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Now in its fourth year, the World Insurance Report 2011 from Capgemini and Efma addresses recent market challenges around business agility, transformation of the claims process, and operational efficiency. This year’s report offers insights into how leading institutions are refocusing efforts on improving operational efficiency and the client-centricity of their business processes in an environment of rising claims costs and increasing investment income uncertainty.
We present some of the key findings from the World Insurance Report.
Overview of the Key Findings
Each year Capgemini, in co-ordination with Efma, publishes insights on theInsurance sector through its World Insurance Report Theme - Claims Theme- Multi- Theme-Customer and Theme-Optimizing the Transformation Distribution Model Distribution Analysis Insurer, Distributor and Customer relationship The World Insurance Report (WIR) is a leading, industry report that provides strategic insight into critical issues and trends impacting the global insurance industry. The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 1
The 2011 WIR addresses recent market challenges to create OperationalEfficiency, Business Agility, and Transform the Claims process Business Agility Comparison of Spotlight: Claims Transformation Maturity Model Efficiency Ratios§ Capgemini’s Business Agility § Operating efficiency is an § Claims Transformation is one of Maturity Framework assesses the important parameter to determine the most important focus areas in business agility maturity of insurers the long-term sustainability of the non-life insurance industry across the value chain underwriting profitability of today insurance companies § WIR 2011 Spotlight on claims§ The Model divides the insurance value chain into four components: § This section compares various focuses on three key areas: Product Design, Front Office, core insurance operational costs • Stabilizing Reliable Claim Policy Administration and for Non-Life (P&C) industry for 7 Processing Platform through a Underwriting, and Claims countries: SOA-based system approach§ The model defines multiple levers • France, Germany, India, Italy, • Managing Indemnity to Reduce (parameters) for each of these Netherlands, U.K., and U.S. Costs with a focus on Fraud value-chain components: § Five ratios for non-life industry Management • Each of the levers has five (only P&C for Germany, U.K. and • Leveraging Claims Data for maturity levels on which a firm U.S.) were analyzed: Enterprise Level Decision can be placed based on their • Claims Ratio, Acquisition Ratio, Making enabled by Business agility maturity Operational Ratio, Investment Information§ The 2011 WIR is focused on Ratio, and Profit Margin ManagementAnalytics business agility in Front Office and Claims The 2011 World Insurance Report is a collaborative work between insurers and Capgemini Insurance leaders The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 2
Key Findings from WIR 2011§ Insurers Can Thrive Post Crisis with Business Agility • Capgeminis proprietary Business Agility Maturity Model shows that there is a distinct pattern linking the scale, region, line of business, business strategy, and corporate structure of a firm to the maturity of their front office and claims agility§ The Drive for Operational Efficiency Is ON! • While the potential for efficiencies varies by firm strategy, country, and service segment, the three most important areas of improvement for achieving a high- level of efficiency for non-life insurers are in claims, distribution strategy, and operational excellence§ On the Path to Differentiation: Claims Makes the Difference • Claims is the focus area identified most by insurers to capture operational efficiency gains. Many are using claims to act as their next brand platform to fulfill customer commitments while reducing costs The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 3
