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P&C insurance middleware presentation v1

  1. P&C Insurance Middleware Draft - Q2, 2012 Gregg Barrett This presentation contains proprietary and confidential information. Unlawful to copy or reproduce in any manner without express written consent.
  2. Index • The Problem • Objective • P&C Insurance Landscape in South Africa • Drivers and Additional Benefits • System Foundation • System Technology • System Overview o Party o Policy o Claims o Structure in MS SQL Server o Sagent • Areas of Focus • Development Strategy • Example of a Middleware Framework • Target Market • Positioning in the Market • Going Forward • On-boarding • So Where is the Revenue • It is all about Big Data • Competitive Position • Why Industry Development is Unlikely • Competitive Advantage • A Move to Standards • Summary • Glossary
  3. The Problem There is no straight-through-processing among participants in the P&C (short-term) insurance industry. Rather islands of information locked-up in disparate systems. Due to this lack of connectivity, the benefits derived from the creation of a value chain are yet to be realised. Participants include: - Insurers - Brokers - UMA’s - Reinsurers - Claims Service Providers The extent of the problem from an insurers perspective: 40% - 60% of necessary data is off platform. That is data sitting in external systems – beyond the sight and reporting of insurers.
  4. Objective Middleware platform utilising smart form technology to provide straight-through-processing for the P&C insurance industry.
  5. P&C Insurance Landscape in South Africa • Short-term insurers: o 99 short-term insurance licenses (FSB, 2010) o Annual premium for 2010: R 72.479 billion, gross premium income (FSB, 2010) o Annual claims for 2010: R 31.110 billion, claims paid (FSB, 2010) • Short-term insurance brokers: o >1000 short term insurance brokers (FIA) • Short-term insurance broker system providers: o +- 30 broker system providers in South Africa • Processing bureaux’s: o +-5 processing bureaux’s. This relates to a party role to which insurers or brokers or UMA’s outsource the processing of policies and claims. There is a sense that this may become illegal as the concept of a binder is now being introduced by the FSB. • Underwriting Management Agencies (UMA’s): o +- 400 Underwriting Management Agencies in total o +- 74 Underwriting Management Agencies of size (SAUMA) • Claims service providers: o In the thousands • Short-term reinsurers: o 9 licensed short-term reinsurers (FSB, 2010) o Reinsurance premium for 2010: R 6.730 billion, gross premium income (FSB, 2010) o Reinsurance claims for 2010: R 1.175 billion, claims paid (FSB, 2010)
  6. Drivers Include - Insurers to implement processes and gain access to data required for Binder holder Regulations and SAM (Solvency Assessment & Management) compliance - Brokers to adhere to Binder holder agreement requirements Insurance Laws Amendment Act (ILAA) The ILAA (Insurance Laws Amendment Act) (Sec 48A) at the moment stipulates that an insurer may insist on receiving the data on the risks for which it is on cover, from its appointed “Binder Holders”. It is envisaged that the regulations supporting the amendments to (Sec 48A) will prescribe that insurers should at all times be in possession of information pertaining to risk and customer detail committed under its licence. Additional Benefits - Improve the customers' experience through the common view of data - Price premiums more accurately and profitably as a result of leveraging more accurate data - Obtain more accurate coverage valuations through improved risk portfolio analysis - Get to market faster through a consistent and common definition of data and information - Enhance data governance and impact analysis of data changes on core insurance processes and underlying business rules - Increase profitability through reduced data integration time and costs
  7. System Foundation - IBM Insurance Application Architecture (IAA) - ACORD - Service Orientated Architecture (SOA)
  8. System Technology - InfoPath - SQL - Sagent - Portrait
  9. System Overview - Party - Policy - Claims - Structure in MS SQL Server - Sagent
  10. PARTY Depiction using test data captured in the staging prototype system The party structure specifies a person or organization or both. In this example, the Party role is defined as an “UnderwritingManagerAndContactPerson” per the following screenshot. This particular party, an underwriting agent, would be referenced from the Policy entity within the policy as a producer as a secondary producer, along with the broker, as the main producer. The detail party data of address, contact information, banking, licensing data, employment, or credit score is held within the context of the primary party role.
  11. POLICY Policy Placement Our staging design needs to provide for full flexibility in acting as an interface for sourcing data from different systems, which can also map to the schema developed with Acord RSA AML. A placement binds an insurer to coverage's. At this policy level there is only one coverage and no primary coverage. If we only have one insurer for all the sections we only have one placement ... otherwise there is an additional placement iteration for each insurer (or insurers for a coinsurance placement) containing the coverage's bound to that entity.
