Platforms for Growth: Technology Innovations in the Insurance Industry

State Street 2014 Insurance Survey

21 October 2014

Richard Fogarty, Head of Insurance, Asia Pacific, State Street

State Street 2014 Insurance Survey

About the Research On behalf of State Street, the Economist Intelligence Unit conducted a global survey of 321 senior executives at insurance companies (June and July 2014), to examine the technology challenges facing the sector. 36% of respondents were from Europe, Middle East and Africa (EMEA), 34% from the Americas and 30% from Asia Pacific. 82% represent firms having $1 billion or more in annual revenue.

Respondents by Type of Insurance Company

Respondents by Area of the Business

72%

6%

13%

4% 2% 3%

Diversified

Health

Life

Property &CasualtyReinsurance

18%

39%

42%

Asset management unit

Non-asset managementunit

My role spans both assetmanagement and non-asset management

Although Innovation is Mostly Seen as “Moderate,” There are Pockets of Excellence How would you characterise the overall pace of

innovation across the insurance industry?

Technology-driven innovation has been evident in recent years in some areas, mainly product development and distribution:

31%

46%

7%

16% Rapid

Moderate

Sluggish

Don’t Know

55% of Asia Pacific respondents considered the

pace ‘Rapid’

Examples:

• Usage-based auto insurance

• Interactive online needs-analysis tools

• Mobile apps enabling users to inventory personal property, submit claims

• Mobile imaging to capture vehicle IDs, drivers’ licenses

But data is the next battlefield

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Platforms for Growth: Key Points

Insurers’ foremost strategic priority is identifying and penetrating new customer segments

This will be a major driver of technology strategy and investment over the next 3 years

Delivering on data to generate actionable insight is the top technology challenge

Investment priorities include social media, technology to capture new customer insights, CRM & risk management tools

Technology strategy is not always aligned with the business objectives

28% of global sample say there is full alignment; 41% of asset management respondents say the same

Legacy IT issues and data silos are big impediments to transformation

86% of global sample is affected by legacy IT Issues

Technology-savvy market entrants will inevitably disrupt the industry – insurers cannot postpone digital transformation

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Insurers are Again Turning to Growth, With a Focus on New Customers in Existing Markets

What is the top strategic priority for your business today?

10%

10%

20%

11%

33%

8%

10%

13%

14%

39%

Optimising investment portfolio returns

Entering new geographic markets

Strengthening distribution model

Enhancing product offerings

Target new customer segments in existing markets

Global Respondents APAC Respondents

% expecting these factors will be a major driver of technology investment

GLOBAL APAC

Changing customer demands

78% 84%

Growth in business volume 75% 81%

Actions of competitors 64% 63%

New regulation 64% 65%

Unlocking new customer segments will require fresh insights from data – and significant investments in technology

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

New Technologies Enable Deeper Understanding of New Customer Segments and Innovative Product Development

% who are prioritising for investment in next 3 years

52%

42%

41%

43%

45%

21%

20%

59%

57%

50%

38%

27%

21%

21%

Improved customer relationship management systems

Social media tools to build stronger engagement withcustomers

Technology to capture new customer insights (e.g., fromtelematics)

Tools to strengthen risk management

Digital distribution and customer servicing channels,including mobile platforms

Tools to improve investment decision making

Technology to improve pricing and underwriting decisions

Global APAC

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Asset Managers’ Data Priority is Real-time Access to a Cross-portfolio View New investment strategies and increasingly complex portfolios will require better data and advanced risk and performance analytics

% Planning to Expand Existing Investment

GLOBAL APAC

Emerging Markets 53% 28%

Alternatives 21% 20%

ETFs 21% 14%

Asset managers need real, prime data on the composition of the portfolio – how much is in cash, how much is settled and what the current portfolio looks like. They want tools that allow them to view or model different scenarios and perform ‘what-if’ types of analysis. Most importantly, they want it online now, not when a report is produced.

