Trust the Experts ISSUE 3 OCTOBER 2013 Testing times amidst the forthcoming insurance boom The insurance sector in India is poised to go through tumultuous times in the decade ahead. India is currently rated very low in the Human Development Index, one of the prime factors being a poor healthcare framework for the large masses of the population. This means the Government needs to focus on providing better health related services on a massive scale. Against this backdrop providing health insurance becomes critical especially since we are an under insured country by any standards. The growth of a combination of the public and private insurance sectors would help achieve the desired results. With our economy also growing rapidly the need for general insurance has also to be met. Think automobiles, fire, etc. Consumers of insurance could range from corporate to government to retail and micro consumers. All this has to be linked to organizations like hospitals and primary centers that deliver healthcare, whether under the state or the private sector. The regulatory system and framework assumes prime importance to ensure overall compliance, fair play and ethical behavior all around. Also, there needs to be in place systems for mitigating consumer grievance and complaints. Finally there has to be a reliable, accurate, speedy and efficient network to manage the flow of payments. In this scenario there is no doubt that Information Technology will play a key role in making all this happen. This will create a large eco-system consisting of IT service providers and Software product makers whose work and outputs again has to be of a high quality. It is evident that the role of quality assurance and testing services to the Insurance Sector is like a lynch-pin, on which depends the smooth and efficient functioning of the system. The Cloud Messenger With technology taking a front seat in driving the organization’s goals, Insurance companies more than ever are dealing with a new set of challenges when it comes to procuring and maintaining IT solutions that constantly undergo changes as business needs change. Cloud Computing, Mobile Applications and Business Analytics are transforming the way carriers offer value added services to their customers. Cloud computing is enabling insurers to construct their business models to offer new services to its customers and to create new distribution channels that boosts its sales. Cost advantages that come with cloud based solutions allow insurers to offer competitive pricing too. With cloud services providing real-time data from multiple sources, the insurance industry is seeing a significant shift in its business model whereby a transformation from product centric to customer centric thinking is becoming a routine phenomenon. Cloud computing is helping insures avoid up-front investments and still provide innovative and value added services in the business areas of underwriting, quotations and claims management Asvini Kumar Chairman and Managing Director Thinksoft Global Services Ltd
Transcript
T r u s t t h e E x p e r t s
ISSUE 3 OCTOBER 2013
Testing times amidst the forthcoming insurance boom
The insurance sector in India is poised to go through tumultuous times in the
decade ahead. India is currently rated very low in the Human Development Index,
one of the prime factors being a poor healthcare framework for the large masses
of the population. This means the Government needs to focus on providing better
health related services on a massive scale. Against this backdrop providing health
insurance becomes critical especially since we are an under insured country by
any standards.
The growth of a combination of the public and private insurance sectors would help
achieve the desired results. With our economy also growing rapidly the need for
general insurance has also to be met. Think automobiles, fire, etc. Consumers of
insurance could range from corporate to government to retail and micro
consumers. All this has to be linked to organizations like hospitals and primary
centers that deliver healthcare, whether under the state or the private sector.
The regulatory system and framework assumes prime importance to ensure
overall compliance, fair play and ethical behavior all around. Also, there needs to
be in place systems for mitigating consumer grievance and complaints. Finally
there has to be a reliable, accurate, speedy and efficient network to manage the
flow of payments. In this scenario there is no doubt that Information Technology will
play a key role in making all this happen. This will create a large eco-system
consisting of IT service providers and Software product makers whose work and
outputs again has to be of a high quality. It is evident that the role of quality
assurance and testing services to the Insurance Sector is like a lynch-pin, on
which depends the smooth and efficient functioning of the system.
The Cloud Messenger
With technology taking a front seat in driving the organization’s goals, Insurance companies more than ever are dealing with a new set of challenges when it comes to procuring and maintaining IT solutions that constantly undergo changes as business needs change. Cloud Computing, Mobile Applications and Business Analytics are transforming the way carriers offer value added services to their customers.
Cloud computing is enabling insurers to construct their business models to offer new services to its customers and to create new distribution channels that boosts its sales. Cost advantages that come with cloud based solutions allow insurers to offer competitive pricing too.
With cloud services providing real-time data from multiple sources, the insurance industry is seeing a significant shift in its business model whereby a transformation from product centric to customer centric thinking is becoming a routine phenomenon.
Cloud computing is helping insures avoid up-front investments and still provide innovative and value added services in the business areas of underwriting, quotations and claims management
Asvini Kumar Chairman and Managing DirectorThinksoft Global Services Ltd
J Hari Narayan IAS was Chief Secretary of the State of Andhra Pradesh from 2006 to 2008 and Chairman of IRDA from 2008 to 2013. Over an illustrious 39-year civil service career he was involved with the privatization of a large PSU, the first of its kind in India at one end through appointments at the Ministries of Education, Coal, Defence, Food Processing and Rural Development to the creation of the Hyderabad Software Technology Park at the other end as MD of APIDC. Rural Development, Care for the Elderly and Music are interests very close to his heart
Mr. J. Hari Narayan (JHN) the immediate past chairman of the Insurance Regulatory & Development Authority of India (IRDA) in conversation with Abraham Kuruvilla (AK) on issues relating to adoption of a ‘risk based capital’ framework by the Indian insurance industry
AK: Hello Mr Hari Narayan, how important is it for the Indian Insurance industry to adopt a risk-based capital framework and are they ready for it?
