, Spain, Sweden, UK, United Arab Emirates, and US

Field Research

� Interviews with subject matter experts across IBM divisions

� Supplemental desk research


The insurance industry is facing a broad range of disruptive forces

Rapid digitization

Rising customer expectations

Economic environment

Sophisticated fraud

Digitization is creating new modes of interaction and unprecedented connectedness, with increases in unstructured data from disparate sources

The new generation of customer expects individualization, responsiveness, integration and seamless experiences1

Economic volatility and a challenging investment environment is adversely affecting the insurance sector and eroding profit margins

Incidence, sophistication and severity of fraud is increasing

Source: See speaker notes

Changing demographicsBaby boomers are nearing retirement and millennials are impacting business across the board, from products to interactions

$


Rising customer expectations

New opportunities for insurers to

collaborate directly with customers to create engaging new business approaches

To successfully navigate disruptive forces, insurers need to pursue three major areas

Rapid digitization


provide innovative solutions, take

informed decisions and use data to their

advantage

Changing demographics


discover innovative products for aging populations as well

as address millennials with innovative new

services

Economic environment

Sustained cost pressure

necessitating increased agility combined with

operational efficiency and effectiveness

Sophisticatedfraud

Necessity to embrace new

technologies and find innovative ways

to stay ahead of fraudsters and mitigate risk

Engage DecideDiscover


Successful insurers tend to have stronger capabilities in customer engagement, discovery of new ideas, and decision-making


Outperformers are 65% more competent in customer

engagement than underperformers1

66% more outperformers are strong in decision making3

50%

Outperformers

13%

Underperformers

285% more outperformers make innovation a major priority2

Sources and definitions: See speaker notes

66%

Outperformers

40%

Underperformers

68%

Outperformers

41%

Underperformers


Customers demand speed, transparency and personal interaction –but many insurers struggle to meet it

…of insurance CXOs agree customers demand more personalized experiences

Engage

Industry need1


Major areas in which insurers are not competent enough in delivering customer service

Achievement gap2

� Most insurers lack speed in post-purchase service

� Customers are treated as leads instead of individuals with tailored needs - personal attention is the key

� Insurance customers are unsatisfied with their online experience, contributing to low engagement with their primary insurer3

Leading challenges

Personalized experience

Self service

Addressing concerns with speed

53%

56%

63%

72%


Insurers have limited capability in innovation and struggle to translate insight into innovation

… of insurance CXOs are actively pursuing industry model innovation

Discover

Industry need1 Achievement gap2


Key roadblocks to pursuing disruptive innovation

Leading challenges3

� Generally, the funding for innovation is inadequate, leading to a lack of structured innovation

� Due to the the conservative nature of the industry, there is high risk aversity – innovation is

neglected for fear of failure

� As a result, insurers find themselves with insufficient innovatory skills

Insufficient business case/ modelling skills

Insufficient buy-in from management

Insufficient skilled resources

Customers reservations to new possibilities

65%

52%

52%

51%

50%


Insurance executives lack confidence in making strategic and cost reduction decisions

Decide

Industry need 1

Sources: See speaker notes

Achievement gap2

… of insurance executives are not confident in taking cost reduction decisions

⅔… of insurance executives are not confident in taking strategic

business decisions

� 31% of senior leaders feel they lack sufficient skills or expertise to use data and analytics and 39% of executives feel that there is a limited direct benefit of analytics to their kind of role

� 37% of executives state that it is difficult to asses which data is truly useful; 28% of the executives feel that the quality, accuracy or completeness of data in their organizations is insufficient

Leading challenges3

45%

15

21

13

51

17

23

14

46

+12%

+13%

+7%

-10%

Control

Decision support

Management

Transaction

Comparison of maturity levels for Insurance finance and actuarial groups

FSS BAO Level 3

FSS BAO Level 4&5


Cognitive computing can provide a foundation for insurers to overcome these challenges