  12. POLICY continued Section and item level as coverage's and secondary coverage's within the Policy Placement structure. This is the most misunderstood and complex data area within insurance. We have used the approach of iterating coverage's within a Policy Placement (one placement for one insurer, two placements for two insurers, etc.). The first coverage iteration applies to the policy level and then one iteration covers each section level. Clearly the section level does not reference any risk. The item level iteration requires a primary coverage and references the applicable risk (which in turn references a risk address). This primary coverage nests all extensions or clauses as secondary coverage's. We also provide for a section item level coverage where the typical example of claim preparation costs applies to all items within one section.
  13. CLAIMS A claim and a number of claim items and related financials. The Claim Activity log would reflect all activities within the life-cycle of the claim. The structure allows more than one claim item to attach to a claim as this is also planned as an enhancement. Each claim item reflects lists the information to track financial movements to the income statement and balance sheet of the insurer. The movement of estimates is added to any payment less any recovery to make up the claim incurred amount. This is added to any deductible to make up the “ground up” amount.
  14. STAGING SYSTEM STRUCTURE IN MS SQL SERVER 1 - Case or Order to process Party Policy new or changed or cancelled CaseOrder_SK CaseOrder_SK Party and/or Policy and/or Party_SK Policy_SK Claim sPartyId sPolicyId sFileAs sPolicyNumber sVatRegistrationNumber sPolicyVersion bVatableIndicator sPreviousPolicyNumber sLOBCode sPolicyStatusCode CaseOrder sProcessCode CaseOrder_SK sReasonDescription sCaseOrderId sLanguageCode sProcessMessageCode Claim sCurrencyCode sTransactionMessageCode CaseOrder_SK fVatRate sOriginatorCode Claim_SK sPaymentMethodCo de sUserName sClaimId sBillingMethodCode sFileAttachmentId sPolicyIdRef sContractFrequency Code sFileAttachmentName sAddressIdRef sPaymentFrequency Code sFileAttachmentCode sInsurerClaimNumbe r dOriginalStartDate 2 - Insurer, Reinsurer and Producer referencing Party Party Insurer sFileAttachmentURI sProducerClaimNumber dInsurancePeriodSt artDate CaseOrder_SK PolicyPlacement_SK Party_SK Insurer_SK sCurrencyCode dInsurancePeriodEx piryDate sPartyId sInsurerId sClaimNarrative Policy dReviewDate sFileAs sPartyIdRef CaseOrder_SK sVatRegistrationNumber sFileAs sLossCauseClassCo de dSignedOn Policy_SK bVatableIndicator sInsurerCode CaseOrder sPolicyId dLossDate sSignedAt CaseOrder_SK sInsurerProductCode sPolicyNumber sCaseOrderId sInsurerProductDescription dDiscoveredDate sSignedBy sPolicyVersion sProcessMessageCode sInsurerPolicyNumber sPreviousPolicyNumber cClaimIncurredAmount sTransactionMessageCode sInsurerAgencyNumber sLOBCode sOriginatorCode sInsurerGroupId cClaimGroundUpAmount sPolicyStatusCode sUserName fPlacementPercent sProcessCode PolicyPlacement sFileAttachmentId bLeadIndicator sReasonDescription Policy_SK sFileAttachmentName sLanguageCode PolicyPlacement_SK sFileAttachmentCode sCurrencyCode sPolicyPlacementId sFileAttachmentURI Producer fVatRate PolicyPlacement_SK sPaymentMethodCode Producer_SK sBillingMethodCode sProducerId sContractFrequencyCode sPartyIdRef sPaymentFrequencyCode Reinsurer sFileAs PolicyPlacement_SK dOriginalStartDate sProducerProductCode Reinsurer_SK dInsurancePeriodStartDate sProducerProductDescription sReinsurerId dInsurancePeriodExpiryDate sProducerPolicyNumber sPartyIdRef dReviewDate sProducerRole sFileAs dSignedOn sCommissionLevel1 sReinsurerCode sSignedAt fCommissionLevel1Percent sReinsurerAgencyNumber sSignedBy sCommissionLevel2 fCommissionLevel2Percent sCommissionLevel3 fCommissionLevel3Percent sCommissionLevel4 fCommissionLevel4Percent sCommissionLevel5 fCommissionLevel5Percent sCommissionLevel6 fCommissionLevel6Percent
  17. Areas of Focus - Complete definition of broker, insurer and uma roles - Smart form performance - Accommodating the rules - Data warehouse
  18. Development Strategy Mid-term: - Reporting and analytics: Business intelligence solution based on dimensional structures to facilitate predictive analysis and price determination as a service. Long-term: - Business services platform for financial services
  19. Example of a Middleware Framework
  20. Target Market Our major clients to target: • +- 30 broker systems • +- 5 processing bureaux’s (where insurers or brokers or UMA’s outsource the processing of policies and claims. Total premium income in this domain is +- 20 billion rand.)
