THE FIS READINESS REPORT. The Hunt for Growth Across the Insurance Industry. Are you ready to rise?

THE FIS READINESS REPORT The Hunt for Growth Across the Insurance Industry Are you ready to rise? 1

Contents 3 Introduction 4 Headline findings 6 FIS Readiness Index 11 Strengthening automation 12 Mastering data management 14 Embracing emerging technologies 16 Expediting digital innovation 18 Redefining the customer experience 19 Rethinking the talent mix 20 Targeted outsourcing to drive value 22 Recommendations becoming growth ready 24 Appendix 25 Methodology 2 The FIS Readiness Report: The Hunt for Growth Contents

Introduction The insurance industry is upbeat about its growth prospects for the year ahead, but industry players recognize the acute challenges they face in capturing new opportunities. These include evolving regulations that will divert institutions resources and attention, while emerging technologies and innovative start-ups will threaten to disrupt elements of the industry s value chain. Those insurers that can develop a new operating model one that breaks down functional silos and enables more advanced data management and accelerated digital innovation will be best placed to win in the hunt for growth that lies ahead. Our research is based on a survey of 1,042 senior-level decision-makers from across the financial services industry (see About the research), including 168 respondents from insurance companies. It reveals key insights about where insurers must now focus their search for operational excellence. We assess and score their capabilities across six key operational principles, as well as factoring in their outsourcing strategy: 1 Automation Data management Emerging technology Digital innovation Customer experience Talent The research includes the FIS Readiness Index, which rates insurers performance on each of these six key growth enablers and assesses where the greatest gains can be made. 1 OUTSOURCING WAS NOT INCLUDED AS A METRIC IN THE FIS READINESS INDEX BECAUSE IT IS NOT POSSIBLE TO ASSIGN OBJECTIVE SCORING TO THIS TYPE OF STRATEGY 3

Headline findings 1. Insurers growth ambitions are centered on customer acquisition while driving down costs. Insurers are focusing on new customer acquisition (58 percent) and retention rates (51 percent) as they set their objectives for the next 12 months. But at the same time, they are acutely aware of the need to drive down costs to compete: improving operating margins is the next biggest growth priority (39 percent). Although half of insurers are confident about hitting their growth targets, they also recognize that technology and operational changes will be critical to doing so: only 30 percent say their technology is strong enough to fully support their growth plans today, and 34 percent say this about their operations function. 2. Insurers need to confront deficiencies in cyber and operational risk management to deliver growth in the changing environment. Insurers cite cybersecurity risk as their biggest barrier to digital innovation (26 percent). And only 26 percent of insurers describe their cyber risk management as very strong today, while just 35 percent say this about their operational risk management capability. As digital distribution models become an increasingly important source of competitive differentiation for insurers and more advanced middle- and back-office technologies offer the key to greater efficiency, better data management, and the ability to offer lower premiums, there is an urgent need to address these challenges. Our research shows that insurers are striving for higher levels of automation in areas such as risk management, outsourcing more to third parties, and engaging in new collaborations all of which could help them overcome these hurdles. 3. As the threat of digital disruption looms large, insurers are exploring artificial intelligence (AI) and blockchain to enhance claims management and analytics. While only 7 percent of insurers have undertaken any live implementation of AI solutions today, a further 60 percent of insurers are developing or testing AI solutions. They are exploring AI applications in claims processing, performance analytics, and regulatory and compliance activity. Meanwhile, 54 percent of insurers are researching blockchain. Figure 1. Top growth objectives 58% 51% 39% 36% 32% 29% 28% 11% 9% Acquire new customers Improve customer retention rates Improve operating margins Enter new business lines or products Expand into new developed markets Merger/ acquisition Expand into new emerging markets Improve investment performance Improve funded status 4 The FIS Readiness Report: The Hunt for Growth Headline Findings

