Industry Opportunities, Obstacles, and Perspective: Taking Stock of the Claims Industry

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Industry Opportunities, Obstacles, and Perspective: Taking Stock of the Claims Industry

  1. 1. Industry Opportunities, Obstacles, and Perspective: Taking Stock of the Claims Industry Michel Finschi Chief Operating Officer – Claims XL Group Insurance
  2. 2. Key Areas of Presentation  The Claims Value Proposition  Claims Moving The Industry Forward  (Re)Insurance Industry Relevance  Disruptive Technologies  Resource View 3
  3. 3. The Claims Value Proposition  Clear Insight to Risk Management  Uncover New & Emerging Risks  Pinpoint New business Opportunities For (Re)Insurers  Customer Retention  Claims Tell Stories 4
  4. 4. Claims Moving the Industry Forward  Balance external & internal challenges with limited resources  Master these challenges and move the industry forward, with Claims as a key value proposition  Use of Technology is Paramount  Data turned into information and resulting in better decision making  Claims – better service, outcome, vendor management and resource allocation  Underwriting – discipline and opportunities  Brokers – powerful partnerships  Clients – by giving customers what they want, when they want it, costs reduce 5
  5. 5. 6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Global GDP P&C Premiums as % of GDP Industry Relevance Source: see Appendix, reference no. 1. 6
  6. 6. Relevance 7  Succeed to reverse this trend and we will see our value in the economy grow.  Fail to reclaim our space, maintaining insurance relevance and we will see continue decline.  (Re)Insurers must address emerging risks, innovate, create new products, and provide insurance buyers with the coverage they want, the services they want and when they want it. Source: see Appendix, reference no. 2.
  7. 7.  $5 million vs. $400 • Price of the fastest supercomputer in 1975 and an iPhone 4 with equal performance  300,000 miles driven • by Google„s autonomous cars with only one accident (human error)  85 % drop in cost per watts • of a solar photovoltaic cell since 2000  16 % potential share • of solar and wind in global electricity generation by 2025  2-3 bn more people • with access to the internet 8 Based on ‘Disruptive technologies: Advances that will transform life, business, and the global economy’ by McKinsey Global Institute, May 2013 Disruptive technologies will transform life, business and the global economy
  8. 8. 9 2010 2020 International Data Corporation, http://www.statista.com/statistics/224384/installed-base-forecast-of-3g-wireless-subscribers/ = 165 Million Users Disruptive technologies will transform… 9
  9. 9. 10 INDUSTRY FACTS 1998 1st Cyber Liability policy issued >$1 Billion Current Cyber Liability coverage (Est. 2012 GWP) 31 Carriers offering Cyber Liability coverage, up from only 12 in 2008 72% Exposed companies that do not purchase Cyber Liability policies Cyber Liability Source: see Appendix, reference no. 1. 10
  10. 10. 11 JPNUS EU Supply Chain / Linkage Source: see Appendix, reference no. 1. 11
  11. 11. Market View Summary 12  New industries, new technologies, and businesses reveal new risks  New opportunities for insurers for new products and new services  Claims is at the center of customer value  We are challenged by technology to modernize claims processes, and to innovate: innovation does not need to be a new Product  Industry relevance is at risk; this is also an opportunity
  12. 12. 13 U.S. P&C Capitalization U.S. Energy Sector Capitalization Based on total shareholder equity Russell 1000 Energy Index vs. Russell 1000 Insurance P&C Index, December 2011 5x Capital – Strength 13
  13. 13. Lower investment earnings 14 -1.8% -1.8% -2.0% -3.6% -3.3% -3.3% -3.7% -4.3% -5.2% -5.7% -7.3% -1.9% -2.1% -3.1% -8% -7% -6% -5% -4% -3% -2% -1% 0% Personal Lines Pvt Pass Auto Pers Prop C om m ercial C om m l Auto C redit C om m Prop C om m C as Fidelity/Surety W arranty Surplus Lines M ed M al W C R einsurance** *Based on 2008 Invested Assets and Earned Premiums / **US domestic reinsurance only Source: A.M. Best; Insurance Information Institute. Robert Hartwig, Ph.D., CPCU President & Economist Insurance Information Institute
  14. 14. Capital – Exit of undisciplined capacity 15
  15. 15. 16  Underperformers: exited the U.S. P&C market or been acquired  Interest Returns: low yields eliminated inefficient competitors  Threat: sheer capitalization of other industries  Industry Outlook: profitability to remain strong; however, growth levels to remain sluggish Based on Journey III: The Next Frontier in Property and Casualty Insurance, McKinsey & Company Capital
  16. 16. Regulation • USA • Continued encroachment of federal regulations and/or laws upon the state regulatory system (e.g. Medicare). • Regulators are increasing resources, and sophistication in audit and regulatory compliance. • Medicare has forced insurers and service providers to adapt to the new regulations (i.e. systems, collaboration, training). • European Union: • Moving toward unified rules for financial services, including but not limited to Solvency II, • Directives on insurance mediation, • Review of pension funds, and an insurance guarantee framework. • Insurance companies do the right thing, and must remain proud of the industry„s positive impact to society. • Increased regulation: ultimately, it will likely drive our industry to produce less return, which will result in fewer companies that the world depends on. 17
