WORLD INSURANCE REPORT 2012 2012 WORLD INSURANCE report CONTENTS TABLE OF CONTENTS 5 Preface 7 CHAPTER 1 Costs and Efficiencies Are the Critical Levers of Performance for Non-Life Insurers Today 9 — Efficiency Model Shows Core Operations Are Critical to Performance 11 — Insurers in Most Markets Share a Focus on Cost and Operational Efficiencies 21 CHAPTER 2 Business Agility Survey Shows Investment in Several Policy Administration (PA) Sub-Functions Is Paying Dividends 22 — PA and Underwriting Agility Hinges on Eight Key Performance Levers 24 — Proactive Investment Has Improved Agility in Core Back-Office PA Levers 24 — Survey Shows Agility in Different PA Sub-Levers Varied by Business Line, Region, and Size 32 — Case Study: Leading Non-Life Insurer Uses Advanced Analytics to Drive Agility in Rate and Quote and Premium Reminders/Renewals 53 CHAPTER 3 Policy Administration Is the Next Priority for Transformation while Driving Results 37 — Policy Administration Transformation Is a High Priority for Many Insurers 37 — PA Transformation Potentially Offers Benefits to the Top and Bottom Lines 38 — Business Value Is Key to Decisions about PA Transformation Strategies 40 — Business Process Re-engineering, Consolidation, Modernization, and Sourcing Are Core Elements of In-house PA Transformation 41 — Case Study: Leading Life Insurer Consolidates Firm-Wide Capabilities with the Help of IT-Enabled PA 43 — Case Study: Global Life Assurance Company Converts Policies Cleanly and Promptly in Far-Reaching Data Migration Effort 44 Methodology 46 About Us 3 4 2012 WORLD INSURANCE report PREFACE Preface Capgemini and Efma are pleased to present the fifth edition of the World Insurance Report (WIR). Insurance companies around the globe are working hard to grow their businesses, despite today’s challenging environment, in which costs are rising, and uncertainty persists about the financial contribution from investment income. The WIR 2012 looks at how insurers are focusing their efforts on operational efficiency and effectiveness to protect and grow margins, even when demand is slow to increase. The report specifically offers insights into how leading institutions are refocusing their efforts to reduce both cost per policy and total cost of ownership, and acting to improve the operational efficiency of their business processes. The report builds on Capgemini’s use of a proprietary Business Agility Maturity Model (introduced in the WIR 2011) to assess the functional maturity and leading practices of insurers across regions. This report also investigates the cost drivers for insurance companies across regions, and the increasing focus among insurers on transformation in the ‘Policy Administration and Underwriting’ Function. The findings of the WIR 2012 draw on research insights from 19 markets: Australia, Austria, Belgium, Brazil, Canada, Denmark, France, Germany, Hong Kong, India, Italy, Netherlands, Philippines, Singapore, Spain, Switzerland, the U.K., the U.S., and Vietnam. Among these countries are 13 of the world’s top 20 insurance markets in terms of premiums. Included in the research were in-depth focus interviews with 71 insurance executives. We are pleased to present you with this year’s World Insurance Report, and hope our findings offer insight into the challenges and opportunities now facing the global insurance industry. Jean Lassignardie Patrick Desmarès Global Head of Sales and Marketing Secretary General Global Financial Services Efma Capgemini 5 6 2012 WORLD INSURANCE report CH APTER 1 Costs and Efficiencies Are the Critical Levers of Performance for Non-Life Insurers Today CHAPTER 1 INTRODUCTION Non-life insurers around the globe have been quick to respond to the effects of the global financial and economic crisis witnessed in 2008 and 2009. Many turned their focus in 2010 to the core drivers of underwriting performance, pursuing more cost-effective and efficient ways to acquire business and manage expenses and claims. The reality is that even though premium volumes are rising in some markets, few insurers are in a competitive position to raise rates, few can expect any great contribution from investment income in the near-term at least, and few expect any major decline in claims. Many non-life insurers, and especially those in highly developed markets, also face a difficult task growing the