As an industry, incumbent insurers have been relatively slow to respond to the threat of digital disruption, but they are alert to the urgency of digital transformation now. Almost one-third (30 percent) of insurers say that disruptive new market entrants, such as innovative technology firms, will be a key threat to their business over the next three to five years. By pairing technologies such as AI and blockchain with existing strengths such as risk modeling expertise and large pools of capital, incumbent insurers can avert the threat of disruption. 4. Three-quarters of insurers are underway with their impact analysis or implementation of the new accounting standard IFRS 17. Evolving standards like IFRS 17 and shifting regulatory requirements continue to impact insurers resources for growth. It s encouraging to see that 11 percent of insurers have already started their IFRS 17 implementation project, and a further 63 percent are at some stage of the impact analysis for the new accounting standard. Following their experiences managing the compliance requirements of regulatory changes such as Solvency II, insurers clearly recognize the urgency to act to get ready for the January 2021 deadline. It is unsurprising, therefore, that 57 percent of insurers say regulation will remain a significant hindrance to their organization s growth plans over the next 12 months. Insurers will need to embrace cloud and improve systems integration to improve their agility as the diversion of resources to manage shifting compliance requirements becomes a permanent feature of their hunt for growth. 5. Insurers are increasingly outsourcing to gain the speed required for managing compliance and improving risk insights. While only 20 percent of insurers have undertaken high levels of actuarial and risk management outsourcing today, 28 percent say they will increase outsourcing of these activities over the next 12 months. In addition, 27 percent say they will increase outsourcing of finance and accounting over the next 12 months. This will drive critical economies of scale, but 51 percent also say outsourcing will be needed to speed up processes as regulatory changes demand that reporting and accounts are finalized in ever shorter timeframes. Better access to real-time data can also help insurers to improve their risk management capability. 6. The FIS Readiness Index shows that insurers must prioritize automation, innovation and emerging technology adoption for growth. Our Readiness Index, which measures institutions capability across six key operational enablers of growth, shows that insurers have significant room for further development in automation, the adoption of emerging technologies such as AI and machine learning, and their strategies for digital innovation. Those financial institutions that have made greatest progress toward operational excellence the FIS Readiness Leaders are outstripping the rest on revenue growth. Figure 2. Preparation for IFRS 17 36% 27% 18% 11% 4% 2% Impact analysis complete Impact analysis underway Don t know Implementation project started Impact analysis not yet started Other 5

The FIS Readiness Index The FIS Readiness Index shows how insurance industry respondents rate today against six operational principles and indicates where capability gaps remain as they prepare their operating models to support growth. It also shows how insurers compare against the top 20 percent of performers on the index across the financial services industry as a whole. 2 4 6 8 10 Automation Data Management Emerging Technology Digital Innovation Customer Experience Talent Readiness Leaders Insurance industry (excluding Leaders) 6 The FIS Readiness Report: The Hunt for Growth The FIS Readiness Index

Six operational principles are critical levers of growth in the years ahead: Automation: The level of process automation across the transaction lifecycle; AI in combination with exception-based workflow is the highest parameter Data management: Data management capability, including integration of data across the organization, predictive analytics and visualizationn Emerging technology: Maturity of emerging technology adoption across mobile, AI and distributed ledger solutions Digital innovation: Level of activity directed at strengthening digital innovation and propensity of organizational culture for innovation Customer experience: Performance across customer service metrics, including customization of products and services, mobile delivery, responsiveness and transparency Talent: Level of digital competencies in data analytics, software development, digital distribution and digital transformation 7

