Presentation at Euresa Innovation workshop on the Insurance industry in 2020 and Innovation

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?"
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3. "Is purple ketchup innovative?"
that depends...
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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
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5. "In 2020, will cars need insurance?"
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6. "In 2020, will cars need insurance?"
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7. "In 2020, will cars need insurance?"
that depends...
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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
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9. Let's have a look at the world in 2020
as insurance leaders think it will be
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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
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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
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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
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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
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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
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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
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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
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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
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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
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19. What kinds of innovation bring us toward 2020?
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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
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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
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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
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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
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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
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25. Regulation innovation: serve the customer differently
Source: Swiss Life
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26. What do you do to innovate?
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