IT for Insurance industry New Approaches to Enterprise Wide Management Incorporating Best Practices,

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IT for Insurance industryNew Approaches to
Enterprise Wide Management Incorporating Best
Practices, from the start
4th September 2006
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Agenda

• IT in Insurance Overview
• IT for Transaction Processing
• IT for Regulatory Compliance
• IT for Knowledge Management

This will be the emphasis while we will still
touch upon the others
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IT as Enabler
Theme of the day
Actuarial
If used imaginatively and prudently, information
technology could be a valuable aid for efficient
customer service, effective management and
meaningful regulation
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IT in Insurance - Overview
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Insurance - Functional Landscape
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Insurance - Solutions Landscape
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Insurance Industry - Business Concerns

• Slow growth (at least in USA)
• Negative underwriting profits (PC) - Claims cost
  continue to rise
• Price increase in select markets, in response to
  loss trends, litigation and state regulators
  (e.g. Asbestos liabilities in US)
• Disproportionate manual operation and high paper
  work
• Increasing global competition
• Pressure of regulatory compliance
• Increasing customer expectation
• Efficient and effective service changing
  requirements
• High benefits at low prices
• Compelling product changes
• Unfavorable trend in investment returns
• Slow penetration of new products and time to go
  to market
• Issues in Channel Management

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Insurance Industry Technology concerns

• Disparate system heterogeneous platforms,
  multiple or standalone applications, legacy
  environment difficult and costly to maintain or
  enhance or integrate.
• Exit of skilled resources, necessitating sunset
  of several systems and implementing new
  technologies but they would not so easily decide.
• Working in Siloed systems, Multiple data
  models, lack of documentation
• Lead to difficulty, delay and enormous efforts
  in providing strategic information and regulatory
  compliance many still excel dominant
• Multiple versions of the truth

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IT for Transaction Processing
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Fortunately we are not in such clusters

• A typical IT portfolio as exists with most
  insurers
• A global reinsurance company consolidates
  information from 21 different locations
• Claims and Finance data overlap with 40 of
  redundancy
• A Life insurer serves its 2000 closed products,
  200 live products through its 18 different
  policy administration systems, trying to
  consolidate 2 systems

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Core Policy Administration Systems

• Replacement Drivers
• Aging technology
• High costs to support enhance the systems
• Urge to consolidate multiple systems to one or
  two chosen platforms
• Better accuracy for pricing products to match
  risks
• Greater focuses on business processes, work flow
  design, business tools
• Externalizing business processes to add new
  distribution channels like internet or
  bancassurance
• Enabling easy integration with internal and
  external applications
• Source Gartner Survey 31.01.2006

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Emerging Trends

• Web-based applications, empowering customers and
  distribution channels
• Integrated systems in modern technology easy to
  enhance and maintain, fast to go to market, easy
  to extract information, user-friendly and
  end-user computing
• Increasing realization of Business Intelligence
• Facilitating regulatory compliance and reporting
• Workflow based STP (Straight Through Processing)
• Client based system and easy to implement CRM

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An ideal IT Environment

• A single data structure for all modules
  functions
• N-Tier architecture-presentation layer, business
  logic, data are separate and easy to change
• A configurable rules engine, limiting the
  programming changes
• A componentized system to add easily or remove
  modules
• Better, faster and more accurate and frontline
  underwriting (using rule and providing
  underwriting decisions based on factors such as
  credit scoring, motor vehicle reports
  comprehensive loss underwriting)
• A web based rating engine, faster rating changes
  and consistent rates in all channels
• Contd..
• Source Gartner Survey 31.01.2006

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An ideal IT Environment

• Thin client, web based access to all users
  regardless of remote or in-house location
• Library of adapters/XML interfaces for
  integration with third party applications and
  services
• Version control on product releases, indicating
  added functionality and the details of bug fixes
  associated with that version
• Current programming language such as J2EE or .NET
• Possible adherence to industry standards (as in
  US for ACORD XML)
• Source Gartner Survey 31.01.2006