The Readiness Leaderboard Insurers have built their businesses on risk modeling expertise, but the imperative introduced by regulations such as Solvency II in recent years has driven insurers to achieve a more aggregated, holistic view of risk management data. It is unsurprising then that insurers perceive their data management capability to be a relative strength of their existing operating models, scoring 6.4/10 on this metric. However, there is still a clear need to strengthen this capability. Leading institutions will set themselves apart by becoming more effective at translating regulatory data into insights that feed strategic decision-making. And as we will discuss, new technologies can play a role in taking data analytics to the next level, not only with respect to managing compliance but also in better understanding customer needs and the institution s future risk profile in more detail. Further automation of processes is another area where substantial new gains can be made. Insurers are looking at the deeper automation of actuarial and risk activity to drive cost savings and improve the quality and timeliness of risk data available to them. They will increase automation of claims management too, supported by further adoption of AI solutions. In the emerging industry environment, it will be those insurers that can reach hyper-efficiency in the middle and back office to strip out costs from activities such as compliance management and claims processing while harnessing data insights to deliver fresh value to customers at the front end who will succeed in the hunt for growth. Readiness Leaders We have isolated the top 20 percent of respondents across the entire financial services industry based on the index scoring. This group the Readiness Leaders has an average index score of 7.9, compared to the industry average of 6.1 and 6.0 for the insurance industry. On average, they are further advanced than the rest of the industry across all six of the operational pillars we assessed. Of the insurers we surveyed, just over one-fifth (22 percent) made it into our Readiness Leaders group, showing that only a minority of respondents in the industry are achieving a high level of operational excellence across all of the six principles we assessed. All industries Readiness Leaders All buy side Insurance companies OVERALL SCORE 6.1 7.9 6.0 6.0 Automation 5.5 7.4 5.2 5.6 Data management 6.5 8.3 6.4 6.4 Emerging technology 5.7 7.8 5.5 5.6 Digital innovation 5.5 6.9 5.3 5.4 Customer experience 7.4 8.7 7.4 7.3 Talent 6.2 8.3 6.0 6.1 8 The FIS Readiness Report: The Hunt for Growth The Readiness Leaderboard

The Readiness Leaders are performing better than other institutions in terms of revenue growth and increasing their assets under management. Of the leaders, 40 percent have grown global revenue by 5 percent or more over the last 12 months, while only 22 percent of other institutions can say the same. And 47 percent of leaders have grown assets under management by 5 percent or more in the last 12 months, versus just 23 percent of other institutions. The chart below shows that while only 22 percent of insurers achieved annual revenue growth of 5 percent or more over the last 12 months, 40 percent of Readiness Leaders managed to achieve this. In the later sections of the report, we also analyze what these leaders are doing differently in other areas, such as their outsourcing strategy, and how the rest of the industry may follow their example. While 40 percent of Readiness Leaders grew by 5 percent or more last year, only 22 percent of insurers can say the same. Figure 3. Change in global revenue (last 12 months) 38% 36% Readiness Leaders Insurers 30% 17% 18% 19% 13% 10% 1% 1% 2% 5% 5% 2% Decreased by 10% Decreased by 5-10% Decreased by 5% Stayed the same Increased by 5% Increased by 5-10% Increased by 10% 9

Accelerating growth readiness: Rise to meet the future faster This section of the report examines each of the key operational pillars of our Readiness Index in turn, outlining the areas that insurance institutions need to prioritize to help drive growth in the future environment. 10 The FIS Readiness Report: The Hunt for Growth Accelerating Growth Readiness

Strengthening automation Automation is one area where insurers can make significant gains over the next few years, as the industry scores 5.6/10 today. Further automation will be key to enabling insurers to compete in the future environment. It will help to reduce operational risks by enabling faster, more tightly controlled processing of data that feeds into risk models and regulatory reporting; it will strip costs out of slow, largely manual processes such as claims management; and it will provide a foundation for building more advanced data analytics capabilities. Insurers will make a significant leap in the automation of policy and claims processes over the next few years; while only 38 percent have high levels of automation today, this will jump to 51 percent in three to five years. For many insurers, claims processing is highly inefficient and is often still a paper-heavy exercise. By embedding workflow process control, insurers can make huge efficiency savings by using rules-based engines to strip out much of the human involvement. Both actuarial and financial accounting processes are being targeted for greater automation too. For most insurers, this will need to be managed in the context of IFRS 17. The accounting standard will force the actuarial and finance functions to work together more closely over the next few years, as actuarial calculations feed into profit and loss accounting. Actuarial teams will need to strengthen governance of their systems and data management, which can be achieved with the help of automation. The actuarial function needs to target an end-to-end risk management process, so there is governance of data inputs to the model, model development, model execution and its outputs, which is controlled by process automation software, explains Martin Sarjeant, global risk solutions leader in FIS insurance business. This can then be integrated into accounting systems and business intelligence tools. One challenge to progress, however, according to Werner Matula, chief actuary at Vienna Insurance Group, is that the goal posts appear to be forever shifting. Even now that IFRS 17 is finalized, it will still be a moving target because there will be a lot of amendments, interpretations and specifications to come. This creates challenges as you try to adapt your systems in response, explains Matula. Insurers that went beyond the check the box approach in responding to Solvency II are already benefiting from the use of automation to reduce operational risk. After scrutinizing their risk management processes, some institutions have now rationalized and automated them and then overlaid a user interface that can aggregate and visualize all of the organization s audit information for business users. Figure 4. Current automation versus future automation 37% 44% 44% 51% 38% 51% 44% Current 3 5 years 30% Actuarial and risk management Financial accounting management Policy and claims Investment management The FIS Readiness Report: The Hunt for Growth Strengthening Automation 11

