the magazine - synpulse · segments but also explains how to handle the residual busi- ness, in...

synpulse Rubrik | 1

The MagazineManagement know-how for practical use

1 | 2017 int‘l

Blockchain — Hype or Reality?

Next Generation Private Banking: Riding the Consolidation Wave in Asia

Is Financial Advisory in Insurance a Dying Career?

synpulse | 3

«The best way to predict the future is to invent it.» Alan Kay

4 | Rubrik synpulse synpulse

Editorial ................................................................................................................................................................................ 4

Operational Excellence Next Generation Private Banking: Riding the Consolidation Wave in Asia .............................................................. 6

Sales and Customer Management Is Financial Advisory in Insurance a Dying Career? ...................................................................................................... 10

Operational Excellence Customer Analytics: Are you Turning Data into Shareholder Value? ........................................................................... 15

From Outside In Interview with John Noel Victorino: «Aiducation taught us to live a principled life.» ............................................................................................................ 20

Digital Transformation Hybrid Customer Behaviour — A Challenge for Silo Organizations ............................................................................ 24

Operational Excellence The UK Wealth Management Industry Weighs Up Next-Generation Operating Models ....................................... 28

Digital Transformation Blockchain — Hype or Reality? ......................................................................................................................................... 32

Sales and Customer Management Customer Insights ............................................................................................................................................................... 37

Digital Transformation The Digital Reinsurer — Real World Implications of a Visionary Concept ................................................................ 41

Masthead .............................................................................................................................................................................. 46

Table of contents | 5

When I first met John Noel Victorino, his vibrant personality and caring heart impressed me. Through his ingenuity and knowledge, he assisted in developing a unique crowd-sourced application which helps manage natural disasters in the Philippines. We are pleased that Aiducation supported the development of fine talents who combine the latest mobile technology with social intelligence to make a true impact for society.

Since early 2014, Synpulse has supported Aiducation with scholarships and in-house training to benefit people at various locations. In December 2015, we conducted a one-week academy with 50 scholarship holders near Manila. It was a special experience for me to see how our mentors were inspired, enriched and touched by their experience in giving back. I am delighted that Synpulse employees are actively engaged in supporting such key initiatives, as they engage in micro-level developments.

On the macro-level, Industry-wide Technological developments continue to impact the Insurance industry. In this issue, we reflect on how insurance companies are affected by changing customer needs and behaviors. Because of diverse information channels and communication preferences, every customer journey can be considered unique. Despite the internet providing an ocean of information, even the most internet-savvy customers might still prefer to speak with a qualified advisor in person. The variety of customer needs and behavioral patterns are influencing insurance companies to reevaluate their options and strategies. We talk about possible digital solutions on page 24.

Even the world of the traditional reinsurer has been touched by the technological revolution. On page 41, we share our insights on fully digital and cost-optimized reinsurers becoming the new reality. In the article, we review the technologies that will enable such a transformation to occur.

Digital revolution for the banking world is equally vibrant. Blockchain, the latest but perhaps the most impactful change is gaining traction and viability. With this technology, banks can reduce fraud risk, enable better compliance and ensure faster transaction finalization. The architecture behind the cryptocurrency Bitcoin opens the doors to completely new business opportunities due to its speed, security and cryptographic verification. While innovative solutions are already developed, but most of them are still in the pilot stage.

In 2017, digital transformation will carry on having an increasing impact on our everyday lives as well as on the banking and insurance fields. In the face of radical market changes and increased customer demands we will all be pushed to develop, innovate and hopefully transform.

I wish you an informative and inspiring reading.

Your Christoph Nützenadel

Edito

rial

synpulse synpulse Operational Excellence | 7 6 | Operational Excellence

Next Generation Private Banking: Riding the Consolidation Wave in Asia

Recent challenges faced by Asian private banks have triggered a wave of consolidation. Increased regulations, process industrialization, new service models and altered client behavior are modifying the strategic approach. External growth strategies like Merger & Acquisition (M&A) are retaining profitability; defined operating models offer a real competitive advantage. Authors: Yves Roesti | Salomon Wettstein

The private banking industry in Asia is experiencing a period of increase in M&A activity. Industry players are pursuing ei-ther a merger or an acquisition as a way to achieve inorganic growth, resulting in a wave of consolidation in the regional market ( 1). Recent deals in Asia have revealed more signif-icant factors contributing to this trend. Whilst more aggres-sive market expansion strategies have been deployed by lo-cal banks, many international banks are struggling to reach a size large enough to operate at the optimal cost/return pro-file. «You will need to have about USD 30-35 billion of Assets under Management (AuM) to run a viable private banking business in Asia» according to the regional head of a major wealth manager.

Despite the encouraging growth in Asia, the market is also facing different challenges, including changing client behav-ior, higher operational costs caused by inefficiencies, emer-gence of new service models and communication channels and increasing regulations. These interlinked events are confronting players with thin profit margins, increased com-

petition and fee pressures. Combined, these factors not only induce a rise in operational costs, but also hamper organic growth. Consequently, banks in Asia are being forced to re-vise their operating models and consider M&A as a potential growth strategy.

Integration brings clear benefits for merged banks, including the opportunity to develop new lines of business, achieving a stronger market position by client book acquisitions, and lowering operational costs through synergies, diversifica-tion, and scalability. The ongoing wave of consolidation is set to intensify as banks in Asia will continue to pursue M&As in an attempt to increase profitability by achieving economies of scale and service differentiation through unconventional strategies. The above discussion raises the following ques-tion: which path — either business process outsourcing or consolidation — is the best option for banks operating in APAC?

High expectations for the M&A dealGaining scale is a priority for most minor banks operating in the region. By contrast, the best strategy for bigger banks consists in streamlining operations and creating a competi-tive edge by lowering average costs and delivering improved services. Still, given the difficulty in achieving organic growth, major regional players are opting for consolidation in order to increase AuM. Sizable banks can also adopt a mixed strategy as a way to circumvent stagnant growth while

increasing margins. Industry experts agree that consolida-tion is mainly driven by:

Accessing new markets

Strengthening their presence in an existing market

Creating cross-selling opportunities with new clients

1: Major M&A deals in APAC Private Banking since 2009

2009

2016

20112012

20142015

The Bank: ING Asia Private Bank Limited

Acquirer:OCBC Bank

Transaction Price (in USD): USD 1,463 million

Price/AUM Ratio (in %):9.3%

The Bank: BSI Ltd

Acquirer:EFG International Transaction Price (in USD): USD 1,330 million


The Bank: Barclays Bank

Acquirer:OCBC Bank

Transaction Price (in USD): USD 320 million (estimate)


The Bank: Bank of China (Thai) Bank of China (Malaysia) Berhad

Acquirer:Bank of China (Hong Kong)

Transaction Price (in USD): a-USD 424.5 millionb-USD 506.5 million


The Bank: ANZ Banking Group Limited

Acquirer:DBS Bank Ltd (DBS)

Transaction Price (in USD): Book value + USD 79.1 Million

Price/AUM Ratio (in %):N/A

The Bank: Macquarie Group Ltd

Acquirer:Julius Baer Group Ltd

Transaction Price (in USD): Undisclosed

Price/AUM Ratio (in %):Undisclosed

The Bank: Merrill Lynch International Wealth Management

Acquirer:Julius Baer Group Ltd

Transaction Price (in USD): USD 907 million (estimate)


The Bank: Société Générale

Acquirer:DBS Bank Ltd (DBS)

Transaction Price (in USD): USD 220 million


The Bank: Coutts International

Acquirer:Union Bancaire Privée (UBP)

Transaction Price (in USD): Undisclosed

Price/AUM Ratio (in %):Undisclosed

Source: Synpulse


2: TOM Target State – 3rd Generation Operating Model

Source: Synpulse

Markets Segments Products Channels Org structure Processes IT Infrastructure Applications

As-Is

Econ

omie

s of s

cale

Industrialization degree

TOM options Recommended path

Guiding Principles

Value proposition Customer segments Product & offerings Channels Countries Jurisdictions Market Trends/Opportunities

StrategicLevers

1 Partnership & Sourcing

Organization & Processes

Products & Services

Technologies & Architecture

2

3

4

TOM

Strategy enabler Business case benefits Customer experience Economies of scale Harmonized processes Productivity increase Wider product offering RTB & CTB reduction Predictable IT costs

Local Integration

Regional Integration

Global Integration

3rd Gen OM(BPO)

As-Is

IndustrializedIntegration

TOM Dimensions

Growing their AuM / profitability ratios

Adopting the counterparty’s IT systems / expertise in a certain product

Outcomes achieved from the M&A deal included increasing and strengthening market share and assets under management; lowering costs to achieve economies of scale; developing

a new branding, marketing strategy; and enhancing the product offering.

Complexity of integrationM&A integrations are highly complex. Issues such as the alignment of different governance structures, dissimilar cor-porate cultures, overlapping functions and simultaneous presence across markets are common and pose a threat to achieving the expected goals if not handled appropriately. Lack of quality in project execution, under-utilized potential synergies and the changing market landscape are often cited as the three main reasons behind the lack of success. Banks need to ensure that these issues are overcome by following a

structured integration strategy which guarantees a better market position for the consolidated entity after the deal has finalized. An effective consolidation strategy varies awith the deal characteristics and comprises both hard (e.g. process-es, IT architecture, infrastructure) and soft factors (e.g. cul-ture, positioning, human resources). A successful M&A inte-gration strategy needs to address all of these factors.

One of the biggest challenges during the M&A phase was to align the two banks’ operational cultures. In particular when the most critical

team is the front office staff.

Target Operating Model (TOM) definitionDefining the right TOM is key for a successful post-merger in-tegration (PMI). The TOM defines the optimal future business architecture required to achieve the expected M&A targets once the two parties have been merged. This includes look-ing at changes to the product offering, the organizational transition under the new merged entity and the IT migration. Besides its operational scope, a post-merger operational ar-chitecture should always strive towards an industrialized

Yves RoestiManaging Director & Partner (Synpulse Singapore)[email protected]

Salomon WettsteinManaging Director & Associate Partner (Synpulse Hong Kong)[email protected]

Authors

business model, one that not only deals with new business segments but also explains how to handle the residual busi-ness, in other words clients which do not transfer to the new entity (either by choice or rejection by the buyer). Experience shows that a TOM should include the following dimensions in order to achieve cost and time efficiencies: organization & processes, products & services, technologies & architecture, and partnership & sourcing.

A more structured approach and better methodology could have been used for the

M&A Target Operating Model.

A best practice approach is used to define the TOM blueprint across all four dimensions. This approach draws on both sets of industry best practices and inputs from the two banks in-volved in the M&A deal, providing the guiding principles for achieving location-agnostic harmonized processes, prod-ucts/service offerings supported by a globally-aligned orga-nization structure and a homogenous system architecture.

