Overview of the Key Findings

Overview of the Key Findings

Each year Capgemini, in co-ordination with Efma, publishes insights on the Insurance sector through its World Insurance Report Theme - Claims Transformation Theme- Multi- Distribution Model Theme-Customer and Distribution Analysis Theme-Optimizing the Insurer, Distributor and Customer relationship The World Insurance Report (WIR) is a leading, industry report that provides strategic insight into critical issues and trends impacting the global insurance industry. 1

The 2011 WIR addresses recent market challenges to create Operational Efficiency, Business Agility, and Transform the Claims process Business Agility Maturity Model Comparison of Efficiency Ratios Spotlight: Claims Transformation Capgemini s Business Agility Maturity Framework assesses the business agility maturity of insurers across the value chain The Model divides the insurance value chain into four components: Product Design, Front Office, Policy Administration and Underwriting, and Claims The model defines multiple levers (parameters) for each of these value-chain components: Each of the levers has five maturity levels on which a firm can be placed based on their agility maturity The 2011 WIR is focused on business agility in Front Office and Claims Operating efficiency is an important parameter to determine the long-term sustainability of underwriting profitability of insurance companies This section compares various core insurance operational costs for Non-Life (P&C) industry for 7 countries: France, Germany, India, Italy, Netherlands, U.K., and U.S. Five ratios for non-life industry (only P&C for Germany, U.K. and U.S.) were analyzed: Claims Ratio, Acquisition Ratio, Operational Ratio, Investment Ratio, and Profit Margin Claims Transformation is one of the most important focus areas in the non-life insurance industry today WIR 2011 Spotlight on claims focuses on three key areas: Stabilizing Reliable Claim Processing Platform through a SOA-based system approach Managing Indemnity to Reduce Costs with a focus on Fraud Management Leveraging Claims Data for Enterprise Level Decision Making enabled by Business Information Management\Analytics The 2011 World Insurance Report is a collaborative work between insurers and Capgemini Insurance leaders 2

Key Findings from WIR 2011 Insurers Can Thrive Post Crisis with Business Agility Capgemini's proprietary Business Agility Maturity Model shows that there is a distinct pattern linking the scale, region, line of business, business strategy, and corporate structure of a firm to the maturity of their front office and claims agility The Drive for Operational Efficiency Is ON! While the potential for efficiencies varies by firm strategy, country, and service segment, the three most important areas of improvement for achieving a highlevel of efficiency for non-life insurers are in claims, distribution strategy, and operational excellence On the Path to Differentiation: Claims Makes the Difference Claims is the focus area identified most by insurers to capture operational efficiency gains. Many are using claims to act as their next brand platform to fulfill customer commitments while reducing costs 3

At an aggregate level, Life firms have higher maturity in the Front-office Lever compared to Non-Life Firms Weighted Mean of the Maturity Scores of all the Firms Interviewed for the Front Office Lever, According to the Lines of Business Commentary Customer Needs Management 5 Life Insurance firms perform distinctly better in factors like Customer Needs Management and Personalization of Services: Maturity Level (1 to 5) Personalizatio n of Services Self-Service Request Processing Capability Total Life Non-Life 4 3 2 1 Multi- Distribution Channel Optimization Distribution Channel Setup/Scale-up Centralized Distribution- Related Operational Functions Pure P&C firms, particularly those offering group policies (around 30% of the firms P&C firms surveyed) provide functional capabilities to the B2B customers Firms operating in Health and/or P&C lines of business have high maturity score in Channel setup/scale-up capabilities North American Life insurers have invested in CRM/BI applications and provides high levels of personalized services Insurers from Western Europe also perform well in soft areas like Need management and Personalization of Services Customer service rather than scalability seems to top agenda for mutual/reciprocal firms compared to the stock firms Centralization of Distribution functions is one area where firms from different lines of business have roughly concurrent maturity levels. Source: (a) Capgemini Analysis, 2010; (b) Executive Interview & Survey Results, World Insurance Report 2011 4

Firms perform well on agility of FNOL and Time Management for the claims element of the value chain Weighted Mean and Mode of the Maturity Scores of all the Firms Interviewed for the Claims Maturity Level (1 to 5) Time Management Recovery (Subrogation & Salvage) Loss Assessment Weighted Mean Mode Shared Services Payout options 5 4 3 2 1 Claim Reserves Management FNOL Case assignment Fraud/Litigati on Management Claims Performance Analytics Commentary Firms operating in Personal, Commercial as well as Specialty lines of business exceed expectations in providing multiple payout options Recovery and Fraud & Litigation management are regarded as two of the most problem elements in the claims value chain Large firms are performing well on FNOL processes whereas they lack on the payout options for claims: Internal work flow management for claims is automated in most of the large firms Small firms perform well on FNOL and Fraud and Litigation management Western European firms perform well on claims case assignment and payout and have integrated interfaces with third-party vendors Payout Options and Shared Services are two areas where firms across the lines of business appear to be in nascent stages and provides a huge scope to improve on. Source: (a) Capgemini Analysis, 2010; (b) Executive Interview & Survey Results, World Insurance Report 2011 Note: (1) This analysis focuses on non-life insurers 5

