The Top 10 Imperatives for Insurers and the role of Decision Management in addressing them

The top 10 imperatives for Insurers and the role of Decision Management in addressing themJames Taylor, Decision Management SolutionsDeb SmallwoodSMA Strategy Meets Action

©2010 Decision Management Solutions2Your presentersJames TaylorCEO, Decision Management SolutionsDecision Management Solutions works with clients to improve their business by applying analytics and analytictechnology to automate and improve decisionsJames spent the last 8 years developing the concept of Decision Management20 years experience in all aspects of software including time in FICO, PeopleSoft R&D, Ernst & YoungDeb SmallwoodFounder, Strategy Meets ActionSMA is a strategic advisory firm offering a unique blend of advisory, research and consulting services to both insurance companies and solution providers. Deb is well known as a strategic influencer and advisorLeadership roles at TowerGroup, ICW, KPMG and Liberty Mutual Commercial Lines

The top 10 imperativesThe role of analytics and a modern IT architectureIntroducing Decision ManagementAddressing the 10 imperatives with Decision ManagementNext Steps for InsurersQ&A

SMA Top 10 Imperativesthe “must haves” for charting your courseimperative actions for linking strategy to capabilities to technology Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

SMA Top 10 ImperativesThe list of the top 10 imperatives stems from SMA’s latest research including over 100 hours of interviews with leading executives across the entire insurance ecosystem. Consistently, executives cited these top 10 initiatives as they position for market recovery and prepare to handle the external forces changing insurance and a world in which technology is woven into the fabric of everyday life.AuthorsDeb Smallwood, Founderdsmallwood@strategymeetsaction.comMark Breading, Partnermbreading@strategymeetsaction.comKaren Furtado, Partnerkfurtado@strategymeetsaction.comMary Ann Garwood, Partnermgarwood@strategymeetsaction.comwww.strategymeetsaction.com/our-researchUse of Our ReportsThe entire content of this Top 10 Imperatives research report is subject to copyright protection, with all rights reserved. Reproduction or distribution of the report, whole or in part, without permission is not allowed. The material and observations contained in this publication have been developed from sources believed to be reliable. SMA shall have no liability for omissions or errors and no obligation to revise or update any data or conclusions should new information become available or future events occur. The opinions expressed in this report are subject to change without notice. Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

Key Business DriversProfitable Growth (sustainable)It would be nice if one could identify the one or two or even three simple things that are sure to drive success for insurers. Unfortunately, our world is complex with challenging economic conditions, unpredictable regulatory environments, and increasingly dynamic customer demands and interfaces. Insurers have more than a few things to consider in laying out their business and IT road maps. There are not just 3 key processes to address or 2 new technologies to install. There is no one-size-fits-all magic top priority. Instead, there are a series of imperatives that every insurer must be addressing right now if they want to stay competitive – actions for linking technology to the business capabilities that will be required for creating value in the coming years. Customer Service (agile)BUSINESSDRIVERSBusiness Optimization (scalable) Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

SMA Top 10 Imperatives for InsurersMake GOVERNANCE WorkChart a Course to PROFITABLE MARKETSFast Path NEW PRODUCT DEVELOPMENTBenefit fromBUSINESS OPTIMIZATIONPut the DATA to WorkRethinkLEGACYDrive DynamicDISTRIBUTION ChannelsCapitalize on Intelligence to manage LOSSESApply Smarts toUNDERWRITINGClaimsAnalysisRisk AnalysisLink CUSTOMERCOMMUNICATIONHolisticallyProfitabilityAnalysisMake GOVERNANCE Work Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