Implementing a Third Generation Operating ModelBringing an additional partner into an M&A integration (i.e. in-house or external BPO provider) may add complexity to the integration, but also offers industry best practice in terms of operational excellence. Significant benefits can be gained from implementing a third generation operating model with a global BPO network connecting centers of op-erational excellence. Each center is thereby fully scalable,

leveraging a high degree of automation. Such a model pro-vides a great solution for merged banks to achieve the pro-jected benefits of the deal by substantially reducing opera-tional costs and by increasing service differentiation through unlocking resources to focus on value-creating activities. By making use of connected BPO centers operating through a global processing network, banks are able to offer a com-plete product suite at any location and at fully predictable costs, which is particularly relevant for banks with a global presence ( 2).

For the integration, a BPO model was chosen to run with an extremely lean operating model.

The focus was always on staff adopting a standardized procedure.

If successfully implemented, a third generation operating model promises to reduce operating costs by up to 30%. A very enticing alternative for those banks already assigning sizable resources to operations and for those who cannot af-ford upfront investments to enter new markets or want to avoid high M&A integration costs. These banks benefit fur-ther from maximized front office effectiveness from day one of the M&A integration. This is due to the fact that, for many banks, an existing state-of-the-art IT platform can be lever-aged and that the front office staff are supported by highly professional back office service centers (BPO centers) ensur-ing efficient error-free processes, granular monitoring capa-bilities, and extended product offerings across locations.

synpulse synpulse Sales and Customer Management | 11 10 | Sales and Customer Management

Is Financial Advisory in Insurance a Dying Career?

A recent Synpulse white paper discussing the financial advisory process for insurance in Hong Kong and Singapore, highlighted the inconsistency in advisory experience due to diversity in competency, experience and diligence of the advisors. One of the reasons attributed to the observation was the high attrition rate amongst advisors and the recruitment overdrive to cope. Authors: Clarie Kwa | Daniel Tham

Following the release of the white paper, Synpulse encoun-tered several discussions surrounding the recruitment and retention of financial advisor representatives (FA reps). The key question put forth was — how can the industry and/or insurer attract promising FA reps and retain them?

The question assumes that FA reps remain relevant, even in the world of digital distribution. In a focus group survey Four Lessons from Customers on Advisory1, Synpulse found that half the participants preferred to have an advisor to guide them even if self-education tools were available. Females expressed a stronger inclination for advisory than males. Nonetheless, the fact that half the group did not think an advisor would be necessary means that the role of the advi-sor needs to keep pace with developments.

This question is critical. Generally, the industry experiences difficulties recruiting suitable FA reps. Organic growth takes years and requires a sound grooming structure, with a good

dose of luck to attract the ‘right’ saplings and retain them after they have been trained. To beat the odds, recruitment is ramped up, but is not aligned well enough with scalable and systematic training to produce consistent quality among the FA reps. Considering the uncertainty of the returns from or-ganic growth, some principals turn to industry hires instead. Such a strategy does not usually end well, as incumbents wage public wars over the poaching of FA reps and potential churning, which in turn affects customers adversely. Acquir-ers also tend to underestimate the cost of buyout packages.

Why is it difficult to recruit promising FA reps and retain them?To come up with a sustainable solution, Synpulse sought out to uncover the root cause(s) of the recruitment and retention difficulties.

The insurance industry is poorly understood, has not been known for being innovative and has a poor reputation: Public

1 Article can be downloaded from our website at http://tinyurl.com/FourLessonsCustomersAdvisory 1: Role of FA rep is incompatible with current regulatory landscape, career aspirations of the new generation and even market & technology

(r)evolution. Reshaping the advisory model is needed to stay relevant.

awareness of the industry is frequently linked to its front-line distributors, perceived as low-entry careers, associated with a pushy sales culture and the occasional but sensational news of rogue sales. Insurance as a discipline is barely repre-sented in universities at the undergraduate level in Singa-pore and Hong Kong. Actuarial science is not well marketed and drop-out rates are high. Well-educated individuals from the millennia generation look for exciting and innovative companies to join. It is indeed rare for graduating students to aspire to work in the insurance industry and many «stumble» into it. Those who embark on the career of an FA rep fre-quently find themselves having to cope with social stigma and even opposition from their families.

The profession is subject to increasingly stringent regulations. The job also comes with personal liability, a risk which many may be unwilling to bear: To raise the quality of FA reps, Mon-etary Authority of Singapore (MAS) has significantly raised the bar for their licensing requirements. In terms of education, tertiary graduates would find it easier to clear the licensing

hurdle — which is ironic given the unpopularity and stigma described earlier. Regulations have also gone as far as to pro-tect the end consumers by making FA reps personally liable for damages. New entrant FA reps do not understand the reper-cussions completely until they start to be active in sales.

FA reps do not necessarily start on the right footing, affecting income and job satisfaction: While it can be argued that any job would have its fair share of downsides, the job of an FA rep can be exceptionally draining. Most FA reps operate fully on commission. In the absence of mentoring, new recruits often grapple with self-employment. Most would be in a hurry to break the first egg, neglecting the basics in terms of habits and routines to sustain a career. Agency culture con-tributes to the neglect too. Some agencies believe in getting their new recruits without an established clientele to get leads from traditional methods of prospecting, such as street canvassing, road shows, and cold calls. These methods de-mand long hours and emotional resilience from the FA reps. Poorly designed advisory journeys also compel FA reps to

...revitalised through a new advisory modelA dying career...

Focus on dispensing quality andunbiased advice, aided by intelligent

profiling tools

Perceived to be credible, competentand well-equipped

Being rewarded entirely on commissions creates pushy sales culture

Long and effortful hours spent on prospecting for new client leads

Focus on growing advisor numbers to reach out to a bigger clientele

Excessive paperwork and follow-up required, incurring time on low value touchpoints

Social stigma and industry generally perceived to be old-fashioned

Downsized but expert and motivatedpool of FA reps

Leverage automation and maximize facetime value e.g. coaching for clarity

Fee-based model supports coachingand creating solutions for clients

Source: Synpulse

synpulse synpulse12 | Sales and Customer Management

spend significant time on paperwork. Meaningfulness of the job is not apparent until a claim occurs. The career of an FA rep is typically classed as an entrepreneur, but considering the sheer layers of compliance requirements, it is difficult to imagine how much creativity is actually permitted. Being unable to earn an adequate income and gain job satisfaction are among the key attrition factors.

What can be done to attract promising FA reps and retain them?Looking beyond tactical methods such as introducing incen-tives and improvising the recruitment pitch, Synpulse pins down strategic ideas aligned with the market and technology (r)evolution.

Reshape the role of FA reps and support them with a well-de-signed advisory journey: Many FA reps deliver value in the acquisition and renewal stages. The work done during these stages contributes to the poor reputation (pushy sales cul-ture) and job dissatisfaction (paperwork). While many fret that digital and direct distribution can render the FA reps re-dundant, it pays to see things from a different perspective — the trends can be leveraged to help reshape the role of the FA rep for the better.

Reshaping the role of advisors paves the way to making the career more attractive. Customers want to be profiled and understood. They cannot be expected to articulate the exact form of solution they want. Rather than pushing for product sales without discernment, an FA rep takes on the role of a coach and steers the conversation meaningfully to learn about the customer. While designing the advisory journey, financial advisory providers need to consider how to support the FA reps to maximize value during facetime. Integrating external technology such as document capture and recogni-tion software to allow data auto-population would help the advisor to reduce low value touchpoints and the risk of non-compliance. Simulating life scenarios to test customer reactions can support the advisor’s role as a coach to steer the conversation meaningfully.

The advisory business model needs to align with the change in the role of the FA reps: Well-educated individuals from the millennia generation enjoy work challenges. They are com-fortable with technical analysis and welcome steep learning curves. The business model must be compatible with their needs. Financial advisory firms, even including the hybrid

types, offer a wide product portfolio across product brands and types to allow the reps to design value-adding solutions for their customers. These firms attract the better educated reps who tend to have a network of friends and acquaintanc-es similar to themselves. As such, they have little need to go through the traditional prospecting methods which tend to have a higher risk of crossing into non-compliance.

Training also has to go beyond sales motivation seminars. Aligned with the proposed role of the rep as a coach and ac-cess to the multi-label & product portfolio, principals need to consider more sophisticated and professional financial and non-financial training. Career progression likewise needs to reflect experience and expertise, rather than just sales.

Finally, the compensation model needs to be compatible with the change in the FA rep’s role and business model: The industry is presently in conflict within itself. While regulators try to rein in the sales culture, the FA reps’ incomes are en-tirely commission-based. However, if an FA rep is being paid commission for his/her role in acquiring and renewing cus-tomers, focusing the role on coaching and creating solutions should then entail a change in the compensation model.

Earning a fixed fee for advisory takes away the pressure to find leads, close sales quickly and ultimately, the social stig-ma. The industry has explored charging customers advisory fees, substituting commission but it has not worked in Asia. In fact, advisory is often (sadly) marketed as a freebie to open doors. The fee-based model is, however, still worth another look, using a concerted approach involving raising public awareness and involving major players in the industry to re-price products sold without incurring commission.

An alternative exploratory and brief idea would be to break apart the compensation according to roles and responsibili-ties. A third-party is paid a referral fee for a cold lead. The FA rep is paid advisory fees for educating, reviewing, and raising the readiness of the leads to enter into a transaction. The product provider would handle the sales transactions direct-ly and is responsible for paying the third-party referral and FA rep’s advisory fees.

An advisory model overhaulTaken together, the entire advisory model needs to trans-form to complement the new regulatory landscape, custom-er expectations, and the new generation’s career aspirations.

Sales and Customer Management | 13

Clarie KwaHead of Insurance (Synpulse Singapore)[email protected]

Daniel ThamConsultant (Synpulse Singapore)[email protected]

Authors

The role of FA reps needs to be reshaped to deliver value at the advisory stage, rather than in the acquisition or renewal stages. To do so, FA reps must be technically competent and equipped with intelligent tools such as robo-advisory and profiling applications to assist in dispensing quality and un-biased financial advice to their clients. A positive side effect is an improved industry reputation, as front-line advisors are perceived by customers to be credible, competent and well-equipped. This makes recruitment efforts more fruitful as

insurers can focus on attracting and retaining a downsized but expert and motivated pool of FA reps.

However, as highlighted in our advisory whitepaper The Fi-nancial Advisory Process in Insurance: Flux and Transforma-tion2, many such FA reps are handicapped by the tools of-fered by their principals.

