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1 | 2019 int’l

synpulse

Rubrik | 1

The Magazine Management know-how for practical use

Blockchain & Money: Crypto Currency Accounts as a New Service Blockchain & Sustainability: Stopping Ocean Plastic While Reducing Poverty How to Recover Gems in Insurance Contracts


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|3

«While technology is important, it’s what we do with it that truly matters.»

Muhammad Yunus


4 | Rubrik

synpulse

Editorial

Blockchain technology fascinates me, even though the sheer speed at which it is developing can be intimidating. Most people associate blockchain mainly with crypto currency, but the technology goes far beyond that. For example, crypto currency visionary Jeffrey Berns recently announced plans to create a desert city that will run completely on blockchain technology. The smart city, called «Sandbox», will have over 67'000 acres of space in northern Nevada. A decentralized blockchain will manage all business within the smart city. This management pertains to facilities like residential homes, retail spaces, an eSports area and a high-tech park for ventures using artificial intelligence as well as to 3D printing and nanotechnology. Sandbox's residents can have their ownership and voting rights recorded on the blockchain in a process that is both transparent and shielded from manipulation. This may seem like the type of venture that is only found in science fiction movies, but it is based on facts that are already a part of everyday life. Other blockchain ventures, such as a floating city off the coast of French Polynesia, have received substantial support and are expected to emerge within the next ten to 20 years. Blockchain, as our interview partner Plastic Bank in this edition puts it, is just a method for coding an exchange of value on a shared digital ledger. The Canada-based bank shows that blockchain technology can help solve human problems. People in developing countries bring plastic to a recycling station and receive blockchain-secured tokens in exchange. These tokens can be used to pay for essential «commodities» such as education. In this way, plastic becomes currency. The bank's founders established «social plastic» as a brand and persuaded companies like Henkel, Marks and Spencer as well as SC Johnson to use its recycled plastic. Shaun Frankson, CTO & Co-Founder of Plastic Bank, shares his company's success story in our «From Outside In Interview». Synpulse helps insurers and banks to take advantage of disruptive technologies like blockchain. With our industry expertise and profound know-how of local markets, we can develop solutions for our customers and implement them successfully as shown in this Magazine. As always, I wish you an informative and inspiring read. Your Christoph Nützenadel


synpulse

Table of Contents | 5

Editorial ................................................................................................................................................................................. Digital Banking & Operational Excellence

Operational Implications of Crypto Currency Accounts as a New Service ............................................................... Operational Excellence Banking

Unlocking Opportunities by Serving the Affluent in Asia ............................................................................................. Regulatory & Compliance

Nimble IFRS 17 Reporting and Impact Assessment ......................................................................................................... Operational Excellence Banking

Banking Is Necessary, Banks Are Not? Redefine Your Operating Model in Time! ................................................... Operational Excellence Wealth Management

AI and Robotics in Wealth Management: Step into the Future! – Part 2 .....................................................................

4

6 10 14 18 22

From Outside In

Interview with Shaun Frankson, Co-Founder & CTO of the Plastic Bank «Stopping ocean plastic while reducing poverty is our goal – by blockchain» ......................................................... Operational Excellence

Bringing Discipline and Expertise to M&A ....................................................................................................................... Digital Transformation Insurance

Tackling Information Overload: Equipping the Digital Risk Professional .................................................................. Digital Transformation Insurance

How to Recover Gems in Insurance Contracts ............................................................................................................... Operational Excellence Insurance

26 30 34 38

Succeeding in the Millennial Insurance Market with Speed and Stability ................................................................

42

Masthead ...............................................................................................................................................................................

46


6 | Digital Banking & Operational Excellence

synpulse

Operational Implications of Crypto Currency Accounts as a New Service Crypto currencies and initial coin offerings (ICO) provide attractive service and revenue opportunities but come with compliance and operational risks. Gazprombank Switzerland, Synpulse and Prospire reveal how crypto currency accounts and ICO support can be offered in corporate banking in a compliant, efficient and secure way. Authors: Edouard Hurstel | David Steiger | Dennis Flad | Heinrich Frankenbach


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Digital Banking & Operational Excellence | 7

Among crypto-friendly nations, Switzerland has positioned

crypto currencies and, hence, reduces the risk of banks not

itself in a top rank. Proof of this is the «Crypto Valley» in Zug.

being compliant when doing business with the ICO sector.

It has become a globally recognized center of crypto inno-

Some banks see great opportunities in the crypto area and

vation and domicile of some of the most recognized initial

believe the guidelines are a starting point for developing

coin offerings (ICO). Especially the vehicle for ICO has

service offerings. For banks, the opportunities in this space

become very popular in the start-up scene. ICO enable

are attractive as they can leverage their banking license as

young companies to raise funding by issuing tokens as digi-

well as their core capabilities, that is extend them to the

tal assets. Buyers of such tokens gain tradeable assets.

specifics of crypto currencies.

These assets, in turn, grant access to a future service of the start-up (like a voucher) promise a certain return based on

Crypto banking services

predefined rules (like a smart contract). Often, the funding

To address the demand of institutional and corporate

is paid in established crypto currencies (e.g. Bitcoin, Ethere-

clients in the blockchain space, three crypto banking

um). After collecting the funds, the start-ups have huge

services must be established:

amounts of crypto currencies in their wallets. But they face three key issues during the process:  Many banks do not offer ICO start-ups bank accounts.

safekeeping of wallets and crypto currencies; investments in crypto currencies; and

This is due to uncertainty about the ICO’s unregulated business. Banks are concerned that they may support

inbound and outbound transfers of crypto currencies.

illicit activities. Safekeeping of crypto currencies and providing crypto  Start-ups need to exchange crypto currencies into fiat

wallets is similar to providing and securing bank accounts.

currencies. This will enable them to pay their ongoing

Investing in crypto currencies is already well established

expenses or invest in business development. However,

in the Swiss financial market (e.g. Falcon Bank, Swissquote).

as described in The Magazine 1-2018 int’l, banks refrain

Here, bank clients can buy and sell crypto currencies

from co-operating with ICO start-ups. They do not

by debiting their fiat currency accounts and exchanging

accept deposits of crypto currencies due to compliance

them for crypto currencies. We see the transfer of crypto

risks. It is therefore difficult for start-ups to make use of

currencies as the next step for crypto banking. This can be

their existing funds.

done by transfer to a beneficiary’s crypto currency wallet (outbound) from an originator’s crypto currency wallet

 The start-ups’ wallets are mostly held by a broker or wallet provider, but not by a bank. Safekeeping of

(inbound) outside the bank. Essentially, this service is like a cross-border payment with traditional fiat currencies.

the crypto holdings is an expensive task, as it requires a sophisticated security concept. Most brokers and wallet providers are start-ups with limited funding

Approach for a Succesful Crypto Initiative

themselves. Along with the sakekeeping issue, there is counterparty risk.

Level the playing field and enable the management team to understand and assess the potential of

These examples highlight the demand for banking services

blockchain technology.

for ICO start-ups in the blockchain and crypto currency environment.

