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Christian Bieck – Global Leader Insurance, IBM Institute for Business Value
Köln, 18. May 2010


                          Nordic Financial Services Sector




Insurance 2020
Innovating beyond old models




                                                                              © Copyright IBM Corporation 2003


                                                                                            © 2010 IBM Corporation
"Is purple ketchup innovative?"




2   18.05.2010                        © 2010 IBM Corporation
"Is purple ketchup innovative?"

    that depends...




3    18.05.2010                       © 2010 IBM Corporation
"Is purple ketchup innovative?"

    …it certainly can be, given the preferences of the user...


    “An innovation is an idea, practice or object that is perceived as new by an individual or
     other unit of adoption”
           Everett Rogers, Diffusion of innovations (2003, first published 1962)




    Source: "purple ketchup" quote adapted from Dan Saffer, "The Cult of Innovation", BusinessWeek March 5, 2007.
    http://www.businessweek.com/magazine/content/07_10/b4024111.htm?chan=search

4    18.05.2010                                                                                                     © 2010 IBM Corporation
"In 2020, will cars need insurance?"




5   18.05.2010   IBM Global Business Services            © 2010 IBM Corporation
"In 2020, will cars need insurance?"




6   18.05.2010   IBM Global Business Services            © 2010 IBM Corporation
"In 2020, will cars need insurance?"

                                                that depends...




7   18.05.2010   IBM Global Business Services                     © 2010 IBM Corporation
Leaders in banking and insurance are torn between the need for
stability and the need for change
        The enterprise of the future is ...   ... but FSS CEOs feel they are lagging behind

                                                 Insurance
                                                  2008 1 9                                             89

                                                  2006            17                  29                               54
                                                         0%                 20%             40%             60%             80%      100%




                                                Financial Markets
                                                 2008        7        9                                83
                            2
                                                 2006                 27                   23                          50
                            Innovative                  0%                 20%             40%          60%                 80%      100%

                            beyond              Banking
                            customer
                                                 2008        9        12                                80
                            imagination          2006                 27               23                              50
                                                        0%                 20%             40%          60%                 80%     100%


                                                 All industries
                                                 2008        6        11                                83

                                                 2006            13              22                               65
                                                         0%                20%              40%          60%                80%      100%

                                                        Change needed                             No/limited change
                                                                                                  Moderate change
                                                                                                  Substantial change
    Source: IBM Global CEO Study 2008

8   18.05.2010                                                                                                                    © 2010 IBM Corporation
Let's have a look at the world in 2020
                  as insurance leaders think it will be




9   18.05.2010                                            © 2010 IBM Corporation
Summary


 Mega-Trends Shaping the Insurance Industry in 2020



                                           Megatrend
     1
          Consumer                         Active and informed consumers across demographic groups reward
          Expectations                     non-traditional operators

     2
          Insurance
          Operations

     3
          Business
          Performance

     4
          Regulation



     Source: IBM Institute for Business Value



10       18.05.2010                                                                               © 2010 IBM Corporation
Behavioral trends - information


The "active and informed" customer can best be seen in the need for
diverse and transparent sources of information


      Price comparison via Internet                 10                         40                                             50

           Recommendation family /
                                                      15                             45                                             40
                 friends
       Recommendation insurance
                                                         19                                 47                                           34
               agent
     Recommendation independent
                                                               34                                         47                                  19
             broker

             Recommendation bank                                    40                                            47                               13


                  Offers in advertising                             40                                             49                               11

        Offer from a vehicle dealer /
                                                                              59                                               36                        5
                 estate agent

                                             0%          10%    20%           30%         40%      50%      60%         70%         80%       90%        100%

                                                                         low importance         some importance         high importance


      Source: IBM Institute for Business Value survey data.
      Europe, n=2,400




11      18.05.2010                                                                                                                                 © 2010 IBM Corporation
Market dynamics – transparency / fairness


For young singles, peer groups are the most important information
source


                                                                             50                                                                            50
      18 - 29 years                                                                                  Single
                                                                              53                                                                            52