2 Article can be downloaded from our website at http://tinyurl.com/FinancialAdvisoryProcess

synpulse synpulse Operational Excellence | 15 14 | Rubrik

Customer Analytics: Are You Turning Data into Shareholder Value?

Utilizing advances in technology and analytical methods to pursue a customer-centric strategy for competitive differentiation and value creation. Author: Vladimir Dimitroff

Customer focus is nothing new in business: from the ancient model of the small retailer knowing intimately his neighbour-hood customers, through relationship marketing concepts of the late 20th century and CRM as a strategic business disci-pline (before it became technology), to modern-day custom-er experience and omnichannel engagement management. What keeps it current and amplifies its business importance is the exhausted sustainability and diminishing returns from other competitive and growth approaches. Globalization is reducing opportunities in new markets and price competi-tion in commoditized sectors is a dead-end street. The Customer dimension (as in Treacy & Wiersema’s seminal «Discipline of Market Leaders» book) remains the only sus-tainable model for true differentiation and value creation.

In the drive to customer intimacy, technology has played a critical role and is behind the current wave of customer-cen-tric business strategies. What the proverbial «corner shop-keeper» once remembered in his head (about a handful of customers), became possible with millions using computer systems. As storage and processing power grew (and their cost shrank), our appetite for data and respective insight also grew exponentially. Today it would not suffice to look just at transaction data, companies combine a multitude of sources

and data types and this growing data universe became known as Big Data. It not only grows in Volume, it also grows with accelerating Velocity and its Variety rapidly increases. These «3V-s» of the Big Data definition are more recently ex-tended to 5 and even 7: adding Value, Veracity, Variability and Visualisation as intrinsic attributes of Big Data. The old ques-tion of «Do we have enough data?» has long given way to the challenge «Can we access, organize and utilize all existing data?» Emerging technologies like distributed storage and non-relational databases are offering help with this, as are new analytical tools and methods.

The intersection of customer centricity and data-driven busi-ness is currently one of the areas of greatest growth potential in all industries, and particularly in financial services. We believe this fusion area is possibly the key to success for many financial institutions, and will therefore explore some of the associated challenges and opportunities.

«R» is for relevance: Segmentation and beyondOne of the fundamental principles of customer centricity is differentiation: treating different customers differently, based on certain business logic. In practical terms most com-panies have defined differentiated strategies and policies for


1: The CMF (Capability Maturity Framework) analyses a business in a cross-section of 6 ‘domains’ (key business areas) and 4 evolution (maturity) stages. The maturity in different domains and sub-domains usually varies therefore alignment is as important as overall

progress.

1.1. Vision

2.1. Data governance priorities and model

3.1. Talent planning and management

4.1. Key analytics processes by type

5.1. Architecture and infrastructure

5.3. Analytical applications (platforms and tools)

5.2. Data management platforms and tools

5.4. System integration

4.3. Analytics by addressable entity

4.2. Additional analytics types

4.4. Automation and innovation

3.3. Organization design and ownership

3.2. Talent assets

3.4. General and analytical culture

2.3. Business users segmentation

2.2. Operating and functional models

2.4. Data-related processes and workflows

1.2. Alignment

1.3. Strategy dimensions

1. S

trat

egy

2. G

over

nanc

e an

d O

pera

tions

3. P

eopl

e an

d Cu

lture

4. P

rodu

ctio

n5.

Tec

hnol

ogy

Capabilities MaturityBasic CompetentAware Vanguard

groups of customers, popularly called segments — but often without clearly defined rationale for such differentiation. The first and most important purpose of segmentation is re-source optimisation: in the reality of limited resources it is of utmost critical importance to deploy them without waste and for maximum outcomes. This makes value segmentation the logical starting point, as allocating more resources to more valuable customers is easily justified, savings from less valuable segments also help to optimise returns.

Relevant allocation of company resources according to customer value is a proven way

to ensure optimized returns.

Value, however, is not generated out of nothing: value ob-tained from customers is only the return from value deliv-ered to them. Customers get value when their (real or per-ceived) needs are satisfied, hence understanding the needs is critical for providing value to customers and getting value in return. And since needs are a fuzzy qualitative entity very hard to analyze, a number of proxies have been used in seg-mentation: from good old demographics (a poor predictor) to increasingly preferred behaviours (observable, document-ed and dynamically trackable). Being relevant to customers’ needs and expectations is one of the imperatives of custom-er-centric companies and a powerful competitive differentia-tor.

Finding the right proxies to respond relevantly to customer needs guarantees increased customer value, strong loyalty,

and new business.

Segmentations vary not only by the chosen dimension (val-ue, needs or any proxy thereof), but also by the hierarchical level of management objectives and the granularity of seg-ments. Macro-segmentation (also called strategic segmenta-tion) is done at the highest level, with very large groups of customers and is only useful in long-term strategic planning and organisation structure optimization. Operational seg-mentation is the most widely practised type, where seg-ments are sufficiently differentiated to merit different treat-ment, but large enough for economical resource allocation. They are also sufficiently stable (few migrations over time) to be useful for operational plans (quarterly, annual) and their execution. Finally, high-velocity data and newer technology capabilities allow dynamic micro-segmentation. Tactical in

nature, it is suitable for short-term and ad-hoc campaigns, response to market events and localised actions. While all three hierarchical and granularity levels need to be ad-dressed, customer analytics tend to yield maximum benefits at the operational level, where insight can shape proposi-tions and processes, the design of enabling systems, align budgets and performance metrics. This type is most widely addressed and often referred to as just «segmentation».

What can a financial institution do about its customer seg-mentation in the age of Big Data? Quite a lot: sophistication and accuracy of segmentation algorithms and models can be significantly improved. Models no longer need to be descrip-tive (only reflecting history), but must become predictive (supporting current decisions with future expectations) and even prescriptive (automating decisions with deep learning techniques that factor multiple scenarios and sequential causality). This, of course, requires harnessing the volumes, velocity and variety of data in the increasingly complex and large ecosystem of concurrent channels and solutions. Not least, it requires adequate expertise and capacity of avail-able skilled resources.

Relevance of customer experience design and deliveryCustomer experience (often abbreviated as CX) is the subject of ever growing interest. It is important to every business, as the experience (perceived interactions with any and every part and aspect of the business: communication, product, service, and more) shapes customer attitudes and motivates behaviours, which can be beneficial or detrimental to the company and its shareholders. Historically the focus has been on the rational and objectively measurable part of the experience: length of queues, clicks required to achieve a web task, speed of problem solving by support staff, mobile app responsiveness, etc. These are all important but by no means sufficient; they have become a baseline «hygiene» without which you can go out of business, but which cannot take you to the next level of competitiveness. First scientists, and then business leaders became aware that a vast part of the customer experience is beyond the rational. More than half (some studies suggest over 85%) of human decisions are emotionally motivated and/or driven by subconscious pro-cesses. This is where the original volumetric approach to CX assessment and management gave way to newer, less ratio-nal and emotion-aware methods. Today CX leaders solicit the help of behavioural psychologists and neuroscientists to

Source: Synpulse

6. D

eplo

ymen

t

6.4. Machine learning and AI in industrialization and TOM innovation

6.3. Other stakeholder entities

6.2. Customer Intelligence

6.1. Decision support structure and practices


introduce structure and discipline into harnessing emotions for predictable business outcomes.

There are still CX experts who preach to always «delight» or «wow» your customers but there is little evidence-based ra-tionale in this. It does sound nice and attractive, but applying identical treatments to all customers misses the point of rel-evance, not to mention that it is hardly practical or viable. Contemporary methods combining advanced psychology science with sophisticated mathematical models have al-lowed to uncover causality between stimulus (company be-haviour), response (customer emotions invoked), and effect (emotion-motivated customer decisions and behaviours). As the latter drive or destroy value, this is a powerful method to design and manage experiences that cause value-driving customer behaviours. In some available tools «value» can be as specific as targeted company KPI-s, e.g. NPS scores, churn or revenues.

The data-driven, Customer-centric organization: A journeyTo harness the combination of customer analytics and Big Data, a company must recognise the various dependencies and synergies between these two areas. Customer intelli-gence is dependent on data and can be practised even with «small data» (transaction records, interaction history and basic demographic profiles). However, it is immensely ampli-fied by the richness and detail in Big Data and leads to new levels of competitive advantage through utilization of practi-cally endless sources and data types. Big Data, on the other hand, is useless if observed for its own sake, without a prag-matic focus. It finds in customer intelligence one of its most sophisticated and pragmatically rewarding utilizations.

Customer analytics is possibly the ultimate application of Big Data for concrete, pragmatic

business outcomes. To benefit from this, a company needs to adopt a structured approach and build adequately evolving

capabilities.

An organization can only behave in certain ways in the market if it possesses the right enabling assets and structures. Simply called «capabilities», these features do not belong to a single functional silo like IT or Marketing. Like all transformational strategic disciplines, full benefits are achieved if the capabili-ties penetrate the whole enterprise across functions, opera-

tions and organizational boundaries. This cross-functional view leads to viewing capabilities in a range of critical strategic domains ( 1).

Another characteristic of strategic capabilities is their con-stant evolution; therefore we will look at some major maturi-ty stages on a journey to perfection and market domination. At every level of this journey, maturity is characterized by qualitative differences from the previous stage, only achieved after building specific new capabilities in all domain areas.

Viewed as a matrix of maturity stages across domain areas, this represents a powerful framework for understanding, and tool for planning and managing the company progress along the journey. An example of such a matrix is illustrated below:

The Strategy domain examines the extent and the way «data-driven» and «customer-centric» have been ad-opted by the leadership and communicated inside and outside the organization.

Governance and Operations is concerned with the or-ganization and stewardship of data.

People and Culture looks at available skills and capaci-ty, plans to grow them, talent management, and how overall corporate culture supports data use and cus-tomer focus.

Production addresses the actual data analyses happen-ing within the business, types of analytical tasks per-formed, techniques used, and the nature of analyzed entities and their attributes.

The Technology domain describes the available and planned information architecture and IT infrastructure and their key components (platforms and systems).

Deployment of analytics deals with the utilization of the output in everyday decision-making and fact-based business management.

In all the 5 domains, capabilities are described in 4 key stages of maturity: Basic, Aware, Competent and Vanguard. The methodology provides detailed criteria for moving to a high-

Vladimir DimitroffPrincipal (Synpulse United Kingdom)[email protected]

Author

er maturity level in each individual capability and each do-main as a whole. The illustration shows how a company with an overall average score of ~2 (Aware) can have more ad-vanced capabilities (Competent) in some areas and at the same time lag behind in other areas with just basic capabili-ties. These internal discrepancies create stress and impede the utilization of partial good capabilities because weak ar-eas neutralise them. Some maturity «building blocks» may be work-in-progress, with partial capabilities already above the previous stage, but still incomplete. And the ultimate (Vanguard) capability maturity is an idealised perfection, more of a distant strategic target, rather than practical benchmark already achieved by anyone.

