Insurance Software Architecture

1. Insurance Software Architecture Subramanyam Venkatakrishnan Country Manager – Software Group IBM Vietnam Email : subra@vn.ibm.com

2. Be prepared for change. It’s the only thing you can count on.

3. Policy Administration Life Insurance Issues forcing change and innovation AGENT TURNOVER POOR PRODUCT INNOVATION HIGH OPERATIONAL COSTS AND LOW EFFICIENCY STRONG REGULATORY PRESSURE DEMAND FOR 24x7 CUSTOMER SERVICE LOSS OF MARKET SHARE TO COMPETITION

4. Get insure pic Property and CasualtyIssues forcing change and innovation FRAUD MARGIN PRESSURE DEMAND FOR SUPERIOR CUSTOMER SERVICE

5. Life InsuranceImperatives require greater flexibility in existing processes Life Insurance processes Life Insurance imperatives • Agent turnover • Poor Product Innovation • Strong Regulatory Pressure • High Operational Costs and Low Efficiency • Demand for 24x7 Customer Service • Loss of Market Share to Competition • Front Office • Sales, Customer Service, Marketing, Commission and Compensation… • Policy Administration • New business process, Quote, Underwriting, Policy Issue… • Claim Administration • Risk and Compliance Financial Management, Regulatory Compliance, Business Continuity, IT Security… Profitable Growth

6. Fraud • Margin Pressure • Demand for Superior Customer Service Property and CasualtyImperatives require greater flexibility in existing processes P&C imperatives P&C processes • Front Office • Analytics, Opportunity Management, Distribution Channel Management, Customer Inquiry, Quotes… • Policy Administration • Application Entry, Rating, Underwriting, Policy Issue, Renewals… • Claims Administration • First Notice of Loss • Coverage Verification, Claims Submission, Investigation, Subrogation, Payments… • Risk and Compliance Financial Management, Regulatory Compliance, Business Continuity, IT Security… Profitable Growth

7. Contact Prospect Conduct initial interview/ schedule meeting Financial Plan - capture/ Prioritize needs Illustrate Product, Perform initial trial close Handle objections Handle changes Begin Product Administration Re-Illustrate (what if process) Conduct Sales interview Link plan to Product options & select product Complete Product Application & Sign Issue complete policy package & sign Accept Intial Premium Agent Not Interested 1% Agent ? Sort list by territories & Agent Update CDI File & Campaign Analytics Create campaign, gather target demographics, execute campaign Create CDI Alerts & Notify Agent Marketing Asses Risk Conduct Reflexive Interview Render Decision 25% jet issue Conduct Manual Underwriting 74% Underwriter Life Insurance – Current policy issuance processNeed for automation and shared information services Typically a highly manual paper environment… • ` which often involves time delays, resulting in… • 5 weeks+ to process each application • High costs

8.  Claims Process ? Claims administration - Auto claim exampleNeed for automation and shared information services Typically incompatible multiparty processes… Claims specialist re-enters information, requests & receives appraisals from vendor(s) CSR enters information and verifies coverage Insured reports a claim to call center Insured reviews and accepts claim offer. Customer or Vendor receives payment via mail …with often complex decisions taking place over long periods of time. Data entry Investigation process First Notice of Loss • High losses • 40% of adjusters time spent with routine overhead functions • Lack of claims adjusters Payment Approval Claim Payment

9. Life Insurance – Current policy issuance processNeed for automation and shared information services Contact Prospect Conduct initial interview/ schedule meeting Financial Plan - capture/ Prioritize needs Illustrate Product, Perform initial trial close Handle objections Handle changes Begin Product Administration Re-Illustrate (what if process) Conduct Sales interview Link plan to Product options & select product Complete Product Application & Sign Issue complete policy package & sign Accept Intial Premium Agent Not Interested 1% Sort list by territories & Agent Update CDI File & Campaign Analytics Create campaign, gather target demographics, execute campaign Create CDI Alerts & Notify Agent Marketing Asses Risk Conduct Reflexive Interview Render Decision 25% jet issue Conduct Manual Underwriting 74% Underwriter

10. Claims administration – Auto claim example Need for flexibility and integration across multiple departments Insured CSR, Adjuster Vendor(s) Disbursement Agent

11. Life Insurance – Variable universal life exampleDelivered by aligning people, process and information • Automated Internet interfacefor simplifying new application • Real-time collaboration between customer and agent via electronic communication to carrier for approval • Choreographed policy servicesto automate and streamline workflow between customer, agent, and carrier • On-Demand verification of underwriting, coverage verification, and approval • Improved client insightby populating entry fields and providing instant edits

12. Property and Casualty - Auto claim exampleDelivered by aligning people, process and information • Automated notifications to client on claims status. • Real-time collaboration between Claims Rep, Auto Shop, and Customer via electronic communication for approvals • Choreographed claims servicesto automate and streamline workflow between carrier, third parties like auto repair shops and law firms, and the client. • On-Demand verification of coverage and electronic payment • Improved claims and client insightby all parties through the claims process.