Legacy Systems are a Major Impediment to Digital Transformation

It’s a massive investment requiring probably hundreds of millions of dollars over several years. Insurers can’t just shut down the business and stop everything they are doing while they are putting technologies in place. That is a huge hurdle to modernisation.

Please indicate the extent to which you agree or disagree: “We spend little or no time addressing legacy IT issues”

3%

11%

26%

18%

41%

Strongly agree

Somewhat agree

Neutral

Global respondents

However … legacy issues are less of an issue on the asset management side of the business

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Data Silos – a By-product of Disparate Legacy Platforms

Overall, how effective is your business today at turning multiple data sources into actionable insight?

37%

53%

6% 4%

Asia Pacific Respondents

Very effective

SomewhateffectiveNot effective

Don’t know

Total

Just 41% of the overall sample strongly agree that all departments share relevant data with one another.

35% of asset management respondents say the same.

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Legacy Systems and Silos Need Not Paralyse Insurers

Some options advanced by practitioners for overcoming, or circumnavigating, these bottlenecks:

Legacy Systems Data Silos

• Modernise in small pilots, or a series of “small bets”

• Invest in new businesses to innovate “outside the core”

• Use a private cloud to pursue selected initiatives

• Prioritise interoperability over integration; only integrate where absolutely necessary

• Leverage external data (e.g. from social media and governments) to reduce dependence on internal data

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Technology and Business Managers Do Not Always See Eye-to-Eye

How Non-Tech Roles View

Technology Managers: How Technology Managers View

Non-Tech Roles:

Not Flexible Only 36 percent of non-tech respondents strongly agree that technology managers are flexible in the face of changing business needs

Not Innovative Only 22 percent of non-tech respondents strongly agree that technology managers are proactive in proposing new, innovative solutions

Not Capitalising On Technology Only 26 percent of tech respondents strongly agree that business managers readily take advantage of new technologies

No Senior Buy-In Only 18 percent of tech respondents strongly agree that senior leaders in their company give technical initiatives the priority they deserve

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

Technology Strategy is Not Always Aligned With the Business Objectives But alignment is better on the asset management side

of the business …

Thinking about the top business priority you selected, how aligned do you believe your firm’s current technology strategy is to support that objective?

Only 36% of Asia Pacific

respondents believe there is complete alignment between their technology strategy and the top strategic priority

of their business

41%

24% 28%

Asset managementunit

Non-assetmanagement unit

All respondents

Failure to fully align IT and the business will weaken carriers’ ability to counter the threats certain to come from nimble, technology- and data-savvy rivals

Source: State Street 2014 Insurance Survey, conducted by the Economist Intelligence Unit

“Technology Leaders” Stand Out When It Comes to Innovation and Alignment

APAC RESPONDENTS

Technology Leaders*

Total Sample

85% 55%

80% 43%

70% 23%

65% 31%

65% 26%

50% 29%

• Characterise the pace of innovation at their firm as rapid

• Strongly agree their technology strategy is aligned with the business objectives

• Strongly agree their technology managers are proactive in proposed new, innovative solutions to the business

• Strongly agree their technology managers are flexible in responding the needs of the business

• Strongly agree their business managers readily take advantage of new technologies

• Strongly agree they regularly mine data to extract relevant information that informs operations and strategy

Steps Some Insurers are Taking to Achieve Technology Leadership

Recruiting CIOs and other senior technology managers from outside the industry, to bring new ideas and help accelerate cultural change

Hiring data specialists in from other industries, to provide new ways of analysing insurance data and generating insight

Prioritising data visualisation (because, when it comes to analytics, visualisation is almost as important as the analysis itself)

Striving for interoperability rather than integration of systems in order to ease legacy modernisation pains

Exploring the cloud and investment in new businesses as other means of innovating outside of the core legacy systems

Leveraging external data to help to overcome data silos within the company

Increasing the coordination of technology strategy between the asset management and customer- facing sides of the business.

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