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Digital Transformation & the Legacy Challenge How Europe’s Leading Insurers are Advancing their Digital Strategies & Future Approaches to Application Modernization

Executive Summary

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There is a huge range in the level of digital maturity of European insurance providers. While the Digital sector as a whole trails other industry domains in how quickly it has embraced the digital revolution, Polarization there are many examples in this study of real digital innovation. This ranges from interesting uses of digital channels and analytics tools to enhance customer engagement, and the deployment of sensor technology to transform motor and health insurance processes.

50% of European insurers believe that their software applications will become more of a challenge Legacy Systems a to them achieving the goals of their digital strategies in the next three years. This reflects that many Big Digital Barrier remain dependent on ageing, often home-grown systems. In response, 42% of insurers will undertake systems modernization initiatives in the next two years, with a focus on applications supporting key processes such as claims and policy administration.

There are some interesting differences in the digital maturity of insurers in the UK and continental UK Ahead of Europe. UK insurers expect a much steeper decline in the importance of the physical branch and a Continental Europe much more important role for social media than their continental counterparts. The main goal of the digital strategies of UK is to gain improved insight into customer and operational data, whereas those in continental Europe are aiming for greater process automation.

Insurers are data rich organizations, but have historically trailed other sectors such as retail in Data Analytics 2.0 to converting it into actionable insight. To date, a lot of the analytics investment and project focus has Focus on Customer gone on supporting risk calculation and crunching operational data in order to take cost of the business. But with sales growth named by three quarters of respondents as a major or clear challenge, the focus in shifting to understanding how they can better engage with the customer.

External Help is More than 40% of insurers say that they see high value in using external providers to support the modernization of their application landscapes as part of their digital strategies. Some 94% of Needed respondents stated that IT services providers will play an important role in assisting their digital journey, which represents a higher level than digital agencies (74%) and cloud providers (69%).

2 © PAC 2015 About the Study

Commercial 32% 50% business respondents Life 31%

Personal 18%

Health 11% 200 survey respondents 50% IT in Western Europe Pensions 8% respondents

27% > 24% 15% J F M A M 12% 10%

51% of respondents had Survey conducted over 1,000 employees FR UK DACH IT IBERIA between Jan-Feb 2015

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Q. What are the key goals for your company‟s digital strategy?

It is clear from the study that „digital‟ things mean Increased customer acquisition different things to different insurers. 63% Encouragingly, digital is seen as a way to tackle what insurers perceive to be their biggest challenge in 2015 – growing the business through increased customer Improve operating efficiency acquisition. Against a backdrop of heightened 61% competition and growing use of aggregators, almost 60% state that improving client retention is a „primary‟ goal of their digital strategy.

Increased customer retention Again, there are some interesting contrasts between 60% the UK and continental Europe. Only 33% of insurers in the former territory state that increasing process automation is a primary goal of their digital strategy, Remain competitive versus 52% in the latter. 55% A greater proportion of UK insurers (52%) see gaining improved insight into customer and operational data as a primary goal for their digital strategies than those 47% Increase process automation on the continent (40%).

Improve insight into A picture is emerging where UK insurers are slightly ahead of their continental cousins in terms of focusing 42% customer & operational data their digital efforts on enhancing their relationship with new and existing clients, rather than driving 40% Increase cross-selling internal efficiency.

Shares in percent of the companies surveyed that stated that the 4 options were a „primary‟ goal for its digital strategy © PAC 2015 Executive Summary (2/4)

Q. What do you see as the main challenges for implementing your digital strategy?

The primary challenge that European insurance Legacy technology providers identify in implementing their digital 49% strategy is legacy technology.

Implementing a digital strategy should not just be about deploying new technology. But legacy systems – some of which are decades old – are preventing them from making important 48% Perceived data and security issues structural and cultural changes at speed.