� Acts as a tireless agent providing expert assistance to human users

� Carries a conversation naturally, e.g. in human language

� Understands consumers from past history and enriches interactions with context- and evidence-based reasoning

� Helps people discover insights far above human levels

� Finds insights and connections, understands the vast amounts of information available

� Visualizes possibilities and validates theories like experts

� Offers evidence-based recommendations

� Evolves continually towards more accuracy based on new information, outcomes, and actions

� Provides traceability to audit why a particular decision is made


Cognitive computing introduces a new business paradigm

Cognitive: of, relating to, or involving conscious mental activities (such as thinking, understanding, learning, and

remembering)1

Learns and builds knowledge from various structured and unstructured sources of information,

Understands natural language and interacts more naturally with humans,

Captures the expertise of top performers and accelerates the development of expertise in others,

Enhances the cognitive process of professionals to help improve decision making, and

Elevates the quality and consistency of decision making across an organization

Cognitive computing is a new computation paradigm that

Source:: See speaker notes


Cognitive computing is already enabling early adopters to exploit new opportunities – much more is possible

Now Near Future

Helps in providing an engaging and personalized platform for customers

Generates compelling insights on customer behavioral traits and predicts future traits

Improves claims decisions and support faster processing

Helps in improving underwriting decisions

Brings customers and insurers together and helps reduce call center costs

Helps determine appropriate risk models by line of business to decide on optimal pricing

Helps decide on best approach for commercial underwriting with better access to historical data and analysis


A leading financial services group in Asia helps relationship managers in providing higher quality, bespoke investment advice to customers

Engage

Business problem: A leading financial services group in Asia operating in 15 countries, wanted to enable relationship managers to provide better quality investment advice to clients

Solution: Cognitive enables relationship managers to gain relevant market and client insights through analysis of structured and unstructured data, and through interaction in conversational language

Better customer

experience

by providing more precise, customized and quality actionable insights that meet the needs of affluent customers

Delivers insights

on product information, customer profiles etc. Identify connections between customers’ needs and its growing corpus of investment knowledge, and help advisors weigh various financial options available to customers

Source: IBM Case study

Now

Now


Insurers can leverage cognitive computing to reduce contact center costs and increase customer satisfaction

Engage

� 30 years, living in London

� Online customer of OpenInsurance with several products including auto, household and some investments.

� Mike is planning to move from London to Frankfurt, and needs to find out what that will mean for his insurance

1

2

4

3

Mike logs on to the OpenInsurance portal and scans his coverages. He navigates to the support section which allows natural language input. There he types "I am moving. What do I have to do?"

For Mike's current portfolio, system finds and recommends similar products. It also notes that Mike will need additional health insurance coverage in Germany, something he did not have in the U.K.

The OpenInsurance Cognitive System parses his query and follows up with some questions about where, when and how the move will be happening. Does he want to keep similar coverages in Germany? Mike affirms this.

As the health insurance issue is more complicated, system suggests a call on the phone. Mike agrees, and the system calls directly via call-me-back function in the portal

Near Future

5

Through a set of questions and answers, the portal sets Mike up for the coverage he will need at his new location. Checking out local regulations, it sends Mike the relevant documents to sign.Mike Anderson


A large European bank is using cognitive to generate insights on customers’ behavioral traits and predict future trades

DiscoverNow


Bank with more than 7500 branches world wide and approx. 130 thousand

employees

Delivers insights

on customers behaviors as managers of the bank can develop an understanding on what to sell and when to sell, and so improve the estimation of corporate dividends

Improves operational

cost

by reducing the variable cost of service per customer

Business problem: The bank wanted to invest in a game changing technological capability that can provide a competitive edge and support it to grow revenue and manage its cost base efficiently

Solution: The bank identified business functions to apply cognitive, such as sales, trading, and risk management. Insights were sought on competitor and institutional client behavior, trading patterns and external data and sent to managers. Thus they would develop a better understanding on customer’s behavior