Where next?What can a company do to improve its analytical, data utili-zation and customer-centric capabilities? A good starting point is to select a professionally designed framework and

assess the current maturity of capabilities across all do-mains. This can be done as an express «health check» to trig-ger strategy formulation or identify pain points needing im-mediate fixing — or as a full, detailed assessment to analyze gaps and develop a transformation programme. In either case a structured way of looking at cross-functional capabil-ity levels is highly recommended.

There are instances where known gaps demand urgent filling and then standalone projects or ad-hoc initiatives addressing the specific area are appropriate. They, however, can be run in parallel with framework use (they will naturally fall into the right spots on the framework and resulting roadmap), and do not preclude the organisation from pursuing comprehensive long-term change. Synpulse has the expertise to assist in ei-ther of these scenarios, and the outcome should always lead to data-driven and customer-centric success.

synpulse synpulse From Outside In | 21 20 | From Outside In

Do you think that education contributes to society's progress? Can it be the key to the development of the Philippines?I am convinced that education is one of the keys to inclusive growth in an emerging nation like the Philippines. A good education enables an individual to access the labor market. If a family member gets a college degree, that is a big step out of poverty for the family. In addition to financial and eco-nomic benefits for the individual, education secures a coun-try's future. Education teaches how to think in social, moral and political dimensions. Through education, a society can shut the door on ignorance. The next generation must also avail itself of the benefits of education, so as not to put a country's future sustainability at risk.

What is your family background? How did you grow up?I'm the only child. My mother comes from a family of teach-ers, my father was a shoemaker. I would say we belonged to the lower middle class, meaning we lived on what my parents earned. I did not grow up in a wealthy family and was not spoiled. Actually my parents were pretty strict with me. But they gave me their full attention. Even my grandparents took care of me every day. They taught me typical Filipino values, such as respect and gratitude. All they ever wanted was that I receive a degree and then get a decent job.

Although I have no siblings, I grew up surrounded by a large extended family. Besides my grandparents, both my aunts and their families live in the same house, which belongs to my grandparents. As is typical for children in the Philippines, I played outside with the neighborhood kids after school when I was little. I would describe myself as a dedicated stu-dent in primary and secondary school. I was even admon-ished for being too ambitious because I was always offering to volunteer.

Can you sum up your educational background for us? What position do you currently hold at Ateneo de Manila University? I finished secondary school at a public school with a focus in the sciences. With the help of Aiducation, I received a full scholarship to study at the Ateneo de Manila University. I earned a Bachelor's degree in Management Information Sys-tems, specializing in Business Intelligence. In December of

2015, I finished my Master of Science in Computer Science; after that, I successfully defended my thesis on the topic «Au-tomated Validation of a Model on Measuring Correlates of Crowdsourced Flood Reports». Our work was most recently accepted for the International Conference on Social Comput-ing, Behavioral-Cultural Modeling & Prediction and Behavior Representation in Modeling and Simulation 2016, where I will present it in Washington D.C.

At the moment, I am a full-time research associate for the Disaster Agent Modeling Project, a two-year extension of the eBayanihan project. I am also active as developer for the Re-liefOps project, which has been running for the past two years and involves a model to support decision-making in the prevention and logistics of natural disasters. As a part-time lecturer at Ateneo de Manila University, I teach students from freshmen to graduate students in different courses. Additionally, at the Ateneo Social Computing Science Labo-ratory, I advise the social media company Rappler and some other SMEs. I also work as a volunteer application developer for Toy Library, a Philippine NGO, which is dedicated to bring-ing toys to children in isolated areas of the Philippines.

What did you take with you from your experience with the charitable educational program Aiducation?I took two main points from my experience at Aiducation. The values and the change of perspective from your own to that of others and ultimately society as a whole.

First, the values: striving for perfection, joy in learning, integ-rity, solidarity and service to society are Aiducation's core virtues. We were taught what these values mean and how we can embody them ourselves. More importantly, Aiducation taught us to live a principled life true to our values. In addi-tion to these values, of course, everyone must be guided by his or her own principles. But the values taught help us to make — besides the smaller decisions — also larger and life-changing decisions.

Second, in connection with a value-based life, a resulting change in perspective occurs: First you should develop your-self, then work on your relationship with other people against a background of taking on a greater role in society. This means change must first take place within oneself — before it

«Aiducation taught us to live a principled life.»

As a researcher at the Ateneo de Manila University, John Noel Victorino has developed an application for generating knowledge about natural disasters. In this interview, he explains what education has meant to him personally, for the island residents of the Philippines and for society as a whole.

Interview with John Noel Victorino

What role does education play for you?Education is an important part of my life. It decisively shaped who I am. My parents were not rich. So access to education considerably improved my social position. My graduate de-gree from a prestigious university made a financially secure future possible for me and my family — because of it, I was able to land a good job. Furthermore, I only achieved through education an insight into things that previously seemed im-possible to me. Education gave me the core competencies of self-knowledge, critical thinking, social significance and ser-vice to society.

Currently, what are the biggest challenges facing your home country, the Philippines?The Philippines is faced with a long long list of challenges. Although the country has witnessed rapid macro-economic growth, the poorest of the poor have not seen the resulting dividends. Growth should benefit the entire society. People should receive more job opportunities. A future energy and food crisis can still not be ruled out, unfortunately. Traffic jams are symptomatic of over-crowded urban areas. Import-ant changes have been initiated, but these must be put into effect.

Although the reform of the education system in the Philip-pines, the K-12 program, which would extend the time spent in school by two years, is a step in the right direction, there are still unresolved issues in the area of education. There are many areas requiring improvement, ranging from a lack of classrooms, teachers and educational institutions to the poor quality of education overall.

In terms of risk management and reduction, increasingly strong typhoons are a tremendous challenge. Typhoons, which cause landslides and flooding, are occurring with in-creasing frequency. El Niño also affects the Philippines. Also, the risk that I will witness a powerful earthquake in my life-time is a given. For the government's part, it has introduced various measures and continually implements suggestions for improvement in response. Our reactive behavior has giv-en way to proactive behavior. We have cultivated a higher level of vigilance and introduced preventative measures. Currently, however, we still are confronted with the task of becoming even more proactive in preparation and preven-tion, as well as in reconstruction and support.

synpulse synpulse From Outside In | 23 22 | From Outside In

John Noel Victorino is currently employed as research spe-cialist and senior IT developer at the tradition-steeped Ateneo de Manila Uni-versity in the Philippines. Together with other students within the framework of a project, he developed an app during his studies that collects knowledge via a crowdsourcing platform from users about acute natural disasters — such as

typhoons — for the purpose of disaster management. A schol-arship from the educational organization «Pathways» allowed him to study at the Ateneo de Manila University. «Pathways» is a partner of the Aiducation charity.

Synpulse supports Aiducation with scholarships and conducts local training sessions — most recently in December, when 50 fellows completed a week-long academy near Manila.

http://ebayanihan.ateneo.edu

What more could be done to prevent natural disasters and mitigate the damage? Can education also play a role?Preparation and prevention were always the better options for reducing the number of victims and damage from natural disasters. Part of this can be taken care of through educa-tion. We realized during our project that our local communi-ties should be trained in intensive and compact training ses-sions. For example, we visited a province in the northern

Philippines. There, we conducted repeated training sessions and workshops. We also recorded feedback to improve the training. We taught the children in this province to provide first aid, and skills like swimming or knot tying, which help when a disaster occurs. Furthermore, the reformed K-12 ed-ucational system includes lessons on risk reduction and prevention. By teaching people what they should do before, during and after a disaster, we have taken the first steps to avoid victims.

can be transferred to society. But that is not to say you

should work on yourself until you are perfect, because that is

impossible. This evolution is an ongoing, if not, a never-end-

ing process. Though the completion of my studies and my

participation in the Aiducation program are already long be-

hind me, I still carry these values within me. They guide me

every day.

After having passed through Aiducation as a participant and

volunteer, I am confident the program has the vision to train

leaders who will act to serve society; leaders who bring expe-

rience from the bedrock of society and are grounded be-

cause of their own difficult backgrounds, yet are selflessly

ready to help others. Our training taught us to be self-confi-

dent. Access to quality higher education allowed us to as-

sume leadership and want to become role models. Thus, a

large and challenging idea was realized, one which we should

continue to live in our own lives.

You have developed an app for the managing natural disasters. Can you explain to us how it works? How is the related project financed?The eBayanihan project is supported financially by the Philip-

pine government through the Ministry of Science and Technol-

ogy. The app that we have developed within the project is an

application for managing natural disasters. It can be used on

various devices, e.g. via mobile phone, tablet or PC. The proj-

ect was funded because, to date, the human dimension has

been lacking in the area of disaster management. Before,

there were maps of danger zones and other scientific tools to

help us during a natural disaster. Most warnings about incom-

ing disasters came from official authorities. This project tries

to close the information gap between top authorities and the

general population. Using the app, any citizen can contribute

what he or she knows to the better management and handling

of a disaster. Communication takes place from the bottom up,

in addition to the earlier communication from the top down.

This has greatly improved crisis management.

The features of the app cover the whole cycle of a natural di-

saster — from prevention to recovery. Users are able to iden-

tify the location of every event, thus contributing to the pool

of knowledge shared by other users and government offi-

cials. The government, on the other hand, can record the live

data in your community, view the evacuation status or situa-

tion in the shelters, receive relevant information from a noti-

fication function and compile necessary reports.

What was your motivation for becoming involved in the project?I joined the project when I was a graduate student and was

involved in the Ateneo Social Computing Science Laborato-

ry. Dr. Maria Regina Estuar heads the project. At the time, I

was her research assistant. After passing through the various

stages of an academic career — from scientific assistant to

developer, then to lead developer and research specialist — I

am now one of the members of the four-person management

team.

I found myself at the end of the Bachelor's degree course and

was looking for an advanced Master's degree course. A grad-

uate program with four years of undergraduate studies and

one year of graduate study seemed to make the most sense.

While involved in the project, I found myself once again in an

interesting research field that was very relevant to real con-

cerns. I found a place where I could put my strengths and

skills to good use. On the other hand, I have constantly con-

tinued to learn.

