P&C Insurance Middleware

This presentation contains proprietary and confidential information. Unlawful to copy or reproduce in any manner

without express written consent.

Gregg Barrett Draft - Q2, 2012

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

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.

Objective

Middleware platform utilising smart form technology

to provide straight-through-processing for the P&C

insurance industry.

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)

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

System Foundation

- IBM Insurance Application Architecture (IAA)

- ACORD

- Service Orientated Architecture (SOA)

System Technology

- InfoPath

- SQL

- Sagent

- Portrait

System Overview

- Party

- Policy

- Claims

- Structure in MS SQL Server

- Sagent

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.

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.

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.

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.

STAGING SYSTEM STRUCTURE IN MS SQL SERVER

CaseOrder

CaseOrder_SK

sCaseOrderId

sProcessMessageCode

sTransactionMessageCode

sOriginatorCode

sUserName

sFileAttachmentId

sFileAttachmentName

sFileAttachmentCode

sFileAttachmentURI

Claim

CaseOrder_SK

Claim_SK

sClaimId

sPolicyIdRef

sAddressIdRef

sInsurerClaimNumber

sProducerClaimNumber

sCurrencyCode

sClaimNarrative

sLossCauseClassCode

dLossDate

dDiscoveredDate

cClaimIncurredAmount

cClaimGroundUpAmount

Party

CaseOrder_SK

Party_SK

sPartyId

sFileAs

sVatRegistrationNumber

bVatableIndicator

Policy

CaseOrder_SK

Policy_SK

sPolicyId

sPolicyNumber

sPolicyVersion

sPreviousPolicyNumber

sLOBCode

sPolicyStatusCode

sProcessCode

sReasonDescription

sLanguageCode

sCurrencyCode

fVatRate

sPaymentMethodCode

sBillingMethodCode

sContractFrequencyCode

sPaymentFrequencyCode

dOriginalStartDate

dInsurancePeriodStartDate

dInsurancePeriodExpiryDate

dReviewDate

dSignedOn

sSignedAt

sSignedBy

1 - Case or Order to process

new or changed or cancelled

Party and/or Policy and/or

Claim

CaseOrder

CaseOrder_SK

sCaseOrderId

sProcessMessageCode

sTransactionMessageCode

sOriginatorCode

sUserName

sFileAttachmentId

sFileAttachmentName

sFileAttachmentCode

sFileAttachmentURI

Policy

CaseOrder_SK

Policy_SK

sPolicyId

sPolicyNumber

sPolicyVersion

sPreviousPolicyNumber

sLOBCode

sPolicyStatusCode

sProcessCode

sReasonDescription

sLanguageCode

sCurrencyCode

fVatRate

sPaymentMethodCode

sBillingMethodCode

sContractFrequencyCode

sPaymentFrequencyCode

dOriginalStartDate

dInsurancePeriodStartDate

dInsurancePeriodExpiryDate

dReviewDate

dSignedOn

sSignedAt

sSignedBy

Party

CaseOrder_SK

Party_SK

sPartyId

sFileAs

sVatRegistrationNumber

bVatableIndicator

PolicyPlacement

Policy_SK

PolicyPlacement_SK

sPolicyPlacementId

Insurer

PolicyPlacement_SK

Insurer_SK

sInsurerId

sPartyIdRef

sFileAs

sInsurerCode

sInsurerProductCode

sInsurerProductDescription

sInsurerPolicyNumber

sInsurerAgencyNumber

sInsurerGroupId

fPlacementPercent

bLeadIndicator

Producer

PolicyPlacement_SK

Producer_SK

sProducerId

sPartyIdRef

sFileAs

sProducerProductCode

sProducerProductDescription

sProducerPolicyNumber

sProducerRole

sCommissionLevel1

fCommissionLevel1Percent

sCommissionLevel2

fCommissionLevel2Percent

sCommissionLevel3

fCommissionLevel3Percent

sCommissionLevel4

fCommissionLevel4Percent

sCommissionLevel5

fCommissionLevel5Percent

sCommissionLevel6

fCommissionLevel6Percent

2 - Insurer, Reinsurer and Producer referencing Party

Reinsurer

PolicyPlacement_SK

Reinsurer_SK

sReinsurerId

sPartyIdRef

sFileAs

sReinsurerCode

sReinsurerAgencyNumber

SAGENT PLAN TO MOVE DATA FROM XML FILE TO STAGING SYSTEM IN MS SQL SERVER

SAGENT PLAN TO CALCULATE MOTOR PREMIUM FROM DATA IN STAGING SYSTEM

Areas of Focus

- Complete definition of broker, insurer and uma roles

- Smart form performance

- Accommodating the rules

- Data warehouse

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

Example of a Middleware Framework

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.)

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.

Going Forward

Step 1: Complete the middleware solution

Step 2: On-board industry participants

Step 3: Revenue generation from

Reporting/Analytics/Business Intelligence

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.

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

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

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

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.

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

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)

Summary

• The business problem is well understood

• The technology exists

• The standards exist

What remains is to deploy the solution.

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