Data and security issues are also perceived to be a challenge by almost half of the respondents, and interestingly, this level is higher in continental Europe (51%) than in the UK (42%). This reflects Budget constraints the wider concern that exists in the region, far 46% beyond the insurance sector, over issues such as data sovereignty and location.

Budget and capacity constraints are also highlighted as important digital barriers. Ongoing Capacity constraints pressure on premiums means that the IT function is 46% under pressure to reduce costs in the traditional technology landscape in order to free up funds for more innovative projects. As we shall see, this is driving a growing interest in working with external providers in order to help drive efficiencies through 28% Culture economies of scale.

5 Shares in percent of the companies surveyed that stated that the © PAC 2015 options were a „primary‟ challenge for its digital strategy Executive Summary (3/4)

“Applications will become more of a “Legacy modernization is important to challenge to achieving our business achieving our digital strategy.” objectives.”

94% 50%

The applications estate is clearly a major challenge for insurers. Half of the respondents to the survey said that they believe their software applications will become more of a challenge to The vast majority (94%) of respondents stated that legacy achieving their business objectives. applications modernization is important to achieving their digital strategies. This picture is the same in both the UK and continental Europe, with 48%in the former expecting the challenge to become more difficult Many European insurers continue to run applications that are often versus 49% in continental Europe. decades old. One respondent to the survey ran more than 15 different policy administration platforms, which it had So why are they becoming more of a barrier? Our respondents accumulated partly through M&A activity. Another continued to use played back a number of reasons, including challenges in linking green screen systems that were first installed in the 1980s. into new mobile services, a lack of speed in being able to support the launch of new products, and integration challenges posed by There has historically been a reluctance to update these systems recent M&A activity. due to the potential for disruption to the business, and because many of these platforms – often developed internally – performed But as we shall see, a According to PAC‟s latest research, reliably. But the findings of the study suggest that being able European insurers will increase their investment in software by support „business as usual‟ is no longer sufficient to support the 3.4% to €4.1bn in 2015, which makes it one of the fastest-growing changing demands of the organization. industry sectors in this regard.

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Q. How important do you believe the following supplier groups are in implementing your digital strategy?

94% 86% 82% 74% IT Services 69% Companies Software Vendors Strategy Consultants Digital

Shares in percent of the companies surveyed that stated that the Agencies options were either “very important” or important” in implementing Cloud their digital strategy. Providers

European insurers believe that IT services vendors & systems really important work will be in the area of modernizing the existing integrators will play a major role in implementing their digital IT landscape, and that they will need to work with an established IT strategies. services provider or integrator with the requisite risk profile and capabilities to help with the heavy lifting. Some 51% of survey respondents said they thought IT services providers would be “very important” in supporting their digital Several of the respondents use an IT services partner to manage agenda, while a further 43% said the group would be “important”. In and coordinate their relationships with smaller providers, and we contrast, only a quarter said that digital media agencies and cloud expect more insurers to follow this model in order to help bridge the providers would be “very important” external partners. gap between the existing IT estate (where performance and quality are essential) and the digital front (where speed and agility are the This is encouraging, as it reflects that insurers believe that the top priorities).

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Atos Group: http://atos.net/en-us/home.html 9 © PAC 2015 Contact: [email protected]

About CGI

Founded in 1976, CGI Group Inc. is the fifth largest independent information technology and business process services firm in the world. Approximately 68,000 professionals serve thousands of global clients from offices and delivery centers across the Americas, Europe and Asia Pacific, leveraging a comprehensive portfolio of services including high-end business and IT consulting, systems integration, application development and maintenance, infrastructure management as well as a wide range of proprietary solutions. With annual revenue in excess of C$10 billion and an order backlog exceeding C$20 billion, CGI shares are listed on the TSX (GIB.A) and the NYSE (GIB).