Do you think that modern technology contributes to a more equal and more intelligent society?I agree with the thesis that modern technology contributes

to a more equal and more intelligent society, with certain

provisos. Technology is a tool. Depending on the users and

the intention, we can use this tool meaningfully. For exam-

ple, the Philippine government is now aware of the benefits

to society resulting from offering a good Internet connec-

tion. Its goal is to help Filipinos connect with each other, by

providing a good Internet connection. If this is achieved, so-

cial services and education can be brought to the most re-

mote regions. Consultations with doctors and nurses can

take place online. Trade can happen over the Internet. This

can all be achieved because technology is being used with

good intentions.

On the other hand, modern technology can also harm soci-

ety. Terrorism and recruitment for terrorism take place on-

line. Cyberbullying and human trafficking can occur online.

Theft today is more refined due to unethical hacking. If user and intention are not as good as they should be, modern technology can also create a more ignorant society with un-equal chances.

synpulse synpulse Digital Transformation | 25 24 | Digital Transformation

Hybrid customer requirements demand integrated, seamless customer journeys «Hybrid» customers have an entirely new view of insurance products. They not only see the core product, the coverage concept and the premium, they can also follow how products are presented across several different channels and how advi-sory, completion and service processes are integrated. Cus-tomers who gather information on the website and then com-pare prices through a portal (aggregator) expect a call to the Service Center or talk with an agent to pick up seamlessly on the preceding process. For that to happen, all points of con-tact need to have the details provided by customers so far. What is more, products and prices offered through different routes must be identical, or any intentional differentiation by the insurer must be explained clearly. Customers expect this seamless integration as much when switching between routes (agent, direct, aggregator) as between media (telephone, face-to-face, portal, email, messenger). 1 shows the ensuing complexity.

This creates some entirely new demands for the insurer’s of-fer, in the sense of an extended product concept, and for chan-nel management.

1 similarly shows that under these new conditions, organi-zational adjustments also need to be made. The offer of infor-mation, advisory services and product lines must be coordi-nated across all customer routes. An organizational structure that has silo-style access routes, often also called channels, cannot adequately support an integrated approach. Informa-tion, advisory concept, product and price structure are the el-ements that customers are aware of, and they choose which routes they take. That, at least, is the theory; in reality, it only applies in part. Depending on what form the customer journey takes, customers are influenced in their choices. Where they look for any advice they may still need depends on whether the Service Center number or a selection of insurance advi-sors’ photos and contact details appears at the end of the on-line application process.

The customer journey is also guided, to some extent uncon-sciously, by sales incentives. For instance, if a budget product line is being sold through the agency channel without com-mission, the customer journey will automatically be swayed towards upselling.

1: Customers select the access route, which is where they experience the combination of information, advice and the core product in terms of cover and pricing. Customer perceptions depend heavily on an insurer’s internal organization, for example relating to requirements or customer ownership principles.

Source: Synpulse

Customers

InsuranceCu

stom

er

Inte

rface

Org

aniza

tion

of

Prod

uct a

nd

Serv

ice

Offe

rM

anag

emen

t

Access routes

Access media

NPS/Key Sales Figures/Portfolio Evaluation/Process Quality

Customer JourneyAdvisory approach

ImplementationProcess-guiding systems

Products

Affinity/Partner

Telephone

Broker

Online

Direct

Face2Face

Information

Channel Concept

Advisory Services

Incentives

Product/Pricing

Customer Ownership

Aggregator

Letter/Fax

Agency

Hybrid Customer Behavior – A Challenge for Silo Organizations

Customers today can no longer be expected to behave in a certain way, which also makes it impossible to assign them to a specific sales channel. Even the most internet-savvy customers will, at some time or other, have a question they would like a qualified advisor to answer in person. Insurers therefore face some organizational challenges that can only be met with new solutions.

Authors: Dr. Christoph Nützenadel | Patrick Bühler

Direct insurers first began establishing themselves on the mar-ket in the last decade. With them established insurers were concerned that customers could go to highly qualified and therefore expensive insurance agents for personal advice, only to take out their insurance policies online. In fact, what we are actually seeing is a trend in the opposite direction, towards the so-called ROPO (research online, purchase offline) effect: customers go online for information but conclude their poli-cies with an agent/advisor.

From these observations we can draw the following conclu-sions:

Customers who only interact through one channel, for ex-ample solely with their agent, are in a clear minority and their number continues to decline.

Customers choose and combine the routes they use to access products and services according to insurance

needs, complexity and personal involvement. Conven-tional, and static customer segmentation no longer works.

Insurers who only measure where customers conclude their policies miss the dramatic changes that have taken place in customer behavior in terms of gathering informa-tion and accessing advice.

Customer behavior is difficult to predict. The present ROPO effect could also simply be a temporary phenome-non based on a lack of sufficiently good online comple-tion options. That is why it is important to constantly monitor and measure customer behavior. This flexibility needs to be reflected organizationally.


possible structuring dimensions are shown in 2: products, customer groups, and customer routes or channels. Areas such as IT, human resources and finances play an important role and have essential interfaces, but they are not consid-ered in the discussion.

One organizational structure that is often observed today is separation by factory, where insurance products and ser-vices are developed and managed, and by distribution. The factory is usually organized according to product areas such as automotive, household, building etc., and sales according to channels. The above discussion shows that certain as-pects of the hybrid world are almost impossible to represent in this type of organizational structure. It nevertheless has some major advantages: expertise is pooled, and responsi-bility for results, e.g. for a product area or for a channel’s pro-duction, is clearly assigned.

A potential solution: Customer-centric organizationIf we now assume that an integrated and seamless customer experience takes top priority in a hybrid world, there are good arguments for structuring an organization by customer groups. The following is a proposed outline of this kind of or-ganization. Here it makes sense for private customers, com-mercial/SME and corporates to be the first structural criterion for this type of organization, including at senior management level. This way, a single entity is responsible for a private cus-

tomer’s entire customer journey, through several routes and across several product areas. On the next organizational level, responsibility for customer processes, products and access routes must be allocated and those responsible for the differ-ent areas assigned. The area of customer processes would cover information, advice, underwriting, service and claims; product responsibility would extend across all offers to private customers, ideally life and non-life insurance; and customer routes would include all points of contact with private cus-tomers.

Naturally, this kind of organization creates new cross-func-tional roles in the form of a matrix. For example, in the area of commercial/SME, the same channels are operated. There are also areas of overlap among customer groups, for example where the owner of a business is also a private customer. It is clear that the type of organization outlined here meets the re-quirements of hybrid customers well, but it also brings with it some new challenges.

In conclusion, it is fair to say that any type of organizational structure is always a compromise between the dimensions il-lustrated in 2. Depending on which is the first structural cri-terion, the other two dimensions must be added to some ex-tent in matrix form. As this article has argued, however, in today’s hybrid world, with its multichannel/omnichannel solutions, there is a need for organizational adjustments up to senior management level.

Dr. Christoph NützenadelPartner & CEO (Synpulse Switzerland)[email protected]

Patrick BühlerAssociate Partner (Synpulse Switzerland)[email protected]

Authors

If we accept that customers are switching their routes to infor-mation, advice and sales increasingly frequently, this means that traditional types of sales commission which only reward the points of sale, no longer have the desired effect. The future here lies in «attribution modeling», with incentive models that are based on the customer journey. Here, every contribution to a customer success is acknowledged accordingly. The full available commission is distributed as a percentage between the different customer access points. Unlike static «attribution modeling», in dynamic models the value of the contributions from the individual contact points is regularly adjusted ac-cording to detailed statistical analyses. In some individual models, distribution of these contributions is even adjusted per sale.

An organizational structure in which «sales channels», Service Center and back office are not controlled jointly in some way makes a tightly-knit customer journey virtually impossible. Attribution modeling that ensures that customer satisfaction and sales production are optimized then becomes unthink-able. In the new hybrid world, traditional models of customer ownership are entirely irrelevant. Even contract ownership will fail to deliver a seamless customer journey.

Experience in life insurance has shown, however, that spread-ing responsibility homogenously holds just as little promise of success. At least some customer interactions, whether they are «inbound», such as a purchase interest or policy adjust-

ments related to a move, or «outbound», like policy renewals or divestments, must have an owner to see interactions through to completion in the customers’ interests, or in the case of divestments in those of the insurer. This ownership should be assigned according to the probability of success, economic factors and customer characteristics, however, and not according to where the customer concluded the contract years ago.

If customers belong to nobody and their journeys are con-stantly changing, that must be reflected in the operational and structural organization. It is fair to say that hybrid customers and seamlessly integrated access routes are creating entirely new challenges where information and advisory services, product concepts and pricing are concerned. These elements are perceived by customers and heavily influenced by the in-ternal organization of an insurer’s offer, by the channel con-cept, incentives and by customer ownership. A conventional silo organizational structure makes it difficult, if not impossi-ble, to develop and implement good concepts.

Organizational structure in a hybrid world How can an organization be structured so that it is up to the challenges of hybrid customer requirements? Essentially, the organization surrounding customer processes can be built around three basic dimensions. Here, customer processes refers to product development, pricing, information, adviso-ry, underwriting, sales, customer service and claims. The

2: Basic options for an N-1 structural organization

Source: Synpulse

Typical silo organization by products/line of business (LoB)

Organization by customer groups

Organization by customer access routes

Good if focus is on a high level of expertise and specialization in the products.

Integrated customer views across several policies and requirements in a multichannel world can only be realized with a complex matrix.

Clear delineation of different areas as strategic business units (SBU) is possible.

Product expertise, e.g. for complex liability cover, distributed over several areas or only implementable with a matrix organization.

Requirements of hybrid customers who use several access routes even in simple business cases can only be met with difficulty.

LoB A

LoB B

LoB n

Private customers Commerce Major

customers Agents Direct Other


cle made global waves and resonated with the market feedback received by the UK founding team, as local opera-tions were set up and industry leaders engaged in dialog.

The Synpulse UK office opened in February 2016 and spent its first few months establishing a presence within the local wealth management community, strengthening ties with good clients previously serviced from Switzerland, and dis-covering the specifics distinguishing the UK market from other global financial centers, along with the current client needs. We published a blogpost on TOM, «The COO Impasse», which generated considerable traffic and indicated definite interest. This led to an on-going dialogue with a number of market players, and we felt there was a case for wider and open industry discussion on the subject of evolving operat-ing models and enabling sourcing solutions. We decided to hold an event on the topic, and the idea was met with keen interest from both private bankers and wealth managers on one side, and outsourcing service providers on the other.