  21. Positioning in the Market - Position the forms as industry forms used by all role players to front- end their systems and as the major connectivity tool. This would reduce complexity, minimise training, cut-out major duplication in the market. - Enrichment of data is also a major thrust. - A multi-channel web services oriented architecture based on cloud computing. - Be the first to market. South African legislation will be a driver for a risk-based capital business model.
  22. Going Forward Step 1: Complete the middleware solution Step 2: On-board industry participants Step 3: Revenue generation from Reporting/Analytics/Business Intelligence
  23. On-boarding Why industry will come on board: - Industry participants need connectivity - Industry participants currently have little options for connectivity - We are providing them with connectivity - We are providing the platform at no cost - We are on-boarding them onto the platform at no cost - No on-going cost to utilise the platform Thus very little risk to industry participants, only potential gain.
  24. So Where is the Revenue? For industry participants there is NO competitive advantage from backend systems: o Only potential competitive disadvantage o A properly functioning backend is the baseline For industry participants competitive advantage lies in data and service provision: o ALM (Asset/Liability Management o What you choose to underwrite o At what price o Service provision • Including claims procurement Revenue lies in “Big Data” o Provide products and services around Reporting/Analytics/Business Intelligence
  25. It is all about Big Data big numbers….. - A free middleware platform for the industry attracts a large user base - A large user base provides big data - Big data provides the opportunity to provide products and services around this data Note: we are not claiming ownership of the data nor disclosing it to 3rd parties. We are simply best positioned to assist users of the middleware platform in turning their data into valuable information Think along the lines of a Bloomberg terminal for the P&C insurance industry
  26. Competitive Position Market Participants: - Insurers cannot send and receive (bi-directional) ACORD messages - Brokers cannot send and receive (bi-directional) ACORD messages - UMA’s cannot send and receive (bi-directional) ACORD messages System Providers: - No insurance system provider with a full middleware platform - No broker system provider with a full middleware platform - No UMA system provider with a full middleware platform - No third party provider with a full middleware platform - Industry platform (Stride) is a messaging platform Competition anytime soon? - Straight-through-processing has been spoken about in the industry since the 90's, yet nothing exists to provide it. - This solution has been development for the better part of 10 years and is the nearest to being a fully operational middleware platform that obviates the need for the industry to rewrite their applications. - The ACORD standard for claims was based on this solutions’ claims framework. - +- 20 000 drop down data fields
  27. Why Industry Development is Unlikely Using Stride as an example: Stride state that much development work from all industry participants is required for participants to attain the required connectivity. In todays environment it is unrealistic that the numerous industry participants are going to start establishing risky, costly and lengthy development projects to rewrite their applications. Further there is the question of resources who will be able to undertake the work, let alone the cost? On the ACORD front: ACORD is NOT a panacea. (ACORD does not equal connectivity.) There is also NO ACORD schema that deals with the claims service providers amongst others. Ultimately the business will go to those who can provide a solution - a solution that works and at low cost.
  28. Competitive Advantage To compete: - Need to have a middleware platform - Need to have a large user base First to market and no cost barrier drives a large user base. Enduring competitive advantage: - Barrier: Cost and skill to develop middleware platform - Barrier: Cost and skill to on-board users - Barrier: Once established existing users have no incentive to switch - Barrier: Need critical user base to generate revenue - Potential competitors would face problems: - Sufficient capital to cover period to critical user base - Risk of not reaching critical user base - due to little incentive for industry participants to switch
  29. A Move to Standards • OASIS - Universal Business Language (UBL) • OASIS - Reference Architecture Foundation for SOA • OASIS - Web Services Business Process Execution Language (WS-BPEL) • OASIS - Unstructured Information Management Architecture (UIMA) • OASIS - Customer Information Quality (CIQ) • OASIS - Business-Centric Methodology (BCM) • OASIS - Content Assembly Mechanism (CAM) • XBRL - Extensible Business Reporting Language • ACORD - Message Library (AML)
  30. Summary • The business problem is well understood • The technology exists • The standards exist What remains is to deploy the solution.
  31. Glossary • P&C - Property and Casualty. P&C is international terminology for short-term insurance • FSB - Financial Services Board • SAIA - South African Insurance Association • FIA - Financial Intermediaries Association of Southern Africa • ACORD - Association for Cooperative Operations Research and Development • SAUMA - South African Underwriting Managers Association • IISA - The Insurance Institute of South Africa • IBM IAA - IBM Insurance Application Architecture • SOA - Service Orientated Architecture • UMA - Underwriting Management Agency • OASIS - Organization for the Advancement of Structured Information Standards. • XBRL - Extensible Business Reporting Language • XML - Extensible Markup Language