  17. 17. 18  Industry is disciplined, efficient and innovative  OR  Continues to “hope“ that the invisible hand of market economics will offer all reasonable measures of self-correction and continued prosperity for the industry for years to come. Dynamic Environment – conclusion
  18. 18. 19  Invention: the creation of an idea or method or product  Improvement: a betterment to the above  Innovation: doing something different  Innovation demands a temporary surrender of comfort / security  Risk is essential  There is no growth or inspiration in staying within what is safe and comfortable  Innovation is not about the $ you have…  … it is about the talent and  … how they are led  … and how much they GET IT. Innovation
  19. 19.  IT costs of complex systems often outweighed the benefits  Acquisitions, leading to different processes on different systems  Localized resolution of infrastructure and processing problems  IT enabled innovation starts to impact commercial / specialty lines  Integrated information management and analytics use information from and improve decision making in various functions (UW, Claims, Risk Management)  Predictive modeling tools will drive better outcomes 20 Information Technology
  20. 20. 21  Underwriting : which risks to write, which to avoid, strategy, structuring of transactions, rate adequacy  Human Resources: skills required (functions & levels), develop and reward people; make or buy decisions  Capital Management – buy back stock or keep extra capital for new businesses or future catastrophic losses, what is the most efficient use of reinsurance  Claims – settle or litigate, TPAs or in-house; reserve adequacy, predicted vs acutal claim outcome; outcome vs speed to closure; triage (no / low / high touch) Analytics (insights and foresights)
  21. 21.  Results Will Improve When Decision Making Improves  Use of Analytics Will Improve Decision Making • Effectiveness of decisions improves • Consistency in decision making improves • Creates a framework for assessing effectiveness of decisions • Provides feedback for further improvement  The development and use of analytics will require us to do things differently Analytics 22
  22. 22. Talent Management  Deemed a foundational pillar of top performing companies*  Former underperformers have turned to strong results by adding talent*  Technology and capital have the ability to level the playing field for entrants; however, only people truly create the advantages  P&C business is far more complex than most casual observers realize  The industry struggles to attract top-tier talent, and should strengthen the talent pool*  We need to make the insurance industry “cool.” 23 *source: Journey III: McKinsey&Company
  23. 23. 24 XL’s response: Fast Fast Forward  Rebuilt our claims systems, built a global claims platform, a very powerful body of information and insight that lowers the costs of claims handling  New technology so that risk managers have a constant view of claims on a real time basis with us.  Big value added and creates super-sticky relationships between XL, our clients, brokers and partners  Won awards along the way…  Recruiting specialized expertise to build upon these capabilities  Deeply embedding analytics in every underwriting business 24
  24. 24. 25 RECLAIM 25
  25. 25. Appendix 1. Speech by Mike McGavick, CEO XL Group at International Rendez-Vous of Insurers, Reinsurers, Brokers and Reinsurance Consultants in Monte-Carlo, 2012. See also Insurance Journal, September 17 2012, “Re/insurers Increasingly Less Relevant to Global Economy: XL CEO McGavick.” 2. Keynote speech by Mike McGavick, 2012, European Insurance Forum, Dublin. See also Insurance Journal, May 29, 2012, “How Relevant Is Insurance? Asks XL CEO McGavick.” 3. Cyber Liabilities: Advisen Productivity & Insight for Insurance Professionals: “Cyber Liabilities, Insights Conference October 18, 2011.“ 4. McKinsey & Company: “Disruptive Technologies: Advances that will transform life, business and the global economy.“ May 2013 5. Most Costly World Insurance Losses: sources: Swiss Re Sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute. 6. Journey III: McKinsey&Company, “Journey III: The Next Frontier in Property and Casualty Insurance, The Challenge of Profitable Growth.“ January 2011. 7. Capitalization US P&C. See reference 1, above. 8. Celent: “Perceptions and Misconceptions of Big Data in Insurance.“ April 24, 2013. 9. XL to Politicians: See video „XL to Politicians: Don„t Tread on Us.“ January 7, 2013. http://www.propertycasualty360.com/2013/01/07/xl- ceo-to-politicians-dont-tread-on-us 10. Smartphones: International Data Corporation, http://www.statista.com/statistics/224384/installed-base-forecast-of-3g-wireless-subscribers/ 11. A.M. Best; Insurance Information Institute. Robert Hartwig, Ph.D., CPCU President & Economist Insurance Information Institute 26
  26. 26. Legal Disclaimer  In the US, the insurance companies of XL Group plc are: Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., XL Select Insurance Company, and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions.  The information contained herein is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details. 27

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