The Financial Crisis-POV for Insurance

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Pulling Away from the Competition in the Market Downturn : 

Pulling Away from the Competition in the Market Downturn October 2008 Accenture Point of View on High-Performing Insurers

Topics : 

2 Topics What’s Accenture Industry Point of View on the Financial Crisis? What Are The Implications For Insurance Companies? How To Address Two Strategic Priorities For Insurance Companies Strategic Cost Reduction Mergers and Acquisitions

Insurers face direct subprime losses from four potential sources ? three from participation in aspects of the mortgage business, one from potential D&O exposure. : 

3 Insurers face direct subprime losses from four potential sources ? three from participation in aspects of the mortgage business, one from potential D&O exposure. Insurance Industry Role in the Sub-prime CrisisAreas and Companies with Potential Exposure Examples of Players with reported losses AIG Various insurers with reported losses between 200m$ and 2b$ Concentrated among few insurers, e.g.: AIG AMBAC MBIA MGIC Concentrated among few insurers, e.g.: Some large specialized commercial insurers Large reinsurers Near Term Loss Impact Areas of Impact/Sources of Loss Mortgage Business, e.g., Holding Subprime Mortgages(Operations-Related) Mortgage Related Debt Securities, e.g., Collateralized Debt Obligations, Securitization Issues, Credit Default Swaps, etc. (Investment/Financial Activities) Mortgage andOther Bond Guarantee Insurers that Insure Mortgage-Related Securities Directors & Officers Insurers That Insure Commercial and Investment Banks That May Get Sued Longer-Term Loss Impact < 1 Year > 1 Year American General Finance (subsidiary of AIG) Total Estimated Industry Losses $160 – $250 Billion (IMF) Source: Accenture analysis as of October 15th 2008

Losses are less important than for banks and more concentrated – 80% of current reported losses are concentrated in 4 US-based insurers. : 

4 Losses are less important than for banks and more concentrated – 80% of current reported losses are concentrated in 4 US-based insurers. Current Impact on Global Insurance Industry from Subprime/Credit CrisisAs of October 15, 2008, $ Billions Sources: Co. annual reports; Co. press releases; Co. quarterly statements; Associated Press Newswire, April 16, 2008; Literature searches; Accenture analysis Insurance Company Subprime-Related Reported Losses ($ Billions) Total: $89.2 billion so far for Insurance (still a gap with IMF evaluation) far less than the $725-820 billion in losses for the Banking industry $50.3 Nil 56% of total reported losses to date 23% of total reported losses to date

There are still insurers exposed to the crisis – those with risky assets as well as other consequences yet to be seen in each region of the world. : 

5 There are still insurers exposed to the crisis – those with risky assets as well as other consequences yet to be seen in each region of the world. Sources: HSBC report, December 2007; Company data; Credit Suisse estimates, Credit Suisse Allstate Report, July 24, 2008; Accenture analysis Note: Risk Assets include subprime holdings, Alt-A and commercial mortgage-backed security holdings. Insurance Companies’ Exposure To Subprime Related Assets by Region US ? Risk Assets As a % of Book ValueAs of 3/31/08 Europe ? Risk Assets As a % of Book Value As of 9/30/07 Book Value$ Billions Book ValueBillions

Topics : 

6 Topics What’s Accenture Industry Point Of View On The Financial Crisis? What Are The Implications For Insurance Companies? How To Address Two Strategic Priorities For Insurance Companies Strategic Cost Reduction Mergers And Acquisitions

These losses and the ripple effect they are creating, have contributed to sharp downward pressure on insurance stocks in the last year. : 

7 These losses and the ripple effect they are creating, have contributed to sharp downward pressure on insurance stocks in the last year. Balance Sheet Related Exposure to capital markets downturns Falling equity markets negatively impacting balance sheet shareholders’ equity funds Bond and other financial exposures to fallen or weakened financial firms Exposure to subprime/commercial mortgage-backed securities related holdings Losses from securities lending programs Income Statement Related Exposure to large losses from credit default swaps Expected deferred acquisition expense write-offs from life insurers with large variable annuity exposures that are tied to equity markets Lower anticipated variable annuity income as underlying assets decline in value Other investment losses on high grade securities from credit crunch Balance Sheet and Income Statement Related Temporary investor aversion in general to financial stocks Insurance Stocks Are Falling For A Wide Range Of Reasons Source: Accenture analysis