Becoming data masters As our Readiness Index shows, data management capability is a relative strength in the insurance industry, which scores 6.4/10 against this metric. Insurers risk modeling expertise, coupled with the regulatory imperative of the last few years to provide more detailed reporting, has helped to drive this competency. But insurers will need to excel at more advanced risk analytics, at proactively understanding their customers needs, and at extracting customized insights from big data to achieve a competitive advantage over the coming years. This will entail yet further strengthening of their data management competencies. In our survey, 37 percent of insurers still report significant gaps in their ability to unify data sources across the organization, and the same number say this about their ability to combine external and internal data sets to better inform senior decision-makers. Rosie Harris, chief risk officer at Aviva UK, says they have undertaken an organization-wide initiative to consolidate data on operational risks and controls. This is driving a lot more qualitative information about how many organizational risks have controls that are adequately tested. We ve now got a lot more data, but we need to take things to the next level to extract really meaningful information from it we need to understand whether or not the intensity of the risks or the failures of controls is increasing or not, she says. Figure 5. Data management capability Unifying data sources across the organization 5% 11% 24% 43% 14% 3% Combining external data with internal data to better inform our decision-making 4% 14% 24% 43% 14% 1% Ability to visualize and simplify complex organizational data for decision-making 4% 11% 20% 46% 17% 2% Advanced analytics for predictive identification of risk and opportunities 4% 13% 21% 51% 10% 1% Highly ineffective Effective Ineffective Highly effective Neither effective nor ineffective Don t know 12 The FIS Readiness Report: The Hunt for Growth Becoming Data Masters

Regulatory change will continue to drive even better data management. The stress-testing requirements enacted by Solvency II have already called for a higher standard of data governance in end-to-end risk reporting, for instance, as insurers have worked toward daily proxy modeling of solvency. But as IFRS 17 is implemented, many insurers will need to make further fundamental changes to data management. J.P. James, president of FIS insurance business, says enhanced data governance solutions will become increasingly important in risk management systems, as will the functionality of data analytics. We re seeing growing demand to access different types of risk data and use that data in more sophisticated ways, he explains. Embracing cloud solutions will be an important facilitator of better data management. Werner Matula of Vienna Insurance Group says his institution implemented a cloud solution for life and health actuarial modeling last year. I strongly believe that cloud is the way to go. Actuarial modeling is a perfect test case because it has lots of peaks and troughs in demand, so it makes sense in terms of cost and capacity, he says. This was a good business case because we re not working with customer data, so from a security perspective it was easier to opt for a cloud solution than it would be for our contact administration system, for instance. For this reason, many insurers will likely want to migrate actuarial modeling to the cloud in future. The benefits are clear, though FIS Martin Sarjeant notes the importance of factoring IFRS 17 requirements into these plans. If you have all of the actuarial modeling and reporting in the cloud, all of this data will now need to be consumed by the general ledger, which could be hosted on a private cloud on-premise, for instance, he says. You need to make that infrastructure layer consistent going forward to ensure efficiency of processing and minimize unnecessary data transfer. Responding to regulation is only part of the picture, however. Insurers that can better integrate data across the organization can move toward more sophisticated business intelligence. An actuarial executive at a large U.S.-based life insurance company, who wished to remain anonymous, says the decision to centralize all of the organization s actuarial calculations is helping to improve business intelligence reporting. Now that we have centralized calculations going through a common system, we can read those into the SQL server databases and use business intelligence reporting to drive common reports, says this executive. The system will automatically populate all these predefined reports and allow the user to slice and dice the data how they want through a Web interface rather than trying to use something like Excel. We ve now got a lot more data, but we need to take things to the next level to extract really meaningful information from it. Rosie Harris, chief risk officer at Aviva UK 13

