Keep Marching Through Change - KPMG | US · The representative approach below sets out the key...

Navigating Change

kpmg.ca/insuranceconference2017

26th Annual Insurance ConferenceTuesday, November 28, 2017

The Stage is set for Change

3© 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Is transformation inevitable?

Coverage gap

Emerging technologies

Customer

• Artificial Intelligence

• Cognitive thinking• Internet of Things

• Customer needs are shifting

• Impact of social media

• The on-demand customer

Areas of increased exposure

• Climate Change• Cyber Risks• Geo political risks• Legal Costs

• Emerging Technologies

• Changing insurance needs


Other industries have had significant disruption

The insurance industry has been relatively unscathed…for now

A new set of challenges… and opportunities

Source: KPMG Analysis

Insurance?

MusicTransportation

Hospitality

Groceries

Payments

Lending

Advertising and News

Consumer Retail

Books

Movie Rentals

Investments


Driver of Change: Customer preferencesInsurers understand well how to cover risks, they often fail to engage their customers individually. Even though insurance is complex, customers want to be involved, emotionally and rationally. When insurers act on this knowledge, customer share can rise.

43 percent of its survey respondents trust the insurance industry in general. Most customers are neutral, with 16 percent actually distrusting their providers.

Source: IBM Corporation, Title: Capturing hearts, minds and market share - How connected insurers are improving customer retention


Driver of Change: Cost pressure and efficiency

• Focus on algorithmic risk management • Robotic Process Automation has the

potential to replace human labour has put the technology on a collision course with offshore outsourcing

• Drones - Insurance companies today are turning to drones to monitor crops, snap pictures for real estate listings, and map the oil sands

• Big Data - Using Big Data to Improve Claim Processing Capabilities

• Transforming the Claims Process with Telematics

Digital Labour as a solution?

Source: McKinsey & Company; Title: Automating the insurance industry


Driver of Change: Accounting and regulatoryAny project needs to be considered in a broader context…

1. OSFI’s Advisory (March 2017) narrows the range of practice for federally regulated life insurers, requiring that they use the temporary exemption (if they qualify), or seek an exception.

2. Early application of IFRS 16 Leases is permitted only for companies that also apply IFRS 15 Revenue from Contracts with Customers.

2017 2018 2019 2020 2021Life Insurance Capital Adequacy Test

IFRS 17 Insurance Contracts

IFRS 9 Financial InstrumentsTemporary deferral1

IFRS 15 Revenue fromcontracts with customers

IFRS 16 Leases2


IFRS 17 transformation approach

Project Management & Governance

Business Strategy & Impact

Accounting, Actuarial, Tax & Reporting

Data, Systems & Processes

People & Change

The representative approach below sets out the key tasks, milestones and major deliverables in each phase of the project cycle. The implementation plan needs to be refined and revisited as information is gathered and strategic priorities are identified. Initial outputs for successful implementation of the project will be the readiness assessment and roadmap document.

Project definition Detailed impact assessment Design processes and controls

Develop and test systems and processes

Build and Test IT Solutions

Revise Accounting Policies & Model Pro

Forma Results

AccountingDiagnostic

Initial Evaluation of Processes and

Systems

Prioritize Impacts and Define

Workstreams

Formalize Steering Committee,

Communication Plan and Key

Milestones

Scoping

Contract Reviews

TaxesWhite Papers

Internal ControlsInitial Risk Assessment

DisclosuresAccounting Evaluation

Improve Systems, Processes, and Controls,

as necessary

Select Technology and Manual Solutions

Detailed Implementation Plan

Refine Systems & Processes, and Data

Requirements

2017-2018 2018-2019 2019 - 2021

Go-live & sustain

Deploy IT Solution, Certify

Controls, and Sustain

Process & Technology

Broader Impact Evaluation:— Pricing— Investor relations— Business & Sales — HR— Legal

Assess transition adjustment needsDetermine information needs based on method selected

— Calculation of cumulative effect— Restatement of comparative figures, including

quarters — Historical data — Population of contracts requiring adjustment

Design transition adjustment approach

Implement: Calculate transition adjustment

Report and integrate

Determine IT and manual solutions, including controls, to ensure completeness and

accuracy of data required

Transition Option Assessment

Calculate the transition adjustment and perform tests to ensure accuracy

of results

Report the transition

adjustment and integrate into new systems

Resource Management, Communication and Training

Revise Processes and Add Internal Controls

Accounting Gaps

Data Requirements

Phase 1 – Assess Phase 2 – Design Phase 3 – Implement and Sustain

Rea

dine

ss A

sses

smen

t

Transformation in the Insurance Industry


The insurance sector is undergoing large scale transformation

Transformation in the Insurance Industry

Business and Customer Experience

Customer Analytics

Marketing Analytics

Chatbots and digital advisors

Distribution

Omni Channel distribution

Partnerships and alliances

IT and Digital

Digital transformation (cloud, mobile, etc.)Automation & innovationData and analyticsRobotic process automation

Operating Model

Core system replacement/ transformation

Regulatory compliance and risk management Finance and actuarial transformation

Transformation best practices


A high proportion of transformation efforts fail to deliver the intended program benefits / value and issues can arise throughout the program lifecycle

Why do transformations fail?