Since 2007, subprime problems have blossomed into a full-scale financial crisis that is having a broader impact on insurance companies. : 

8 Since 2007, subprime problems have blossomed into a full-scale financial crisis that is having a broader impact on insurance companies. Growth Related Changing the competitive landscape Accelerating likely M&A activity Crystallizing growth priorities on attractive new geographies Rebalancing product focus especially in the Life business Cost Related Increasing focus of insurers on cost reduction Growing need for insurers to transform their business activities Regulation Related Lowering credit ratings for some insurers Preparing insurers for a tighter regulatory environment Financial Crisis Impact On Insurers Source: Accenture analysis

Each insurer should define its strategic priorities based on its specific context and ambition – the current crisis requires a strategic focus on 5 business imperatives. : 

9 Each insurer should define its strategic priorities based on its specific context and ambition – the current crisis requires a strategic focus on 5 business imperatives. Five Strategic Business Requirements From The Subprime Crisis Source: Accenture analysis

We have analyzed what sort of initiatives high-performing companies have executed in the past to take advantage of market downturns to pull away from the competition. : 

10 We have analyzed what sort of initiatives high-performing companies have executed in the past to take advantage of market downturns to pull away from the competition. What are you doing to improve performance, take market share and change competitive position during this downturn? What changes have you had to make to generate cash flow to get through the downturn? What costs do you need to strategically cut to meet or exceed shareholder expectations? How are you advancing your strategic position (e.g., building differentiating capabilities, shedding or acquiring assets and businesses)? Do you have the right organization in place to get through the downturn and position for future growth? Key Questions Performance Comparison Following the 1990 – 1991 Recession Winners are those that outperformed others in their industry for the six years following the recession of 1990-1991; losers are those that under-performed others in the industry Winners Pull Away After Recession Average ROIC Relative to Industry Winners Losers

Implications for insurers: Accenture’s view of the strategic initiatives and ways to accelerate benefit realization along the 5 business imperatives : 

11 Implications for insurers: Accenture’s view of the strategic initiatives and ways to accelerate benefit realization along the 5 business imperatives Build and deploy a comprehensive and operational Risk Management framework and associated solutions Implement a standard and reliable Finance Management capability What Typical Strategic Initiatives Are Now Required ? Deploy across the organization competitive and proven underwriting practices that maximize underwriting margin Conduct a comprehensive, analytical and pragmatic Strategic Cost Reduction evaluation / Get a commitment to delivery Create significant cost structure advantage through the use of 4 interrelated levers Operating Model Integration across BU and channels Optimized sourcing Sales and Services Optimization Operational Excellence Ensure cost reduction is obtained at speed and will be sustainable How Accenture Can Help ? Insurance Cost Reduction evaluation tool Life Insurance Consolidation Services / IDMF Claims Transformation Services Policy/Billing Transformation Application Outsourcing and BPO Lean Six Sigma / Insurance Process Excellence Cost Reduction / Operational Excellence Underwriting / Liability Risk Management Investment / Financial Risk Management Risk and Regulatory Solution Finance Transformation Underwriting Transformation Services Change the way the organization collaborates to define and bring new products to market Introduce a Product Factory capability to increase the speed for launching of commercial products, while keeping simple processes inside Life Insurance Replatforming Services P&C Product/Policy/Billing Transformation New Organic Growth Imperatives Create an acquisition engine When a major M&A is executed obtain synergies of cost and synergies of revenues in less than 12 months Geographic expansion Services M&A Services Insurance Data Migration Factory (IDMF) Inorganic Growth Priorities

Topics : 

12 Topics What’s Accenture Industry Point Of View On The Financial Crisis? What Are The Implications For Insurance Companies? How To Address Two Strategic Priorities For Insurance Companies Strategic Cost Reduction Mergers And Acquisitions

Strategic Cost Reduction creates a significant cost structure advantage through the use of four interrelated levers. : 