                                                                                  53         Partnership, no                                                   52
     30 – 39 years
                                                                        46                        kids                                         37

                                                                         49                   Partnership,                                                49
     40 – 49 years
                                                              36                             with young kids                                     40

                                                                         48                   Partnership,                                                49
     50 – 59 years
                                                             33                              with older kids                             30

                                                                             51                  Divorced /                                                51
          60+ years
                                                        29                                       widowed                                       37

                       0%       10%       20%        30%          40%   50%            60%                     0%   10%      20%      30%     40%        50%        60%

             High importance of price comparison via Internet                                         High importance of price comparison via Internet
             High importance of recommendation from family and friends                                High importance of recommendation from family and friends




     Source: IBM Institute for Business Value survey data.
     Europe, n=2,400



12     18.05.2010                                                                                                                                          © 2010 IBM Corporation
Summary


 Mega-Trends Shaping the Insurance Industry in 2020



                                           Megatrend
     1
          Consumer
          Expectations

     2
          Insurance                        Technology virtualises the value chain and lowers barriers to entry
          Operations

     3
          Business
          Performance

     4
          Regulation



     Source: IBM Institute for Business Value



13       18.05.2010                                                                                     © 2010 IBM Corporation
The monolithic value chain becomes a componentised service chain




                                                                           Policy
                                                                          Administration
                              Product       Policyholder                                     Claims
                  Marketing   Operations    Acquisition    Underwriting                    Management
                                                                            Asset
                                                                          Management

                                           Channel Management

                                  Customer Relationship Management

                                    Enterprise Resource Management

                                  Traditional Monolithic Value Chain

14   18.05.2010                                                                                         © 2010 IBM Corporation
Summary


 Mega-Trends Shaping the Insurance Industry in 2020



                                           Megatrend
     1
          Consumer
          Expectations

     2
          Insurance
          Operations

     3
          Business                         The building blocks of insurance products are granular and provide
          Performance                      more even revenue streams

     4
          Regulation



     Source: IBM Institute for Business Value



15       18.05.2010                                                                                    © 2010 IBM Corporation
Consumers would buy new and innovative products


                                                                  18 - 29 years          51                    49

                                                                  30 – 39 years         45                    55

                                                                  40 – 49 years          49                    51

                                                                  50 – 59 years              53                    47

       Usage based                       Traditional                 60+ years           51                    49

         calculation                     calculation                              0%   20%        40%   60%         80%          100%

                48 %                           52 %            Very low income               53                    47

                                                                   Low Income            48                    52
                                                             Lower middle class              53                    47
                                                             Upper middle class         42                    58
                                                                   High Income           49                    51
                                                              Very high income          46                    54

                                                                                  0%   20%        40%   60%         80%          100%



     Source: IBM Institute for Business Value survey data.
     Europe, n=2,400



16     18.05.2010                                                                                                         © 2010 IBM Corporation
Summary


 Mega-Trends Shaping the Insurance Industry in 2020



                                           Megatrend
     1
          Consumer
          Expectations

     2
          Insurance
          Operations

     3
          Business
          Performance

     4
          Regulation                       Regulatory coordination and affirmed industry standards broaden to
                                           international scales

     Source: IBM Institute for Business Value



17       18.05.2010                                                                                   © 2010 IBM Corporation
A proactive approach will enable competitive advantage

                            Evolving Regulatory Environment

     Compliance today                 External Forces         Compliance 2020
                            Financial crises
      Reactive approach                                        Proactive approach
                            Increased scrutiny of risks
      Fragmented                                               Integrated
                            Move toward complementary
      Insufficient          standards                          Shared systems
      availability and                                         Internal and
      hygiene of data                                          external
      Information not                 Internal Forces          transparency
      shared across lines   Pressure on cost and efficiency
      of business           Scrutiny on capital allocation
                            Sensitivity to reputation risk




18    18.05.2010                                                          © 2010 IBM Corporation
What kinds of innovation bring us toward 2020?




19   18.05.2010                                                © 2010 IBM Corporation
The ”Internet” changes the way everybody does businesss



                  What was the most successful innovation in the
                      financial sector in the past 20 years?