At an aggregate level, Life firms have higher maturity in the Front-office Levercompared to Non-Life FirmsWeighted Mean of the Maturity Scores of all the Firms Interviewed Commentary for the Front Office Lever, According to the Lines of Business Customer § Life Insurance firms perform distinctly better in factors like Needs Management Customer Needs Management and Personalization of 5 Services: 4 § Pure P&C firms, particularly those offering group policies (around 30% of the firms P&C firms surveyed) provide Maturity Level (1 to 5) Distribution Personalizatio 3 Channel Set- functional capabilities to the B2B customers n of Services up/Scale-up 2 § Firms operating in Health and/or P&C lines of business have high maturity score in Channel setup/scale-up 1 capabilities § North American Life insurers have invested in CRM/BI Centralized Self-Service Distribution- applications and provides high levels of personalized Request services Related Processing Operational Capability Functions § Insurers from Western Europe also perform well in soft areas like Need management and Personalization of Services Total Multi- Life Distribution § Customer service rather than scalability seems to top Channel Non-Life Optimization agenda for mutual/reciprocal firms compared to the stock firms Centralization of Distribution functions is one area where firms from different lines of business have roughly concurrent maturity levels.Source: (a) Capgemini Analysis, 2010; (b) Executive Interview & Survey Results, World Insurance Report 2011 The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 4
Firms perform well on agility of FNOL and Time Management for the claimselement of the value chain Weighted Mean and Mode of the Maturity Scores of all the Firms Commentary Interviewed for the Claims Payout options § Firms operating in Personal, Commercial as well as 5 Specialty lines of business exceed expectations in Shared FNOL providing multiple payout options Services 4 § Recovery and Fraud & Litigation management are regarded as two of the most problem elements in the Maturity Level (1 to 5) 3 Fraud/Litigati Time on claims value chain Management 2 Management § Large firms are performing well on FNOL processes 1 whereas they lack on the payout options for claims: § Internal work flow management for claims is automated in Recovery Claims (Subrogation Performance most of the large firms & Salvage) Analytics § Small firms perform well on FNOL and Fraud and Litigation management Loss Case § Western European firms perform well on claims case Assessment assignment assignment and payout and have integrated interfaces Weighted Mean Claim with third-party vendors Mode Reserves Management Payout Options and Shared Services are two areas where firms across the lines of business appear to be in nascent stages and provides a huge scope to improve on.Source: (a) Capgemini Analysis, 2010; (b) Executive Interview & Survey Results, World Insurance Report 2011Note: (1) This analysis focuses on non-life insurers The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 5
The Drive for Operational Efficiency is ON! Non-Life Insurance Expenses as a Percentage of GWP (in %), 2006-2009 CAGR ‘06-09 2.3% 4.5% -0.8% 0.7% 1.8% NA 3.5% 7.3 125.0 6.9 123.2 5.4 119.0 125 107.1 106.1 105.6 Underwriting 105.2 11.3 5.2 104.6 104.4 11.9 5.8 103.9 103.9 9.4 6.2 102.0 11.0 5.2 101.9 101.5 100.9 Ratio 98.4 97.7 97.0 95.6 29.0 12.8 10.8 94.4 93.8 29.1 93.7 93.7 92.9 12.9 11.1 92.2 13.3 11.5 91.9 14.8 30.2 Acquisition 13.2 10.8 90.0 100 17.5 16.0 18.2 16.1 17.4 8.2 15.1 17.1 Ratio 17.3 16.0 16.1 10.7 16.2 8.2 14.7 15.4 16.2 7.9 14.9 18.7 16.0 14.6 Operational 20.1 19.7 19.2 18.1 15.4 14.9 75 Ratio 18.5 15.7 14.0 (%) 50 88.7 88.1 87.2 86.4 86.2 85.7 83.4 77.6 Claims 73.6 73.2 73.2 70.8 70.8 70.1 68.8 68.6 68.2 67.8 67.7 67.1 66.3 66.3 66.0 66.0 63.5 62.7 62.7 Ratio 25 0.0 NA 0 ’06 ’07 ’08 ‘09 ’06 ’07 ’08 ‘09 ’06 ’07 ’08 ‘09 ’06 ’07 ’08 ‘09 ’06 ’07 ’08 ‘09 ’06 ’07 ’08 ‘09 ’06 ’07 ’08 ‘09 U.S. U.K. Netherlands Germany France India ItalySource: (a) Capgemini Analysis, 2010Note: (1) The ratios are valid only for non-life insurance. The ratios reflect non-life data as reported by the countries themselves, and hence includes health insurance for France, India, Italy and the Netherlands, but not for Germany, U.K. or U.S.; (2) At the time of analysis, no 2009 data was available for India, where the financial year ends March 31st and the Underwriting Ratio CAGR over 2006-08 for India was 7.1% and Profit Margin CAGR over 2006-08 for India was -60.7% The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 6