13 Strategic Cost Reduction creates a significant cost structure advantage through the use of four interrelated levers. Operating Model Integration Optimized Sourcing Operational Excellence / Six Sigma Sales and Service Optimization Operating model realigned to support business strategy and reflect leading practices across the value chain. Additionally, this includes optimization across: Organization – consolidate and maximize scale and scope economies Process – rationalize, standardize, and automate processes Technology – integrate technology platforms, enable automation and align with business strategy and execution Procurement – enhanced vendor and supplier management Clearly define activities acceptable for alternate sourcing strategies, and aggressively pursue arrangements which enable advantageous, variable cost structures. BPO – process effectiveness and efficiency through engaging with partners with greater scope, scale and expertise AO – process improvements as well as portfolio rationalization IO – consolidation and rationalization of infrastructure and server environments Implement operational excellence discipline and leverage six sigma methods to build continuous improvement capability and promote a culture consistent with it. Performance management processes and reporting that is metric based and aligned to overall efforts Leverage insight into customer and channel profitability to optimize customer & agent acquisition and service strategies Enhance tools and processes across sales, service, and marketing functions

“Pulling” all levers has an enterprise wide impact on how the company does business, and will help insurers achieve maximum, sustainable cost cutting benefits. : 

14 “Pulling” all levers has an enterprise wide impact on how the company does business, and will help insurers achieve maximum, sustainable cost cutting benefits. Retain BPO Candidate Pursue AO Transaction Optimization Service Optimization Sales Optimization Marketing Optimization 1.3 Sales & Service Delivery Distribution, Cust & Product Strgy & Support Sales & Service Capabilities Distribution Performance Management 1.4 Marketing Brand Health & Equity Management Customer Data Management Customer & Market Insight Customer Experience Management Enterprise Marketing Management Marketing Mix & Optimization Brand 2 Brand 3 … Brand 1 Brand 4 1.1 Channel Integration Exclusive Agents Multi Tie Banks / Bancassurance Affinity Groups Independent Agents & Fin’l Advisors Brokers / Dealers Worksite Wholesalers Direct 1.2 Access Methods Kiosk Web Portal Integrated Voice Response (IVR) Agent Integrated Applications Phone/Fax Mobile / Wireless Collaboration Technologies Branch/In-Person Mail Email 2.5 Product Definition & Maintenance Market Research & Profitability Analysis Product Design Product Definition & Development Rules, Forms, Rates) Impact Analysis & Modeling Filing Management Product Maintenance (Rules, Forms, Rates) Deployment & Monitoring Group Life Group DI Dental LTC LTD/STD Group Annuities Defined Contribution Defined Benefit/Pensions Universal Life Term Life Whole Life VL / VUL/Unit Linked LTC Disability 2.1 Tier 1 Cust Svce Customer & Distributor Administration Forms/Correspondence/Statements General Inquiries 2.2 Cross Capability Actuarial Billing & Payments Liability & Valuation Financial Balancing Regulatory / Compliance/ Complaints Tax Reporting Work/Task Management Enterprise Content Mgmt Fund Mgmt Contract Issue/ Delivery Knowledge Management Reinsurance 3.3 Information Technology 3.9 Procurement 3.2 Audit 3.8 Learning 3.1 Strategic Planning 3.7 Human Resources 3.4 Treasury 3.10 Risk Management 3.6 Legal, Compliance and Reporting 3.5 Finance Fixed Annuity Var Annuity/Unit Linked Mutual Funds Brokerage Products Super- Annuation 3.11 Facilities Management 2.4 Group Protection and Investment Group Proposal & Setup Eligibility/Enrollment Plan/Policy/Account Administration Claims & Benefits Plan/Policy/Account Service New Business Processing Policy/Account Administration Claims & Benefits Policy/Account Service 2.3 Individual Protection and Investment Management Reporting 1. Distribution 2. Service & Manufacturing 3. Enter- prise Cross Value Chain Operating Model Integration Cross Value Chain Operational Excellence / Six Sigma Retain BPO Candidate AO Candidate Sales Optimization Marketing Optimization Service Optimization

Our Strategic Cost Reduction approach delivers results – not simply recommendations. : 