SMA Top 10 Imperatives for InsurersCHART A COURSE TO PROFITABLE MARKETS… plot a position for growth with market intelligencePUT THE DATA TO WORK … make vision a reality with shared, common, quality data RETHINK LEGACY… use a modern application architecture – choose a best-of-breed, best-of-enterprise, or hybrid set of solutionsFAST PATH NEW PRODUCT DEVELOPMENT … remove the technology obstaclesDRIVE DYNAMIC DISTRIBUTION CHANNELS … navigate and manage expanding channels APPLY SMARTS TO UNDERWRITING… balance science and art CAPITALIZE ON INTELLIGENCE TO MANAGE LOSSES … sound the alarm early and give great customer service at the same timeHOLISTICALLY LINK CUSTOMER COMMUNICATION... integrate voice, data, and paper interactions with channels and processes across the enterpriseBENEFIT FROM BUSINESS OPTIMIZATION … stay ahead – improve speed-to-market, reduce costs, enhance service, and position for growthMAKE GOVERNANCE WORK … link business and IT to ensure the right investments – right projects, right time, right technology Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

CHART A COURSE TO PROFITABLE MARKETS … plot a position for growth with market intelligenceTARGETPRICEMANAGESELLA winning path to profitable growth involves more than just marketing. Increasing profit potential requires employing data, tools, engines, and process automation across multiple capability areas – ensuring that the right market opportunities are chosen, the right risks are selected, the right pricing is determined, and the right management and service is delivered. Growth and profit start with the alignment of product, customer, and channel.EXTERNAL AND INTERNAL DATAANALYTICAL TOOLSPRECISION ENGINES AND AUTOMATIONPortfolio analysis and management

Personalized product configuration

Real-time quotation for all lines

Customized & personalized sales approach

Real time negotiation via agent portals

Severity and frequency management

PUT THE DATA TO WORK …make vision a reality with shared, common, quality data It is no secret that data makes the world go ‘round. It is viewed by some as an insurance company’s most valuable corporate asset. The key is to put the data to work for competitive advantage. First the data must be clean. Second it must be available. And third it must be usable and meaningful. This means that the data must be integrated and shared giving users the intelligence needed to take the right actions and make the right decisions – acumen applied anytime and anywhere. Data is the foundation for out-performing the competition, enhancing client satisfaction, and increasing value. CampaignManagementCustomerRetentionSegmentationManagementCustomerManagementProduct ManagementProduct Pricing& UnderwritingAdvanced BI and Analytic Tools Common QualityDataRisk ManagementRiskAnalysisProfitabilityAnalysisClaimsAnalysis Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

RETHINK LEGACY… use a modern application architecture – choose a best-of-breed, best-of-enterprise, or hybrid set of solutions In spite of years of replacement intentions and efforts, legacy systems live on! Now is the time to capitalize on advanced technologies and new solution offerings that make it easier to apply intelligence and smart data. A new breed of enterprise solution based on modern architecture and a data game plan is worth consideration as a total solution or a foundation for best-of-breed plug-and-play components or a hybrid approach. Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

FAST PATH NEW PRODUCT DEVELOPMENT … remove the technology obstaclesStaying competitive means delivering insurance products that are designed to meet specific customer needs. The ability to rapidly develop and revise products and manage the product lifecycle is a distinct market advantage. For many insurers, achieving a faster path means that technology obstacles must be removed in a variety of areas including research, prototyping, and deployment. The fact is that all parts of the business need to support the product set using common data. Leverage comes from a central, shared repository of rates, rules, and forms to drive real agility and speed-to-market. ProductCustomer Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

DRIVE DYNAMIC DISTRIBUTION CHANNELS… navigate and manage expanding channels Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

APPLY SMARTS TO UNDERWRITING … balance science and artAs precision insight becomes not only an advantage but also a weapon, the strategic application of technology becomes increasingly important. The fundamental is the integration of data, tools, and engines to give people and automated processes the business intelligence needed to take the right actions, at the right time, and make the right decisions - acumen applied anytime, anyplace, and anywhere.Underwriting/Enrollment/New Business FlowQuote, Proposal & BindRisk/LossAssessmentSubmission/Order EntryApplication Data, Tools, and EnginesData ValidationBase RatingPricingbalancingArtScience Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.14