JHN: There is a risk-based capital concept in India, but it is not within the terms of what is understood in international parlance. And particularly after the Solvency-II directive has come out! That’s the first thing we must understand. Now, within the risk-based solvency framework that they are talking about, companies are expected to assess their own risk, and create an internal model as they call it, to assess the risk which they have on their liabilities side, as well as their assets side. Now they are entitled to use their own model and calculate their risk based upon that particular model. The model however is subject to oversight by the regulator. In the event a company doesn’t choose to develop its own model, or if the model developed is inadequate, then the regulator may prescribe a model, which the company is bound to follow. So fundamentally, that is the pattern they follow – or rather what they have adopted within the terms of Solvency–II. Now in India, we have a different concept of solvency and we believe that our system is far more robust.
AK: Related to the problems that Europe is having with Solvency–II, what do you foresee as some of the problems that India would have in adopting the framework?
JHN: See, merely because it is adopted in Europe, that doesn’t mean it’s the best model to go by. Having said that, the need for solvency is a cornerstone of the financial structure of an insurance company, and it is so across the entire world. Briefly, what it says is that at any point of time, the insurance company must have assets which are sufficient to meet its liabilities. That law applies not just in Europe, it applies all over the world and in India too, and it is always applied in India. The question now is, how are you going to measure your assets, and how do you measure your liabilities. And how are you ensuring that one
equals the other. That’s the question!
So when they are talking about risk and risk-based assessments, they’re really talking about the accuracy of estimates. For an insurance company, whether it be liabilities or assets, both are only estimates. No doubt competent estimates, professionally executed estimates, but estimates nevertheless. Take for example the question of estimating liabilities; typically, insurance companies look at these liabilities based largely on the past data and past track record, and project the liabilities in the future. Now, this might work well, but I think you know about the ‘Black Swan’ event don’t you?
AK Yes, I’ve some idea!
JHN: It is a term which has become very popular after the 2008 financial crisis –fundamentally, the question is: how are you going to, based on past experience project, for instance, a disaster like a Fukushima, or the Christchurch earthquake, or
even the Kedarnath landslide and floods and all that? Disasters of this dimension are very difficult to predict. That’s why the estimate of liabilities is always shaky. It is founded, no doubt, on statistical mathematics, but fundamentally, since it’s based upon the past, is that a very reliable indicator to the future or not, is a debate that is going on at a very esoteric level in the world of mathematics.
But having said that, essentially when you’re saying ‘risk-based’, what you’re saying is: a) we need to assess what might be our liabilities at a point of time, and b) the same thing holds with regard to assets – what is the value of assets which an insurance company holds. If you take insurance companies in India, for instance – and that’s largely true across the world, the pattern is not very dissimilar – in India, for instance, insurance companies hold about 15% of their assets in equities. And the other 85%, bulk of it – about 55% to 60% - is held in government securities, and the balance 25% to 30% is held in corporate debt. So you’ve got government debt, corporate debt and equities. As far as equities are concerned, there is no problem, because on the date when you are going to assess, the value of a given asset, there is a market value because there is discovery in most
of these shares. That is why in India, for instance, we do not allow insurance companies to invest in the equities of non-listed companies. The reason is, there is not sufficient discovery of price in such instruments. But that in any case amounts to only 15% of the portfolio, generally. So the question is: how are you going to assess the debt? What is the value of the debt which one has? And that is the issue, as far as India is concerned.
AK: Could you elaborate?
JHN: There is a myth that all government securities are risk-free. Now we have seen in the 2008 crisis that that may or may not be a valid proposition. There are several government debts, for example, which certainly were not risk-free. So the question is whether it is wise to look at Indian government debt as risk-free. And even government debt in India is of two kinds; one is, you’ve got the central government debt, there are also state government
The Risk Based Capital framework in the Indian context
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### Private health insurance in Australia is limited to services not covered by Medicare (the Govt backed basic universal health insurance scheme) or to services provided in private hospitals. The Australian Taxation system encourages middle to high income earners to take out Private Health Insurance. While most taxpayers pay a 1.5% Medicare levy, an additional 1% Medicare Levy Surcharge is payable by those taxpayers who earn more than $76,000 and do not have Private Health Insurance. Source http://en.wikipedia.org/wiki/Insurance_in_ Australia
### Under the Insurance Business Act (IBA) the prime Minister of Japan has overarching authority as the regulator. Except for powers such as granting and cancelling insurance business licenses, most have been have been subdelegated.
