Insurance in Central Europe

ON THE PATH TOWARDS FULL AUTOMATION OF THE BACK OFFICE

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CONTENT

PREFACE

EXECUTIVE SUMMARY

CHAPTER I – INTRODUCTION: OBJECTIVE, INSIGHT SOURCES AND FRAMEWORK OF ANALYSIS

CHAPTER II – DIGITALIZATION AND THE BACK OFFICE: THE MEANS OF SURVIVAL AND DIFFERENTIATION

CHAPTER III – THE APPROACH TO DIGITALIZATION: FIRST DEFINE THE GOAL AND THEN SET THE PRIORITIES

CHAPTER IV – CURRENT STATUS: STEP-BY-STEP DIGITALIZATION OF FIELD PROCESSES AND PARTIAL DIGITALIZATION OF BACK OFFICE PROCESSING

CHAPTER V – TARGET PICTURE: FIELD PROCESSES ARE HIGHLY DIGITAL AND THE BACK OFFICE PROCESSING IS AUTOMATED AND PAPERLESS

SUMMARY AND RECOMMENDATIONS

METHODOLOGY AND SCOPE OF THE STUDY

ABOUT US

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PREFACE

Frigyes Schannen

Managing Partner

CEE Financial Services

Roland Berger

Vincent Bastid

Secretary General

Efma

The expectations of consumers have increased as a result of tech-native companies, which define

the new digital standard for other industries as well. Unsurprisingly, insurance companies also need

to join and shape the trend of digitalization in order to maintain their business. Digitalization can

come in many different forms such as social network based sales, behavior based targeting or use of

connected devices. To realize any of these, significant adaptions have to happen in the back office.

It is important to see, that most of these developments in the back office can be extremely time and

capital consuming. Therefore, a comprehensive strategy is required with clearly defined priorities.

This year Roland Berger and Efma conducted a holistic study to capture the status and ambition

level of insurers in back office digitalization. More specifically, the aim of this study is to assess the

current status of back office digitalization, identify the target picture of Central European insurers

and provide a set of KPIs that could serve as a reference point along the digitalization path. Our

envisioned aim is to provide you with an ideal roadmap.

In this booklet, we summarized the key findings of our assessment supported by the consolidated

view of the insurance industry in Central Europe. The report contains insights on the approach

insurance companies are pursuing, in order to adapt to the disruptive force of digitalization. It is

structured into six chapters:

I. Introduction: Objective, insight sources and framework of analysis

II. Defining digitalization for the back office: The means of survival and differentiation

III. The approach to digitalization: First define the goal and then set the priorities

IV. Current status: Step-by-step digitalization of field processes and partial digitalization of back

office processing

V. Target picture: Field processes are highly digital and the back office processing is automated

and paperless

VI. Summary and outlook

In order to get a crisp picture, we have carried out interviews with the executives (CEOs, Board

Members, mainly COOs) of leading insurers in the Central European region. The insights gathered

during these interviews have been combined with the knowledge from our primary research on

regional customer insights, which we have collected by interviewing about 1,700 consumers.

We are convinced this report and the insights will support you in developing, refining and

challenging your approach to digitalization overall, but especially your attitude towards digitalization

of the back office.

Yours faithfully,

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EXECUTIVE SUMMARY

Digitalization of consumer behavior is driven by tech-native companies.

Improving the operating efficiency and the client experience are two main motivators of digitalization.

CUSTOMER EXPECTATIONS ARE INCREASING

Tech-native companies are setting the pace for the digitalization of consumer behavior

by providing never before seen options to consumers and cherishing them with all the

benefits of ICT developments. As a result, consumers expect the same service level

from other companies as well, even from the ones in completely different industries.

Consumers demand omni-channel access to their products/services. This results in

a headache for many industries. The integration of online and offline channels into

one system, providing the same experience at any time, is by itself a difficult task.

New generations are demanding more and more online channels, while the older

generations are staying either with the well-known brick-and-mortar channels or they

are going hybrid! Hybrid clients are the ones switching between the online and offline

channels along their customer journey. A generational shift is on the horizon, which

will boost the online sales of insurance products. The emergence of generations Y and

Z is irreversible and due to their digital nativity they have higher digital expectations

towards insurers, than the current clients.

Compared to these client expectations, insurers are lagging behind in many areas.