In preparation for the event, we conducted a number of video interviews with senior executives from the provider space, particularly those we know well and have been impartially collaborating on behalf of our clients. While editing the video material, we noted the repeated mention of certain keywords and phrases by literally every executive interviewed: From hype and generic terms like «digital transformation» and «change management» to very specific ones such as «out-sourcing» and «cost-income ratio». The videos were eventual-ly edited as 10 «episodes» under the top common terms men-tioned, and these were published through our business social networks. Most episodes generated hundreds of views and, while never intended as structured market research, provided a useful insight into audience interest. Topics including the following stood out and we had to consider these when fine-tuning the agenda of our planned forum:

Cost-income Ratio

Change Management

Digital Transformation

The eventIt was evident that certain differences were not conducive to a smooth collaboration between technology and outsourced service providers and their clients. We therefore chose a for-

mat (Executive Forum) that would give both parties an op-portunity to state their position and rationale, and to engage in constructive dialog. We invited keynote speakers from the two main sides of the client community: Private banks (rep-resented by prominent player Coutts), and specialist wealth management organizations (represented by the equally prominent Brewin Dolphin). In addition, we staged a panel discussion with five service provider senior executives, to answer moderated questions and engage with their audi-ence peers and business counterparts.

The event also officially celebrated the launch of the UK op-erations and, to mark the occasion, was attended by the Synpulse CEO and several senior partners instrumental in the success of our local work. To the industry executives in the audience, our partner team exemplified the level of ex-pertise Synpulse is respected for, and our mature standing in the Private Banking and Wealth Management segments of the financial sector. Our partners were, for their part, also positively impressed by the level of executive leadership the local team engages with, and the industry professionalism and appetite for change.

Our approach in targeting participants for this invitation-on-ly forum centered on a balanced representation of the larger and most important players in the sector: Local and locally active global institutions, banks and specialist asset/invest-ment managers, independent advisor networks and strong niche boutiques. By contrast, the vendor landscape included all «flavors», from classical software houses to technology (ITO) outsourcers, and from pure BPO (outsourced opera-tions) providers to emerging comprehensive platforms where technology and outsourced operations are performed seamlessly for a client.

Based on this representation (albeit with small numbers and thus not allowing for any significant/confidence estimates) we conducted a small survey among the diverse audience, asking them to rank by importance the range of attributes gleaned from the above empirical video analysis. Responses were very similar to earlier findings, albeit in a slightly differ-ent order. The summary of TOM-influencing factors rated by respondents as «important» and «very important» is shown in 1.

The UK Wealth Management Industry Weighs Up Next-Generation Operating Models

The Synpulse Senior Executives Forum 2016. As Private Banking and Wealth Management experiences radical market shifts and pressures, operating models become a critical response in the effort to remain competitive and profitable. Synpulse has a history of designing TOMs and predicting their upcoming iterations. Recent client work and public thought leadership drew attention to the company expertise and newly established UK presence. Insights from the inaugural event are shared in this article. Author: Vladimir Dimitroff

The Private Banking and Wealth Management sector has moved through a continuing evolution of operating models, reflecting historic conditions, client needs, and its own ma-turity. Current market pressures, client requirements and investor expectations demand a closer look and a rethink as far as optimizing operations for continued value growth is concerned. At the forefront of designing and implementing target operating models and sourcing solutions, Synpulse is successfully addressing the challenge in its global opera-tions. The decision to establish a full UK presence also re-flects an understanding of the needs in this area.

The official launch of the Synpulse UK office was marked by a Senior Executive Forum, an industry event appropriately themed around next-generation operating models. In a fair

and open exchange, key industry players from institutions and service provider communities expressed different per-spectives and important points of agreement, as highlighted in this article.

The build-upSynpulse had been active in the methodology and thought leadership space on Target Operating Models (TOMs) and Sourcing for a number of years. This expertise proved partic-ularly valuable in our Asian operations, where a rapid expan-sion of Private Banking and Wealth Management demanded significant TOM optimization. While delivering a number of successful related projects, the Synpulse experts document-ed the experience in an important paper and article pub-lished in the Synpulse's «The Magazine» in late 2015. The arti-


Despite the variety of perspectives in this highly insightful forum, there was a common understanding of the pressures facing the industry and the need for change. Concerning the operating model itself and the role of outsourcing service providers, there was broad agreement that operating banks and wealth managers on the one hand, and their providers on the other, need to work together in much closer partner-ship. The next generation TOM may not be achievable through the traditional (and somewhat antagonistic) «buyer vs. seller» relationship model. In fact, success is, more likely to come from collaborative formats based on trust — a fre-quently mentioned keyword at the event. A relationship in which provider and client become true partners to such a

degree that the provider is an extension of the client’s busi-ness, performing critical internal operations as a natural part of their organization.

While this level of trust is yet to be fully achieved, UK private banks and wealth managers are willing to go in the afore-mentioned direction: Seeking closer partnership with their service providers to enable a next-generation TOM and suc-cessfully respond to radical market changes for continuing growth. Synpulse, as the agnostic adviser on TOM and Sourc-ing with unparalleled industry expertise, is prepared and willing to act as the bridge between the two communities and facilitate their beneficial collaboration.

1: Digital transformation, cost-income ratios, and customer experience dominate the reasons for private bankers and wealth managers to look at new operating models.

Perspectives and consensusWith topics like these dominating the TOM and sourcing dis-cussion, there were clearly different perspectives among the debate participants, and among their peers in the audience:

One opinion places greatest significance on competitive differentiation with innovation, functionality and supe-rior customer experience, therefore favoring sourcing solutions which are strong in these areas.

Another, larger group insists on measurable cost reduc-tions or at least, as one participant put it — «cost neu-trality». Many banks and wealth managers are unwilling to invest in solutions that do not directly improve their cost/income ratios.

There were differences, as with traditional IT choices, between preferences for «best of breed» and «all-in-one» sourcing. Similarly, there are some companies still reluc-tant to outsource operations, believing «no one knows how to do it better than ourselves» — and reflecting the other IT debate of in-house vs. procured solutions.

Other opinions highlighted the importance of niche sec-tor specialization of providers (private banking and wealth management vs. mass retail banking), and an even greater distinction between private banking and pure wealth management, as practiced in the UK.

29%

25%

21%

17%

6%2%

Digital Transformation Cost/Income ratio

Technology Replacement

Customer Experience

Change Management

Regulatory Compliance

Vladimir DimitroffPrincipal (Synpulse United Kingdom)[email protected]

Author

Source: Synpulse

synpulse synpulse32 | Digital Transformation Digital Transformation | 33

Blockchain – Hype or Reality?

Over the last few years, Blockchain and distributed ledgers have become the new buzzwords accompanied with the idea that it will change the world for good since it will help to reduce fraud risk, enable better compliance and ensure faster transaction finalization. But what is the real impact of these buzzwords on us? While it is undisputed that these topics create significant new opportunities for everyone involved, distinguishing current reality from hype remains a battle for most of us and one on which we seek to shed some light. Authors: Clarette du Plooy | Dennis Flad

The importance of trustTrust forms the foundation of our society and can be defined as «assured reliance on the character, ability, strength, or truth of someone or something» or simply put «one in which confidence is placed». Whether you are crossing the road, flying in a plane or paying a bill, you trust the people and sys-tems to act and behave as you expect them to, without think-ing too much about it. Trust is, however, not always easily established or maintained and additional measures are needed to strengthen confidence in a specific system, e.g. the police and legal systems to maintain law.

If money or assets are involved, trust becomes even more dif-ficult to obtain, especially in transactions outside our own so-ciety or legal framework. For centuries, banks have stepped into this gap and have been responsible for not only providing trust in the global financial system, but also building trust with the participants in the system. While people may not know or trust the other participant in a transaction, they will still often complete the transaction if they trust the bank.

However, numerous scandals involving banks have harmed the trust not only of consumers and corporates in the bank-ing system, but also of the regulators and politicians. The establishment of new peer-to-peer services mainly in the ar-eas of lending, foreign exchange and payments are as much a result of a more digitalized and interconnected world as a consequence of the banking trust crisis.

Restoring trust The vision of Bitcoin, for example, was to deliver a currency to transact on a peer-to-peer basis, globally, without a cen-tral party like banks being involved. The digital currency it-self was not the revolutionary part, it was the cryptographic protocol that allowed for each unique transaction to be ex-ternally and automatically validated by multiple indepen-dent notaries (in Bitcoin terminology so-called “Miners”) that was of most interest to the world. Cryptography vali-dates transactions prior to execution and increases the trust-worthiness of transactions for all parties involved, thereby ensuring that transactions are unique, true, performed by the real owners, irrevocable and as a consequence of these criterias, final.

How Does a Blockchain Transaction Work?iBob and Alice have wallets/accounts with «digitalized» value like Bitcoins, certificates of a property right (e.g. art, cars, diamonds) or intellectual property (like music). Like all accounts they are re-gistered on a ledger, with the key difference to the existing me-chanism, that the ledger is not stored in a centralized location but rather on multiple, redundant ledgers.

If Bob wants to transfer some of the content of his wallet to Alice, they cryptographically sign these transactions with their private keys and submit them using the blockchain protocol to the net-

work community. In this community, validators («Miners») verify that the transaction is unique, authorized and funded by execu-ting a complex mathematical calculation. Once the first validator has calculated it, this validation has only one true result and all validators can confirm it. Only after confirmation by all validators will the transfer of value from Bobs to Alice’s account be locked on the blockchain, the distributed ledger.

Alice can immediately use the new assets on her account for her own transactions and has no need to wait for intermediaries to execute before she has access to her «digitalized» value.

Each transaction is locked on a decentralized ledger called «the blockchain», which eliminates the risk of failure in a sin-gle location, since all the ledgers are mirrors of each other. Changing one ledger would therefore not result in «adjusted» truth, since all ledgers should be consistent at all times.

Blockchain is, however, not the only technology and protocol to allow externally validated transactions. Solutions from the Swiss-based company Monetas, or the US-based compa-ny Ripple, do not work with blockchain, but follow a similar principle as there are also a cryptographic protocol and ex-ternal validators verify each transaction. In comparison to the concept of one, multiple stored «blockchain» ledger, these alternative solutions permit transactions between ac-counts in different private or public ledgers. Apart from al-lowing interoperability between different networks and cen-tral or decentral ledger solutions, one of the reasons for these alternative solutions was to address the perceived risk regarding unauthorized access to sensitive personal data. With localized ledgers, and the Interledger Protocol, better protection of sensitive client data for a transaction can be ensured since it is only stored in controlled locations and the accountability of the data protection is clearly defined.

New opportunitiesThe security and speed with which transactions are per-formed using blockchain and cryptography highlighted op-portunities for which we are only now starting to see some of the solutions in the proof-of-concept or pilot phase. Only a few solutions are in production and none have yet reached the mass market, including Bitcoin. In banking, these solu-tions include transforming payments, FX derivatives, securi-ties, and loans, and allowing the decentralized tracking of transaction statuses as in Trade Finance. Outside of banking, solutions currently focus mainly on protecting property

rights like verification and history of diamond ownership, decentralized property registers to fight corruption, manag-ing the transfer and settlement of music rights and reposito-ries of digital keys to unlock physical assets (such as bikes, cars, houses). The list of new opportunities seems almost endless. But the solutions have one common aspect: They are all brought to market as a network and based on the col-laborative efforts of different parties in the value chain.

