World Insurance Report 2011 Overview

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 Theme- Multi- Theme-Customer and Theme-Optimizing the
Transformation Distribution Model Distribution Analysis 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.

The information contained in this presentation is proprietary.
Copyright ©2011 Capgemini. All rights reserved.
1

The 2011 WIR addresses recent market challenges to create Operational
Efficiency, Business Agility, and Transform the Claims process

Business Agility Comparison of
Spotlight: Claims Transformation
Maturity Model Efficiency Ratios

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

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 high-
level 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
Commentary
for the Front Office Lever, According to the Lines of Business
Customer § Life Insurance firms perform distinctly better in factors like
Needs
Management Customer Needs Management and Personalization of
5 Services:
4 § Pure P&C firms, particularly those offering group policies
(around 30% of the firms P&C firms surveyed) provide
Maturity Level (1 to 5)

Distribution
Personalizatio
3 Channel Set- functional capabilities to the B2B customers
n of Services
up/Scale-up
2 § Firms operating in Health and/or P&C lines of business
have high maturity score in Channel setup/scale-up
1 capabilities
§ North American Life insurers have invested in CRM/BI
Centralized
Self-Service
Distribution-
applications and provides high levels of personalized
Request services
Related
Processing
Operational
Capability
Functions § Insurers from Western Europe also perform well in soft
areas like Need management and Personalization of
Services
Total Multi-
Life
Distribution § Customer service rather than scalability seems to top
Channel
Non-Life Optimization
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
Commentary
Interviewed for the Claims
Payout
options § Firms operating in Personal, Commercial as well as
5 Specialty lines of business exceed expectations in
Shared
FNOL providing multiple payout options
Services
4
§ Recovery and Fraud & Litigation management are
regarded as two of the most problem elements in the
Maturity Level (1 to 5)

3
Fraud/Litigati
Time
on claims value chain
Management 2 Management
§ Large firms are performing well on FNOL processes
1 whereas they lack on the payout options for claims:
§ Internal work flow management for claims is automated in
Recovery Claims
(Subrogation Performance most of the large firms
& Salvage) Analytics
§ Small firms perform well on FNOL and Fraud and
Litigation management
Loss Case § Western European firms perform well on claims case
Assessment assignment
assignment and payout and have integrated interfaces
Weighted Mean Claim with third-party vendors
Mode Reserves
Management

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%

7.3 125.0
6.9 123.2
5.4 119.0
125
107.1
106.1
105.6

Underwriting

105.2
11.3 5.2 104.6
104.4

11.9 5.8 103.9

103.9
9.4 6.2 102.0
11.0 5.2 101.9
101.5

100.9
Ratio
98.4

97.7

97.0
95.6

29.0
12.8 10.8 94.4
93.8

29.1

93.7
93.7
92.9
12.9 11.1 92.2
13.3 11.5 91.9
14.8

30.2
Acquisition

13.2 10.8 90.0
100
17.5

16.0
18.2

16.1
17.4

8.2 15.1
17.1

Ratio
17.3

16.0

16.1
10.7 16.2

8.2 14.7
15.4

16.2
7.9 14.9
18.7

16.0
14.6
Operational
20.1
19.7

19.2
18.1

15.4

14.9
75 Ratio
18.5

15.7

14.0
(%)

50

88.7
88.1

87.2
86.4
86.2
85.7

83.4
77.6
Claims
73.6

73.2
73.2
70.8

70.8
70.1
68.8
68.6

68.2
67.8
67.7

67.1
66.3

66.3

66.0
66.0

63.5
62.7

62.7

Ratio
25

0.0 NA
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

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 High Cost of Claims:
for Select Non-life Insurance Countries1, 2006-09
§ Claim departments spend over $336
120%
Underwriting billion globally each year in managing
Non-life Insurance Industry Cost Ratios (%)

Ratio2 and settling claims
100% § For every dollar collected in premiums,
31.3% 31.3% Expense Ratio2 insurers, on average, spend 61 cents on
30.2%
80% 31.0% claims paid out and 13 cents on claim
expenses
60% Increasing Cost of Claims Payout and
claims operations:
40% § The claims ratio increased at a greater
70.8% 73.2% 71.9% Claims Ratio2
67.3% rate (4.6%) than the expense ratio (0.3%)
over 2006-09
20%
§ Increasing claims and operations costs
continue to have an adverse affect on the
0%
2006 2007 2008 2009
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 § Implication
Observation Implication § Multiple hand-offs § Claims staff spend more
§ Insurers’ reputations are § New acquisition costs § Duplicated work and time doing administrative
built on their efficiency are 7 times the cost redundancies job instead of adjudicating
to process claims of retention § Inefficient people to claims
§ A bad claims experience § Enhanced customer process mapping § Process complexities
drives clients to satisfaction improves Increasing result in increased LAE
competitors retention and acquisition Process
Complexity

Observation Implication
Aging § Multiple § Increased
Lacking disparate claims
Technology:
Customer legacy settlement
Inefficient
Centricity Key Challenges platforms time and
Processes
for Claims § Lack of cost
Organization integration § Declining
with internal customer
and 3rd satisfaction
§ Inability to access § Fraud accounts for
party levels
claims data needed nearly 10-15% of
systems
to detect fraud the loss ratio
§ Missed § Missed recovery Increasing Changing
opportunities for opportunities have Risks: Fraud, External
salvage, considerable Litigation Environment
subrogation and implications on the
third-party recovery profitability
§ Uptick in litigation trend, § Frequency of change is high and cost
§ Increasing regulatory compliance per change is increasing given aging
activity technology
§ New/unpredictable trends in weather- § Increasing claims severity and
related losses 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

World Insurance Report 2011 Overview

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