Start with the client experience and then determine the gaps and risks in the system along the client

Regulatory framework for crypto banking

journey.

In February 2018 the Swiss Financial Market Supervisory Authority (FINMA) published «guidelines for enquiries

Go beyond fiat standards and use the technological

regarding the regulatory framework for initial coin offer-

advantages of crypto currencies to mitigate risk.

ings (ICOs)». It provides the first regulatory framework for


8 | Digital Banking & Operational Excellence

synpulse

Based on these three crypto banking services, banks can

lic wallet key. To bring crypto transfers into a regulated

provide a variety of services to their client base. Or they can

environment, due diligence on the beneficiary or origi-

serve blockchain and crypto start-ups. Such service could

nator needs to be done. Unmasking the originator

include ICO execution, ICO financing and ICO investment

would also make the crypto transfer similar to today’s

banking.

payments.

Five challenges for crypto banking services

3.

Use of crypto coins from illicit sources

Banks who want to offer crypto-related services need to be

To comply with AML regulation, the history of transac-

aware of the specific challenges and risks. This is especially

tions needs to be explored in the fiat world. The client

true when it comes to offering inbound and outbound trans-

needs to declare this history to the bank. The block-

fer of crypto currencies. We identified several issues that

chain, however, offers an advantage that can be used

banks need to solve to be legally compliant.

to increase the level of confidence among regulators and compliance specialists regarding the transfer.

1. Safekeeping and segregation of wallets

The blockchain stores every transaction in a history that can be analyzed. It can be identified from which

wallets a specific coin has been transferred. If this

segregated crypto wallets for the bank’s clients; and

wallet was connected to illicit activities in the past, the blockchain can reveal this by analyzing the trans-

a safekeeping solution for crypto currencies, wal-

action history and then calucating an AML risk score.

lets and private keys.

This score indicates whether it is recommended to execute the transfer with the beneficiary’s or origina-

2. Unknown counterparty and legal framework

tor’s wallet.

Unlike with current fiat payments, the beneficiary or originator is not an account holder at a regulated

4.

Core banking integration of cryptos

bank respecting the same standards like «Know Your

Crypto currencies need to be integrated into existing

Customer» (KYC), «Anti Money Laundering» (AML) and

core payment processes and systems. Our view is that

«Financial Action Task Force» (FATF). The beneficiary or

existing payment processes may be used for crypto

originator is an unknown identity hidden behind a pub-

payments after being slightly adjusted.

1 provides

Current high-level payment process

Enter payment order

Enter crypto transfer order

Check payment order

Check crypto transfer order

Crypto outbound transfer process 1: High-Level Process Comparison

Compliance checks

Beneficiary due diligence

Settlement (SWIFT)

Compliance checks

Execute transfer (blockchain)

Settlement (bank)

Source: Synpulse


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Digital Banking & Operational Excellence | 9

an overview of the outbound transfer process and the

derstand the basic concepts of blockchain and crypto cur-

difference between current payment processes is high-

rencies. This will enable an assessment of the opportunities

lighted.

and risks related to blockchain, distributed ledger technology and crypto currencies. The bank’s solution should also

5.

Investor protection of crypto currency specifics

focus on leveraging existing processes and frameworks for

Crypto currencies are more volatile than fiat currencies.

payments. While the technology and many of its features are

Additionally, liquidity might be an issue if the crypto cur-

new, the payment services essentially remain the same. It is,

rency is not well known and therefore not traded

however, necessary to adapt the processes to comply with

frequently. In order to protect its clients, a bank should

regulatory requirements and to take into account crypto

carefully select the among the crypto currencies provid-

currency specifics.

ed. Additionally, clients must be made aware of the risks before they invest in crypto currencies. Other measures

Our assessment shows that by dealing thoroughly with the

to mitigate risk to the client are limit orders, loss report-

challenges described and applying the success factors,

ing and investments without leverage.

banks can access the field of crypto product and service offerings.

Success factors for new services-setup Based on our experience, it is crucial for banks to find viable

In addition to the authors mentioned below, Edouard Hurstel,

solutions for the challenges presented. These must be

Advisor to the CEO of Gazprombank Switzerland Ltd. and Den-

checked with their clients, the regulator and those respon­

nis Flad, Partner of Prospire AG have contributed to this article.

sible at the bank. We have identified some general factors behind the success of a crypto initiative. This analysis is based on an initiative of Gazprombank Educating the bank’s leadership and all project managers at

Switzerland Ltd. (https://gazprombank.ch/)

the beginning of the initiative is crucial so that they all un-

Authors

David Steiger Associated Partner (Synpulse Switzerland) david.steiger@synpulse.com

Heinrich Frankenbach Manager (Synpulse Switzerland) heinrich.frankenbach@synpulse.com


10 | Operational Excellence Banking

synpulse

Unlocking Opportunities by Serving the Affluent in Asia With the rising wealth of the Asian middle class and the increased sophistication of retail clients, banks intend to enhance their service models. A platform extension better caters to the affluent, ensures a consistent client journey and boosts cost efficiency. Authors: Rahul Bansal | Gregory Achache | Evan Chang | Dalston Leong

A major contributor of growth in assets under management

turn poses a challenge to client retention across segments.

(AUM) in Asia (e.g. Singapore, China & Hong Kong) has been

What are the benefits and challenges in redesigning the ser-

the emergence of High Net Worth (HNW) and Ultra High Net

vice model for the affluent? Let’s take a closer look at some

Worth (UHNW) individuals. The growing affluent segment in

industry best practice implementation guidelines.

1

Asia presents a significant opportunity. By 2020, Asia should account for 54%2 of the global middle-class population. Its

A consistent client journey

wealth is expected to reach USD 43 trillion. 3

Establishing a consistent client journey across segments involves the expansion of front-end client offerings and the

To put the figures into perspective: Much of the wealth is

simultaneous consolidation of back-end systems and pro-

untapped given that the combined AUM of the top 20 Asia

cesses across traditionally separated retail and private client

wealth managers amounted to USD two trillion in 2017.4

segments. Retail clients are increasingly looking for a quality

Moreover, there exists within this segment a shifting inclina-

advisory proposition with a portfolio concept and a wider

tion towards a portfolio-based proposition from traditional

variety of product offerings. A platform extension program

product pushing. This means that serving increasingly so-

provides banks with the opportunity to bridge the gap in the

phisticated and affluent clients through retail banking may

service and product offerings with a less fragmented archi-

not be sufficient. That said, an internal survey reflects that

tecture setup.

more than 60% of banks in Asia are still servicing the retail and private segments separately using different platforms

Identified benefits of a platform extension

and service models. The resulting client journeys and service

The key objectives of initiating a platform extension pro-

levels are diametrically different for each segment. This in

gram are:

1 2 3 4

Led by China, a new billionaire is created in Asia every other day — 2017 The Unprecedented Expansion of the Global Middle Class: An Update — 2017 The Growing Asian Wealth Management Market Capturing the Mass Affluent Opportunity — 2018 Asia 2017 AUM League Table — 2017


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Operational Excellence Banking | 11

To ensure a consistent client experience

and a reduction in costs. This cost benefit is derived from

Extending platforms between retail and private seg-

a decreased per unit transactional cost as well as from

ments allows banks to deliver a consistent client experi-

cost efficiencies gained through the consolidation of

ence across segments. A prime example is the transition

teams and the streamlining of processes.

of a retail client to a private banking stature. A unified platform can minimize the impact to client account han-

Some banks have recognized the opportunity and have al-

dling, the performance calculation methodology and

ready begun committed large investment to such programs.

the client statements. This ensures a consistent client

Some of the challenges of a platform extension are highlighted

journey.

in the next section. This alignment is, in any case, inevitable.

