Insurance Market Trends in Outsourcing, Automation, & Cloud Adoption

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Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means,
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May 2015
Insurance Market Trends in
Outsourcing, Automation and Cloud Adoption
Ray Shehata
Director
Insurance Services
+1 732 331 3431
ray.shehata@isg-one.com

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Insurance Market Trends

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Expanding Market & Client Retention
Industry-Specific BPO Technology to Aid Tight Margins
*
*
**
*
*
*
*
Regulatory Burden Increases
Insurance Industry Trends – Key Observations
 Heightened requirements
around security, privacy,
partnership risk and
operating risk
 Outsourcing of many paper-
intensive processes is
expected to increase as a
result
 Gap continues between
consumer need and available
insurance products/solutions
 Finding right mix of resources
across servicing (RTB) and
product development (CTB)
 War for talent in full swing
 Companies narrowing
processes defined as ‘core’
 Making more industry
specific processes available
for outsourcing
 Addressing tight profit
margins with investments in
technological solutions to
improve:
 Front-end sales
 Distribution
 Customer service

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Adoption of Digitization The Connected Car / Telematics
Focus on AnalyticsSystem Modernization, XaaS & Automation
Insurance Technology Trends
 The way consumers make
decisions today has changed
drastically
 As a result, insurers investing
in digitizing:
 Billing & payments
 Claims handling
 Buying not building core
systems – i.e. Guidewire &
Accenture Duck Creek
 Cloud encroaching on
traditional outsourcing
 Outsourcing pricing is
dropping as result of
automation
 Seeking niche service
providers that offer analytics
solutions to sharpen market
segmentations strategies and
help reduce ‘fraud claim’
 Pay-As-You-Drive (PAYD)
 Pay-How-You-Drive (PHYD)
 Pay-As-You-Go, and
Distance-Based Insurance

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ISG Insights on Insurance Sourcing

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Outsourcing Spending ($B) Contracts Awarded by ACV ($B) Contracts Awarded by Count
Insurance Outsourcing Market
Over the last five years, almost 75% of contracts awarded had an ACV of less than
$10M, indicating a shift towards small-sized contracts.
*Excludes Telco-Telco Contracts Source: ISG Research
344 460 299
Count of Contracts Awarded, by ACV
Band (%) 2010-2014
Average Size ($M) and Duration (Yrs) of
Contracts Awarded
Contracts ACV ($B) by Region 2010-2014
Americas
25%
Asia-Pacific
6%
EMEA
68%
$6.5 $6.3 $6.2 $6.3 $5.7
$3.3 $3.7 $4.2 $4.3
$4.2
2010 2011 2012 2013 2014
ITO BPO
$2.0 $2.0 $2.0
$2.4
$1.3
$0.6
$0.9 $0.7
$0.4
$0.7
2010 2011 2012 2013 2014
ITO BPO
95 84 94
129
155
50 74
83
68
68
2010 2011 2012 2013 2014
ITO BPO
2%
1%
1%
1%
2%
1%
5%
4%
10%
25%
50%
100M+
$80M-99M
$60M-79M
$50M-59M
$40M-49M
$30M-39M
$20M-29M
$15M-19M
$10M-14M
$5M-9M
< $5M
$17.4
$8.9
2010 2011 2012 2013 2014
4.4 yrs
4.0 yrs

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The Future of Sourcing
Service integration becomes the imperative as sourcing continues to disaggregate
to enable the application of new emerging technologies.
Internal Shared Services / Captives
Function
Function
Function
Function
Function
All Towers
OR
 Infrastructure
 ADM
 BPO Function(s)
Tower
Tower
Tower
Tower
Importance
of Labor Arbitrage
Importance
of Software, Platforms,
Labor Automation & Scalability
Function
Social Media
Collaboration
Mobility BYOD
Analytics & Big Data
Cloud
Computing & Storage
Service Integration
Strategic & Selective Sourcing Multi-Sourcing Confederation
MARKET 5 – 10 YEARS AGO LAST 5 YEARS NEXT 3 TO 5 YEARS

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Functional View of Insurance Outsourcing
* Third Party Administrator
Strategy &
Management
Front & Middle
Office Services
Back Office/
Transaction
Processing
Basic HighComplexity of Interaction
Support Services
Investment Management
Product Sales & Marketing
Facilities Management
Procurement
Cashiering, Billing & Collections
Document Services and Records Management
Policy Administration & Servicing
Underwriting and Claims Processing
Audit & Risk Management
Pricing , Underwriting, & Claims Management
Research & Analytics
Claims Assessment & Settlement
Compliance
New Business
Sales & Distribution Management
IT Infrastructure & ADM
HR Admin
Contact Center
Sales Support
Finance and Accounting
Capital & Treasury Management
Strategic Management
Possible sourcing candidate
Strong retained candidate
Strong sourcing candidate
Suitability For Sourcing
HighEnterpriseValueAdded
Reconciliations