15 Our Strategic Cost Reduction approach delivers results – not simply recommendations. Comprehensive review of your business in business terms: Aligned with your business strategy Informed by our High Performance Insurance Operating Model, tailored to your desired market positioning Considers all key processes in the insurance value chain Backed by comprehensive insight and analytics: Driven from an understanding of key value levers Multi-disciplinary assessment to systematically identify, quantify and pursue cost reduction strategies across the business Comparison with industry peers and leading global performers Drawn from our extensive experience Real benefits that we have helped our clients to deliver Pragmatic outcomes: A design for the future state of the business Benefits targets by function, aligned to the operating model design Bias towards proactive risk identification and mitigation, transition planning and implementation, and discipline to realize the estimated benefits A clear roadmap for transition and implementation A commitment to delivery when involved deeply in execution: We will share responsibility for the benefit targets if we are involved in delivery We can offer commercial shapes to smooth the cost of transformation Our Strategic Cost Reduction Proposition:

Our Strategic Cost Reduction approach is based on principles that are driven from our analysis of high-performing insurers. : 

16 Our Strategic Cost Reduction approach is based on principles that are driven from our analysis of high-performing insurers. Align with business strategy and be pursued across the value chain: Business strategy drives operating model options and design Optimize the value chain - not just functional performance Challenge industry assumptions – look to other industries as well as insurance to inject leading practices Seek to build capability, not just take out cost Take into account the organizational impact of the change: Define “value added” from customer, agent, and regulatory perspectives Understand organizational and external impact and proactively mitigate inherent risks Be disciplined and value based: Use a systematic and disciplined process to identify, evaluate and select opportunities Comprehensively explore cost reduction opportunities; identify broadest potential and strategically pursue Explicitly define benefit case and focus on optimizing return Focus on the entire portfolio of cost reduction opportunities Establish an organizational infrastructure that perpetuates operational excellence and ensures that initiatives are deployed Optimize the cost structure: Change the cost curve where possible – focus on total cost reduction, unit cost reduction and transformation of fixed to variable cost Strategic Cost Reduction Must:

Case #1Strategic Cost Reduction at the occasion of an M&A : 

17 Case #1Strategic Cost Reduction at the occasion of an M&A Sustained double digit growth of Life business Multiple redundant IT core Life and P&C systems in every geography. As an illustration, in France : 3 P&C and 8 Life systems due to a recent acquisitions 21 Life systems from a history of past acquisitions and product launches Cost of maintenance eats up strategic business investment Lack of productivity of Back Offices given the diversity of tools Some acute quality problems for customer services and lack of focus on new business jeopardising future growth Launch of a Global Life operations consolidation program starting in 2 countries, France and Italy Use of Accenture diagnostic tools to analyse portfolio and simulation of the ROI for migration and consolidation on one single existing system vs transfer to BPO Selection of a mix of migration to existing systems and transfer of some portfolio to BPO to obtain the shortest ROI and allows back office to rapidly focus on the fast growing new business Implementation of the Accenture Insurance Data Migration Factory (IDMF) for transferring the P&C and Life insurance contracts and of the Accenture Insurance BPO Center in France Run off of 10 Life portfolios for a total of half a million policies providing a 25 millions € saving for insurance operations cost per year thanks to the industrial approach on IT & management costs in the Insurance BPO center 20 millions € in immediate cost avoidance (one shot IT system consolidation investment) by absorbing some of the migration cost in the BPO fees Transfer of 12 millions P&C and Life policies to target systems, allowing for decommissioning of 15 P&C and Life systems allowing for an annual Maintenance cost reduction of circa 100meuros on 5 years with possible reallocation to strategic business project Business Context HPB Levers Key Results

Case #2Strategic Cost Reduction and creation of an acquisition engine (1/2) : 