To boost revenue through sales propositions

Challenges of a platform extension

From the front-office perspective, expanding the prod-

A platform extension can be complex in the short term due

uct and service matrix intended for a single segment to

to the isolated setup of the two segments within a bank. In

both segments can expand the bank’s client pool and its

the most extreme cases, it can bring complexities similar to

revenue. This is especially the case where retail clients

those related to a merger. In simpler cases, it can be a basic

become more sophisticated investors.

extension of the existing services. Some of the key challenges from a business and technical standpoint are shown in

To attain cost efficiency via economies of scale

1.

The key is to be aware of such complexity and to tackle it

From the operations perspective, the increased size of

upfront in the target operating model (TOM) and analysis &

the combined platform allows for economies of scale

design (A&D) phases of a platform extension.

Business

Technical

Business Model The retail segment does not have a portfolio concept and the alignment in the object model presents a huge change management challenge.

Implementation Complexity Segment specific requirements often result in over-customization of a system which substantially increases implementation complexity & efforts.

Regulatory Landscape The regulatory requirements across segments are different and require a holistic cross segment setup in terms of risk profile and suitability checks.

Integration of Systems A platform extension will result in the integration of legacy retail systems (e.g. CRM, finance, execution) with the wealth system resulting in architecture challenges.

Retail Services The retail segment has additional cash management requirements which increases the complexity of integration with the wealth system.

System Performance Handling of retail volumes for order entry & portfolio view requires substantial system performance optimization.

Product Catalogue The merging of segment specific product catalogue to a single product catalogue requires substantial clean-up effort.

Migration The legacy retail systems are accompanied with data quality & integrity issues which need to be addressed as part of the migration.

Source: Synpulse 1: Identified Challenges of a Platform Extension


12 | Operational Excellence Banking

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How does a TOM approach solve the challenges?

Technology & architecture

A clear TOM definition should form the baseline of a platform

extension program. A TOM approach will help a bank get a full

Define the target application landscape and IT architecture design.

understanding of the business strategy and vision, define Partnership & sourcing

project scope priority and plan the extension together with relevant stakeholders from the business and technology departments. The Synpulse TOM approach provides a frame-

Explore sourcing or vendor potential and define the target partnering model.

work that has been used across multiple projects for baselining and launching a platform extension program (see

2).

A TOM assessment will be run across four pillars:

The definition of target front to back processes using a set of best practice processes is at the core of such an assessment. Synpulse’s BANKINABOX covers all the processes with-

Organization & processes

in a core banking setup and contains know-how from various

Analyze and define the target organizational structure

platform extension programs. While defining the target,

and business process landscape.

a bank should consider the prioritization of the TOM pillar and the preferred rollout approach (i.e. phased versus big

Products & services

bang). A holistic analysis considering the cost, benefits and

Define future products & services, new market require-

risks will provide a clear roadmap for implementation of the

ments and functionality gaps of the program.

platform extension.

Target Operating Model (TOM) Vision Strategy

Organization & Processes

Partnership & Sourcing

Value proposition

Process domains

Customer segments

Country organizations & functions

Product & offerings

L1 processes

Channels Countries Jurisdictions Market trends & opportunities

Organization & functions analysis

BANKINABOX Products & services capability Products-servicesprocess matrix Products & Services

Target solution architecture Cash model Booking flows Technologies & Architecture Business case

Transformation planning and implementation

Source: Synpulse 2: Synpulse Target Operating Model (TOM) Approach


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Operational Excellence Banking | 13

Key implementation guidelines

platform coupled with in-depth knowledge of the

Platform extensions are challenging and the complexity

requirements of the different segments. This helps to

is further increased given the typical program mandate for

identify system gaps early and, hence, reduces the cost

maximum alignment. Therefore, a clear framework is re-

per change. This also needs to be supplemented by

quired to define, plan and implement such a transformation-

dedicated support from the platform provider.

al project. Some key insights for launching such a program Sequential implementation plan

are highlighted below: Planning and scoping

sequentially across the permutations of divisions and

Planning and scoping a platform extension require

locations. A strong private banking booking center

a deep understanding of the IT and business complexi-

should form the baseline. This makes it easier to launch

ties along with the platform capabilities. There needs to

the platform to additional divisions in the region. From

be a holistic TOM exercise for scoping and a clear defini-

an APAC perspective, the simultaneous go-live in Hong

tion of the target architecture for such a program. A real-

Kong and Singapore with a big bang approach has been

istic bottom-up project plan should be developed based

proven successful. However, this requires strong gov-

on this exercise.

ernance in the form of aligned business requirements.

Project governance is a long-term investment

It is recommended to launch an implementation project

Conclusion

Banks often begin investing in strong project govern-

With the rising wealth in the Asian middle class and in-

ance after the initial delays and as part of the project

creased sophistication of retail clients, there is a need to

turnaround initiative. A strong project governance from

enhance the retail offering and service model. A platform

the onset can help kick start a project in the correct

extension will not only better cater to the affluent, it will

direction and prevent unnecessary delays.

also ensure a consistent client journey as well as boost revenue and cost efficiency. Given the business and technical

Functional and technical know-how is a must

challenges, a systematic approach with strong project gov-

It is important to ensure that the project team has

ernance and know-how is vital for the success of such

a strong functional and technical expertise about the

a large-scale program.

Authors

Rahul Bansal Manager (Synpulse Singapore) rahul.bansal@synpulse.com

Gregory Achache Manager (Synpulse Hong Kong) gregory.achache@synpulse.com


14 | Regulatory & Compliance

synpulse

Nimble IFRS 17 Reporting and Impact Assessment IFRS 17 will take effect in 2022, establishing internationally consistent accounting standards for insurance contracts. In order to fulfill the requirements, insurers must assess several methodologies. This assessment includes data collection and handling. Author: Daniel Diederichs | Dr. Daniel Trzesniak

The financial services industry is undergoing a reporting

ic, so dataset can be viewed immediately. This accelerated

revolution due to the new international reporting standard

reporting time, the need for current data and the require-

(IFRS 17). IFRS 17 requires financial service firms to publish

ment for flexible modeling and iteration are behind this

detailed and accurate financial reports in a timely fashion.

reporting revolution for insurers. It also demands that the

This is a major departure from past reporting practices,

industry rethinks its data gathering and reporting process-

where the firms could afford the high cost of gathering

es as well as the tools that support it.

data, running analysis and issuing reports based on nonintegrated systems.