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ISG Insights on Automation

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How Automation is Transforming Outsourcing
Think of the market progression from the left-hand side of the chart to the right in
two waves: Wave 1 is labor arbitrage; Wave 2 is labor automation.
Wave 1
Labor
Arbitrage
Wave 2
Labor
Automation
► 15%-30% cost take out
► Model is scalable to the extent that you can scale
labor
► Custom/complex, legacy: “Your mess for less”
► Access to low cost labor necessary to provide
continuous value
► Provider revenue/profit correlated to people
► 60%-80% cost take out for relevant functions
► Model is scalable and is largely independent of
labor growth
► Transformative – A new way of doing business
that yields shorter cycle times and improved
service quality
► Access to “rocket scientists” who can codify
manual processes
Wave 1 Characteristics Wave 2 Characteristics

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IT Services Pricing is Dropping at Different Trajectory
Innovation in the service delivery models anchored by labor automation are
changing the pricing of services in the market today.
Pricing
Time FuturePast
Low
High
In many areas of ITO, ISG is
seeing pricing innovation
that is lowering the future
pricing vectors.

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Automation Players
Basic
Cognitive capability
Governed
Rules-based
processing
Input Processing Maturity Ability to handle all
disparate
instructions
Early stages of
formation
Thought Leadership
Established patents
and relevance
Implementation
services with focus
on run business
Spread of Offerings
Platform-based
ecosystem
Minimal client
presence
Client implementations
Over 25
implementations
Process-level
implementation
Solution Applicability
Industry-level
impact
Single industry
or tower focus
Industry impact
Multiple industries
and towers
Based on initial research conducted, IPsoft leads the market in terms of technology maturity, gaining
market traction in IT with its autonomics platform, IPcenter. In addition, IPsoft’s Amelia shows a lot of
promise in achieving cognitive computing. IBM’s Watson leads the market in software adaptability and
unstructured data processing.

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Feb
2015
Mar
2015
Apr
2015
May
2015
Jun
2015
Jul
2015
Aug
2015
Sep
2015
Oct
2015
Nov
2015
Dec
2015
Jan
2016
Feb
2016
Mar
2016
Apr
2016
May
2016
Jun
2016
IT Governance
Org &
Deployment
Strategy
Automation
Rollout
RFS &
Contracting
Automation COE/
Service
Management
Change &
Transformation
Management
Automation
Planning &
Strategy
Automation Pilot
Automation Requires a Transformation Program
Change Management (Training and Communications)
Includes Core Team & ITLC Meetings, Internal & External Communications
Ongoing communications plus Training
the future state org on new operating
model, processes, roles &
responsibilities, contractual terms, etc..
8-12 Weeks
Includes design and development of SIAM processes,
org, roles and resp. to assist in creating internal and
external accountability
Deeper dive and understanding of operations and processes to create
a deployment strategy and detailed project plan for rollout. Identify
skills, capabilities, org structure, etc. of resources who will perform
future roles
8 weeks
Transition of services to virtual engineers for delivery of the
services in the target operating model starting with wave 1
low hanging fruit
Wave 2 & 3 Automations
Q1 - Q2 2016
Deployment and
Wave 1 Automations
Establish a centralized organization to monitor and enhance
automation to achieve targeted business objectives8-12 Weeks
4-8
weeks
High Level Bus. Case
and go to market
strategy
EXAMPLE EXAMPLE EXAMPLE
Contracting for POC, installing technology and Piloting in
a non complex area which has critical mass and impact12-16 weeks
Conduct an RFS process and develop and sign contract12-16 weeks
Pilot if Client has already
determined Automation
Software Provider or
Conduct RFS
It starts with understanding the business case for automation and developing the
implementation roadmap. The Implementation Roadmap should:
► Articulate a plan that includes a total
picture of what the implementation will
resemble.
► Form a realistic timeline view of all
required work streams.
► Provide a starting point to build out
various streams and detailed plans.