--- A solvency margin of 200% or more is sound and invites no intervention by fsA. If < 200% but > 100% fsA will issue a “business improvement order” and would cancel the license if less than 100 An extract; courtesy Norton Rose
### In a move to dematerialise insurance policies, the FM of India P Chidambaram, launched, IRDA’s Insurance Repository System. The FM wanted the IRDA to extend the insurance repository system to non-life insurance policies soon. “During natural calamities such as the recent floods in Uttarakhand, people lose their insurance policies making claim and settlement of insurance almost impossible. Loss of identity in case of migration also affects claim and settlement of policies. Hence we require mandatory digitisation of life and non-life insurances in the country,” Chidambaram said. Deccan Herald News Service Hyderabad, Sep 16, 2013
From Asia Pacific
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debts, and there is also the debt, or the bonds issued by state government instrumentalities, like for example Power Finance Corporation and other corporations and so on. So what is the value of this debt? Is it risk-free, truly?
And then there is the question of corporate debt, and where exactly the corporate debt is. If you look at the banks now, banks have lent money to very big corporates, and several of them are in distress, because of various reasons, the repayment of the loans taken by the corporates is not as per schedule, which is why they’ve got a problem of the asset quality, and they have to make provisions for asset quality. So when we’re looking at the portfolio of an insurance company’s assets, the question is: what provisions do we need to make for different classes of debt? That is the question. And we don’t have a sufficiently robust and deep statistical basis on which one can assess that the risk in a given instrument is so much. The banks have done it.
AK: So, Sir how do we do it?
JHN: The system we follow in India is, that the liabilities side can be fairly well-assessed, because as far as life insurance companies are concerned, there’s little problem in estimating liabilities, because the statistical basis of life and life probabilities and events and so on is very well-charted, and you can do it very accurately. The same doesn’t hold good for non-life companies, that’s general insurance companies, which deals with miscellaneous types of perils, like for example, as I mentioned, the Uttarkashi issue, or the Bombay flooding and things like this. But in India, fortunately, those secular kinds of perils are not very widely insured. The bulk of our insurance is in motor car insurance and in health insurance, and these are very well tracked. So there’s not much of a problem. The problem comes only when you’ve really got vast property holdings, and then the issue of assessment of risk is of far greater importance.
So coming back, in India, what we do – we require insurance companies at all times to maintain one and a half times the assets over the liabilities as solvencies. In other words, it is not equal to, but it is one and a half times greater than. And that’s how I believe it’s a very robust thing. But on the downside, because we haven’t got well developed markers to assess what
might be the quality inherent in, let us say, corporate debt, or even in a government debt, we’ve hiked up the percentage, partly to meet the inaccuracy in estimating the risk on that factor, and secondly it’s also the question of time.
Supposing we find that a company’s assets are eroding, or their liabilities are increasing over their assets, it takes some time before that can be recognized. Their system of accounting has to come up from that, it has to be recognized, it has to be reported, and so on. And having recognized it, we will again require time – of both the management and the regulator – to take sufficient steps to restore the equilibrium of the company. That also takes time. And in order to allow for this time, as also allowing for a certain uncertainty in the quality of the debt, we’ve insisted on a margin of a 150%. So that gives us enough time – partly because they have not really estimated the value of the debt, meaning what is the risk associated with a different class of debt. Let us say, if you’ve got 100 crores of bonds which are say rated at BB and let us say it is an 8% bond – what are the chances of a default on that? Is it more, or is it less than if you had 8% on let us say an AAA bond. Is it more or is it less? How much more or how much less? This kind of arithmetic and details for it are not there. And that is why we believe that our system has met our needs; there have been no failures of insurance companies unlike in the west – in the west, every year, about half a dozen insurance companies collapse, and therefore it’s a far greater concern for them.
AK: They say technology could be a crucial driver in sort of balancing this risk. Now, what would be needed to business assure these technologies? Would you like to add something on that?
JHN: I don’t think it is much of a technology issue. It’s a data issue, a question of data reliability. The calculation of a risk is no big deal. If you’ve got the statistics, it’s just a fifteen minute job. So it’s not really a technology issue. It’s an issue of whether we have the quality and depth of the data we require, and have we captured all transactions accurately at a point of time. And do it systematically, you know, quarter by quarter, month by month, or even daily for that matter! To some extent, the Reserve Bank of India does it, and therefore what they have done for different classes of assets held by banks,
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By TCA Srinivasa RaghavanEditorial Adviser to the CEOThe Hindu Group
Banking on Insurance for all
Mr. T C A Srinivasa Raghavan, an MA in economics from the Delhi School of Economics, concluded his full-time professional career as the Senior Associate Editor of the Hindu Business Line. He had earlier worked in Financial Express, Indian Express, Economic Times and Business Standard where he was in charge of the opinion pages. Mr Raghavan has also been a consultant to the Reserve Bank of India’s history project, advisor to the Director of ICRIER, editor of Margin at NCAER and a senior fellow of the Asian Institute of Transport. He is a Distinguished Fellow of the Institute of Peace and Conflict Studies.