The old school way «But we’ve always done it this way.» No doubt those words

New reporting requirements

have been uttered at many insurers since the reporting

To meet the new reporting requirement, such data must

revolution began. But the old school way of generating

be collected, analyzed and disclosed in a matter of days.

financial reports is no longer appropriate. The time and

The data should also be as current as possible. Insurers

effort required to gather data across the organization for

have to be ready to iterate and modify models immediately.

reporting have become too much.

The recipients of the reports – whether auditors, shareholders, clients, regulators or institutional investors – may ask for rapid slicing and dicing of data in many different ways.

«Insurers have to be ready to iterate and modify models immediately.»

It is nearly impossible to anticipate all their questions and prepare all dataset combinations supporting the

Consider all the steps related to the old data management

answers beforehand. The functionality needs to be dynam-

and reporting process:


synpulse

Regulatory & Compliance | 15

Develop the architecture. This likely entails the gather-

Code, then code some more.

ing of data from many different systems and business units. It also involves many different owners, sometimes via a data feed but often via a manual process. Define the models and underlying calculations that will be used based on the required reports.

Activate the systems and process and generate the reports. Go back and troubleshoot and write more code if all fails to work as desired.

Design and build out the software to implement the architecture, collect the feeds, perform the required calculations and generate the reports based on predefined models.

Document the whole process, end-to-end and generate a customized report for many different audiences. Ensure that everything has an audit trail and is properly versioned.

Week 1

Week 2

Review platform & graphics

Data preparation

You

Sample cashflow preparation

Full cashflow preparation

Handover of report structure

First results for sample

Set up calculation

We

Week 3

Week 4 Comparative analysis Unit of account

Feedback, adjustments

Process definition

Two approaches

Results for 1 portfolio

Integration of your report structure

Adjustments of report structure (if required)

Balance sheet, other comprehensive income, profit & loss

Full cashflow upload

CSM and RA

Graphical representation Sample cashflow upload Process implementation

1: Implementation of IFRS 17 in Four Weeks

Estimation of transition costs Estimation of full implementation costs

Source: Synpulse


16 | Regulatory & Compliance

synpulse

A software project like this will likely take many years before

under IFRS 17 in an innovative, trouble-free manner. Addi-

it achieves the desired outcome. And many of these projects

tionally, the ability to rapidly iterate, modify models as well

fail altogether and require starting over from scratch.

as use modern software and the cloud for calculation and report generation means that the data management pro-

Once the reporting system is in place, just running regular

cess is much more flexible than a traditional one bound by

reports is a lengthy process. This is due to the varied data

rigid specifications. Now you can conduct stress testing,

sources; inconsistent methods of data collection and

sensitivity analysis, variable modification without breaking

extraction; the slow process of data validation; as well as

your models or being constrained by fixed specifications.

any needed reworking. There is also the possibility that the

Harnessing such modern software technology also means

model changes or that a new report is needed requiring the

that insurers will benefit from shorter development and

retooling of the inputs with different granularity. This rede-

implementation times as well as lower development and

sign of the system leads to yet another round of heavyweight

maintenance costs.

development and coding.

Reporting reinvented for IFRS 17

«The functionality needs to be dynamic, so dataset can be viewed immediately.»

The Systemorph IFRS 17 product utilizes the cloud-enabled «Software-as-a-Service» functionality of the Systemorph «Vertex» platform. This provides powerful yet simple features and functions for creating models, integrating data feeds, calculating outputs and generating reports.

The reporting revolution is placing entirely new demands on

The product combines data-gathering workflows, a master

this outdated model. Especially around data management,

data hub, a calculation engine as well as analytics and visual-

many companies still rely on a dated tech stack, using data

ization tools into a single solution. It supports an end-to-end

feeds from many systems to be assembled in a central data-

business process that centralizes data control while distrib-

base. This concept can no longer cope with modern data

uting data management tasks. The product provides users

requirements. It also does not take into account the extraordinarily high costs of these software projects, especially

Key features of Systemorph Vertex:

when they go wrong and must be corrected. In short, such

The platform revolutionizing data management

old school projects mean that business managers must spend too much time supporting the software system build-

Data modeling

out, instead of focusing on business content. Unique data versioning & automated audit trail

Nimble data management for swift reporting Synpulse has teamed up with Systemorph to bring insurers

Integrated business process workflow

a sophisticated approach to data management and reporting under IFRS 17. The new approach uses Systemorph’s IFRS 17 solution to accelerate data collection, simplify

Central data storage incl. historization & restatement

reporting processes and streamline calculation and analysis. The result is nimble data management producing agile

Interactive reporting with drill down & visualization

reporting for IFRS 17 compliance. User friendly mobile interface Together, Systemorph and Synpulse provide workable software for data management and reporting within weeks

Enterprise integration

rather than months or years as in traditional software development. In doing so, they have helped companies to adopt

Highly scalable platform using «AZURE» Cloud

modern approaches to financial data management. The difference from the old methods is vast and helps insurers accelerate implementation of their reporting process

Customer-proven


synpulse

Regulatory & Compliance | 17

across the entire reporting process with intuitive data man-

pulse approach brings modern software, cloud technology

agement tools that are as simple as using a smartphone app.

and advanced deployment techniques to form a highly-efficient IFRS 17 reporting process. This allows business man-

The interface also standardizes the data reporting and vali-

agers to focus on their business rather than on software sys-

dation processes, ensuring data is collected very quickly

tems or the project needed to build them.

and validation is smooth and simple. As a result, data is current and accurate at all reporting and analysis levels.

IFRS 17 solution foundation in four weeks Synpulse’s finance, accounting and actuarial knowledge as

The system enables the insurer to easily adopt the models

well as deployment experience enable the Systemorph

and valuation methodologies identified by the IFRS 17

product to quickly become operational. In fact, we built

standard. This includes the «building block approach», the

a live system using real data in just four weeks for several

«premium allocation approach» and the «variable fee ap-

clients (see

proach». The Vertex platform technology was developed

agers can explore their modeling and reporting ideas in

hand-in-hand with the agile development process and

working software rather than trying to plan abstractly with

serves as its underlying foundation.

diagrams or long documents. Our solution lets business

1). That means an insurer’s business man-

managers see their methodologies come to life, allowing Many insurers looking to comply with IFRS 17 no longer have

them to analyze and refine them in real time. Rapid iteration

the appetite for long and expensive software build-out and

enables managers to make the right choices for modeling

customization projects. Instead, the Systemorph and Syn-

and calculation without setting their decisions in stone.