Embracing emerging technology Insurers are facing a raft of pressures on their businesses, which are in a large part due to the rapid pace at which technology is evolving. Incumbents are in a race to drive costs down and lower premiums, and they must adapt the customer experience to meet new behaviors and differentiate themselves by adding value that stretches beyond indemnification. Emerging technologies such as AI and blockchain could play a significant part in helping insurers rise to these challenges. For instance, these technologies create opportunities to automate high-value activities such as claims management and to add fresh value for customers through advanced analytics that can reduce their risk of loss. But can incumbents embrace these opportunities? Today, the implementation of emerging technologies is an area where insurers score relatively low, at 5.6/10, signaling that there is significant room for progress across much of the industry. Insurers trail other industries on implementation of AI solutions, with only 7 percent having done so today. And only 9 percent say they have implemented any type of distributed ledger technology (DLT) within their business. These technologies are clearly earmarked for development, however. Our results show that 60 percent of insurers are researching and developing, piloting or testing AI solutions, while 54 percent are doing the same for distributed ledger solutions. The claims process is one area that lends itself to AI or machine learning solutions, and we re beginning to see robots making decisions on paying claims, based on the right sets of conditions being met, says Christina D. Lucero, director, healthcare product management and strategy for FIS insurance business. Figure 6. Progress on emerging technology Distributed ledger technology 7% 21% 31% 23% 9% 8% Artificial intelligence/ machine learning 10% 21% 32% 28% 7% 2% Advanced customer relationship management software 3% 17% 27% 27% 23% 4% edelivery/online customer services 6% 14% 27% 25% 25% 3% Mobile services for customer 4% 14% 26% 32% 24% 1% No plans to implement Piloting/testing Considering its potential application Some live implementation Researching and developing Don t know 14 The FIS Readiness Report: The Hunt for Growth Embracing Emerging Technology

WHERE ARE INSURANCE COMPANIES DEVELOPING AI APPLICATIONS? 37% Claims processing 29% Regulatory and compliance 29% Performance analytics THE TOP THREE DLT APPLICATIONS UNDER DEVELOPMENT ARE: 46% Claims processing 37% Clearing and settlement 34% Underwriting There is no doubt that cost is a key motivator for insurers as they assess these emerging technologies. In our survey, reducing operating costs is the most commonly reported benefit that insurers want their technology spending to deliver, with 39 percent citing this. When one Japanese insurer announced its intention to replace 34 employees with an AI system that can calculate insurance payouts, it projected a 1 million annual saving as a result. 2 Cost is not the only driver of technology spending, however. The second most cited benefit of investment is improving the customer experience. Insurers will need to strike the right balance between the two as they invest in new technologies over the coming years. 2 JAPANESE COMPANY REPLACES OFFICE WORKERS WITH ARTIFICIAL INTELLIGENCE, THE GUARDIAN, JANUARY 2017 15

Expediting digital innovation For the most part, traditional insurers have been relatively slow to react to advances in digital innovation. Incumbents must quickly learn to run with the fast pace of change, however, as elements of the value chain are being targeted for disruption. According to CB Insights, the total funding in insurtech start-ups during 2016 hit $1.69 billion, the second consecutive year that investment in this area exceeded $1 billion. 3 Yet digital innovation is shown as an area of relative weakness for insurers within our Readiness Index, as they score only 5.4/10. There are a host of barriers that insurers will need to overcome as they seek to accelerate their digital innovation, not least cybersecurity risks and complex legacy IT estates, which are seen as the most significant hurdles by our survey respondents. Figure 7. Barriers to digital innovation 26% 24% 20% 20% 19% 19% 19% 17% 16% 14% 4% 1% Cybersecurity risk Complex Insufficient legacy IT organizational systems/ understanding of inadequate digital issues technology Talent gaps Insufficient support from senior leadership Internal silos Regulatory risk Lack of available capital to invest Organizational culture Job losses Don t know Other 3 INSURANCE TECH STARTUPS RAISE $1.7B ACROSS 173 DEALS IN 2016 16 The FIS Readiness Report: The Hunt for Growth Expediting Digital Innovation