The Insurance Regulatory and Development Authority (IRDA) recently allowed commercial banks to sell insurance policies of several insurance companies, instead of just one as is now the case. In short, they need no longer be ‘sole stockists’.
they have calculated what should be the risk weights associated with different classes. So the IRDA had considered that, and based upon the expertise of the RBI on such matters, they had calculated and sent an exposure draft, saying that we could recalibrate our estimates based upon the risk weights as calculated by the Reserve Bank, and then require companies to make provisions accordingly. The question really is this: Companies are trying to balance between the need for security of an investment portfolio – rather, of an insurance portfolio, at the same time, to minimize the capital required to do so. Capital is expensive. So in countries such as in Europe, what they found as a result of the 2008 issue was it’s always in the shareholders’ interest to keep the capital as low as possible. So they used to keep it very low. They were skating on thin ice. And that is what they are trying to redress. So one of the concerns which Europe and European insurance companies have, is that they believe the Solvency–II requirement might require companies to recapitalize quite substantially, and that poses a problem for shareholders, for the economy at large, and that is the question which they are facing.
AK: Thank you Sir, have a nice day!
Banks that opt for this will not have to start a separate entity to apply for a broking licence. Instead, they will need to put aside a deposit of Rs 50 lakh. It is not compulsory for them to become a seller of insurance, at least not yet. In due course, the public sector banks could be forced to do so because it is the finance ministry which has been pushing this idea.
Basically, in the short term, the new policy is intended to lower the cost of sales to insurance companies by passing these costs on to banks in return for a commission. The idea is also to promote long term savings.
If more people buy insurance, especially life insurance, the pool of long term savings goes up and this will speed up the growth of the long term bond market. At present this market is underdeveloped because enough long term funds are not available. A thriving market for long term bonds is a must for the development of infrastructure finance.
It does not seem likely, however, that the banks will immediately see a very useful business opportunity here. The degree of responsibility and costs associated with the sale of insurance products will almost certainly not to be their liking. Besides, banks may prefer to remain on the agency model, which is still allowed. Nor is the Reserve Bank of India likely to be well disposed towards the idea. Its approval is needed for a bank to enter the insurance broking business. It also regards banks in insurance as a threat to financial stability.
ICICI Bank, HDFC Bank, SBI, IDBI Bank, Bank of Baroda, Canara Bank, Bank of India, and Punjab National Bank have their own insurance companies, and the potential for conflict of interest is always there. It should be noted though that to limit the damage from such potential conflicts not more than 25 per cent of all insurance business can be placed with a bank’s own insurance company. IRDA Chairman TS Vijayan, has been quoted as saying as follows:
“There have been informal discussions with RBI. People have reservations with the word broker’. Broker regulations are more in tune with larger risks like reinsurance. But we are not expecting banks to sell huge risk. It is a personal line of business for them. This idea will get acceptance widely, among both companies and banks. Today, a bank is the corporate agent of one insurance company (Life and General). While an agent represents the company, a broker represents the customer. As such, banks utilise own customer base and hence represent the customer.” That said it is important to understand the legal difference between an agent and a broker. Thus, whereas an agent represents the interests of the seller, namely, the insurance company, a broker represents the interests of the client, namely, the buyer of the insurance. This subtle change alters the redressal options for aggrieved customers and could lay banks open to a host of court cases.
In the end, though, whether an idea is good or not must be judged by seeing what it means for the common man. On balance, when everything has been considered, it does seem as if the ordinary people will benefit, because of two reasons: better access to insurance products and the altered relationship between buyer and seller.
This alone is a powerful reason for persuading banks to add the sale of multiple insurance products to their portfolios.
## On September 10, 2013, the Chancellor of the Exchequer highlighted the forthcoming ‘Current Account Switch Service’ as a core part of the plan to reform Britain’s banking system. For the first time, the new Service will let consumers safely and reliably switch their accounts between banks in 7 days, with a guarantee that they will be fully protected against any financial loss in the event a problem occurs during the switch. https://www.gov.uk/government/news/
## An ECB paper released in early July focused on public pronouncements on fiscal policy and state finances by officials. It found in the short term that certain types of commentary had a quantifiable effect on the spread between the bond yields of Greece, Ireland and Portugal over German bunds. The impact was biggest for Greece. The paper found that “at several points during the crisis, certain types of political communication may
have added uncertainty rather than certainty to market perceptions. Quote from ‘Loose Lips Sink Euro Bond Markets in Crisis’ by Simon Kennedy, July 11, 2013 in Bloomberg Businessweek.
## The green light from the central banks covers the use of Amazon Web Service (AWS) in all facets of Dutch financial operations, such as websites, mobile applications, retail banking platforms, high performance computing and credit risk analysis applications. Banks shifting their technology to AWS will still have to comply with DNB rules on cloud computing, including the requirement to compile a risk analysis and conclude agreements about who has access to the data and where it is physically stored. DNB must also be granted the right to audit data stored in the cloud. Archana Venkatraman on July 29, 2013 in ComputerWeekly.com
From Europe
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A commission less world
Richard Leeson has held senior positions at AEGON UK, Prudential International and most recently was Sales & Marketing Director for AXA International. He has been a thought leader in the industry on the strategic impact of RDR. He has authored many articles for trade publications on how RDR is affecting adviser based financial advice in the UK. Richard is also CEO of Adviser Advocate.