Author

Daniel Diederichs Associate Partner (Synpulse Switzerland) daniel.diederichs@synpulse.com

Dr. Daniel Trzesniak Head of Marketing (Systemorph AG, Switzerland) dtrzesniak@systemorph.com


18 | Operational Excellence Banking

synpulse

Banking Is Necessary, Banks Are Not? Redefine Your Operating Model in Time! Technology has already changed the business models of many banks, but some operating models have been slow to catch up. Modernizing the core banking system and establishing an IT archtitecture driven by modular and harmonized applications are the key to success. Authors: Lukas Hohl | Dr. Simon Alioth


synpulse

Operational Excellence Banking | 19

The banking industry and its underlying operating model are

vate. The banks not only want to retain their customers but

under pressure from multiple angles. New technologies like

win new ones from the younger generation, e.g. millennials.

blockchain and artificial intelligence have emerged and are

Though fintechs were once seen as a major threat to incum-

impacting the business models of banks.

bent banks, time has shown that embracing these newcomers may at times be more beneficial than competing with

Digitalization of the business model

them. Challenger banks, which are new and fully digital

To respond to these industry challenges, banks have begun

banks, are increasing competition, especially in Europe.

to adapt their business models. Many banks have embraced

Though these banks are not as prevalent in the US as they

the new technologies or are in the midst of doing so. Unfor-

are in Europe, they will likely make a significant impact in the

tunately, corresponding changes to their underlying operat-

US as well.

ing models often lag behind this embrace. There is a strong need to realign this part of the bank’s core functions (see

1).

So, what does «realign» mean from an IT architecture point of view?

«Many banks have embraced new technology. Unfortunately, the corresponding changes to the operating models often lag behind.»

«Core banking system modernization and the adoption of microservice-driven architecture are key to realigning the operating model.» It is also worth noting that many banks continue to invest heavily in new products and services. By offering existing products and services through new channels, such as via mobile devices, banks have improved the customer experi-

In recent years, digitalization has created opportunities for

ence. These digitalization initiatives have had an impact on

new business models across various industries. An example

existing business models and on the underlying operating

are the fintechs mentioned above. These fintechs are putting

model. Changes driven by regulatory requirements have

mounting pressure on banks to digitalize faster and inno-

also had an impact.

Front application

Front application

Front application

Front application

Front application

Front application

Front application

Front application

API Layer Core 1

Core 2

Core Source: Synpulse

1: Building an IT Architecture with an API Layer


20 | Operational Excellence Banking

By not digitalizing, banks will lower their profitability and

synpulse

will save time and money. This can be done through a proper

lessen the chance to connect with new and existing custo-

service orchestration layer that accommodates seamless in-

mers. The operating models of many banks will need to

tegration of a new innovative solution and also complies

be realigned given the impact of digitalization on existing

with recent market directives such as the revised Payment

business models as well as the ever-changing regulatory

Services Directive, PSD2 in Europe (see

2).

landscape.

Core banking system modernization Additionally, to keep up with the fast-paced digital innova-

Banks are spending a significant amount of their IT budget on

tion, investments have largely focused on end-user applica-

running existing IT systems. This allows only specific parts to

tions. This has helped banks to be seen as innovative and

be modernized. A simple upgrade of your core banking sys-

more digital friendly.

tem will likely not have the desired impact in terms of digitalizing processes from front to back. Banks should therefore

However, in many cases these actions have led to operational

consider replacing their legacy core banking systems to build

inefficiency. There are several reasons for this. One is a lack

a base for future innovation. This can lead to new opportuni-

of integration between applications resulting in a siloed

ties to consolidate multiple legacy systems, reducing opera-

data flow. More often, however, the reason is the legacy core

tional expenditures and mitigating operational risks in the

that does not allow seamless integration of tools from front

process. In addition, a core banking replacement allows for

to back of an organization. Moreover, M&A activity has led

the business to scale much easier as it grows.

many banks to have several core legacy systems. These legacy systems are often not harmonized or exist as multiple

«Banks cannot do all application development in-house if they want to stay competitive.»

back-end systems catering to a specific set of products. This complicates the creation of a holistic view of the information for both the client and financial advisor. There are two ways of addressing the above-mentioned challenges to remain successful in the long-run:

A modern core banking system is designed and built in a mod Microservice-driven architecture

ular way. This allows flexibility to decide whether a specific system module will be implemented as part of the existing

Core banking system modernization

core banking system or if external solutions will be interfaced instead. The latter results in a hybrid model with best-of-

Microservice-driven architecture

breed applications seamlessly integrated with the core bank-

Establishing an ecosystem of software partners is important

ing system.

to excel amid rapid innovation. Banks cannot do all the application development in house as they have in the past if they

Conclusion

want to focus on key competences and stay competitive.

Many banks are embracing digitalization but are taking time

A microservice-driven architecture, that is an architecture

to make the corresponding changes to underlying operation-

driven by modular, independently deployable and harmo-

al models. Given rapid technological innovation, investments

nized applications, is crucial.

in modernizing those models will pay off in improved operational efficiency and lower cost. Core banking system mod-

The innovation cycles of core banking systems are less fre-

ernization and adoption of the microservice-driven architec-

quent than the innovation cycles for client and advisor facing

ture are major investments in realigning a bank’s operating

applications. To guarantee seamless integration of the two,

model.

banks need to build up their architecture so that it fully supports application programming interfaces (APIs). The API

Redefining the operating model will increase the ability to

concept is nothing new. To «fully» support APIs, the use of

innovate, resulting in a positive influence on the top line due

standardized interfaces that enable seamless integration

to a better client experience.


synpulse

Operational Excellence Banking | 21

New Technology

New Market Entrants Strategy

Customer Relationships

Key Activities Value Proposition

Key Partners

Customer Segments

Key Resources

Revenue Streams

Cost Structure

S P O S

Business Model

Channels

L

Suppliers

Value Delivery Chain(s) Value Proposition(s)

Organisation

I

Location

Customer / Beneficiary

Information

Operating Model

Strategy Source: Synpulse

2: Aligning the Business and Operating Model Competing Sucessfully and Sustainably

Authors

Lukas Hohl Associate Partner (Synpulse United States of America) lukas.hohl@synpulse.com

Dr. Simon Alioth Associate Partner (Synpulse Switzerland) simon.alioth@synpulse.com


22 | Operational Excellence Wealth Management

synpulse

AI and Robotics in Wealth Management: Step into the Future! – Part 2 Artificial intelligence and robotics allow early adopters to leverage efficiency and compete amid declining margins. In part 2 we analyse concrete adaptions on the client side, describe benefits in end-to-end operations and give guidelines based on our UK wealth and asset managers survey, whereas in part 1 we provide a general overview of the market. Authors: Tariq Khan | Vladimir Dimitroff | Aastha Dhawan


synpulse

Operational Excellence Wealth Management | 23

Robotic Process Automation (RPA) allows early adopters to

30% saying they would be «significant» (see

leverage efficiency amid declining fees and margins. This

of the respondents were still hesitant and «considering» pos-

and the higher maturity of the solution, are possibly the rea-

sible adoption, while 11% actually implemented the techno-

son for more deployment cases. These are not only proof

logy already (see

of concept (PoC) and pilot projects, but also quite a few

In subsequent in-depth interviews with a number of C-level

«business as usual» robotic processes.