For more information, please visit www.cgi.com

About CGI in Insurance

CGI is the partner of choice for P&C and Life insurers, brokers and agents across the globe, including 12 of the top 20 global insurers and 200+ clients worldwide. Our 3,500 insurance professionals deliver end-to-end services and solutions that drive results - from infrastructure and application management services, to business and IT strategy and consulting, to data analytics and cyber insurance, to core systems transformation. Our 35+ years of insurance experience includes policy, claims and billing system implementations across the globe, the development of innovative solutions such as CGI Ratabase®, the industry‟s leading rating and product configuration software, and the annual delivery of more than 15 million risk information product transactions and processing of $50 billion in premium through the systems that we manage for our clients.

For more information, please visit www.cgi.com/insurance

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About Endava

Endava is a leading European IT services organisation with over 1,800 full time employees. Headquartered in London, Endava has offices in the UK, USA, Germany, Romania, Macedonia and Moldova and reported revenues of £64 m for the financial year 2013 -2014.

Supporting the full software lifecycle, we cover application development and management, testing, digital media, infrastructure management and cloud services. Our solutions transform systems, platforms and processes for the world‟s leading brands in Insurance, Banking, Payments, Media, Retail and Telecommunications.

Endava has the industry insight and the technology expertise to help insurance firms address the complex challenges they face and we can become a strategic partner for organisations who aim to accelerate their digital capabilities, introduce new technologies and new engagement models for servicing today‟s sophisticated customers, while also enhancing operational efficiencies.

For more information, please see http://www.endava.com

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About HP Insurance Services

HP Insurance Services provides back-office support to streamline policy and administrative processes for life and annuity. With more than 35 years in the insurance services business, our teams have the critical skill sets to address the needs of clients' organizations - such as relationship management, delivery expertise, sales knowledge, and business and industry understanding.

We enable insurers around the world to transform their businesses and embrace new opportunities. HP Insurance Services is a leader in software solutions and consulting services for the life insurance and annuity industries.

About HP

HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers‟ most complex challenges in every region of the world. More information about HP (NYSE: HPQ) is available at http://www.hp.com.

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About TIA Technology

TIA Technology offers the industry's most flexible and comprehensive integrated suite of core insurance applications for property/casualty and composite insurers. A proven solution with more than 60 customers and 100.000 daily users in 40 countries, TIA helps insurers across the globe to get closer to customers through operational excellence, superior sales and service and exceptional product leadership.

About the TIA Solution

The TIA is ideal for insurers who are looking for an open, end-to-end solution based on future-proof technology, ultimate usability and configurable functionality. If your vision is to be the front runner in your market, TIA is the solution that can help you develop your business into a customer-centric, high-performing company, miles in front of your competition. It is a modular, integrated core insurance solution providing insurers with benefits throughout the entire value chain. It is built as a complete end-to-end package supporting all lines of business and capable of managing the entire insurance process including policy administration, claims management, sales/marketing & product development. The TIA Solution is built by insurance experts with years of industry insight. The entire solution is flexible and broad enough to meet specific insurer‟s needs regardless of geography, line of business or strategic inclinations.

TIA gives your employees a 360° customer view across functional areas and arms your frontline workforce with all of the information they need to respond, interact and take advantage of opportunities with customers as they arise. TIA is a truly customer-centric solution, meaning that it stores your customer data independent from the functional areas, allowing users to access relevant data according to their given role and tasks.

For more information, please see www.tiatechnology.com

13 © PAC 2015 About us Nick Mayes Principal Analyst & Research Director From strategy to execution, PAC delivers focused and +49 (0)30 28 52 96 20 objective responses to the growth challenges of [email protected] Information and Communication Technology (ICT) players.

PAC helps ICT vendors to optimize their strategies by providing quantitative and qualitative market analysis as well as operational and strategic consulting. We advise CIOs and financial investors in evaluating ICT vendors and solutions and support their investment decisions. Public institutions and organizations also rely on our key analyses to develop and shape their ICT policies.

Founded in 1976 and headquartered in Paris, France, PAC is part of the CXP Group, the leading European research & advisory firm in the field of software and IT services.

For more information, please visit: www.pac-online.com

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