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IT for Regulatory Compliance
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Regulatory Compliance

• Regulators primarily ensure that the insurance
  companies remain solvent and conduct their
  business fairly and ethically
• They pursue objectives such as market confidence,
  public awareness, consumer protection and
  reduction of financial crime
• Their processes include authorization,
  supervision, enforcement and decision
  makingincluding many proactive steps
• Reporting requirements have to scrupulously
  complied with regulators
• Point to Ponder
• Regulatory reporting will keep on changing and
  growing Are we ready with systems to meet them
  today and tomorrow?

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What keeps insurers awake at night?

• Key concern areas
• Fair treatment of policyholders
• Consumer understanding of with-profits
• Managing the intermediary community
• Preparing for Pensions regulatory changes
• Major focus area - Treating Customers Fairly
• Split of responsibilities within the distribution
  chain - Responsibility for the actual product
  lies with the provider while responsibility for
  the advice of suitability of the product rests
  with the adviser
• Face-to-face adviser training, testing for new
  product launches the use of complaint
  information and persistency data to identify
  particular problems
• The recipe for a good night's sleep - not just
  for me, but more importantly, for your customers
  as well is to keep doing it - keep our focus,
  seize the opportunities and deal with the
  challenges
• David Strachan, Insurance Sector Leader, FSA,
  CII Conference Sep 2005

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Resubmission Architecture A pain point in a
US-based company

• Micro level US regulatory monitoring
• Invalid data bounces back requiring enormous
  efforts to revalidate
• No system in place to meet the validating
  upfront before submission

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Auditing Monitoring

• Gone are the days of annual look at the way
  their businesses were running
• Inspired principally by technology and
  regulations, auditing is (or planned to be) a
  continuous process in 81 of 392 companies
  (against 34 in the previous year) as surveyed by
  PWC in 2006

Source PWC Survey AM BEST August 2006
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Continuous Auditing
More than half the no. of respondents said that
the Sarbanes Oxley has led to these increase in
internal audit
Source PWC Survey AM BEST August 2006
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Compliance

• Cannot be achieved without improved systems,
  technologies and processes
• Determine internal skills use external resources
  only as necessary
• Document business processes
• Focus on applying standards to compliance efforts
• Consider impact on electronic transactions and
  security (esp. for annuity and mutual funds)
• Centralize and manage enterprise compliance
  requirements
• Ensure appropriate technology and system
  requirements

• Source Gartner Study of 64 US Insurers December
  2004

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What HCL believes

• Regulatory compliance requires
• Following the standards and guidelines in spirit
• Accounting statements and actuarial valuation
  reporting, for which systems are firmly in place
• The frequent reporting (scheduled and ad-hoc ) of
  operational information
• Regulatory reporting requirements (particularly
  in 3 and partly in 2 above) mostly stem from the
  operational data - A progressive tuning of the
  information system is highly beneficial
• Build knowledge base on regulatory requirements
  and keep track of updates (Standards and
  guidelines will still be evolving)

How easy?
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What HCL believes

• Identify gaps in the ability to provide
  compliance information and build/enhance systems
  to overcome compliance handicaps
• Compliance process efficiency
• Carry out efficient pre-audit (internal audit) on
  the compliance data to ensure its validity before
  submission
• Keep a track of returned submissions for
  corrections
• Improve process for avoidance of resubmission
• Maintain compliance database to watch trends in
  meeting standards
• Helps identifying shortcomings in performance
  levels and root causes for deficiencies
• Trigger process improvements in operations and
  people development

What could be perceived as a burden, should be
embedded into the culture of the company
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Actuarial Transformation