executives from the sector, we kept hearing about pressures

1). Two-thirds

2).

and challenges that draw resources to more urgent priori Artificial intelligence (AI) can enhance, through human interaction interfaces and assistants, the customer

ties. These might be eased by the right adoption of AI and/or robotics. Such pressures include:

experience and attract new client acquisitions. It also can improve the retention of existing clients. Insight

continuing regulatory pressures;

into needs, motivations and behaviors can mean more assets under management.

vanishing margins due to competition and the ubiquity of information;

AI can also ensure better compliance through intelligent «know your customer» (KYC) and «anti-money launder-

rapid consolidation as the last remaining source of growth;

ing» (AML) applications. the need to radically improve efficiency to benefit from In our ongoing research, we keep hearing about intent, in-

(inorganic) scaling;

stead of active projects or success stories. A survey at the end of 2017 found that over 60% of senior industry leaders expect

and increased caution in anticipation of an overdue

12+66+22n 8+61+31n

a «very significant» impact for AI and robotics, with another

22,22%

market correction.

7,69%

11,11%

30,77%

66,67%

61,54%

Still considering/early stage

Very significant

Have a plan

Significant

Implementation

Minimal

1: Stage of Adopting AI & Robotics among UK Wealth and Asset Managers

2: Impact of AI & Robotics on Efficiency over the Next 18 Months Source: Synpulse UK, Survey December 2017


24 | Operational Excellence Wealth Management

synpulse

In addition to these objective factors, many executives open-

«referrals», «reputation» and strong «relationship»). Intelli-

ly admitted insufficient awareness and knowledge of the

gent targeting can benefit from modern cognitive solutions.

subject area. This includes not knowing what solutions are

These include AI-driven analysis of unstructured data and

available and what they can do for their business. In additi-

decision-supporting algorithms. Enabling technologies and

on, the respondents believed that all these solutions are pro-

domain expertise exist and they can be a start to bringing AI

hibitively expensive. This is not necessarily the case. There is

into your operations.

a consensus that vendors and their implementation/consulting partners should do more to educate the market and

Even if the acquisition/sales process is successful, onboar-

build confidence by sharing case studies of completed deploy-

ding the new client can be a challenge. Growing regulatory

ments.

demands as well as the need for efficiency and the best customer experience (CX) are putting pressure on onboarding

«We would like to hear more examples of applying AI and robotics to the immediate practical challenges of the private wealth sector. To give us the confidence to try it, we need case studies of successful projects, including real implementation durations and costs.» (COO of a prominent wealth manager)

teams. Here, multiple applications can add value, including managing the end-to-end onboarding process on a single dedicated platform with maximum built-in automation or automating manual tasks in an existing environment with rapidly deployed and cost-effective RPA. They can deliver speed and efficiency, helping to improve the CX. Within the onboarding process, KYC steps pose challenges and risks. Here, a simple RPA robot can create efficiency in a number of ways. These include connecting to reference sources (e.g. Thomson-Reuters’ «World Check», «KYC360 RiskScreen»), filling out a form, as well as receiving the data

Private wealth management opportunities

and attaching it to the client’s documentation. Beyond this,

Shall we automate front-office interactions or the back-of-

AI-based solutions capture input from multiple sources like

fice processing? Is AI useful for our firm or is RPA? The ans-

unstructured data. They then subject it to cognitive analysis

wer to both questions is: «Yes – we need both of these.»

and provide a more comprehensive and informative client

Although a wealth manager may potentially benefit from

background. Some of those are geared to satisfy compliance

both – i.e. intelligent front-end automation and back-end

needs, while others extend to ongoing monitoring of a client’s

efficiency – the real world is somewhat different. The «ideal

life-cycle to find potentially adverse information. The latter

world» may envisage a large and diverse population of bots

helps to prevent risk.

working in harmony for the joy and benefit of customers and shareholders alike. But the benefit in any of these cases

During the life-cycle, increasing the managed assets through

would depend on focus, timely and effective delivery as well

targeted cross-sell offerings can benefit from a better insight

as optimal resource allocation toward such objectives. The

of client needs. These are beyond those declared in conversa-

proverbial «one bite at a time» rings true in this context and

tions and filled forms. Modern behavioral psychology, com-

is a proven way to build success with minimum risk and cost.

bined with deep learning tools, can help an advisor provide

Let’s now look at some very realistic scenarios for the broa-

a more relevant offering to the client. Similarly, the outflow of

der wealth and asset management industry.

assets – not to mention the churn of clients – at competing institutions can be detected early with intelligent algorithms.

Benefits of AI and RPA in end-to-end operations

Such outflows can also be prevented through other AI-based

The acquisition of new clients in wealth management relies

decisions and actions.

on different lead generation and opportunity management

While all these client-facing activities take place, the back

from the mass retail market. With or without a sales automa-

office is concerned with processing the transactions, regula-

tion (SFA) system, the «R» in CRM is far more important (as in

tory compliance and filing reports. These operations often


synpulse

Operational Excellence Wealth Management | 25

require manual data entry or transfer across systems and

only be monetary (e.g. cost savings), but also account for qua-

their respective interfaces. Identifying such tasks and assig-

litative factors like accuracy, risk reduction and CX impro-

ning them to RPA is one of the fastest paths to measurable

vement.

results from the use of robotics.

A few guidelines In a digitalization strategy paper presented at our Senior Executives Forum in London , we came up with the concept of «focused initiatives». This is an alternative approach to «big bang» transformation programs. In our view, the concept is even more compelling with respect to adopting AI and robotics in the wealth management industry.

«Start small, with a focus towards a simple and clear goal. Keep in mind, though, that this is the start of a journey. Envisage the bigger picture and longer term direction for ultimate success.»

The keyword is «focus», or the importance of rigorous prioritization and commitment to a chosen use case and solution.

Last, but not least: The PoC project should not be seen in

We feel the concept ensures successful implementation and

isolation or as a one-off effort. One should consider the po-

the rapid realization of benefits. Some readers may have

tential for extension, that is leveraging the learning and the

needs that were not mentioned above. All should, however,

initial investment to build further capabilities and to meet

benefit from automation. We feel that it is important to take

new objectives. You are embarking on a journey to reach

inventory of all known use cases, agree the criteria for priori-

much higher goals. These may include the outcome of a «big

tization and shortlist those cases that would merit a pilot pro-

bang» transformation, but without the strong change re-

ject. A pilot, or PoC project, must have a clear business case

sistance, prohibitive budgets and failure risks. We strongly

with tangible benefits. The project also should have a short

recommend selecting a small and viable project with the big

time frame and low cost. The benefits to consider should not

picture in mind.