In the digital era, where an explosion of customer data is becoming available to insurers as a result of smart devices, wearables and sensors, there are new opportunities for insurers to enhance the customer experience. But for those that lack the necessary cyber defenses, there are also fresh dangers linked to the custody of that data. Insurers face a dual challenge in pursuing these opportunities. For one, they will need to upgrade existing legacy IT systems to mitigate the risks of cyberattack. But they will also need to transition more functions to the cloud to provide the computing power for more sophisticated real-time analytics without compromising the security of customer data. Today, however, only 26 percent of insurers describe their cyber risk management as very strong. As they focus on shoring up their IT systems against attack and mitigating operational risk, it will make sense for insurers to employ shorter-term, lower risk strategies for accelerating innovation such as forming new partnerships as well as longer-term plans to recruit a more digitally-savvy workforce. The insurers in our survey are already collaborating with innovative third parties (37 percent) and recruiting new digital expertise (37 percent) to expedite their digital innovation. In addition, outsourcing non-core services to free up resources will become a more prevalent strategy in the 12 months ahead. It could also be a cost-effective solution to accessing cloud infrastructure while managing the associated security risks. Figure 8. Strategies for accelerating digital innovation 37% 37% 35% 30% 32% 29% 27% 27% 21% 24% 20% 18% 19% 13% 13% 15% Collaborating with innovative third parties Recruiting digital technology expertise Encouraging a more open innovation culture across functions Purchasing thirdparty technology Outsourcing non-core services to free up resouces Appointing board-level roles with responsibilty for digital innovation Setting up incubator or accelerator programs Acquiring innovative firms Past 12 months Next 12 months Incumbents must quickly learn to run with the fast pace of change, as elements of the value chain are being targeted for disruption. 17

Redefining the customer experience Insurers score highest in customer experience, at 7.3/10. This suggests it is an area of strong focus, and 73 percent believe they are effective at delivering a responsive service to customers, for instance, while 77 percent say they are transparent about their fees. The area of relative weakness is in online and mobile access to services, where 31 percent are not satisfied that their offering is effective. As insurers pursue their main growth objective for the year ahead new customer acquisition they will need to differentiate themselves in an increasingly commoditized marketplace, and evolving their digital distribution model will be a key element of this. In fact, 60 percent of insurers say that digital distribution expertise will be highly important for their growth plans, but only 52 percent of insurers believe their capability in this area today is quite good or very good. At Aviva UK, Rosie Harris says there is a concerted focus on digital-first delivery to customers. Our growth strategy is about being a composite provider of insurance, savings and investment products to our customers, and the mode of delivery is digital-first whenever we can, she says. Among those insurers that are failing to achieve effectiveness in the customer experience, the main reasons are an inability to be proactive in responding to customer needs (53 percent) and outdated or inadequate technology (47 percent). Figure 9. Reasons for an ineffective customer experience 53% 47% 33% 22% 19% 14% Reactive instead of proactive customer management Outdated/ inadequate technology Organizational talent gaps Inability to understand/ analyze customer needs Internal/ structural issues Product or service limitations 18 The FIS Readiness Report: The Hunt for Growth Redefining the Customer Experience