At the beginning of 2013, the quality of IT-Delivery of financial services companies became their biggest strength or their biggest weakness. The importance of this change has yet to be felt at the highest levels of executive management. In January
2013 the Retail Distribution Review (RDR) promulgated by the Financial Services Authority (FSA) of UK took effect and had several fundamental impacts on the financial services sector, most of which have yet to materialise.
RDR banned the payment of commission to financial advisers on investment products and required those advisers to adopt new fee charging structures known as “adviser charging”. Financial services companies largely treated this change as a problem requiring a “work around” solution from their IT departments. Having successfully made the necessary changes to remove commission payments from their products by January this year, these companies are endeavouring to return to a world of business as usual.
Business is not as usual. Many companies are reporting falls in new business volumes of substantial levels, Prudential confirmed a 17% fall in bond business and Zurich Life reported a loss of nearly a third of its new bond business in the first half of the year. Success stories seem to exist only where commission is still payable on products like annuities and protection business.Advisers are less inclined to promote products in the post-RDR world and have had to rethink their entire business models. The new mantra for advisers is “time is money” as they consider hourly fee-charging and project fees. This in turn is focusing their minds on where they spend most of their time when not sitting face to face with clients. Administration is a key focus area.
Poor service, requiring advisers to sort out client problems cannot be billed easily to the client. Advisers either have to accept this as part of their service or seek compensation for loss of earnings from the providers responsible. In my own experience in the last twenty years of dealing with fee-based advisers, they will invariably seek compensation.
By Richard Leeson
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Analytics in Banking and Insurance;Prospects and Challenges
By Prof Premchander
Professor Premchander Fellow IIMA: A visiting Professor at IIMA in the Finance and Accounting Area since 2009, he was a faculty of Finance and Control at IIMB from 1988 to 1997. Before and in between the above academic positions he has spent an equal amount of time in industry across SBI, Reliance, Accel Frontline, IL&FS, IL&FS Educational Service Ltd and lastly Mu Sigma Limited, a fast growing analytics company, as Vice President Operations. He has offered courses in management control systems, valuation, mergers and acquisitions and continues to have deep interest in the latter, financing large projects and venture capital. Prem Is also associated with a couple of schools where he volunteers his time at their management committees. In addition he is an independent Director at Yuken India Limited an engineering company.
As I walk into the ATM of any Bank and withdraw a sum of money I would have generated volumes of data for the bank. By identifying the location it is possible to map my travel pattern. By identifying the times of the day and my withdrawals it is possible to read patterns into my banking activities and spending habits. At another level the flow of customers through the ATM can in turn determine usage, waiting time and help make capacity decisions and also refilling decisions so that the ATM is never out of money and are efficiently located.
Banking generates large volumes of data at a high velocity and in various often unrelated locations. A lot has been written about the potential for Big Data Analytics (BDA) in Banking. Already high fixed costs businesses, recent regulatory changes have pushed the fixed costs even higher making it all the more important to seek out profitable customers – that use the banks services and pay for it. In this search for customer’s banks no longer enjoy the luxury of traditional marketing paradigms of developing a product and searching for customers. The race is often to proactively assess what a customer wants and offer the service desired within the framework of the banks objectives, policies and the regulatory environment obtaining in that segment.
Driving revenue is not only about acquiring new customers but also about identifying new needs and crafting products to meet them. More often than not the customer is unable to articulate that need. A 360 degree view of the customer, personalized service, improved segmentation and targeting could be some of the benefits of BDA.. When a bank’s internal data is supported by third party data the potential could expand many fold.
Risk management has become far more critical in recent times. The events of the last decade have placed both regulatory and business pressures on comprehensive risk management policies. Risk modelling, predicting loan default, predicting fraud and identifying exposure to various segments are but a few of the areas where risk management could be critical. At a conceptual level all of them could use BDA to estimate and manage risk effectively. Banks are currently just taking baby steps in this area and the potential is huge.
Research and strategy are yet another possible application that can grow out of BDA. At the level of individual customers analysis of data both internal and external could help identify high value assets and drive products towards them. 360 degree analysis and judicious use of external data could help reduce risk. (It could be possible to understand payment behaviour by buying data from telecom and utility companies). Such external data could embellish internal data.
Banks with the storehouse of data that they possess would be well placed to provide a range of data based services for their clients. This could involve customer information, supply chain information and risk profiling of suppliers and customers on behalf of their clients.
With large opportunities, huge amount of data and pressure to manage risk and improve profitability one would expect greater penetration of BDA in the banking sector. Surveys show that
Increasing compensation claims have focused the minds of the providers I have worked with as they seek to control spiralling costs. This has led in turn to a focused view of the impact of administration excellence on the bottom line. For some providers the use of service level agreements including stated compensation amounts have been a means of reassuring advisers of their administration offering. All of them have increasingly become aware of the impact of IT systems on their service delivery.
Excellence of IT delivery has been key to underpinning excellence of service delivery to both adviser and the end customer. The days of manual workarounds are long gone. In today’s financial services industry and especially so in the post RDR environment, companies need to ensure their proposition are supported by robust systems. To achieve this requires full and early engagement of the IT team in strategic and tactical planning. By ensuring early engagement from the IT team it is possible to resolve development priority conflicts swiftly and efficiently.