Authors

Tariq Khan Associate Partner (Synpulse United Kingdom) tariq.khan@synpulse.com

Vladimir Dimitroff Principal (Synpulse United Kingdom) vladimir.dimitroff@synpulse.com


26 | From Outside In

synpulse

«Stopping ocean plastic while reducing poverty with blockchain is our goal» The Plastic Bank has gained a lot of attention for its global efforts of turning plastic waste into currency and providing economic opportunities for the poor. The bank received an award at an UN Climate Change conference and is subject of the documentary «A Plastic Ocean». Even Pope Francis wanted to know more about it. Interview with Shaun Frankson, Co-Founder & CTO of Plastic Bank


synpulse

From Outside In | 27

Plastic Bank aims to solve two problems at once, namely environmental pollution and poverty. How do you go about this?

Social Plastic

We look at our solution as a metaphor. Let’s imagine that you

«Social Plastic» for multinational corporations to

walk into your kitchen and the sink is overflowing. What

use in manufacturing. Purchasers include Shell

would you do first? The answer is you turn off the tap. So

Oil, Marks & Spencer and Henkel and the bank

when we looked at ocean plastic, we said we must turn off

continues to build partnerships with other Fortu-

the tap flowing into the ocean. We discovered that in devel-

ne 500 brands. Plastic Bank was founded in 2013

oping countries, where 80 per cent of ocean plastic origi-

by David Katz and Shaun Frankson in Vancouver,

nates, there is an opportunity to develop «social plastic».

Canada.

Plastic Bank created a supply of ethically-sourced

The model puts a price on plastic that is collected and recycled by the local community. The goal must be to increase the rewards for collecting in these countries, so our price is

centers and for those operating the processing plants to get

above the market rate for the plastic. That enables us to deal

the plastic ready for shipping to clients. With blockchain, we

with the root cause of ocean plastic and improve people’s

can bring this supply chain onto one platform.

lives as the same time.

How are the collectors paid? Your use of blockchain technology is fascinating. How does it work exactly?

We have our own asset-backed tokens, which means that

We needed a way to ensure that those in poorer countries

tokens created. The tokens allow collectors without a bank

would receive the value of the plastic they collect and recy-

account to save the amount they receive digitally and spend

cle. There is a lot of corruption in these countries, so the

it within our ecosystem. For example, they can spend their

money earned from waste recycling doesn’t always go to the

savings on solar-powered smartphone charging, cooking

right people. This is where blockchain technology comes in.

fuel or even school tuition. Or they can cash out and set up

We partnered with IBM, which helped us design our back-end

a banking account on their mobile phone. We use our block-

blockchain solutions. These solutions allow us to track the

chain application to keep track of all participants in the col-

entire process of that recycling supply chain. Our application

lection and recycling system. In that way, we ensure that the

has a feature for collectors, for those running our collection

rewards go where they should.

there is money in the account to match the value of the

Benefits in figures

We understand that you have persuaded some companies to use your social plastic. Who are they?

Since its founding in 2013, Plastic Bank

German household goods firm Henkel and oil giant Shell were our first customers. Marks & Spencers is another client,

h  as established 35 Social Plastic collection

using our plastic for a reusable bag. The US household goods

centers with

firm S.C. Johnson has also just announced that it will spon-

2‘000 collectors who have

sor our entry into Indonesia. We are helping companies

retrieved eight million pounds of plastic waste,

understand that if they have to use a plastic, it should be

which is the

social plastic.

e  quivalent to 144 million plastic bottles kept out t urned them into Social Plastic for reuse by

In what other countries beyond Indonesia are you doing business?

corporations.

We started our first project in Haiti where we got our collec-

of the ocean and

tion model right. We then went to the Philippines and now


28 | From Outside In

synpulse

we’re also in Brazil and Indonesia. We aim to sell out all the

ity. This can only happen when plastic has so much value

plastic that can be collected in a target country and then

that discarding it would not be an option. The convenience

move on from there. The more we have of those supply

would also be such that you would have to go out of your way

chains, the more we can expand. To get our message out, we

not to recycle.

recently held a TED1 Talk.

How can banks and insurers support your business?

What are some of the challenges related to using blockchain?

Banks can play an important role in our model, if you just

You see a lot of case studies, prototypes and white papers

consider the different methods of cashing out our tokens.

regarding blockchain but very slow adoption of it on behalf

Examples include savings accounts on mobile phones,

of companies. As the CTO of Plastic Bank, I see a need to

access to automated bank tellers and prepaid credit cards.

explain the technology simply. Too many people overem-

It’s also one of our goals to provide insurance to collectors.

phasize its relation to crypto currency and that can be off-

The types of cover we are thinking of are health insurance

putting to some. We need to simplify the definition and say

as well as that for farmers and businesses. We would like to

that blockchain is just a method of coding an exchange of

enable our participants to pay their premiums with the plas-

value on a shared digital ledger.

tic they collect.

What are some of your company’s long-term goals?

How can technologies like artificial intelligence (AI) help your business and humanity generally?

One of them is to prevent one billion kilograms of plastic

I’m quite optimistic about what AI can unlock. For example,

from getting to the ocean by 2025. That of course is the same

our program has lead to the introduction of cell phones in

amount of value transferred to the hands of the collector and

a community for the first time. The cell phone and the AI that

the same amount of new plastic not created. Ultimately,

goes with it are a beautiful way to put education in the hands

however, we want to stop ocean plastic from being a possibil-

of anybody. I just imagine that anyone with a family can have

Learn more about Plastic Bank and experience Shaun Frankson in the following videos.

Plastic Bank wins 2018

Plastic Bank in Haiti

Nature Inspiration Award

(6 minutes)

(1.5 minutes)

The Plastic Bank Extruder

About Plastic Bank &

(3 minutes)

Social Plastic (8 minutes)

1

Interview at IBM think

United Nation about

Leaders 2018

plastic in oceans

(19 minutes)

(7 minutes)

TED is a nonprofit devoted to spreading ideas, usually in the form of short, powerful talks (18 minutes or less). TED began in 1984 as a conference where Technology, Entertainment and Design converged and today covers almost all topics – from science to business to global issues – more than 100 languages.


synpulse

From Outside In | 29

Plastic dump in our oceans

Bank expanded into poor countries like Haiti, Brazil,

According to Plastic Bank every minute of every day,

Ethiopia, Philippines, Indonesia and India.

the equivalent of one truck full of plastic dumps into the ocean worldwide, adding up to eight million ton-

The value in plastic is revealed with the help of block-

nes annually. There will be more plastic than fish in the

chain technology. An app gamifies the collection and

oceans by 2050 if we continue like this, killing our mari-

exchange of plastic for incentives. The collectors can

ne wildlife and contaminating our seafood. In order to

get medical insurance, pay for school, obtain Wi-Fi and

turn off the faucet and to monetize waste, the Plastic

a cellphone, access clean water through their work.

a complete education thanks to the smartphone. AI can also improve decision-making at companies by providing better reporting on the social or environmental impact of one’s business.