Claims costs account for 70-75% of the combined ratio and have been a majorsource of escalating costs and reducing profitabilityUnderwriting Ratio, Expense Ratio and Claims Ratio High Cost of Claims:for Select Non-life Insurance Countries1, 2006-09 § Claim departments spend over $336 120% Underwriting billion globally each year in managingNon-life Insurance Industry Cost Ratios (%) Ratio2 and settling claims 100% § For every dollar collected in premiums, 31.3% 31.3% Expense Ratio2 insurers, on average, spend 61 cents on 30.2% 80% 31.0% claims paid out and 13 cents on claim expenses 60% Increasing Cost of Claims Payout and claims operations: 40% § The claims ratio increased at a greater 70.8% 73.2% 71.9% Claims Ratio2 67.3% rate (4.6%) than the expense ratio (0.3%) over 2006-09 20% § Increasing claims and operations costs continue to have an adverse affect on the 0% 2006 2007 2008 2009 profitability of the insurers. As claims management is a major factor in operating performance and results, the focus of insurers has shifted towards addressing claims cost to restore profitable growth.Source: (a) Capgemini analysis 2010Note: (1) USA, UK, France, Germany, Netherlands, and India; (2) Underwriting, Expense and Claims ratios are calculated as per WIR 2010 Efficiency Model definitions The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 7
Insurers’ need to transform claims processing to overcome the key challengesfaced by a claims organization Observation § ImplicationObservation Implication § Multiple hand-offs § Claims staff spend more§ Insurers’ reputations are § New acquisition costs § Duplicated work and time doing administrative built on their efficiency are 7 times the cost redundancies job instead of adjudicating to process claims of retention § Inefficient people to claims§ A bad claims experience § Enhanced customer process mapping § Process complexities drives clients to satisfaction improves Increasing result in increased LAE competitors retention and acquisition Process Complexity Observation Implication Aging § Multiple § Increased Lacking disparate claims Technology: Customer legacy settlement Inefficient Centricity Key Challenges platforms time and Processes for Claims § Lack of cost Organization integration § Declining with internal customerObservation Implication and 3rd satisfaction§ Inability to access § Fraud accounts for party levels claims data needed nearly 10-15% of systems to detect fraud the loss ratio§ Missed § Missed recovery Increasing Changing opportunities for opportunities have Risks: Fraud, External salvage, considerable Litigation Environment subrogation and implications on the third-party recovery profitability Observation Implication § Uptick in litigation trend, § Frequency of change is high and cost § Increasing regulatory compliance per change is increasing given aging activity technology § New/unpredictable trends in weather- § Increasing claims severity and related losses frequency The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 8
Are any of these Issues preventing you from Unlocking Claims Value?§ Are your customers complaining about longer and inefficient claims processing?§ Do your claims systems and processes provide you with agility to respond quickly to market changes?§ Is your claims data viewed as a part of your entire organization’s business information?§ Are you facing issues of fraudulent claims which are negatively impacting your bottom line?§ Is your first notice of loss (FNOL) process automated?§ Are you incurring large costs in maintaining your Claims IT infrastructure?§ Are you able to efficiently integrate claims data into your underwriting and product pricing decision process?§ How much of your adjusters time is spent processing claims versus doing analytics (i.e. analyzing such things as rate of return on referrals)?§ Have you created a centralized salvage and subrogation (or litigation management etc.) unit that looks at data and thinks about these issues every day? Have you created that level of focus and segmentation?§ Is your indemnity spending appropriately aligned to your coverage commitments? The information contained in this presentation is proprietary. Copyright ©2011 Capgemini. All rights reserved. 9
World Insurance Report 2011 Visit http://www.capgemini.com/wir11 to access the full report and accompanying communications