Rethinking the talent mix As insurers continue their hunt for both better operational performance and an enhanced customer experience, they recognize that their plans will need to be underpinned by a new digital skill set. In our survey, expertise in big data analytics and AI expertise have the most significant gaps between the importance for growth and the level of competency today. It is unsurprising to see that data science expertise is in such high demand given the increasingly sophisticated approaches that will be required to better understand customer needs and to support the business with more accurate information about its risk exposures. Insurers will need to battle for the best actuarial talent too. And FIS J.P. James says that a willingness to move quickly on adopting new technologies will be important for attracting this talent in future. Actuaries are in high demand, particularly in markets such as Asia, he says. If you can show that your actuarial function is leading-edge in its approach to technology, such as managing activities in the cloud, then this can act as a recruiting tool to bring in top talent. Figure 10. Digital talent gaps 70% Key areas for improvement Key areas of competence Importance 65% 60% 55% Artificial intelligence/ robotics expertise Big data analytics/ data science expertise Digital change/digital transformation expertise Digital distribution/ delivery expertise Software development programming expertise 50% Distributed ledger technology expertise 45% Lower priority areas of improvement 40% 35% 40% 45% Lower priority areas of competence 50% 55% 60% Performance The FIS Readiness Report: The Hunt for Growth Rethinking the Talent Mix 19

Targeted outsourcing to drive value Insurers are planning to increase the outsourcing of functions such as actuarial and risk management, accounting and distribution over the next 12 months. The principal driver of their outsourcing plans is improving cost effectiveness (53 percent), but 38 percent also say that accessing external expertise and more advanced technologies are driving their decision. While only 20 percent of insurers are using high levels of external resource to manage actuarial and risk management activities today, 28 percent say they intend to increase their level of outsourcing in this area over the next 12 months. 20 The FIS Readiness Report: The Hunt for Growth Targeted Outsourcing to Drive Value

While only 20 percent of insurers are using high levels of external resources to manage actuarial and risk management activities today, 28 percent say they intend to increase their level of outsourcing in this area over the next 12 months. As they battle to keep pace with growing information demands from regulators and organizational decision-makers, increased reliance on external resources will be important to help respond to the need for greater computing resources and managing shorter timeframes for regulatory reporting. There is also significant interest in external distribution support, as 39 percent intend to increase outsourcing of their sales and marketing activity over the next 12 months. Part of the driver for this may be to access more advanced data analytics solutions as the ability to personalize customer interactions becomes increasingly important in enhancing the customer experience. Figure 11. Outsourcing levels today versus plans to increase over the next 12 months 40% 39% 33% 28% 27% 24% 19% 19% 19% 19% 20% 11% Actuarial and risk management Claims Finance/ accounting Investment/asset management Sales and marketing Underwriting Mostly outsourced today Planning to increase levels over the next 12 months 21

Recommendations becoming growth ready The insurance industry is facing pressure from many directions as it continues to be bombarded by evolving regulations and standards, downward pressure on premiums, and new entrants that are using increasingly advanced technologies to disrupt elements of the value chain. But the outlook for incumbents is far from bleak. Established insurers hold significant advantages over new market entrants, and those that can put the right operational and technological capabilities in place will be well-placed to respond to regulatory change, drive down costs and premiums, and attract customers with new value-added services. Some insurance institutions in our research are already further advanced toward a new operating model and they are enjoying growth benefits as a result. To emulate this success and become growth ready, insurers need to take action across these key areas of their operating model. 22 The FIS Readiness Report: The Hunt for Growth Recommendations

1. STRENGTHEN AUTOMATION Insurers must deepen the automation of processes where possible to make significant efficiency savings. Further automation of policy and claims processes will be a priority in this regard. Automating end-to-end risk management processes using workflow and exception-based management will also help improve data governance, while outsourcing in some of these areas can help accelerate the automation process. 2. DRIVE INSIGHT FROM DATA Regulatory demands mean insurers must continually strengthen their risk modeling and stress-testing capabilities. Only by turning to greater use of cloud platforms will actuarial functions be able to meet these shifting demands quickly and cost effectively. At the same time, insurers will need to invest heavily in advanced customer analytics software to help them add new types of value for their customers. 3. EXPLOIT EMERGING TECHNOLOGIES New technologies such as AI and blockchain are set to transform areas such as claims handling, compliance and analytics. Meanwhile, mobile technologies will need to enable a compelling new value proposition for customers. Accelerating the adoption of appropriate use cases, through piloting to implementation, is therefore crucial. 4. UNLOCK INNOVATION Insurers will need to upgrade existing legacy IT systems and address cyber and operational risk gaps before they can expedite their digital innovation. As this drains investment, they can pursue cost-effective, lower-risk innovation strategies such as collaborating with innovative third parties to develop new technology solutions. 5. DIFFERENTIATE THE CUSTOMER EXPERIENCE Insurers that can achieve a real-time understanding of their customers needs through highly advanced data analytics will rise above the competition in the years ahead. High levels of operational efficiency will become the industry norm, but it is the firms that can engage customers in new ways, such as alerting them to emerging risks in real time so as to drastically reduce the possibility of loss or injury, that will fare best in attracting and retaining customers. 6. RETHINK TALENT The new operating model for growth will be ineffective unless it is underpinned with a reimagined workforce. Insurers require an influx of digital talent throughout their businesses to enable new practices and ways of working to become embedded if they wish to improve their growth readiness. WHAT S YOUR GROWTH READINESS? ARE YOU READY TO RISE? Benchmark your growth readiness FISReadinessReport.com 23