                                                      Internet

                                                      Cash
                                                      machine
                                                      Index
                                                      bonds
                                                      Other




20   18.05.2010                                                    © 2010 IBM Corporation
Innovation is not binary


                                                  Totally new things for new markets and / or new customers




                                                                                      Internet banking / insurance
                                                                          Cash withdrawal machines (ATM)
                                                                    Unit-linked insurance
                                                            Bank ID (security)
                                                      Share index bonds
                                           Health care services
                      New mandatory liability insurance for motor
                            Low latency trading




     Improve the existing processes, products and service for existing customers




21   18.05.2010                                                                                                      © 2010 IBM Corporation
Customer innovation: segment differently




     Cluster              involved connaisseurs             trusting                    straight-forward       critical                inert
                                                            risk-avoiders               followers              analyzers               skeptics

     Percentage of        21.7 %                            22.6 %                      22.2 %                 11.0 %                  22.5 %
     total
     Key theme           "I want it all"                   "I want life's risks reduced" "I need somebody to   "Insurance is a        "Convince me"
                                                                                            explain"              commodity"


     How to              Tailor-made and as best-of- With comprehensive, full- With simple and clear           Transparent, quick and Through traditional
     approach              breed                      service offerings         advice                           easy to do business    push-mode
     them                                                                                                        with




     Source: IBM Institute for Business Value survey data. n=4,800


22      18.05.2010                                                                                                                           © 2010 IBM Corporation
Value chain innovation: work differently


                                                    1                               4           5




                                                                                                                     On-site support
                      On-site support

                                                                                    2nd Level
                                         Mail                                                             Mail

      Agents                                                                                                                                 Agents
                                        Telephone                                                        Telephone
                                                             3
                                                    Input        1st Level                      Output
                                                    Mgmt.                                       Mgmt.




                                                                                                                     Self-service
                      Self-service




                                           E-                                                               E-
                                          Mail                                                             Mail
                                                             2

                                                                       Automation
     Customers                          Internet                                                         Internet                           Customers

                     0 Level




      6                                                     Controlling/Process Transparency

                                             Business logic, business specific functions, data, employees

                                                                     IT-Infrastructure


23      18.05.2010                                                                                                                     © 2010 IBM Corporation
Product innovation: pay differently

0 km           4.000           6.000       8.000   10.000 km              Normal / High mileage drivers



 xx-small x-small                  small      medium                                large



                                                                                             rance
                                                                                    ull insu
                                                                        Motor h y bonus
                                                                                       t
                                                                          5% safe leage drivers!!
                                                                                     h mi
                       ment bo
                              nus for
                                           rance!              - al s   o f o r hi g
               Environ     motor hull insu
                  arty and                                                                                anc e
             ird p                                                                              er i ns ur
     motor th                                                                     P as s en
                                                                                              g
                                                                                                        onu s
                                                                                    50%     safety b e drivers!!
                                                                                                      leag
                                                                                           hi gh m i
                                                                          -   al s o f o r


     Source: http://www.uniqa.at


24      18.05.2010                                                                                    © 2010 IBM Corporation
Regulation innovation: serve the customer differently




 Source: Swiss Life
25   18.05.2010                                         © 2010 IBM Corporation
What do you do to innovate?




26   18.05.2010                                 © 2010 IBM Corporation

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Insurance 2020 - Innovating beyond old models

