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Insurance market trends


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Insurance Market Trends in Outsourcing, Automation, & Cloud Adoption

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Insurance market trends

  1. 1. © 2015 Information Services Group, Inc. All Rights Reserved. Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc. May 2015 Insurance Market Trends in Outsourcing, Automation and Cloud Adoption Ray Shehata Director Insurance Services +1 732 331 3431
  2. 2. © 2015 Information Services Group, Inc. All Rights Reserved 2 Insurance Market Trends
  3. 3. © 2015 Information Services Group, Inc. All Rights Reserved 3 Expanding Market & Client Retention Industry-Specific BPO Technology to Aid Tight Margins * * ** * * * * Regulatory Burden Increases Insurance Industry Trends – Key Observations  Heightened requirements around security, privacy, partnership risk and operating risk  Outsourcing of many paper- intensive processes is expected to increase as a result  Gap continues between consumer need and available insurance products/solutions  Finding right mix of resources across servicing (RTB) and product development (CTB)  War for talent in full swing  Companies narrowing processes defined as ‘core’  Making more industry specific processes available for outsourcing  Addressing tight profit margins with investments in technological solutions to improve:  Front-end sales  Distribution  Customer service
  4. 4. © 2015 Information Services Group, Inc. All Rights Reserved 4 Adoption of Digitization The Connected Car / Telematics Focus on AnalyticsSystem Modernization, XaaS & Automation Insurance Technology Trends  The way consumers make decisions today has changed drastically  As a result, insurers investing in digitizing:  Billing & payments  Claims handling  Buying not building core systems – i.e. Guidewire & Accenture Duck Creek  Cloud encroaching on traditional outsourcing  Outsourcing pricing is dropping as result of automation  Seeking niche service providers that offer analytics solutions to sharpen market segmentations strategies and help reduce ‘fraud claim’  Pay-As-You-Drive (PAYD)  Pay-How-You-Drive (PHYD)  Pay-As-You-Go, and Distance-Based Insurance
  5. 5. © 2015 Information Services Group, Inc. All Rights Reserved 5 ISG Insights on Insurance Sourcing
  6. 6. © 2015 Information Services Group, Inc. All Rights Reserved 6 Outsourcing Spending ($B) Contracts Awarded by ACV ($B) Contracts Awarded by Count Insurance Outsourcing Market Over the last five years, almost 75% of contracts awarded had an ACV of less than $10M, indicating a shift towards small-sized contracts. *Excludes Telco-Telco Contracts Source: ISG Research 344 460 299 Count of Contracts Awarded, by ACV Band (%) 2010-2014 Average Size ($M) and Duration (Yrs) of Contracts Awarded Contracts ACV ($B) by Region 2010-2014 Americas 25% Asia-Pacific 6% EMEA 68% $6.5 $6.3 $6.2 $6.3 $5.7 $3.3 $3.7 $4.2 $4.3 $4.2 2010 2011 2012 2013 2014 ITO BPO $2.0 $2.0 $2.0 $2.4 $1.3 $0.6 $0.9 $0.7 $0.4 $0.7 2010 2011 2012 2013 2014 ITO BPO 95 84 94 129 155 50 74 83 68 68 2010 2011 2012 2013 2014 ITO BPO 2% 1% 1% 1% 2% 1% 5% 4% 10% 25% 50% 100M+ $80M-99M $60M-79M $50M-59M $40M-49M $30M-39M $20M-29M $15M-19M $10M-14M $5M-9M < $5M $17.4 $8.9 2010 2011 2012 2013 2014 4.4 yrs 4.0 yrs
  7. 7. © 2015 Information Services Group, Inc. All Rights Reserved 7 The Future of Sourcing Service integration becomes the imperative as sourcing continues to disaggregate to enable the application of new emerging technologies. Internal Shared Services / Captives Function Function Function Function Function All Towers OR  Infrastructure  ADM  BPO Function(s) Tower Tower Tower Tower Importance of Labor Arbitrage Importance of Software, Platforms, Labor Automation & Scalability Function Social Media Collaboration Mobility BYOD Analytics & Big Data Cloud Computing & Storage Service Integration Strategic & Selective Sourcing Multi-Sourcing Confederation MARKET 5 – 10 YEARS AGO LAST 5 YEARS NEXT 3 TO 5 YEARS
  8. 8. © 2015 Information Services Group, Inc. All Rights Reserved 8 Functional View of Insurance Outsourcing * Third Party Administrator Strategy & Management Front & Middle Office Services Back Office/ Transaction Processing Basic HighComplexity of Interaction Support Services Investment Management Product Sales & Marketing Facilities Management Procurement Cashiering, Billing & Collections Document Services and Records Management Policy Administration & Servicing Underwriting and Claims Processing Audit & Risk Management Pricing , Underwriting, & Claims Management Research & Analytics Claims Assessment & Settlement Compliance New Business Sales & Distribution Management IT Infrastructure & ADM HR Admin Contact Center Sales Support Finance and Accounting Capital & Treasury Management Strategic Management Possible sourcing candidate Strong retained candidate Strong sourcing candidate Suitability For Sourcing HighEnterpriseValueAdded Reconciliations