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ISG Insights on Cloud Adoption

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Cloud is Classic Disruptive Technology
The infrastructure cloud is almost a textbook case of disruption.
The March of the Cloud
EnterpriseAdoption
Time
The cloudData center outsourcing
2006: Amazon
launches AWS
2000s: The IT services industry
rides the RIM wave
2011-2013: Amazon expands
beyond raw infrastructure
into PaaS
2014: Rackspace to focus on
managed services
2014: The CIA commissions
Amazon to build a custom
cloud
Cloud lies outside the realm of data center
outsourcing
Cloud encroaches into DCO territory

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Cloud is Encroaching on the Traditional Outsourcing Space
Cloud used to be about raw infrastructure only. Not anymore.
Who will control the enterprise IT stack?
The shrinking role of service providers
► IaaS providers have
moved up the stack
into application
infrastructure
(databases, web
servers) and managed
services.
► True to cloud ethos,
the cloud providers
offer a much higher
level of automation.
Networking
Storage
Servers
Virtualization
O/S
Middleware
Runtime
Applications
BPaaS
Networking
Storage
Servers
Virtualization
O/S
Middleware
Runtime
Applications
BPaaS
Disruption by the cloud is shrinking the
infrastructure pie
Late 2000s 2015-2020
AWS, Rackspace,
Terremark,
Savvis
The traditional
IT service
provider
RedHat
GridGain
AWS
Rackspace
Terremark
Savvis
IBM
The traditional IT
service provider

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Flexible, Consumption-based OPEX in Demand
The explosion of OPEX, consumption-based cloud services has fundamentally
changed the equation.
The IT focus dramatically shifts; the CIO is required to be an entrepreneur: understand, reduce and flex costs,
invest in technologies that increase business revenue or decrease costs. Understanding current costs is the first
step in this journey.
Strategic Stage of ITStatus Quo of IT
Disconnected with
business (demand
mgmt., proximity,
transparency, …)
InfrastructureApplicationsBusiness
Increase
Business
Proximity
1
Investment FocusCost Driven
Achieve
Technology
Superiority
2
Attain Cost
Leadership and
Control
3
Reach optimal
Agility4
Business excellence,
demand steering,
dismantle new
business
Insufficient
automation,
inflexible Apps
portfolio
Re-allocation of $,
standardization,
SaaS, ROI-based
business solutions
Dead capital (e.g.
maintenance,
CAPEX, fixed costs)
Costs reduced,
flexibility and
standardization of
computing (IaaS)…
OPEX
CAPEX
OPEX
CAPEX
OPEX
CAPEX
OPEX
CAPEX
OPEXCAPEX

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Evaluate
Applications
Model
Scenarios
Evaluate &
Continually Procure
Understand
Current Costs
How to Source the Cloud
Cloud sourcing focuses on opportunities created by cloud-enabling applications and
creating a “control point” to further democratize access to technology.
Business Case &
Technology
Business
Management
Application &
Organizational
Readiness
Deployment &
Sourcing Model
Strategy
Provider
Evaluation &
Platform-based
Sourcing

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Applications Drive Cloud Decision Making
A key difference from traditional sourcing is that, with cloud sourcing, the focus is
nearly always on applications, even if infrastructure-as-a-service (IaaS) is in scope.
Rationalization and Filtering Process
Tactical Implementation
of Delivery Model
Application Portfolio
Current State
4 Regulatory constraints on application and data
1 Business criticality, cost of migration and maintenance
3 Security and data privacy requirements
Forklift
(no change)
Managed
Hosting
Private
Cloud
Public Cloud
(IaaS - SaaS)
2 Technical suitability: workload attributes, service levels required
Take an
application-centric
approach to
implementing in
the cloud

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Cloud Introduces a Myriad of New Options
Cloud service and deployment models vary greatly across technology, operations,
commercial and contractual considerations.
PaaS
SaaS
IaaS: Public
Traditional Data Center
Iaas: Virtual Private
Iaas: Private
HighLevelofStandardization(technology,SLAs,terms)
Low HighAgility
Sharing Model
Hosting Location
Accounting Treatment
Cloud Characteristics
Management/ITIL Services
Multi-tenant
Opex (multi-year baseline commitment)
External
Self-service
Multi-tenant
Opex (no commitment)
External
Self-service
Multi-tenant or Dedicated
Opex (no commitment)
External
Self-service (ITIL-based management services available from SI ecosystem)
Multi-tenant or Dedicated
Opex (minimum commitment often required)
External
Self-service or ITIL-based managed services depending on vendor
Dedicated
Opex or Capex (for Opex, minimum commitment required)
Internal
Managed Services
Dedicated
Capex
Internal
Internally supported
Systems of Record
(ERP, Transaction
Processing)
Systems of
Engagement
(CRM, Mobile,
Analytics)

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