Cognitive computing will help insurers build models that assess risks across jurisdictions and lines of business

� For commercial lines, legal costs are rising in some U.S. states due to differences in rules and regulations

� OpenInsurance’s cognitive-based solution uses a risk scoring model to adjust premium to risk

1

2

4

3

The cognitive system obtains data from the legal departments of OpenInsurance for each of the 50 U.S. states and for each line of business

The OpenInsurance system uses cognitive capabilities to assign risk scores to each US state by line of business. An overall risk diagnosis is generated by extrapolating the data

Available data is highly unstructured. Each jurisdiction has different legal parameters as input for risk scoring, and there are different legal ramifications when customers switch states

Cognitive computing helps by scanning the images and contents of all legal and claims documents, conducting analysis and cross referencing against each of the specific state laws

Near Future

5

Combining with historical data, the cognitive system builds risk models for each state and for each line of business, which will help OpenInsurance charge optimal risk-based premiums

Discover

Maria SmithHead of Legal,

OpenInsurance, U.S.


Swiss Re, a leading reinsurer, uses cognitive technology to provide a range of underwriting solutions

Business problem: Swiss Re was looking for something that helps them spot operational issues or opportunities in real time and respond proactively

Solution: By applying cognitive technologies, the new platform will allow Swiss Re professionals to make better informed decisions and more accurately price risk. The cognitive system will continuously read the ever growing amount of information while helping them connect the dots and making it easier for them to interpret that information in the right context.

Better decision making

by providing more precise and timely insights coupled with continuous learning from its interactions with humans and data

More personalized

interactions

as natural language processing feature allows humans to ask questions and interact with the system as they would with a colleague


Now

Now Decide

The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer


Cognitive will allow commercial underwriters to assess the individual risk of each customer in a personalized approach

Decide

Bob, owner and CEO of chemical products

company, an important client of OpenInsurance

1

2

George, experienced underwriter at OpenInsurance

George is asked to negotiate a contract with Bob to insure a new chemical factory

3

4

5

Near Future

George rides a train to the factory site. On the way, he checks Bob’s contract and claims history. He also gets geological and meteorological data for the factory site for a first risk assessment

During the walk-through, cognitive systems located in OpenInsurance’s back office highlight risk-critical areas which George immediately points out to Bob

George and Bob reach a satisfactory deal, for which the account manager at OpenInsurance has to sign off. Using George‘s tablet, they patch him into a videoconference to finalize the contract. Bob signs electronically.

At the site, he does a walk-through of the factory. His augmented reality glasses show the floor plans retrieved from the public records office, and the actuarial risk profile of the equipment, raw materials and end products he is seeing

Afterwards in Bob’s office, George transfers the findings to his tablet which he can show to Bob to discuss cost-effective risk mitigation measures and decide on a final rating


Lay the foundation Manage the changeDefine the value

1 2 3

Find the right opportunities for cognitive

Define the value proposition and chart a course for cognitive

Be realistic about value realization

Invest in specialist human talent

Build and ensure a quality data corpus

Consider impacts, business processes, and policy requirements

Ensure executive involvement along the cognitive journey

Communicate the cognitive vision at all levels

Continue to raise the cognitive IQ level of the organization

Three critical success factors emerge for cognitive computing pioneers


� How do you plan to create more engaging and personalized experiences for your customers?

� How do you assess the extent to which you use your structured and unstructured data effectively across all business lines and functions?

� What is the cognitive computing IQ of your organization? How aware are staff of cognitive computing, and of its benefits?

� What capabilities do you require in order to support and manage cognitive computing services in your organization?

� How would you implement cognitive computing in your organization? Have you thought of what your business and operating models would look like? How would you measure the success of cognitive computing in achieving your strategic goals?

� How do you plan to secure senior management commitment for a cognitive computing business case?

Key questions to kick-off your cognitive journey

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