  9. 9. © 2015 Information Services Group, Inc. All Rights Reserved 9 ISG Insights on Automation
  10. 10. © 2015 Information Services Group, Inc. All Rights Reserved 10 How Automation is Transforming Outsourcing Think of the market progression from the left-hand side of the chart to the right in two waves: Wave 1 is labor arbitrage; Wave 2 is labor automation. Wave 1 Labor Arbitrage Wave 2 Labor Automation ► 15%-30% cost take out ► Model is scalable to the extent that you can scale labor ► Custom/complex, legacy: “Your mess for less” ► Access to low cost labor necessary to provide continuous value ► Provider revenue/profit correlated to people ► 60%-80% cost take out for relevant functions ► Model is scalable and is largely independent of labor growth ► Transformative – A new way of doing business that yields shorter cycle times and improved service quality ► Access to “rocket scientists” who can codify manual processes Wave 1 Characteristics Wave 2 Characteristics
  11. 11. © 2015 Information Services Group, Inc. All Rights Reserved 11 IT Services Pricing is Dropping at Different Trajectory Innovation in the service delivery models anchored by labor automation are changing the pricing of services in the market today. Pricing Time FuturePast Low High In many areas of ITO, ISG is seeing pricing innovation that is lowering the future pricing vectors.
  12. 12. © 2015 Information Services Group, Inc. All Rights Reserved 12 Automation Players Basic Cognitive capability Governed Rules-based processing Input Processing Maturity Ability to handle all disparate instructions Early stages of formation Thought Leadership Established patents and relevance Implementation services with focus on run business Spread of Offerings Platform-based ecosystem Minimal client presence Client implementations Over 25 implementations Process-level implementation Solution Applicability Industry-level impact Single industry or tower focus Industry impact Multiple industries and towers Based on initial research conducted, IPsoft leads the market in terms of technology maturity, gaining market traction in IT with its autonomics platform, IPcenter. In addition, IPsoft’s Amelia shows a lot of promise in achieving cognitive computing. IBM’s Watson leads the market in software adaptability and unstructured data processing.
  13. 13. © 2015 Information Services Group, Inc. All Rights Reserved 13 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 Aug 2015 Sep 2015 Oct 2015 Nov 2015 Dec 2015 Jan 2016 Feb 2016 Mar 2016 Apr 2016 May 2016 Jun 2016 IT Governance Org & Deployment Strategy Automation Rollout RFS & Contracting Automation COE/ Service Management Change & Transformation Management Automation Planning & Strategy Automation Pilot Automation Requires a Transformation Program Change Management (Training and Communications) Includes Core Team & ITLC Meetings, Internal & External Communications Ongoing communications plus Training the future state org on new operating model, processes, roles & responsibilities, contractual terms, etc.. 8-12 Weeks Includes design and development of SIAM processes, org, roles and resp. to assist in creating internal and external accountability Deeper dive and understanding of operations and processes to create a deployment strategy and detailed project plan for rollout. Identify skills, capabilities, org structure, etc. of resources who will perform future roles 8 weeks Transition of services to virtual engineers for delivery of the services in the target operating model starting with wave 1 low hanging fruit Wave 2 & 3 Automations Q1 - Q2 2016 Deployment and Wave 1 Automations Establish a centralized organization to monitor and enhance automation to achieve targeted business objectives8-12 Weeks 4-8 weeks High Level Bus. Case and go to market strategy EXAMPLE EXAMPLE EXAMPLE Contracting for POC, installing technology and Piloting in a non complex area which has critical mass and impact12-16 weeks Conduct an RFS process and develop and sign contract12-16 weeks Pilot if Client has already determined Automation Software Provider or Conduct RFS It starts with understanding the business case for automation and developing the implementation roadmap. The Implementation Roadmap should: ► Articulate a plan that includes a total picture of what the implementation will resemble. ► Form a realistic timeline view of all required work streams. ► Provide a starting point to build out various streams and detailed plans.