As an example, an average client in Central Europe expects to spend 12 minutes to

purchase an MTPL and to fill-in seven data points. Most of the insurers cannot match

this expectation and ask the consumers to spend double, sometimes triple this time

and effort. Some insurers have already reacted to this question and offer fast quoting

tools. These tools drastically reduce the time and effort needed from the consumers by

the integration of external databases.

BACK OFFICE IS A KEY ENABLER IN MATCHING THE DIGITAL

EXPECTATIONS OF CLIENTS

The aforementioned trends create a challenging cocktail for insurers. Adding new

capabilities to match the digital requirements of the consumers will necessitate large

changes in the back office with significant capital investments and time required.

Therefore, the back office will be the key enabler in this and the digitalization of

back office processes is essential for insurers to survive and differentiate themselves.

This digital transformation requires a comprehensive approach with a clearly defined

purpose and priorities.

APPROACH OF INSURERS TO DIGITALIZATION AND SETTING

THE PRIORITIES

Insurers define digitalization as the integration and usage of information technology

with the aim to (63%) improve operating efficiency, (37%) lift the client experience,

(21%) strengthen data management capabilities and (11%) to tap on new

opportunities, in order to reach a competitive advantage.

The approach of insurers largely differs. Only 58% of insurers capture digitalization in

a separate strategy document or handle it as a strategic priority. 21% of insurers have

a comprehensive approach to digitalization with an appointed Chief Digital Officer as

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Back office processes are digitally underdeveloped and leave large room for improvement.

EXECUTIVE SUMMARY

the sole owner at senior management level. Additionally, 37% of insurers handle this

topic with strategic importance, mostly captured within their business (60%), IT (30%)

or operations strategy (10%).

Insurers define their priorities with the aim to improve the skills which ensure them

a competitive advantage. The majority of insurers aim to shorten the servicing time,

improve the service quality and reach lower cost positions. In terms of the processes,

insurers see a significant digitalization potential in claims, document management and

policy management. More importantly, many insurers have ongoing/planned projects

in these fields. Furthermore, there are interesting patterns in the priority setting of

insurers according to their size and focus.

BACK OFFICE PROCESS ARE DIGITALLY UNDERDEVELOPED

We have split the back office processes into two parts, the field processes and the

processes within the back office. Both segments are underdeveloped and show

significant improvement potential. Underwriting, policy management and claims field

processes are unevenly digitalized. Underwriting was clearly more in focus of insurers,

given the higher level of digitalization compared to the other two processes.

The underwriting field process is mostly supported by the front end system across

all steps. However, a new tool is on the rise – online and offline quoting. These tools

have a much shorter time to market and require less effort to develop. Therefore,

an increasing number of insurers are using them. On the other hand, paper based

processes are still in place. A large share of this is driven by external channels as they

often hesitate to connect to the system of the insurers.

Field processes of policy management are paper based at most of the insurance

companies. This part of the business was less in focus of insurers and there are major

improvement areas. Online forms and self-service portals are not in place at many

insurance companies – i.e. leaving their customers only the option to communicate

with their insurer using paper. In some institutions the call center is taking the lead

in receiving these notification calls from the clients and directly recoding them in the

front end.

Claims field processes are somewhat more digitalized than policy management. Still,

it leaves a major improvement area for most of the insurers. This means, processes are

mostly paper based without an integral support of a mobile claim front end system.

The actual processing of cases within the back office is developed at a medium level.

We have assessed the performance of insurers along the degree of paperless, level

of automation and process dependence. Only 52% of insurers have a paperless back

office – they are mostly large insurers. STP (Straight-Through-Processing) rates vary

between the processes. The highest rates are in underwriting and the lowest rates are

in claims. In general, large insurers have higher STP rates. In process dependencies, it

is especially the life insurers who are limiting the potential speed of digital solutions, in

order to filter out fraudulent cases.

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By 2018, back office processes will become increasingly paperless, more automated and significantly faster.

EXECUTIVE SUMMARY

LARGE AMBITIONS BY 2018

Insurers have large ambitions to digitalize the processes in the field and within the

back office. Field processes will undergo a major improvement for underwriting, policy

management and claims as well. Though, some commonalities are foreseeable.

Starting with the client data collection and form fill-out, front end and different

online tools will take the lead in enabling the customers and intermediaries a digital

communication with the insurers. In client signature collection, two directional

developments will take place. One is the massive deployment of digital signature

solutions, e.g. biometric signatures. The other one is the avoidance of requiring the

client signature. This will be driven by legal simplification of products and processes

all together. In digitalization of underlying documents, the on-spot digitalization

capabilities will be deployed. This will enable the intermediaries and the claim adjuster

seamless digitalization of all documents as an integral part of the client servicing

process. The majority of data and documents will be sent to the back office only in

a digital format, while the papers necessary for archiving will follow an independent

path.