18 Case #2Strategic Cost Reduction and creation of an acquisition engine (1/2) A subsidiary in charge of designing and distributing personal life insurance products in a large banking Group A powerful distribution channel, but a distinct, independent and complex organisation with 8,000 branches and 30,000 commercial counselors High volumes (3 millions of customers and 7 millions of contracts) and high growth. Imperative need to support this growth: Services improvement to distributors Significant gain in operational performance IT modernisation and maintenance costs reduction Use of Accenture Strategic & Business Architecture planning for defining the new TOM & IT implementation plan Core system replatforming : Rationalised platform based on ERPs (accounting and core insurance) Maintenance handled by an Accenture onshore Delivery Center for a complete re-engineering of all Life processes leveraging Accenture’s best practices Implementation of a new delegation policy based on an end-to-end approach with highly automated processes BPO for specific portfolios, managed by Accenture Insurance Services Use of the Accenture IDMF to transfer all the existing portfolios (no run off, 10 year old portfolios) of terms products, savings products and annuities Use multi-site IT sourcing to execute the delivery in time and in budget Use of M&A strategic diagnosis for firing the acquisition engine, once the new platform is operational Industrialised Bankinsurance Life business model Effective Bankinsurance Acquisition Engine Transfer non strategic products to Life BPO in order to focus on strategic business (See next page) Business Context HPB Levers Key Results

Case #2Strategic Cost Reduction and creation of an acquisition engine (2/2) : 

19 Case #2Strategic Cost Reduction and creation of an acquisition engine (2/2) Increased productivity : 35,000 contracts per policy handler, workforce reduction in back office of 200 FTE Printing and stamping costs reduction (€10 millions) and maintenance costs reduction (11 FTE) Signature of standard contract in the branch: immediate signature (vs 3 weeks previously) Reduced time to process a standard Life Claims : less than 3 weeks (vs 2 months previously) Commercial dash board sent to distributors one week after month end Reduction of the IT cost/premium ratio to < 0.5% Quality of IT system contributes to a high renewal rate (80%) and a low buyback rate (2.5%) Industrialised Bankinsurance Life Business Model The industrial platform developed by this life company has enabled the banking group to merge successfully with a new and major bankinsurance acquisition, over 16 months Migration of 215 products Migration of a total of 5 millions contracts Extension of the delegation policy to the extended network Roll-out of a new integrated producer desktop Training of 8000 additional counsellors over 1 month Major Cost Synergies Major Revenue synergies Effective Bankinsurance Acquisition Engine Delegated management of large premium contracts (BPO) Small high value portfolios (~ 5000 contracts) Added value through specific services : direct selection of shares on the market Reduction of the cost per policy (by a factor 3) to address the legal evolution of product structure (transfer to managed funds instead of shares), requiring fewer specific services Focus of the internal client Insurance operations on the strategic high volume/high margin products Focus on Strategic Products Key Results

Topics : 

20 Topics What’s Accenture Industry Point Of View On The Financial Crisis? What Are The Implications For Insurance Companies? How To Address Two Strategic Priorities For Insurance Companies Strategic Cost Reduction Mergers And Acquisitions

The starting point to solve the “M&A conundrum” – you have to know that the odds of deal success are poor and there is a learning curve. : 

21 The starting point to solve the “M&A conundrum” – you have to know that the odds of deal success are poor and there is a learning curve. M&A Post-deal Performance(excess performance on stock exchange index) # of deals of each acquirer Source: Accenture analysis on Bloomberg data. M&A activities in US and Europe from 1992 up to 2003 The frequent acquirers tend to outperform.“M&A race” is a business that is better to do as a professional Baseline (Stock Exchange Index = 100%)

Our M&A Practice : 

22 Our M&A Practice Over 400 M&A integration engagements in last five years By type: ~2/3 post-merger; ~1/3 pre-deal / transaction support By client size: Global 1000: ~75% Other: ~25% Working on the largest deals in the world – including the largest transactions in the financial services, wireless, beverage, media/entertainment, gaming and financial services. Lead role in the largest telecommunications A long track record of Engagements Thousands of skilled professionals Broad scope – engaged in all aspects of deals: From strategic due diligence, data room, synergy estimates, pre-deal analysis and M&A strategy up to PMO and Integration Most practitioners have run large program offices or have large scale transformation experience The remainder are deployed to industry groups and bring in-depth industry insight to M&A, due diligence, joint venture, alliance and other corporate-level strategic client issues Dedicated Corporate Strategy Practitioners Recognized Leadership in M&A Ranked #1 in M&A and MI revenues by IDC: "IDC believes that Accenture's M&A services expertise represents one of the best practices in the M&A services segment“

Our success in M&A is based on a Simple Equation. : 

23 Strategy Skills Strategy Execution Capabilities & Assets Business Results for our clients + = Based on deals announced from 1990-March 2006. Includes companies that are traded on NYSE or Nasdaq (including ADRs). Stock Performance relative to S&P 500 Months After Merger Announcement Accenture’ M&A Client Performance versus 50 Largest U.S. M&A Deals through YTD 2006 Accenture Deals Largest Deals Our success in M&A is based on a Simple Equation.