• An Insurance company with multiple and mostly
  outdated systems, desires to
• Improve control issues in processes and systems
• Satisfy the need of stakeholders with improved
  quality, quantity and speed of reporting
• is executing a program to have
• Data mart - Central repository for all actuarial
  information, the sources being policy admin
  system, pricing system, reinsurance system,
  financial applications and so on
• Actuarial Modelling application
• Reporting Tools to replace existing spreadsheets

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Two Contrasting Models for compliance
Operational Database
Knowledge Repository
Operational Database
Information extracts
Information extracts
Compliance Team
Control system
Manual Crunching Excel Reports
Mostly Electronic
Compliance Team
Regulators
Post Hand delivery Fax
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IT for Knowledge Management
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Knowledge Management
The ability of an enterprise to acquire and use
knowledge within the organization is one of the
key differentiators and a critical factor for its
success.

• Knowledge Management Systems
• Management Reporting (Scheduled / Ad-hoc)
• Data warehousing, data mining and business
  intelligence
• Decision Support Systems (DSS)

The subject matters of the insurance
policiesexist in a world of continuously
changing circumstances. The insurer must collect,
compile, collate and analyse information about
all the policies, gather such other relevant
demographic, industrial, economic and statistical
intelligence as necessary, and use appropriately
processed information to run the business and
qualitative decision-making
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OptimizingTurning Data into information

• Create and enterprise wide common customer view
  (including third party and intermediary collected
  data)
• Use customer information (including analytics)
  and business intelligence to personalize the
  experience and interaction
• Ensure that all channels have access to
  centralized customer information in real time
• Centralize content repository and sales
  information/systems
• Limit access, based on job role
• Use technologies to trigger events or
  notifications and route actions based on business
  rules and intelligence

Source Gartner Study of 64 US Insurers December
2004
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Data Management, Usage rates in Insurance

• Only 25 of life and 23 of general insurers
  create a customer profile to be used for
  cross-sell or up-sell
• Of these
• 86 of life and 90 of general insurers perform
  customer profitability analysis
• 57 of life and 80 of general insurers do
  customer segmentation
• 57 of life and 40 of general insurers perform
  predictive modeling

• Source Gartner Study of 64 US Insurers December
  2004

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Business Intelligence

• These per se do not provide the decision, but act
  as prime drivers for decision-making
• BI through data warehousing brings out, amongst
  others
• Visualisation of historic information according
  to static and dynamic business requirements on
  the fly
• Trends and projections for strategic
  decision-making, and
• Invisible relationships amongst the data in
  heterogeneous sources.
• Data Mining - Plays an increasingly more
  important role in these areas, and answers
  questions that were not even asked for - tracking
  hidden relationships between different data and
  information recognize associations,
  correlation, classifications, accumulations, and
  other patterns - Evaluation and conclusions are
  still left with the user

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In the context of BI.

• The insurance industry can usefully handle the
  large mass of data needed by it only if its
  information management is supported by IT. This
  would require a measure of futuristic planning
  with the help of in house as well as outside
  professionals, going well beyond the present
  limited applications of computers.
  Managementsshould accept meaningful
  computerization as a total managerial
  responsibility and adopt appropriate strategies
  for its implementation
• Categorized statistical information is also
  required by company management to discharge a
  variety of other functions, e.g. to monitor and
  evaluate companies performance to review and,
  if necessary, recast business plans to measure
  customer satisfaction to process claims and for
  purposes of market research as well as finance
  and accounts. Statistics are needed by the
  company owners, customers, tax authorities and
  insurance regulatory authority, trade and
  consumer associations
• Price of insurance products is dependent upon,
  inter alia, the insurance industrys claims
  experience, which would be available from the
  database of premiums and incurred claims

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Snapshot of BI Interface
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Dash Board A Sample View
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KM An Introspection
Know where we are
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KM implementation phases
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KM implementation phases
Knowledge obsolescence is worse than having no
knowledge
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Take away

• Go beyond transaction processing right from the
  beginning
• Plan and Implement a comprehensive Enterprise
  Wide Knowledge Management System

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