Low engagement of sponsors

Lack of clear vision and direction

Lack of employee ownership

Lack of employee capability

Misalignment of people processes,

policies, and systems

Identify issues & develop strategic response Program launch Program

implementation Program scaling Transition to BAU


Multiple drivers of transformation must be consideredThe “Nine levers of value” and “six design layers” help understand the drivers of transformation

Nine Levers of Value

Markets

Core Business Processes

Org. Structure, Governance, Risk Controls

People & Culture

Measures and Incentives

Operational & Technology Infrastructure

Clients & Channels

Financial Ambition

Propositions & Brands

Six Design Layers

Process

Service Delivery Model

Governance

Information

People

Technology


Plotting the course: Transformation best practicesAlthough no transformation program is the same and “one size does not fit” all programs, certain best practices emerge that increase chances of success

Start with the customer

Define a clear vision for the transformation journey

Get sponsors and leaders on board

Setup effective/efficient program governance

Manage change early and throughout the transformation1

2

3

4

5

Promote agility, speed and nimbleness

Manage value

Enable the transformation with technology

6

7

8


1. Start with the customerTransformation efforts should start with the customer: change should be driven from the “outside in” and not from the perspective of the company’s traditional internal constraints

Emotional expectations Physical expectations

Price

Channels

Quality

Product

Service Delivery

Location

Environment

Emotions

Temperament

Behaviours


2. Define a clear vision for the transformation journey

Competitive Forces

Key issues faced by the organization

• Competition / Disruptive forces• Regulatory • Customer expectations• Technology advancements• Industry convergence• Economy / Political situation / Climate

change• Demographics

• Stagnant growth / Loss of market share

• Declining profitability• Talent scarcity• Customer satisfaction issues• Long-term relevance / Lack of

innovation

Future vision

• Improved use of data and analytics

• M&A• Partnerships & alliances

• New business model / operating model• New systems, processes, organization

structure• Improved customer experience

Compelling & inspiring

Provides context

Desired outcomes / Benefits Sense of urgency

Business led

Aligned to corporate strategy


3. Get sponsors and leaders on board

Make it Known Make it Real Make it Happen Make it StickMake it Clear

Communicate the change vision and

case for change and begin to create ownership of the solution

Translate the change vision into reality for

people in the organization and

define what it means for them

Move the organization towards the end state and equip people to work in new ways

Ensure there is capability in the

organization to sustain the change

Align leaders around the strategic aims,

ambition and scale of change

Clear Aware Ready Willing Able

Change Leaders build change capability and capacity by personally committing to creating long term, systemic change


4. Setup effective/efficient program governanceEffective and efficient program governance can help create and protect value related to transformation initiatives

Alignment to strategy & vision (vision translation)

Program management tools, methodologies, enablers

Solution design & TOM (design authority)

Portfolio, program & project management

Roles & responsibilities Reporting & communication

Business case, resource estimates & budgeting

Project plan

Risk identification & management

Benefits realization

Program structure & Workstreams

Prioritization


4. Setup effective/efficient program governanceHave the right transformation team: change leadership is about more than the Executive team

Visible, empowering leadership

Strong and engaging managers

Supportive and dynamic change networks

Staff with change capacity and capability including dedicated resources

Cross-functional


Timeline to implementationThe planned effort for a typical Canadian life insurer will vary depending upon a number of key decisions, including whether they intend to use IFRS 17 as a platform for operational or system improvements within their existing processes:

2017 2018 2019 2020 2021 2022

Anticipated effort (by workstream)

Actuarial and Accounting Data, Systems and ProcessesBusiness People and Change

Design, build and test, systems and

processesStrategize and plan,

making use of financial impact assessments

Project Planning and Kick-off


Change management is critical for a program’s success and it helps organizations minimize the degree and the duration of impact and maximize success potential

5. Manage change early and throughout the transformation

?

AnxietyDisbelief

HappyExcitement

FearUncertainty

ThreatLosing

ConfidenceDisillusionment

Unmotivated

DenialIgnoring

GuiltShame

DepressionCrisis

HostilityUndermine

AcceptanceExploring & Testing

Moving OnNew Confidence


6. Promote agility, speed and nimbleness

“Good enough” vs perfect

Minimum Viable Product (MVP)

Proof of concept

Balance action vs. reflection

It’s ok to fail

Remove organizational constraints

Innovation

Rapid adoption

Time to value and time to market

Silos

Organizational constraints to agility

Governance

Size

Complexity

Culture


7. Manage valueEmbed a value-based and metric driven approach to the strategy development and execution of the transformation

Identify issues & develop strategic response Program launch Program

implementation Program scaling Transition to BAU

Benefit analysis, confirmation &

planningBenefit realization Benefit tracking &

transitionBenefit identification


Enable business and process design and management with data and analytics and leading technologies

8. Enable the transformation with technology

Data & Analytics

RPA

Chatbots / Cognitive / AI Digital

Cloud

Point solutions


ConclusionTransformation is the new normal for insurance companies1

Transformation is hard2

Chances of not realizing anticipated benefits is high3

Take it one step at a time and celebrate small wins along the way4

Keep focus and don’t lose sight of the target, but adjust as needed to changing market conditions5

Talk to others undergoing transformation to share lessons learned and best practices6

Seek advice from others who have done it before!7


Plotting the course: Transformation best practicesAlthough no transformation program is the same and “one size does not fit” all programs, certain best practices emerge that increase chances of success

Start with the customer

Define a clear vision for the transformation journey

Get sponsors and leaders on board

Setup effective/efficient program governance

Manage change early and throughout the transformation1

2

3

4

5

Promote agility, speed and nimbleness

Manage value

Enable the transformation with technology

6

7

8

Thank you!


Contact us

Walter RondinaPartnerManagement ConsultingT: 514-840-7295E: [email protected]

Amit ChalamSenior ManagerAudit, Financial ServicesT: 647-248-2071E: [email protected]

mailto:[email protected]

mailto:[email protected]

kpmg.ca

© 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Right now!It’s time for a break – See you in Room 1052:45 – 3:15pm

Plenary session begin at 3:15pm – Room 106

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