top line, because insurance penetration (premiums as a percentage of GDP) and density (premiums per capita) are high, products are increasingly commoditized, and customers focus heavily on price. As a result, for non-life insurers to achieve sustained performance in coming years, they will need to optimize client-acquisition and retention strategies, become more sophisticated in pricing risk, increase the efficiency of claims management, and undertake transformative initiatives in other key operational areas, such as policy administration (see Chapter 3). These conclusions are based on our study of the non-life segments in thirteen countries: Australia, Belgium, Brazil, Canada, France, Germany, India, Italy, Netherlands, Spain, Switzerland, the U.K., and the U.S. These countries together account for approximately 72%1 of the global non-life insurance market.2 For these countries, we used an Efficiency Model to calculate efficiency ratios (expense and profit metrics against gross written premiums (GWP)) for major players in each market, and to analyze broad industry performance trends by market accordingly.3 1 Based on non-life premium volume for 2010 for the analyzed countries, and data from “World Insurance in 2010,” Swiss Re Sigma Report, 2011 2 See Methodology 3 Since efficiency ratios depend on a variety of external factors, including general economic conditions, government regulation, business type, consumer preferences, etc., it is rarely relevant to compare ratios directly across regions. It is more germane to compare trends over time within regions, and perhaps within business types or insurance segments 7 Figure 1.1 Non-Life Insurance Expenses as a Percentage of GWP in Select Countries (%), 2007-2010 FIGURE 1.1. Non-Life Insurance Expenses as a Percentage of GWP(%), 2007-2010 Underwriting Ratio PP Change 2009-2010 07 61.1 10.7 13.1 85.0 08 69.1 10.9 14.4 94.5 Australia (7.1) 09 77.4 10.6 14.0 102.0 10 70.5 11.3 13.1 94.9 07 62.7 9.4 15.7 87.8 08 62.5 9.0 15.7 87.2 Belgium 0.2 09 65.0 9.7 15.1 89.8 10 64.0 10.3 15.7 90.0 07 64.0 12.6 14.6 91.2 08 65.5 12.5 14.0 91.9 Brazil (2.4) 09 64.5 13.1 16.6 94.3 10 62.1 14.5 15.3 91.9 07 68.0 10.6 16.9 95.4 08 72.4 10.9 16.8 100.2 Canada 0.7 09 74.0 10.6 16.7 101.3 10 73.8 10.9 17.3 102.0 07 70.1 7.9 14.9 92.9 08 70.8 8.2 14.7 93.7 France (0.8) 09 77.6 8.2 15.1 100.9 10 77.0 7.2 15.9 100.1 07 70.8 12.8 10.8 94.4 08 68.2 12.9 11.1 92.2 Germany 4.0 09 67.1 13.3 11.5 91.9 10 70.5 13.2 12.2 95.9 07 87.2 29.1 6.9 123.2 08 88.7 29.0 7.3 125.0 India NA 09 86.8 30.3 6.3 123.3 10 NA 07 69.3 8.4 16.0 93.7 08 73.5 8.4 16.0 98.0 Italy (4.6) 09 79.0 8.6 16.1 103.7 10 74.7 8.4 16.0 99.1 07 86.2 11.9 5.8 103.9 08 85.7 11.0 5.2 101.9 Netherlands (2.8) 09 86.4 9.4 6.2 102.0 10 87.0 6.1 6.1 99.2 07 63.8 6.6 13.3 83.8 08 67.2 8.2 13.3 88.8 Spain (1.6) 09 68.3 8.2 14.0 90.5 10 65.7 8.2 15.0 88.9 07 69.8 9.4 15.0 94.2 08 69.5 9.3 15.3 94.1 Switzerland (1.2) 09 69.5 9.7 16.6 95.9 10 69.0 9.4 16.3 94.7 07 66.3 15.4 16.0 97.7 08 67.8 19.2 17.4 104.4 U.K. (7.2) 09 73.6 18.7 14.8 107.1 10 66.2 18.7 15.0 99.9 07 66.3 18.1 17.1 101.5 08 68.6 20.1 17.5 106.1 U.S. 0.2 09 67.7 19.7 18.2 105.6 10 69.1 18.9 17.9 105.8 0 25 50 75 100 125 Underwriting Ratio (%) Claims Ratio Operational Ratio Acquisition Ratio Note: The ratios are valid only for non-life insurance. The ratios reflect non-life data as reported by the countries themselves, and hence include health insurance for Belgium, India, Italy, Spain, Switzerland, and the Netherlands. At the time of analysis, no 2010 data was available for India, where the financial year ends March 31st. Ratios for prior years may have changed from those previously reported due to the restatement of results by some companies. PP refers to percentage points Source: Capgemini analysis, 2011 8 2012 WORLD INSURANCE report CH APTER 1 E FFICIENCY Model SHOWS CORE Operations – A decline in the claims ratio (total claims and ARE CRITICAL to PERFORMANCE benefits disbursed/GWP) was the primary driver Since profit margins declined in 2008 due to the of better underwriting performance in Italy, Spain, effects of the global financial crisis, non-life insurers and the U.K., as well as in Australia and Brazil, across the globe have been trying to reduce expenses where the acquisition ratio (total commission and across claims, operations, and distribution.