  • 1. Christian Bieck – Global Leader Insurance, IBM Institute for Business Value Köln, 18. May 2010 Nordic Financial Services Sector Insurance 2020 Innovating beyond old models © Copyright IBM Corporation 2003 © 2010 IBM Corporation
  • 2. "Is purple ketchup innovative?" 2 18.05.2010 © 2010 IBM Corporation
  • 3. "Is purple ketchup innovative?" that depends... 3 18.05.2010 © 2010 IBM Corporation
  • 4. "Is purple ketchup innovative?" …it certainly can be, given the preferences of the user... “An innovation is an idea, practice or object that is perceived as new by an individual or other unit of adoption” Everett Rogers, Diffusion of innovations (2003, first published 1962) Source: "purple ketchup" quote adapted from Dan Saffer, "The Cult of Innovation", BusinessWeek March 5, 2007. http://www.businessweek.com/magazine/content/07_10/b4024111.htm?chan=search 4 18.05.2010 © 2010 IBM Corporation
  • 5. "In 2020, will cars need insurance?" 5 18.05.2010 IBM Global Business Services © 2010 IBM Corporation
  • 6. "In 2020, will cars need insurance?" 6 18.05.2010 IBM Global Business Services © 2010 IBM Corporation
  • 7. "In 2020, will cars need insurance?" that depends... 7 18.05.2010 IBM Global Business Services © 2010 IBM Corporation
  • 8. Leaders in banking and insurance are torn between the need for stability and the need for change The enterprise of the future is ... ... but FSS CEOs feel they are lagging behind Insurance 2008 1 9 89 2006 17 29 54 0% 20% 40% 60% 80% 100% Financial Markets 2008 7 9 83 2 2006 27 23 50 Innovative 0% 20% 40% 60% 80% 100% beyond Banking customer 2008 9 12 80 imagination 2006 27 23 50 0% 20% 40% 60% 80% 100% All industries 2008 6 11 83 2006 13 22 65 0% 20% 40% 60% 80% 100% Change needed No/limited change Moderate change Substantial change Source: IBM Global CEO Study 2008 8 18.05.2010 © 2010 IBM Corporation
  • 9. Let's have a look at the world in 2020 as insurance leaders think it will be 9 18.05.2010 © 2010 IBM Corporation
  • 10. Summary Mega-Trends Shaping the Insurance Industry in 2020 Megatrend 1 Consumer Active and informed consumers across demographic groups reward Expectations non-traditional operators 2 Insurance Operations 3 Business Performance 4 Regulation Source: IBM Institute for Business Value 10 18.05.2010 © 2010 IBM Corporation
  • 11. Behavioral trends - information The "active and informed" customer can best be seen in the need for diverse and transparent sources of information Price comparison via Internet 10 40 50 Recommendation family / 15 45 40 friends Recommendation insurance 19 47 34 agent Recommendation independent 34 47 19 broker Recommendation bank 40 47 13 Offers in advertising 40 49 11 Offer from a vehicle dealer / 59 36 5 estate agent 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% low importance some importance high importance Source: IBM Institute for Business Value survey data. Europe, n=2,400 11 18.05.2010 © 2010 IBM Corporation
  • 12. Market dynamics – transparency / fairness For young singles, peer groups are the most important information source 50 50 18 - 29 years Single 53 52 53 Partnership, no 52 30 – 39 years 46 kids 37 49 Partnership, 49 40 – 49 years 36 with young kids 40 48 Partnership, 49 50 – 59 years 33 with older kids 30 51 Divorced / 51 60+ years 29 widowed 37 0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30% 40% 50% 60% High importance of price comparison via Internet High importance of price comparison via Internet High importance of recommendation from family and friends High importance of recommendation from family and friends Source: IBM Institute for Business Value survey data. Europe, n=2,400 12 18.05.2010 © 2010 IBM Corporation
  • 13. Summary Mega-Trends Shaping the Insurance Industry in 2020 Megatrend 1 Consumer Expectations 2 Insurance Technology virtualises the value chain and lowers barriers to entry Operations 3 Business Performance 4 Regulation Source: IBM Institute for Business Value 13 18.05.2010 © 2010 IBM Corporation
  • 14. The monolithic value chain becomes a componentised service chain Policy Administration Product Policyholder Claims Marketing Operations Acquisition Underwriting Management Asset Management Channel Management Customer Relationship Management Enterprise Resource Management Traditional Monolithic Value Chain 14 18.05.2010 © 2010 IBM Corporation