Accenture has supported M&A and integration efforts for Insurance Companies and bankinsurers across the geographies – many current efforts are still confidential. : 

24 Accenture has supported M&A and integration efforts for Insurance Companies and bankinsurers across the geographies – many current efforts are still confidential. Pre-deal face and Due Diligence Post Merge Integration and transformation Major Swedish Bank Major European Bank

Slide 25: 

25 Back up slide for P&C

Our Strategic Cost Reduction approach evaluates all levers that we know would maximize the benefits for the insurance company. : 

26 Our Strategic Cost Reduction approach evaluates all levers that we know would maximize the benefits for the insurance company. Retain BPO Candidate 3.1 Cross Product 3.1.1 Product Definition & Maintenance 3.1.2 Underwriting & Pricing Quote Proposal Clearance & Registration Exposure Concentration Mgt Account Info/ Coordination Facultative Reinsurance Negotiation & Decision Quality & Audit Pricing, Terms & Conditions Risk Qualification & Assessment UW Rules & Guidelines Line Setting Predictive Modeling Appetite Mgt Marketing Segmentation Mgt 3.1.3 Policy Servicing 3.1.4 Claims 4.1 Strategic Planning Underwriting Authority 3. Service & Manufacturing Intake Allocation Claim Administration Adjunct/Support Core Functions Recovery Financials Supply Chain/Vendor Management Rating/Quoting Submission & Issuance Change Policy/ In Force or Mid-term Adjustments Policy Storage & Retrieval Book Roll/Transfer Scheduled Activity/Renewals Cancellations & Reinstatements Market Research, Segmentation & Profitability Analysis Product Design Product Definition & Development (Rules, Forms, Rates) Impact Analysis & Modeling Filing Management Product Maintenance (Rules, Forms, Rates) Deployment & Monitoring 4.2 Audit 4.3 Information Technology 4.4 Treasury 4.5 Finance 4.6 Legal, Compliance and Reporting 4.7 Human Resources 4.8 Learning 4.9 Procurement 4.10 Risk Management 4.11 Facilities Management 1.4 Sales & Service Delivery 1.4.1 Distribution Management 1.4.4 Channel Performance Management 1.3 Marketing Brand Management Customer Data Management Customer & Market Insight Customer Performance Management Enterprise Marketing Management Marketing Mix & Optimization Customer Experience 2 Customer Experience 1 …… 1.1 Distribution Channels Wholesalers/ Aggregators Independent Agents & Financial Advisors Excusive/ Captive Agents Affinity Groups Brokers/Dealers 1.2 Interaction Channels Kiosk Web / Portal Integrated Voice Response (IVR) Agent Desktop Phone/Fax Mobile/Wireless Branch/In-Person Mail Email 1. Distribution Banks/ Bancassurance Direct Channel / Producer Behavior, Insight & Segmentation Distribution Strategy & Organization Incentive Compensation Management Performance Management Train & Support 1.4.3 Sales Prospecting Lead Management Performance Analytics Initiative Planning & Development Agency Lifecycle Management 1.4.2 Sales & Service Management Sales Planning & Forecasting Sales Process Management Pipeline Management Territory Management Service Delivery Management Opportunity Management Promotion Execution Channel Governance Interaction Planning & Execution Contact & Account Management Agent Experience 2 Agent Experience 1 …… Loyalty Management Customer Experience Management 4. Enter- prise Cross Value Chain Operating Model Integration Cross Value Chain Operational Excellence / Six Sigma Pursue AO Transaction Optimization Service Optimization Sales Optimization Marketing Optimization S.E.M.C.I Market Segmentation & Positioning Knowledge Management Billing and Collections Work/Task Management Enterprise Content Management Product Bundling Fulfillment Data Gathering & Distribution 2. Hub 3.1 Cross Capability Actuarial Report Ordering & Management Data Capture Loss Control/ Premium Audit Treaty Reinsurance Coinsurance

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