## Gov. Rick Perry has directed the Texas Department of Insurance to establish strict rules to regulate so-called navigators trained to help Texans purchase health coverage under Obamacare. While the governor says the extra regulations will ensure that people handling Texans’ private financial and health information are properly trained and qualified, the rules could present a significant roadblock to organizations helping to implement the federal Affordable Care Act. Quote Becca Aaronson on September 17, 2013 at http://www.texastribune.org/ 2013/09/17/perry-directs-tdi-regulate-federal-navigator-progr/
## Canada is currently the only G8 country without some form of overland flood coverage. “The way things stand, property owners are not adequately protected under a system that places too much emphasis on recovery at the expense of mitigation,” said Kathy Bardswick, president and CEO of The Co-operators. From Canadian Underwriter.ca September 17, 2013
## The issue of whether competition in the banking industry is good or bad for financial stability is a complex one. …… there is considerable uncertainty both at a theoretical and empirical level concerning the relationship between competition and financial stability. While there are many historical examples of stable financial systems with limited competition such as Canada, there seem to be relatively few examples of highly competitive stable banking systems. The United States' historical experience with a competitive banking system was one of frequent crisis. For sure, competition is not the only relevant factor with funding structure and regulation also being important. However, it seems that other things equal, more competition leads to a more unstable financial system. From http://www.economist.com/debate/days/view/706 quoting Franklin Allen, Nippon Life Professor of Finance and Economics, Wharton School, University of Pennsylvania
From North America:
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while basic reporting tools are in place, in a majority of the banks, analytic tools are rudimentary and the application of predictive analytics is limited. In a recent survey a third of the bankers indicated that their organization did not even use analytics.
It has to be recognised that in many situations there is often no one to one correspondence between the use of analytics and increase in revenue or reduction in costs. In addition with very tight operating budgets banks have little incentive to explore new operational technologies. Further, banking is a secretive business with much higher levels of security and reluctance to outsource.
Banks may have to take the following steps to get the best out of BDA.
• Integrate the data being collected in various locations and coming in at high speed.
• Build internal resources in analytics to help interpret requirements from internal clients to external analytics service providers
• Look for small wins quickly to create a demonstration effect through an internal team.
The insurance sector, another financial sector, is in a slightly different stage of adoption and development. Traditionally, the insurance sector has used statistical tools to help in rate setting and risk profiling. Some of us were pleasantly surprised to read that hypertension and diabetes do not any more attract higher charges for health insurance. Such a measure could well also be arrived at from BDA.
This sector has been slow in adopting predictive analytics, mainly because of the absence of integration in the large databases. As the level of adoption of data warehousing one should be looking to see even mid-size-insurance companies using more analytics in policy risk scoring, fraud detection, referral scoring etc. I am looking forward to an era when Indian insurance companies insure the driver rather than the vehicle. Of course that may need regulatory changes but careful drivers can hope to benefit.
Evaluation of Core Insurance SolutionsBy Phani TangiralaPractice Head - Insurance, Treasury & Capital MarketsThinksoft Global Services
In the final analysis the financial services sector with high volumes of data and with data flying around at high velocity like banks and insurance companies are eminently positioned to benefit from the use of Big Data Analytics. The coming years, one can look forward to greater innovation in the use of Big Data Analytics in particular its integration with unstructured behavioural data and third party data, to get a 360 degree view of the business and customer.
It could be said that eighty percent of global IT transformation projects in insurance companies are not successful. No exaggeration if ‘Success’ is not just a question of going LIVE. Though projects start with the objective of aligning technology with corporate growth enroute there is such turmoil that just going LIVE is often viewed as an objective in itself. Needlessly such situations do upset business users.
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Let’s examine some very common concerns that persist after going LIVE.
Business Users
• System is very slow
• Transactions now involve more steps compared to legacy systems
• Reports are missing
• With the new system financial books are in mess
• Too many change requests are now being received for enhancing the software
• It worked in UAT but not in production
• The vendor fixed one problem which then reopened an older one
• Documentation/User manual is not good enough
• This is a basic requirement, yet the vendor says it’s a change request
• Introducing new products is difficult and needs code change
Common complaints from software developers
• Users do not specify their requirements in total, we always receive one line requirements
• Our application is working fine, it’s the data from legacy which is giving problems
• They agreed to use canned reports, but now they want reports in their own format.
• Users never read documentation
• Users never spend quality time for testing, they are always pulled way by operational needs
• Users want everything free of cost
Most of the above concerns are generally addressed within six months of going LIVE that is during the stabilization period. It could however be a matter of concern if these issues are not resolved even a year of going LIVE with new core system; a clear symptom of flaws at strategic level than at tactical level. This necessitates a meticulous approach towards analyzing, assessing and resolving the issues, and to also put in place mechanisms preventing reoccurrence of the same issues.
Critical Success Factors We should also examine the critical factors that drive projects towards success.
ProjectCritical
SuccessFactors
BusinessAssurance
Business Case
StakeholderInvolvement
ResourceAvailablity
ChangeManagement
ProgramManagement
ExecutiveSponsorship
It is important to determine if one or more of the above factors have contributed to the project not meeting its original objectives. This exercise should be seen more as an activity intended to find the “Right Way Forward” than looking at as “Fault Finding” task.