Appendix About the research Survey Between March and May 2017, in collaboration with Longitude Research, we conducted a survey of 168 senior-level insurance executives as part of a larger survey of 1,042 executives across the buy and sell side of the financial services market. Interviews We also conducted more than 20 in-depth qualitative interviews with industry leaders (see Acknowledgements for full details). REGIONS SENIORITY LAMEA 16% 36% Europe 31% C-suite APAC 20% 69% 27% North America Head of business unit/director-level FUNCTIONS Investment Sales CEO 10% 6% 4% 23% IT Finance and treasury 17% 18% 20% Risk and compliance Operations CHARTS MAY NOT ADD UP TO 100 PERCENT DUE TO ROUNDING. 24 The FIS Readiness Report: The Hunt for Growth Appendix

Methodology The FIS Readiness Index About The index is based on a survey of 168 senior-level respondents within insurance companies, and 1,042 respondents overall within buy- and sell-side financial services institutions around the world (see About the research). It collates and measures companies self-assessed performance in six operational areas that FIS has identified as being representative of how firms achieve growth: Customer experience Talent Digital innovation 17% 17% 17% 17% 17% 17% Automation Data management Emerging technology Questions For each category, executives were asked to respond to a series of self-assessment questions about their company s performance within each area (for example, how well their company performs in unifying data sources across the organization, or the extent to which it offers customers a tailored service). The questions were tailored to different types of business across the buy and sell side. Several questions, such as those related to innovation, asked respondents to choose from a range of activities or strategies that their companies may be involved in (such as M&A, third-party collaborations, or setting up incubator programs). For these questions, companies undertaking at least five activities were awarded a top score, with the remaining responses scaled accordingly. Building the FIS Readiness Index The question scores were aggregated for each individual respondent, first to a category score and then overall. To allow for more refined insights, both category and overall scores were placed on a scale of 1 to 10, where 10 is best. As shown above, as we believe each area accords equal merit, the categories each receive an equal weighting in the Index. FIS Readiness Leaders Insurance companies provided 16 percent of respondents in the overall survey and constituted 18 percent of the Readiness Leader group. Insurers are therefore marginally over-represented among the Leaders, suggesting that there is a slightly greater proportion of insurers with the most advanced operating models as compared to the financial services industry as a whole. Scoring The majority of questions included in the index asked executives to rank their businesses on a scale of 1 to 5, where 5 = highly effective/active, etc., and 1 = highly ineffective (respondents that ticked don t know were given a neutral score of 3). 25 The FIS Readiness Report: The Hunt for Growth Methodology

Acknowledgements We thank all of those who participated in our interviews: Rosie Harris, chief risk officer at Aviva UK Werner Matula, chief actuary at Vienna Insurance Group J.P. James, president of FIS insurance business Christina D. Lucero, director, healthcare product management and strategy for FIS insurance business Martin Sarjeant, global risk solutions leader in FIS insurance business About FIS FIS is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 55,000 people worldwide and holds leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor s 500 Index. For more information about FIS, visit www.fisglobal.com www.fisglobal.com getinfo@fisglobal.com 2017 FIS FIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties marks are the property of their respective owners. 326482