  • 15. Summary Mega-Trends Shaping the Insurance Industry in 2020 Megatrend 1 Consumer Expectations 2 Insurance Operations 3 Business The building blocks of insurance products are granular and provide Performance more even revenue streams 4 Regulation Source: IBM Institute for Business Value 15 18.05.2010 © 2010 IBM Corporation
  • 16. Consumers would buy new and innovative products 18 - 29 years 51 49 30 – 39 years 45 55 40 – 49 years 49 51 50 – 59 years 53 47 Usage based Traditional 60+ years 51 49 calculation calculation 0% 20% 40% 60% 80% 100% 48 % 52 % Very low income 53 47 Low Income 48 52 Lower middle class 53 47 Upper middle class 42 58 High Income 49 51 Very high income 46 54 0% 20% 40% 60% 80% 100% Source: IBM Institute for Business Value survey data. Europe, n=2,400 16 18.05.2010 © 2010 IBM Corporation
  • 17. Summary Mega-Trends Shaping the Insurance Industry in 2020 Megatrend 1 Consumer Expectations 2 Insurance Operations 3 Business Performance 4 Regulation Regulatory coordination and affirmed industry standards broaden to international scales Source: IBM Institute for Business Value 17 18.05.2010 © 2010 IBM Corporation
  • 18. A proactive approach will enable competitive advantage Evolving Regulatory Environment Compliance today External Forces Compliance 2020 Financial crises Reactive approach Proactive approach Increased scrutiny of risks Fragmented Integrated Move toward complementary Insufficient standards Shared systems availability and Internal and hygiene of data external Information not Internal Forces transparency shared across lines Pressure on cost and efficiency of business Scrutiny on capital allocation Sensitivity to reputation risk 18 18.05.2010 © 2010 IBM Corporation
  • 19. What kinds of innovation bring us toward 2020? 19 18.05.2010 © 2010 IBM Corporation
  • 20. The ”Internet” changes the way everybody does businesss What was the most successful innovation in the financial sector in the past 20 years? Internet Cash machine Index bonds Other 20 18.05.2010 © 2010 IBM Corporation
  • 21. Innovation is not binary Totally new things for new markets and / or new customers Internet banking / insurance Cash withdrawal machines (ATM) Unit-linked insurance Bank ID (security) Share index bonds Health care services New mandatory liability insurance for motor Low latency trading Improve the existing processes, products and service for existing customers 21 18.05.2010 © 2010 IBM Corporation
  • 22. Customer innovation: segment differently Cluster involved connaisseurs trusting straight-forward critical inert risk-avoiders followers analyzers skeptics Percentage of 21.7 % 22.6 % 22.2 % 11.0 % 22.5 % total Key theme "I want it all" "I want life's risks reduced" "I need somebody to "Insurance is a "Convince me" explain" commodity" How to Tailor-made and as best-of- With comprehensive, full- With simple and clear Transparent, quick and Through traditional approach breed service offerings advice easy to do business push-mode them with Source: IBM Institute for Business Value survey data. n=4,800 22 18.05.2010 © 2010 IBM Corporation
  • 23. Value chain innovation: work differently 1 4 5 On-site support On-site support 2nd Level Mail Mail Agents Agents Telephone Telephone 3 Input 1st Level Output Mgmt. Mgmt. Self-service Self-service E- E- Mail Mail 2 Automation Customers Internet Internet Customers 0 Level 6 Controlling/Process Transparency Business logic, business specific functions, data, employees IT-Infrastructure 23 18.05.2010 © 2010 IBM Corporation
  • 24. Product innovation: pay differently 0 km 4.000 6.000 8.000 10.000 km Normal / High mileage drivers xx-small x-small small medium large rance ull insu Motor h y bonus t 5% safe leage drivers!! h mi ment bo nus for rance! - al s o f o r hi g Environ motor hull insu arty and anc e ird p er i ns ur motor th P as s en g onu s 50% safety b e drivers!! leag hi gh m i - al s o f o r Source: http://www.uniqa.at 24 18.05.2010 © 2010 IBM Corporation
  • 25. Regulation innovation: serve the customer differently Source: Swiss Life 25 18.05.2010 © 2010 IBM Corporation
  • 26. What do you do to innovate? 26 18.05.2010 © 2010 IBM Corporation