CAPITALIZE ON INTELLIGENCE TO MANAGE LOSSES … sound the alarm early and give great customer service at the same timeInsurers, using knowledge as the foundation for appropriate action, are making giant strides in delivering top quality service while containing costs across all dimensions of the typically fragmented and siloed claims processing area. Integrating and managing the complete claims cycle reduces expenses. With personalized views, adjustable processes, and sharable services, new levels of customer satisfaction are realized. The use of external data, analytics and intelligence enables severity management, improved cycle time, and better claims recovery. RecoveryClaims Management Processing 1Investigate/Evaluate/Case Work2Verification/ AssignmentNotification3Customer ExperienceSharable-Repeatable ServicesAdjustable-Automated ProcessesData, Analytics, Intelligence54Negotiation/ Settlement Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

HOLISTICALLY LINK CUSTOMER COMMUNICATION … integrate voice, data, and paper interactions with channels and processes across the enterpriseCustomer Communications Management (CCM) plays a critical role in increasing sales and improving retention in the insurance industry. A comprehensive, holistic CCM vision is essential in today’s highly dynamic environment. Customers are making new demands, demographics are shifting, and the devices and channels used by policyholders, agents, and 3rd party partners are expanding. Information flows need to be seamless - capable of incorporating all forms of interaction, integrating both voice and data, and accommodating traditional and ever-changing new channels.Interaction occurs througha variety of Communication OptionsInteraction results in the creation of a variety of Information TypesThe blurring of channels, devices and information calls for a different approach to understanding customer communication managementCommunication and information flows through and enables a defined set of Insurance Processes Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

BENEFIT FROM BUSINESS OPTIMIZATION … stay ahead – improve speed-to-market, reduce costs, enhance service, and position for growthThe mindset in the insurance industry has long been geared to sequential processes which are often driven by technology rather than a current business strategy. Shift to a business view. Rethink how capabilities align to expected outcomes. Drive operations from the viewpoint of the customer to create a more dynamic and responsive business model. Look at each individual activity to determine if it can be eliminated, automated, or delegated. Then apply the right level of technology to drive both top and bottom-line growth. The result – improved speed, reduced cost, and much better service. The CustomerVision Strategy,Goals & Outcomes Required Business CapabilitiesSMA’s Business Capability Model Underwriting/New BusinessPolicy ServicingDistribution Management/SalesBilling andCollectionsClaims/ Payout ReinsuranceAsset / Investment ManagementEnterpriseServicesMarketing and ProductDevelopmentMarket& ProductDevelop Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

MAKE GOVERNANCE WORK … link business and IT to ensure the right investments - right projects, right time, right technology Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

Introducing Decision Management

Decision ManagementAn approach or business discipline for automating and improving decision-makingIt improves day to day business results bySupportingAutomating andImproving operational decisionsIt builds on existing enterprise applications toput data to workmanage uncertaintyincrease transparencygive the business control

22©2009 Decision Management Solutions“Most discussions of decision making assume that only senior executives make decisions or that only senior executives’ decisions matter. This is a dangerous mistake.”Peter Drucker

©2009 Decision Management Solutions24Delivering Decision Management3 stages to better operational decisionsCreate a “closed loop” between operations and analytics to measure results and drive improvementDesign and build independent decision processes to replace decision points embedded in operational systems Identify the decisions (usually about customers) that are most important to your operational success

©2009 Decision Management Solutions255 core principles of decisioningIdentify, separate and manage decisionsUse business rules to define decisionsAnalytics to make decisions smarterNo answer is staticDecision-making is a process

©2010 Decision Management Solutions27Different kinds of analyticsXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXDataMiningPredictiveAnalyticsBusinessIntelligenceKnowledge - DescriptionAction - Prescription

The top 10 imperativesChart a course to profitable marketsPut the data to workRethink legacyFast path new product developmentDrive dynamic distribution channelsApply smarts to underwritingCapitalize on intelligence to manage lossesHolistically link customer communicationBenefit from business optimizationMake governance work

©2010 Decision Management Solutions30Why manage decisions independently?Faster, easier, independent changesCoordination of decisions across channelsSimpler more customer-centric processes Higher employee productivityApply analytic insights everywhereFast path new product developmentDrive dynamic distribution channelsHolistically link customer communicationBenefit from business optimizationPut data to workCapitalize on intelligence to manage lossesApply smarts to underwriting

The Top 10 Imperatives for Insurers and the role of Decision Management in addressing them