13. Measurable improvements New variable universal life example Insurance carrier benefits • Reduce a clean case or jet-issued insurance policy application from between 5 and 28 days to as little as 30 minutes • Reduce manual underwriting case, from between 28 days and 3 months to as little as 7 business days • Time to market for new products reduced from order of months to weeks. • Reduce “Not Taken Rate” from up to 25% after 4 weeks to nearly zero with straight through processing • Increased operational efficiency • Improve ease of use in doing business with carrier

14. Measurable improvements Claims administration modernization Insurance carrier benefits • Reduce pure loss severity by up to 5% • Loss adjustment expenses (LAE) reduced by up to 15% • Reduce pure loss frequency by up to 2.5% • Increased customer satisfaction • Increased productivity Third Party • Improved ease of doing business with the carrier • Fewer errors from manual entry • Faster payment Source: Property/Casualty Claims Technology Strategies, Celent, 2003

15. Bridging the gap Business flexibility and responsiveness requires IT flexibility • “Today’s IT [platforms] arcane as they may be, are the biggest roadblocks…when making strategic moves.“ • – McKinsey Flexible IT, Better Strategy

16. Service orientationThe blueprint for business flexibility and responsiveness • Service orientation • Breaks down everyday business applications into individual functions… called services e.g. Underwriting • Services like ‘asses risk’ can be integrated across applications and departments. These services can also be shared externally with partners and customers, lowering time to value and cost – now and in the future. Underwriting Render Decision Asses Risk Conduct Reflexive Interview Conduct Manual Underwriting “Service-oriented architecture allows organizations to leverage common line-of-business opportunities as well as creating efficiencies for overall IT services.” –Gartner March 2005

17. Complete application Service orientation in actionIntegrating people, processes and information Conducts interview with agent Links priorities to product Conducts manual underwriting Asses risk Renders decision Creates campaigns and notifies agents Conduct interview Presents illustrations Prioritizes needs Hardwiredconnections Marketing Customer Agent Underwriting Internet Carrier Insured

18. ProcessServices E.g. Policy/Claims The Software Architecture Development Platform Business Performance Management Services Interaction Services E.g. Customer/Agent eForms & Portal Information Services E.g. Product/Actuarial Enterprise Service Bus Application, Data and Content Access Services Business Application Services E.g. Customer/Agent Service Partner Services E.g. Bancassurance Business Application and Data Services Enterprise Applications and Data Infrastructure Services

19. Insurance Scenario

20. Takes action based on awareness of competitor’s promotion VP Actuary / VP Underwriting strategically targets rates based on analysis of real-time external and internal information

21. Lapse Ratio increased by factor of 20% in June 2. VP Actuary takes actions based on both under-performing premium revenues and a decline in lapse ratio due to competitor’s promotion 1. Competitor launched rate reduction promotion in April

22. VP Claims plans to reduce processing costs by implementing redesigned express (low touch) process for certain claim types • Process Modeling & Simulation • Process Deployment & Execution • Process Monitoring • KPI Management

23. 2. A drill down indicates the cost reduction is not achieved because the number of claims using the Express process is 5 points below expectations. 3. History over the past 9 days shows initial growth with a steady drop off. VP Claims’ dashboard provides real-time contextual insight 1. VP Claims sees new process is not meeting targets

24. 2. Alert received that IVR is not routing policy information and that CSRs have been notified to apologize when asking for information 3. Given alert condition, dashboard is updated to show talk-time, a measure that is now critical to monitor in real-time. CSR Manager manages unit and individual performance along with daily operational disruptions 1. View of CSR overall performance, relative to peers, and organized by seat location

25. Director IT and IT Administrator manage SLAs with an understanding of impacts to critical business processes Executive dashboards show status of IT Services 1. 2. IT problems can be associated with specificprocess steps

26. Summary : Software Architecture should tie strategic intent to business outcome • Realize business intent • Take action based on contextual insight • Enable continuous improvement and innovation