Processing of cases within the back office will also significantly improve in terms

of automation, paperless and turnaround time. The standard level in automation

will be 65-85%. Still, claims will be the least automated area. In terms of paperless

processing, insurers plan to reach 70-80% across all cases. This will especially be an

area of improvement for the small insurers. Faster response time will be crucial in the

upcoming years. Therefore, insurers set ambitious turnaround targets of 1.5-5 days

depending on the complexity of the cases.

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METHODOLOGY AND SCOPE OF THE STUDY

METHODOLOGY

Roland Berger has conducted representative interviews among top managers of major

CE insurers with Efma’s continuous support, which built the backbone of this study

on the digitalization of insurer’s processes and general back office activities. The main

objective was to provide regional insight on what areas executives see as most crucial

in the process of digitalization.

Through our interviews we have gathered information on the added value/motivation

of digitalization, current status and ambition level for digitalization of back office

activities. We have received insights into what obstacles lay ahead and how the views

of different types of insurers deviate from one another. This clustering of insurers has

been conducted using our detailed insurance market KPI benchmark database. Using

this compilation of both qualitative and quantitative information we were then able to

develop guiding principles of successful back office digitalization.

Our executive interviews were conducted with the cooperation of around 30 market

leading insurance companies. The study covers seven counties, namely Bulgaria,

Croatia, Czech Republic, Hungary, Poland, Romania and Slovakia.

Figure 21. Country scope of interviews

In order to unveil the expectations of the customers in the digital age, we have also

conducted market research including a survey with over 1,700 respondents and

60 mystery shopping in five countries. This way we determined the behavior and

expectations of clients and evaluated the performance of insurers.

Efma provided continuous support during the entire report writing process. They

played a crucial role as facilitator in organizing interviews, providing contacts and

often acting as an intermediator between Roland Berger and the insurers.

METHODOLOGY AND SCOPE OF THE STUDY

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ABOUT US

Efma

Efma, a global non-profit organisation, established in 1971 by banks and insurance

companies, facilitates networking between business decision-makers. It provides

quality insights to help banks and insurance companies make the right decisions

to drive their digital transformation. Over 3,300 brands in 130 countries are Efma

members.

With a membership base consisting of almost a third of all large retail banks

worldwide, Efma has proven to be a valuable resource for the global industry,

offering members exclusive access to a multitude of resources, databases, studies,

articles, news feeds and publications. Efma also provides numerous

networking opportunities through working groups, webinars and international

meetings. True to its vocation, Efma has recently developed an Innovation

portal which aims to identify and award the most innovative projects in the retail

financial services arena.

For more information: www.efma.com

Roland Berger

Roland Berger, founded in 1967, is one of the world’s leading strategy consultancies.

With 50 offices in 36 countries, the company has successful operations in all major

international markets. The strategy consultancy is an independent partnership

exclusively owned by about 220 partners. Roland Berger has also made a name

for itself beyond the standard consulting business, establishing itself in the field of

research and development. Numerous studies on current business and management

issues bear the company’s logo.

The Roland Berger Academic Network, an association established in 1998 and

comprising various universities, puts the company at the core of a continuous

exchange of theoretical and practical knowledge. In addition, Roland Berger sponsors,

chairs at several universities and publishes the „Roland Berger Academic Network”

and the „Papers on European Management” series

Visit www.rolandberger.com

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Many thanks to the following persons for collaborating in the

production of this study:

Roland Berger Partners, Principals, Project Managers and Consultants who helped

collect the data with the participating companies: Frigyes Schannen, Codrut Pascu,

Alina Florean, Ákos Újlaki, Michal Carny, Balázs Zoletnik and Christian Nobl.

Furthermore, we would like to thank Vincent Bastid, Lukas Dzuroska, Lubomir

Olach and Patrik Rumbach, our partners within Efma for providing insights, industry

expertise and overall guidance.

Roland Berger Financial Services team for analyzing the data and writing the study:

Ákos Újlaki, Balázs Zoletnik, Dávid Soós and Christian Nobl.

© Roland Berger, Efma2016, all rights reservedwww.rolandberger.comwww.efma.com