Three key success factors for distributed ledger solutions Fundamentally, blockchain is a technology as much as a net-work of blockchain participants. Although the technology is decentralized and not operated by a central authority, a blockchain or distributed ledger must follow common stan-dards to operate successfully between the participants. These are relatively simple and can be defined as technical and operative standards.

The most important technical standards are those which re-fer to the standardization of the cryptographic blockchain protocol, validation mechanisms, and the rules to calculate the «source of truth» behind a transaction. Because of the standardization of these technicalities, the solution is scal-able, increases trust in the system, and is available to all.

Successful networks need not only technical standardization but also operative standards. In simple terms we talk about schemes in which operating standards and obligations be-tween the parties are agreed on a multi-lateral basis. Even Bitcoin is a very simple scheme with clear rules and responsi-bilities in terms of how a transaction happens. Everybody can participate in Bitcoin, as long as they accept certain rules when a transaction is irrevocable, undisputable, and final.


2: Different ledger systems on how transactions run

Central ledger system Decentralized ledger system

Transactions between banks run through a central ledger. Transactions between banks run direct and will be booked on a «distributed ledger». Every booking will be cryptographically validat-

ed for its truth and uniqueness

Source: Arevos

Standards alone are, however, not sufficient to guarantee the success of a network or technology. A successful network can be scaled to the number of its participants. New solu-tions must be able to be integrated into existing systems with minimal effort. If this is not the case, adoption will be low and participants will instead find alternative technologies and networks based on their legacy systems.

The reality of Blockchain and distributed ledger solutionsBlockchain and other similar solutions unfortunately still struggle with the three success factors mentioned above. For most solutions, increasing the reach of the solution has also been a challenge, as it can be hard to convince customers to take the risk.

While it is fundamental to invest in new solutions and innova-tion, it can be challenging to build a business case for invest-ment, since it will not immediately increase the customer base, reduce cost, or increase efficiency. Purely cost-saving cases will be difficult to argue as the existing systems will re-main productive for a number of years.

Defining where to start, who the partners will be and how to build a pilot are the next challenges. Picking the wrong part-ner may result in an incorrect bet on the future network. It is also important to remember that a pilot program does not address all challenges of a larger roll-out: Customer offer-ings, contracts and processes need adjustment, existing systems may have to be upgraded and «teething-issues»

with new solutions have to be resolved. This is a growing field, so expect that technology solution providers may struggle at times to deliver on implementations if there are several ongoing at the same time.

How to make Blockchain solutions work for youWhile the challenges are numerous, the opportunities it brings are even greater. It is not a question of «if», but rather «how soon» to invest. Some general success factors include:

Collaboration — Collaborating with partners, competi-tors, and different vendors can guarantee the success of a project. Lessons can be learned from each other, while solutions can be enhanced before go-live.

Selecting the right partners — Partners should under-stand the legacy as well as the future and be able to ap-ply this to your situations. Consultants should have ex-tensive knowledge of products in the market and practical experience in running pilots and implementing live solutions.

Good project management — These projects are at risk of quickly increasing in scope and cost and of moving in directions other than what was originally intended. Hav-ing a strong project manager will help companies keep projects in line.

Few companies want to be «first movers» and are happy to wait on the sidelines while others lead the way and address

issues that may exist with new solutions. The fact, however, remains that the world around us is changing, and in some cases the change has already happened and adjustment is needed. In the long run, the opportunities blockchain pres-ents far outweigh the cost and effort. Consequently, collabo-rating on what potentially may be the biggest change in the history of financial systems will be worth the rewards.

Arevos — Innovation AdvocatesArevos is a startup of Synpulse Management Consulting Ltd., which focuses on the product management and business development of new technology and innovations for banks, insurance firms, corporates and Fintech. Arevos’ objective is

to build bridges between the different parties and to create new common value chains. In this way, it is transforming technology into marketable solutions. Arevos is a believer in the power of networking, with specialists and experts deliv-ering its customers best-of-breed advisory to design its products and solutions. With Dennis Flad, former Head of Product Management Payments, Trade Finance and Foreign Exchange at UBS and Credit Suisse as well as former CEO of Fides Treasury Services Ltd., and Clarette du Plooy, formerly with PwC, Arevos is pooling more than 30 years’ experience to drive forward new solutions and innovations in Corporate Banking, Treasury Management, Payments and Electronic Banking.

Clarette du PlooyPrincipal (Arevos)[email protected]

Dennis FladManaging Director (Arevos)[email protected]

Authors

The Ripple CaseThe Ripple CaseA first real and operative solution rooted in blockchain tech-nology is Ripple, which Arevos supports in business develop-ment, product management, and distribution. Ripple enab-les the first cross-border Real-Time Gross Settlement (RTGS) based on cryptographic technology.

In the absence of international automatic clearing and sett-lement houses, Ripple has developed an end-to-end solution

to enable real-time payments on an international basis. In this concept, distributed ledger technology is used only to settle the payment, while payment-related messaging (who is paying whom and why) is directly and securely exchanged between the sending and receiving banks having installed the Ripple software. With no central storage of the data as in other networks, it facilitates greater data confidentiality and prevention of data leakage as banks have the storage and protection of client identification under their control.

3: The Ripple Case Source: Ripple Incorporated, San Francisco

Senderbank Beneficiary Bank

Ripple Connect Ripple Connect

Ripple Network mit Distributed Ledgers

Messaging

36 | Rubrik synpulse synpulse Sales and Customer Management | 37 Digital Transformation | 36

Customer Insights

Today’s client relationships in reinsurance can benefit from better insights into the client’s business and circumstances. A thoughtful process of providing valuable client information by the underwriter as well as generating additional insights based on an analytical approach and data consumption will change the way underwriters and the entire cross-functional team will prepare for touch points with the client. The technical backbone of this process relies on the traditional Customer Relationship Management system interacting with trending Data Analytics tools. Authors: Konrad Niggli | Christian Seidel

The reinsurance market is currently experiencing a number of headwinds. Low interest rates not only depress invest-ment returns, but also bring large amounts of return-seeking alternative capital into the market. A soft market means pre-miums must be reduced to remain competitive, leading to internal cost cutting and restructuring in an attempt to pro-vide comparable service at a lower cost, measures which do not go unobserved by customers. However, a singular focus on lower price need not be the only answer to today’s multi-faceted challenges.

Consider the following scenario, the logical result of the Cus-tomer Journey diagram that accompanies this article: «Hi, great to speak with you again. After further examining your risk profile, it appears you have a significant coverage gap re-garding the marine and cargo policies written for your East African customers. Our experience with multiple insurers has shown that you could consider further piracy coverage to fill this gap. I would even suggest speaking to Mr. Jones about this, as I see that he was recently appointed as your company’s Chief Underwriting Officer and he is an expert on the topic.»

Isn’t it nice when a business leaves you feeling that you as a customer are more valuable than simply the cash you hand

over? This situation, despite being fictitious, is a great exam-ple of how a clever reinsurer leverages customer data into insights and uses these to make a higher level value offering to the client. In this example, we are cultivating a meaningful client relationship using a positive strategy that engages the client emotionally. By using data to add an extra layer of care and expertise to the interaction, we can encourage the rein-surer can strike up a partnership with clients. This allows a reprioritization of a client’s values, putting quality service and business relationships ahead of just costs. Let’s break this example down, looking at where this business’s offer lands on the value pyramid, how data was used to generate insights without significant cost, and what this means for the reinsurance industry.

The value pyramid in business is not like Maslow’s hierarchy of needs — as you ascend, needs or values added become less fundamental, but far more satisfactory. A business can survive by providing customers only functional services like simplification of a daily task or cost and effort reduction. However, to truly engage and create lasting relationships beyond the transaction, one must seek to reward or motivate the customer, create something fun or anxiety-reducing, or simply provide a uniquely attractive product. This type of

synpulse synpulse Sales and Customer Management | 39 38 | Sales and Customer Management

added value constitutes the emotional, life changing, or so-cial customer impacts at the top three quarters of the pyra-mid. In the above example, the underwriter was able use the hard expertise of risk profile analysis and the soft expertise of latest news in the client organization to provide a product offer supplemented by an emotional component. By moving up the value pyramid, our reinsurer has created a feeling of trust among the client that their best interests, and not sim-ply the reinsurer’s bottom line, are foremost in mind.

One of the most crucial points of the example is how the in-sight was generated – existing customer data. In the end, all the added value took was an investigation of data that the

client already provided and a mechanism to seamlessly de-liver this information to the underwriter. This interplay can be seen between the underwriter and a sophisticated under-writing cockpit in the accompanying diagram ( 1).

Additionally, the extraordinary wealth of information that reinsurers have regarding who they are insuring or what they are insuring for means this type of insight generation is well suited to the industry. New big data analytics software, like MondoBrain, Squirro and others, can provide relatively cost effective solutions for a host of enhanced offerings. These may include developing new products that are more suitable to client needs before they request them and enhancing first-

1: Effective Customer Experience Steering

CustomerJourney

Lead Generation

Latest Information

Bi- WeeklyNewsletter

MeetingWrap Up

MeetingPreparation

P P

P

P

R R

R

R

Systems sends out personalized newsletter to UW with:

Latest on clients Job rotations in his network Changes in hierarchies / C-Suite Internal product development Campaign information Risk exposure and product proposal

UW updates contact data and provides meeting report

1 day prior to the meeting the UW receives latest news via email

Underwriter (UW) receives customer relevant information based on his preferences and rates accuracy

UW cockpit with relevant client information including news, financials, stock information, staff changes, internal business, claims / accounting. UW adds agenda to outlook.

UW decides to follow up on leads

Konrad NiggliPartner (Synpulse USA)[email protected]

Christian Seidel Associate Partner (Synpulse USA)[email protected]

Authors

line support with highly relevant customer data in order to expedite expert advice. When information from the back of-fice is combined with information gathered by the underwrit-er in the sales lead process, opportunities with leveraging data into customer insights abound. Reinsurance clients will take notice when their needs are predicted by their reinsur-ance partners and cared for with a more nuanced approach.