  14. 14. © 2015 Information Services Group, Inc. All Rights Reserved 14 ISG Insights on Cloud Adoption
  15. 15. © 2015 Information Services Group, Inc. All Rights Reserved 15 Cloud is Classic Disruptive Technology The infrastructure cloud is almost a textbook case of disruption. The March of the Cloud EnterpriseAdoption Time The cloudData center outsourcing 2006: Amazon launches AWS 2000s: The IT services industry rides the RIM wave 2011-2013: Amazon expands beyond raw infrastructure into PaaS 2014: Rackspace to focus on managed services 2014: The CIA commissions Amazon to build a custom cloud Cloud lies outside the realm of data center outsourcing Cloud encroaches into DCO territory
  16. 16. © 2015 Information Services Group, Inc. All Rights Reserved 16 Cloud is Encroaching on the Traditional Outsourcing Space Cloud used to be about raw infrastructure only. Not anymore. Who will control the enterprise IT stack? The shrinking role of service providers ► IaaS providers have moved up the stack into application infrastructure (databases, web servers) and managed services. ► True to cloud ethos, the cloud providers offer a much higher level of automation. Networking Storage Servers Virtualization O/S Middleware Runtime Applications BPaaS Networking Storage Servers Virtualization O/S Middleware Runtime Applications BPaaS Disruption by the cloud is shrinking the infrastructure pie Late 2000s 2015-2020 AWS, Rackspace, Terremark, Savvis The traditional IT service provider RedHat GridGain AWS Rackspace Terremark Savvis IBM The traditional IT service provider
  17. 17. © 2015 Information Services Group, Inc. All Rights Reserved 17 Flexible, Consumption-based OPEX in Demand The explosion of OPEX, consumption-based cloud services has fundamentally changed the equation. The IT focus dramatically shifts; the CIO is required to be an entrepreneur: understand, reduce and flex costs, invest in technologies that increase business revenue or decrease costs. Understanding current costs is the first step in this journey. Strategic Stage of ITStatus Quo of IT Disconnected with business (demand mgmt., proximity, transparency, …) InfrastructureApplicationsBusiness Increase Business Proximity 1 Investment FocusCost Driven Achieve Technology Superiority 2 Attain Cost Leadership and Control 3 Reach optimal Agility4 Business excellence, demand steering, dismantle new business Insufficient automation, inflexible Apps portfolio Re-allocation of $, standardization, SaaS, ROI-based business solutions Dead capital (e.g. maintenance, CAPEX, fixed costs) Costs reduced, flexibility and standardization of computing (IaaS)… OPEX CAPEX OPEX CAPEX OPEX CAPEX OPEX CAPEX OPEXCAPEX
  18. 18. © 2015 Information Services Group, Inc. All Rights Reserved 18 Evaluate Applications Model Scenarios Evaluate & Continually Procure Understand Current Costs How to Source the Cloud Cloud sourcing focuses on opportunities created by cloud-enabling applications and creating a “control point” to further democratize access to technology. Business Case & Technology Business Management Application & Organizational Readiness Deployment & Sourcing Model Strategy Provider Evaluation & Platform-based Sourcing
  19. 19. © 2015 Information Services Group, Inc. All Rights Reserved 19 Applications Drive Cloud Decision Making A key difference from traditional sourcing is that, with cloud sourcing, the focus is nearly always on applications, even if infrastructure-as-a-service (IaaS) is in scope. Rationalization and Filtering Process Tactical Implementation of Delivery Model Application Portfolio Current State 4 Regulatory constraints on application and data 1 Business criticality, cost of migration and maintenance 3 Security and data privacy requirements Forklift (no change) Managed Hosting Private Cloud Public Cloud (IaaS - SaaS) 2 Technical suitability: workload attributes, service levels required Take an application-centric approach to implementing in the cloud
  20. 20. © 2015 Information Services Group, Inc. All Rights Reserved 20 Cloud Introduces a Myriad of New Options Cloud service and deployment models vary greatly across technology, operations, commercial and contractual considerations. PaaS SaaS IaaS: Public Traditional Data Center Iaas: Virtual Private Iaas: Private HighLevelofStandardization(technology,SLAs,terms) Low HighAgility Sharing Model Hosting Location Accounting Treatment Cloud Characteristics Management/ITIL Services Multi-tenant Opex (multi-year baseline commitment) External Self-service Multi-tenant Opex (no commitment) External Self-service Multi-tenant or Dedicated Opex (no commitment) External Self-service (ITIL-based management services available from SI ecosystem) Multi-tenant or Dedicated Opex (minimum commitment often required) External Self-service or ITIL-based managed services depending on vendor Dedicated Opex or Capex (for Opex, minimum commitment required) Internal Managed Services Dedicated Capex Internal Internally supported Systems of Record (ERP, Transaction Processing) Systems of Engagement (CRM, Mobile, Analytics)
  21. 21. Information Services Group is a leading technology insights, market intelligence and advisory services company, serving morethan 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries. knowledge powering results®