Case INeedless to say, the involvement of the top management in the implementation of core insurance solutions is extremely important. Our experience in the recent past is depicted in the following chart. It is evident that projects where the top management involvement was not adequate in the early stages are forced to consume more time during the crucial latter phases.
Focus Areas
Some key areas that are to need to be critically examined to identify the source of issues discussed are: -.
Additionaleffort
Effort saved atlater stages
Timesaved
at the end
## A Canadian company; Identa-DNA Corp is launching a product that uses a consumer’s DNA to mark valuable assets, a tool it says insurers can use to track items after loss or theft. Alastair Russell, CEO of the company began developing the product after several years of selling products from SmartWater, a UK-based asset-marking technology company. From Canadian Underwriter.ca June 2,, 2013
## Usage-based auto insurance is set to become a mainstream offering, Companies that are slow to adopt telematics and incorporate it into their products will be at a major competitive disadvantage, suggests a new research report from Aite Group. Seven of the 10 largest property and casualty insurers in the world are currently offering telematics-based UBI, or have pilots going, The majority of the insurers offering UBI programs are operating in Europe, with at least 56 carriers running programs there.. From Canadian Underwriter.ca September 19, 2013
## The low penetration rate of 0.89%, according to the Qatar’s QFCA, constitutes an attractive growth opportunity in the
insurance sector. A young population, robust economic foundations and a programme of infrastructure and oil and gas developments make it highly attractive to both local and international insurers. Another reason to expect growth is that there are very few compulsory insurance rules in Qatar. Third-party motor liability and professional liability for engineers are the only two categories currently obligatory, far fewer than in many other countries. It is expected that the next few years will see more categories added to this list – the most widely anticipated being mandatory health insurance for Qataris and expatriates. Extract from http://www.oxfordbusinessgroup.com/
## Morpho (of Safran USA) today announced that its Indian subsidiary Syscom has been certified as the first and to date only payment card manufacturer in India for the manufacturing and personalization of chip cards for RuPay, by NPCI. The RuPay chip card is based on the D-PAS platform, which is the EMV* technology of Discover Financial Services (DFS) From http://www.rupaycard.info/ September 18, 2013
Technology and Markets
9
• To evaluate the extent of functionality covered by the core & identify the manually done processes
• To asses the fitment within the functionality available
• To ensure products have been configured with 100% accuracy in core as this is life line of operations
• To ensure that migration of data has been effectively carried out as a good application still fails if sitting on bad migrated data
• To ensure there are no dormant in applications that are damaging the integrity of production data. This is often negelected area which may explodes at later time with serious consequences
• To ensure effective management of source codes and to ensure that there is efficient process of code promotion to production
• To ensure that proper Quality Assurance Process has been put in place with necessary artifacts, tools and resources with capability
• To ensure that the business & IT team have sufficient knowledge on the product as this may increase the dependency on the core vendor
• To evaluate the extent to which internal IT team is involved in the operational aspects of Core System implementation
• To evaluate the extent of customization done on the product as the objective of getting an off the shelf application will be lost if the product undergoes extensive customization
• To evaluate how effectively the integration elements of the core system are handled
• To ensure that the core solution is capable of sealing to volumes in line with organization growth projected for years to come.
FOCUS AREAS DESCRIPTION
Functional Coverage
Functional Fitment
Product Configuration
Data Migration
Data Integrity
Configuration Management
Quality Assurance
Knowledge Transfer
Internal IT Involvement
Extent of Customization
Integration & Interfaces
Performance & Scalability
T r u s t t h e E x p e r t s
Meghadūta ISSUE 3 OCTOBER 2013 10
People
Process Technology
While the above table gives an indication of the focus areas that needs to be covered as a part of the evaluation process, it is not exhaustive. Depending on the outcome after initial process of evaluation there could be several other areas that should be focused as a part of the evaluation process.
Evaluation Process
While the section above indicates the areas that need thorough evaluation the following section covers the steps that are typically involved in evaluating each of the above mentioned focus areas
1) Review 2) Understand 3) Identify
4) Evaluate 5) Prioritize 6) Summarize
● Review the studies / reports / documents that show the story so far
● Evaluate the solutions from the various perspectives
● Prioritize and sequence the actions based on the solutions.
● Summarize the findings of the evaluation.
Document the solutions and recommend suggestions for the steps going forward.