Instead of simply looking to relieve price pressure by cutting costs, we should look to innovate, and encourage reinsurers to create relationships with customers through the power of data. When underwriters combine data gathered through the customer journey with analytics of existing customer

data, they can predict client needs more accurately. As a re-sult, clients see their reinsurer as a partner rather than just a provider and a reinsurer can stand out in a largely homoge-nous industry. This translates to trust: they will be more in-clined to keep doing business with the reinsurer and seek them out first when in need of reinsurance products and services.

synpulse synpulse40 | Digital Transformation Digital Transformation | 41

Digital Reinsurers – Real World Implications of a Visionary Concept

Going fully digital seems like a million years away. Vague concepts and buzzwords have dominated the digitization discussion for some time now, but no comprehensive concept has yet emerged of «what to actually do next» with all the hyped technologies. This article takes a closer look at this vision of the fully digitized reinsurer. We want to demonstrate why we think the emergence of fully digital, cost-optimized reinsurers is just a question of time and examine some technologies that will make it happen. Authors: Thomas Kary | Wolfgang Rueckert

Market forces lead to new, cost-optimizedoperating modelsWhile traditionally the reinsurance purchasing process was determined by financial rating, client-reinsurer relationship, underwriting expertise and finally price, insurance compa-nies and brokers are now considering the price to be of high-est importance given an acceptable financial rating. This is due to known market circumstances such as low interest rates, which result in no alternative investment, and the tre-mendous overcapacity derived from the investment appetite of various institutions. We believe that the change will con-tinue in this direction and will become permanent.

Long-term low prices are causing a shift in the reinsurance market. Many niche players have already found their operat-ing model by focusing entirely on very limited business spec-trums, and other players need to analyze their value chain in order to gain efficiency and save costs.

While large and global reinsurers continue to focus on com-plex non-standard risk dealing built on their Client Managers’ negotiation skills, smaller and more focused players need to standardize their operations in order to avoid falling into the cost trap. A new, fully digital low-cost operating model is the logical consequence.

Emergence of cost-optimized digital reinsurersOur prediction is the evolvement of Digital Reinsurers with highly effective operations, using extensive means of digita-lization to achieve the lowest possible operating cost.

This business model must go hand-in-hand with a conscious focus on products offered. Non-standard business requiring a high degree of manual underwriting cannot be part of the product offering, for instance. Cost-optimized Digital Rein-surers will need to focus on highly standardized business to fully leverage the savings potential of the digital value chain.


1: Potential Business Strategies

Prod

uct S

pect

rum

Pricing Strategy

Cost Optimized Digital Reinsurer

Digitally guided/ enhanced

Premium Reinsurer

Cust

omiz

ed

Premium

Stan

dard

ized

Discount

The success of a fully digital operating model depends on underwriting high volume business at a low price and excel-ling in speed and precision of delivery. Cost-optimized Digi-tal Reinsurers have the opportunity to take over a high share of easy-to-price standard business.

As shown in the graph, premium reinsurers with a focus on complex non-standard risks can benefit from advances in technology as well. In order to gain a clearer picture of the potential of digitalization, we will focus our further explana-tions on the model of the «cost-optimized Digital Reinsurer» ( 1).

Making use of technology along the reinsurance Value ChainIn our model, the value chain of a cost-optimized Digital Rein-surer is similar to a traditional reinsurer. Nevertheless, there are notable differences, as depicted in the graphic below.

When the digital operating model is implemented, direct cli-ent contact is replaced by independently managed business portals which consequently squeeze out brokers in this seg-ment. Underwriting is highly automated, based on parame-ters and rules defined by a unit setting the underwriting standards. Only exceptions are addressed by human under-writers. Claims, Technical and Financial Accounting are based on automated interactions between client and rein-

surer systems. Rules engines are used to validate the infor-mation; for more complex issues artificial intelligence sup-ports - or even makes – real-time decisions.

In a Synpulse study, technologies for each value chain ele-ment were scrutinized for their maturity. Some technologies are market ready, others are in use only in pilot settings, and many topics dominating the press coverage are more vision-ary than realistic. Without first fully embracing the available technologies, investing time in topics which are not market ready should be reserved for the Innovation Labs.

A closer look at Technical accountingThe area with the greatest frequency and magnitude of transactions is Technical Accounting. Once a treaty has been set up in the system, the whole accounting process can beful-ly automated. Transmitting data needs to follow standards such as the Accord standard promoted by the Rüschlikon Initiative. When the assignor/broker sends a technical state-ment, reinsurance ERP systems can compare the reported positions to their own estimated values, process them and trigger payments without human interaction. Only in the case of unacceptably high deviations do humans need to in-vestigate the underlying reasons. Initial implementations of this fully automated approach still do not run smoothly, with human intervention required in a high percentage of cases. The main reason for this is the divergent naming conventions

within the accounting systems of various market players. A full stop instead of a comma can create an error which needs to be resolved manually. Nevertheless, we think that auto-mated administration will soon be a standard. With a reason-able amount of effort, these «growing pains» can be alleviat-ed to enjoy the benefits of fully automated administration.

Naturally, Technical Accounting is the area where many in-surers, brokers, and reinsurers have already tested digitali-zation with various approaches. Using OCR software, for ex-ample, to capture paper statements and digitally process them has only been successful when used for specific appli-cations. Too much variety regarding currency, business line and client exists in the individual client statement. The ap-proach to import client data with mapping software is more sophisticated. Digital client files like Excel are uploaded and the information mapped to an internal table from which it can be processed in a fully automated manner. While there have been promising installations, maintenance effort is substantial. Whenever the client changes the file, the map-ping logic has to be adjusted. Soon we expect these technol-ogies to be combined with an artificial intelligence, vastly reducing the need for human interaction/exception han-dling. The technology already exists - application in reinsur-ance is just a matter of time.

How the different technologies enable the organizational set-up of a cost-optimized Digital ReinsurerDirect client contact will be maintained on a high level or completely replaced by independent portals. Brokers will either compete with their own portals or be gradually squeezed out of the value chain.

Existing technologies include web portals/transaction platforms which will be the link between insurance companies and reinsurers. We think that only the inde-pendent models that allow all market players (insurers, brokers & reinsurers) to participate will be successful.

These portals will be directly linked to the client’s and reinsurer’s systems to allow fully digital and automated communication with the purpose of standardizing the information coming from all the systems of the different market players. In addition, standardized information

can be accessed via different devices and integrated into the overall end-to-end process of the Digital Reinsurer.

Incoming physical documents can be mined with OCR (optical character recognition) and processed automat-ically.

Multi-channel support is being provided for clients (e.g. with the help of virtual personal assistants)

Products as well as reinsurance treaty clauses will be highly standardized to allow high levels of automation. A depart-ment called underwriting standards (pricing standards) will determine product standards and feed the pricing engines with the rules and prices, allowing a high degree of straight-through processing.

Dynamic price strategies already exist which facilitate this process. Additionally, intelligent document creation creates contracts based on the input from the web por-tals and multiple channels for products which have been standardized.

Underwriting will be done, where possible, by automated pricing engines. Manual underwriting will only be performed if the risks are not close to standard.

Underwriters are able to get a 360 degree view of their clients with information coming from inside and outside their companies with the support of digital closed-loop interactions. Today, this method is already being used and will become even more attractive and effective when other value chain steps are included, e.g. claims.

Automated scanners analyze the client treaty wording and give ratings on the conformity of internal minimum clause definitions.

Pricing engines use client data, own experience, and market data to determine competitive pricing.

Claims and Technical Accounting will be fully automated. Manual interaction will only occur when expected values are not met or the control mechanisms report an exception.

synpulse synpulse Digital Transformation | 45 44 | Digital TransformationRe

insu

ranc

e Va

lue

Chai

n

Business Portal

Manual UW / Exception Handling

Technical Accounting

FinancialAccounting

Claims

AutomatedUnderwriting

Sam

ple

Tech

nolo

gica

l Tre

nds

Underwriting Standards & Tools

Market Ready

Transaction Platforms

Digital Security

Application Programming Interface (API)

Saas beyond the CloudBig Data and Smart Analytics

Robotic Process Automation (RPA)

Automated Prority SystemData Lakes

Text Mining / OCRDynamic Price Strategies

Block Chain

Omni Channel Services

Virtual Personal Assistant

Augmented Reality

Pilot

Vision

2: Digital Reinsurer Value Chain and Relevant Technological Trends

Thomas KaryAssociate Partner (Synpulse Switzerland)[email protected]

Wolfgang RueckertAssociate Partner (Synpulse Germany)[email protected]

This includes internal automatization and exposure to external transaction platforms. So far, P&C has been covered by these platforms in various European coun-tries. Now several other lines of business such as Marine are becoming part of this automation as well, due to lo-cal market standards (e.g. France, Netherlands, UK).

Big Data, smart analytics and telematics have also been around for quite some time now. Soon reinsurers will also be able to process and manage this data according-ly. This is a major advantage for improving claims man-agement, including continuous process automation, based on this input. In the near future, drones, aerial, and satellite imaging will be able to provide low-cost and free-risk images which allow for a leaner claims pro-cess in numerous lines of business.

While some of these technologies are more fit for certain parts of the reinsurer value chain, there are other technolo-gies which expand over the whole process chain.

Robotic Process Automation (RPA) is software that can be used from client management through underwriting to claims management. It enables the internal systems to interact with external market platforms and also manage client contracts and information.

Mobility and the fast expansion of Digital Reinsurers to key locations in this business, as well as remote risk lo-cations, require access to the company’s data world-wide. While cloud computing has been around for some time now, SaaS beyond the cloud offers more specific services for reinsurers.

While insurers have been making use of application pro-gramming interfaces (APIs), reinsurers are becoming the new focus of these front-end and back-end providers, including the enhancement of mobile services in this area.

ConclusionMarket forces will lead to the emergence of highly digital oper-ating models. With existing technologies, a fully integrated digital value chain can be achieved. In order to get there, rein-surers have to adapt their organization, their processes, their IT systems, and their business philosophy. They have to care-fully decide which technologies should be used for each value chain segment and how they can be fully integrated. These changes will take time and take the organization to its limits. But the efforts will be rewarded. Digital Reinsurers will outper-form their traditional competitors in terms of price, delivery consistency and speed.

Authors

MastheadThe Magazine is published three times a year. Articles can be accessed via www.synpulse.com. Published by: Synpulse Singapore | Editor: Synpulse Group | Realization: Synpulse Singapore | Printer: KHL Printing Co Pte Ltd | Feedback and inquiries to: Synpulse Switzerland AG, Thurgauerstrasse 32, CH-8050 Zurich, phone +41 44 802 2000, fax +41 44 802 2001, [email protected] | Copyright: The reproduction of articles is permitted with the agreement of the publisher if the source is acknowledged. Articles by guest authors do not necessarily represent the opinion of the publisher. | Photos: Shutterstock, Inc. | Layout/illustration: Synpulse Singapore

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