The Drive for Operational Efficiency is ON! Non-Life Insurance Expenses as a Percentage of GWP (in %), 2006-2009 CAGR 06-'09 2.3% 4.5% -0.8% 0.7% 1.8% NA 3.5% (%) 125 100 75 98.4 101.5 106.1 105.6 17.3 17.1 17.5 18.2 18.5 18.1 20.1 19.7 93.8 97.7 15.4 16.0 17.4 104.4 15.7 15.4 19.2 18.7 14.8 107.1 104.6 103.9 101.9 102.0 5.2 5.8 11.3 11.9 5.2 6.2 11.0 9.4 13.2 10.8 90.0 94.4 92.2 91.9 10.8 11.1 11.5 12.8 12.9 13.3 95.6 92.9 93.7 100.9 16.2 14.9 10.7 7.9 8.2 14.7 8.2 15.1 119.0 123.2 5.4 6.9 7.3 125.0 30.2 29.1 29.0 93.7 97.0 16.2 16.1 14.0 14.9 105.2 103.9 16.0 16.1 16.0 14.6 Underwriting Ratio Acquisition Ratio Operational Ratio 50 25 62.7 66.3 68.6 67.7 62.7 66.3 67.8 73.6 88.1 86.2 85.7 86.4 66.0 70.8 68.2 67.1 68.8 70.1 70.8 77.6 83.4 87.2 88.7 63.5 66.0 73.2 73.2 Claims Ratio 0 06 07 08 09 06 07 08 09 06 07 08 09 06 07 08 09 06 07 08 09 06 07 08 09 06 07 08 09 U.S. U.K. Netherlands Germany France India Italy 0.0 NA Source: (a) Capgemini Analysis, 2010 Note: (1) The ratios are valid only for non-life insurance. The ratios reflect non-life data as reported by the countries themselves, and hence includes health insurance for France, India, Italy and the Netherlands, but not for Germany, U.K. or U.S.; (2) At the time of analysis, no 2009 data was available for India, where the financial year ends March 31st and the Underwriting Ratio CAGR over 2006-08 for India was 7.1% and Profit Margin CAGR over 2006-08 for India was -60.7% 6

Claims costs account for 70-75% of the combined ratio and have been a major source of escalating costs and reducing profitability Underwriting Ratio, Expense Ratio and Claims Ratio for Select Non-life Insurance Countries 1, 2006-09 Non-life Insurance Industry Cost Ratios (%) 120% 100% 80% 60% 40% 20% 0% 31.0% 30.2% 31.3% 31.3% 67.3% 70.8% 73.2% 71.9% 2006 2007 2008 2009 Underwriting Ratio 2 Expense Ratio 2 Claims Ratio 2 High Cost of Claims: Claim departments spend over $336 billion globally each year in managing and settling claims For every dollar collected in premiums, insurers, on average, spend 61 cents on claims paid out and 13 cents on claim expenses Increasing Cost of Claims Payout and claims operations: The claims ratio increased at a greater rate (4.6%) than the expense ratio (0.3%) over 2006-09 Increasing claims and operations costs continue to have an adverse affect on the profitability of the insurers. As claims management is a major factor in operating performance and results, the focus of insurers has shifted towards addressing claims cost to restore profitable growth. Source: (a) Capgemini analysis 2010 Note: (1) USA, UK, France, Germany, Netherlands, and India; (2) Underwriting, Expense and Claims ratios are calculated as per WIR 2010 Efficiency Model definitions 7

Insurers need to transform claims processing to overcome the key challenges faced by a claims organization Observation Insurers reputations are built on their efficiency to process claims A bad claims experience drives clients to competitors Implication New acquisition costs are 7 times the cost of retention Enhanced customer satisfaction improves retention and acquisition Increasing Process Complexity Observation Multiple hand-offs Duplicated work and redundancies Inefficient people to process mapping Implication Claims staff spend more time doing administrative job instead of adjudicating claims Process complexities result in increased LAE Observation Inability to access claims data needed to detect fraud Missed opportunities for salvage, subrogation and third-party recovery Implication Fraud accounts for nearly 10-15% of the loss ratio Missed recovery opportunities have considerable implications on the profitability Lacking Customer Centricity Increasing Risks: Fraud, Litigation Key Challenges for Claims Organization Changing External Environment Observation Uptick in litigation trend, Increasing regulatory compliance activity New/unpredictable trends in weatherrelated losses Aging Technology: Inefficient Processes Observation Multiple disparate legacy platforms Lack of integration with internal and 3rd party systems Implication Increased claims settlement time and cost Declining customer satisfaction levels Implication Frequency of change is high and cost per change is increasing given aging technology Increasing claims severity and frequency 8

Are any of these Issues preventing you from Unlocking Claims Value? Are your customers complaining about longer and inefficient claims processing? Do your claims systems and processes provide you with agility to respond quickly to market changes? Is your claims data viewed as a part of your entire organization s business information? Are you facing issues of fraudulent claims which are negatively impacting your bottom line? Is your first notice of loss (FNOL) process automated? Are you incurring large costs in maintaining your Claims IT infrastructure? Are you able to efficiently integrate claims data into your underwriting and product pricing decision process? How much of your adjusters time is spent processing claims versus doing analytics (i.e. analyzing such things as rate of return on referrals)? Have you created a centralized salvage and subrogation (or litigation management etc.) unit that looks at data and thinks about these issues every day? Have you created that level of focus and segmentation? Is your indemnity spending appropriately aligned to your coverage commitments? 9

World Insurance Report 2011 Visit http://www.capgemini.com/wir11 to access the full report and accompanying communications