● Understand the overall business direction of the organization
● Identify critical pressure points that may prevent the firm from reaching overall goals
● Identify the top issues that lead to majority of the problems (80:20)
Requirements
In order to conduct a thorough evaluation, it is very important that the evaluators have complete access to information. Some key requirements are listed below:
Requirement Description
Project Strategy Documents, Project Charter, Information Key minutes, Status Reports etc
Access to Access to project team, Project Stakeholders Sponsor, business owners,
decision makers
Audit Reports Post project audit reports (If any audits are performed)
Management Process, Business Requirement and Functional Specifications, test strategy, and assurance plans etc
Solution
The entire objective of the evaluation process is to derive at root-cause of the issues that are hampering a smooth functioning of core insurance solutions. While the issues could be several and the root causes can be even more, a generic classification of all issues generally can be limited around 3 major areas
While there are solutions available for each of the issues categorized in the above three groups, picking up a right solution will be a herculean tasks at times. A team well balanced in its composition with adequate representation from all quarters of stakeholders need to be constituted that would ponder on each of these issues and asses its solutions based on
A holistic approach needs to be designed by taking all individual solutions with responsibilities and KRAs defined. Each of the solution and the mitigation plan needs to be documented and tracked as a project by itself.
Case II
A leading life insurance organization in South East Asia has embarked into an ambitious transformation project with a view to replace their legacy policy admin systems with a solution built with contemporary technologies. Though the solution procured has been thoroughly evaluated for its fitment, the project has gone into serious troubles during the User Acceptance Testing (UAT) Phase. A planned UAT of 3 months got extended beyond 14 months with still no visibility of light at the end of the tunnel. Key concerns being
a) many business requirements not available in the new core insurance platform
b) business users have low confidence on the solution
c) too many defects during testing
An objective evaluation of this situation has helped the organization to discover the root causes that have brought them to this situation
• Stakeholder Buy-in: Evaluation of core insurance system done without adequate involvement of business team
• Drive from the top: Top management not involved until later stages
Cost Time Resources
Risk Value Biz Impact
11
It is not uncommon that the issues or root causes often do not surface from the Technology side as much as from Process or People
• Project Core Committee (PCC) has been expanded to include every department head from operations.
• Every major decision on the project is discussed with PCC to ensure buy-in from the operations team
Ownership from business has increased significantly thereby reducing people issues faced by PMO
Issue Solution Consequence
StakeholderBuy-in
Drive fromthe top
• Project Steering Committee (PSC) has been expanded to include the CEO and CFO
• Frequency of PSC has been increased from monthly to bi-weekly
No milestones are slipped as the top management is directly getting involved
Quality of deliverables also have seen significant improvement
UAT Management
• 80% of User Acceptance Testing has been delegated to Independent Third Party testing company with business users playing a mentor role
With majority of the UAT activities being carried by the independent testing company, business users are able to focus on their operations while still spending time only on the qualitative aspects of the project
Quality Gates
• Software development life cycle quality gates have been redefined with clear identification of
o Ownership
o Entry Criteria
o Exit Criteria
o KPIs /SLAs
Though the introduction of stringent quality gates has elongated the timelines marginally, the overall quality of deliverables has seen a substantial improvement.
Quiz for Meghaduta October 2013 ?
• UAT Management: Test Management process is virtually inexistent
• Quality Gates: Poor management of quality gates in SDLC
Q1: The earliest form of insurance; marine insurance originated in the 12th & 13th centuries in?
Tick: � a. Boston, � b.Florence, � c. London, � d. Shanghai
Q2: The doctrine that is present in the insurance law of all common law systems is?
Tick: � a. Bona Fides, � b. Confide, � c. Fides et Ratio, � d. Uberrimae Fides
Q3: Compared to 2010-11, by what percentage did the first-year life insurance premium collected in India rise or fall in 2011-12?
Tick: � a. +20%, � b. +15%, � c. -5%, � d. -10%
Q4: Ranked by total non-banking assets, in 2010, which of these insurance companies was not among the top ten insurance companies in the world?
Tick: � a. Aviva plc, � b. AXA S.A, � c. Berkshire Hathaway Inc, � d. Japan Post Insurance Co Ltd
Q5: On April 19, 2013, Germany stopped short of granting full currency status to which currency?
Tick: � a. Bitcoin, � b. eBay, � c. Ripple XRP, � d. Sodexo
Q6: Which of these is not a payment brand?
Tick: � a. EPC, � b. JCB, � c. RuPay, � d. Visa
Q7: On the London Stock Exchange, move from open-cry to electronic screen based trading started on?
Tick: � a. January 1980, � b. October 1984, � c. October 1986, � d. December 1988
Answers for Meghaduta July 2013 Quiz
1. Bank of Venice issued the earliest known bond to finance the war with Constantinople
2. Six countries constituted the European Union
3. Brazil had the highest number of commercial bank branches per 100,000 adults
4. The only cashless coca cola company in Africa is in Sudan
5. Pondicherry had the highest financial inclusion in the rating given by CRISIL
6. Awarding contracts to family and friends is associated with crony capitalism
7. Dial-up is not a mobile payment technique
Stake holder Buy-in
Drive fromtop
People
UAT Management
Process Technology
Process Gaps
Please click here http://thinksoftglobal.com/meghaduta/index.php to take the quizNote: Register and tick or enter the answer in the assigned box. Seven entries with best responses will be chosen as per a lottery draw and USD 100 will be donated to the chosen charity of each winner. Last date for responses - 30 Dec, 2013. Winners will be communicated by email.
T r u s t t h e E x p e r t s
Meghadūta ISSUE 3 OCTOBER 2013 12
India Parent Company
India
Thinksoft Global Services Ltd
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