How did you and your partner David Katz get the idea for Plastic Bank? When I was 22, I had a near-death car accident. I could barely move but I thought about what I wanted to do with my life. I realized that while I had played in a rock band, I wasn’t going to be a rock star. When I recovered, I decided to get involved with micro-businesses and gained lots of experience. I joined David at a GPS tracking company that he had founded. There, I was first vice president of marketing and later vice president of the company. After we sold the business, we asked ourselves if we could create a business that would really affect people’s lives. One day at Singularity University, where David was taking a technology course, he had an idea: We could build a business based on the premise that plastic is too valuable to be thrown in the ocean. He called me up that day and said: «Shaun, I’ve figured it out. It’s called the Plastic Bank.» David and I launched the company a month or so after then and have been figuring it out since. Finally, a personal question: How do you stay fit to deal with

Shaun Frankson (31) is Co-Founder and CTO of

the task of running the company?

Plastic Bank, based in Vancouver, Canada. He

If you’re stressed and not taking care of yourself even while

coined the term Social Plastic and created the

doing a dream job, you won’t be very productive and can

brand strategies to launch a Social Plastic mo-

even get depressed. So we’re big on meditation and most of

vement that gained over one million supporters

our employees are either vegans or pescetarians. I personal-

and well over 250 media features before expan-

ly find myself on the phone for four hours sometimes.

ding globally.

So what I then do is just go out on a hike while on the phone. I want to be out in nature yet still doing the same thing I’d be

Further infos:

doing at a desk. You have to be mentally and physically fit to

www.plasticbank.com

keep up with the workload, the long hours and the travel.

facebook.com/PlasticBank

Meditation and hiking help me with this.


30 | Operational Excellence

synpulse

Bringing Discipline and Expertise to M&A Many executives think that M&A transactions automatically add value to a company when organic growth is limited. However, in more than half of all cases, value is destroyed due to missteps made during deal preparation, execution, or post-merger integration. We explore critical points and reveal a systematic approach. Authors: Daniele Concari | Dr. Alexander Cassar

It is a well-known fact in the industry that 70% of all mergers

magnitude of the success fee typically eclipses them all.

& acquisitions (M&A) fail. This knowledge has become like

Below we briefly examine the accepted approach to manag-

a badge of honor for those brave enough to pursue daring

ing M&A projects in terms of process, planning and rewards.

M&A deals. Corporate finance specialists have often analyzed the «Why?» behind the high percentage of flops. Many

The transaction

M&A projects start with C-level support, priority execution

M&A deals are normally driven by strategic considerations

and plenty of funding. How could it be that so many of them

that affect the future of a business. But they also can disrupt

eventually fail?

entire industry sectors. It is therefore surprising to find that in terms of effort spent, strategic consulting is the smallest

«It is a well-known fact in the industry that 70% of all mergers & acquisitions (M&A) fail.»

component of an M&A project. Furthermore, the typical M&A process does not comprise a strategic step, as the thinking behind the decision is supposed to have already been done. Under these circumstances, the risk of entering an M&A transaction without a concrete or appropriate strategic rationale is high.

An «M&A deal» typically involves a seller, a buyer and their advisors. The latter includes investment bankers, auditors,

On the other hand, the mechanics of an M&A transaction

lawyers, domain experts, introducers and influencers. The

tend to absorb top management focus, with a risk of lessen-

term «M&A transaction» refers to the actual M&A process

ing the determination to complete a strategically compel-

itself, from inception to closure. The prize for the advisors

ling deal. We believe that no M&A deal should be started

is a commission on the purchase price if the transaction

before having an agreed and documented strategic objec-

happens, also known as the «success fee». Other fees are

tive. Checkpoints should then be established alongside the

paid along the way to advisors in various capacities. But the

transaction process to ensure that the strategic aims remain


synpulse

Operational Excellence | 31

Validation

valid and achievable as the deal progresses. Such an approach requires the appointment of strategic advisors with

significant expertise of the industry concerned. These stra-

This entails due diligence activities to arrive at a binding offer for the asset on sale.

tegic advisors should be separate from the financial and Execution

legal advisors, so that they can supervise the M&A transaction process without incurring conflicts of interest.

These are the commercial and legal negotiations that will lead to the «signing» and, eventually, the «closing»

The M&A process

of the deal.

The typical stages of an M&A transaction are: If we are to «wrap-up» the transaction process with a stra Origination

tegic advisory oversight, then we should add an additional

The deal is promoted to potential sellers and buyers

stage before origination. We call it «shaping». This is an ini-

to obtain one or more non-binding manifestations of

tial phase during which strategic and financial objectives

interest.

are debated and agreed. One of the possible outcomes of

Validation Activities:

Origination Activities:

Shaping Input from Client:

Strategic objectives

Activities:

Financial due diligence

Target engagement

IT due diligence

Target selection

Head of terms

Execution Activities:

Output:

Output:

 Commercial due

Binding offer

Non-binding offer

17+17+16G

Financial parameters

Valuation model

Strategy assessment

HR due diligence

Market assessment

Legal contracts

3

2

Target profiling Output:

Output:

Signed SPA

M&A

Targets short-list

M&A cornerstones

diligence

Shaping

1: The «SOLVE» Approach for the M&A process

Closing:

4

1

Origination

Validation

Regulatory approval

Execution

Source: Synpulse


32 | Operational Excellence

synpulse

the shaping stage is to cancel the M&A deal. This could be

office (PMO) professional. Indeed, this is a delicate area.

the case if the proposed strategic rationale is found wan-

While we have found that firms understand the argument for

ting. At Synpulse we have adopted the four stages of the

a professional PMO, most fail to appreciate the full benefit of

«SOLVE methodology» for M&A projects (see

it versus the cost of additional resources for the M&A deal. It

1).

is therefore essential for an M&A PMO to have an end-to-end

The M&A project

understanding of the M&A transaction process and a basic

Coming from a traditional management consulting back-

grasp of corporate finance. Such a consultant can provide

ground, the initial contact with the world of M&A can be

the best of both worlds: expertise and project management

disorienting. Meticulous and rigorous time and resource

discipline.

planning are not paramount. Instead, time-keeping is not that important and everything is event-driven. For instance,

«I advise therefore I am»

either a buyer will decide to submit a purchase offer or not.

The term advisor is often misused in M&A. For instance,

If they do, the deal moves to the next stage. Little considera-

someone who double-checks detailed financial accounts is

tion is given to what could happen if the offer does not

probably an auditor by training, rather than an advisor.

materialize.

A true advisor is someone who directly handles key aspects of the M&A transaction and/or directs his clients at the key

«The risk of entering an M&A transaction without a concrete or appropriate strategic rationale is high.»

junctures of the deal. The crucial difference between an advisor and a consultant is the empowerment of the advisor and his or her peer-to-peer relationship with the client. Naturally, experienced and trusted consultants often act in an «advisory» capacity for their clients. However, an advisor is expected to do so officially and by the nature of their

It is rare to find a detailed plan of an M&A transaction from

profession. It is here that our M&A PMO faces the greatest

beginning to end that considers contingencies and depend-

hurdle. The advisor mentality cannot be easily learned dur-

encies. To be precise, M&A transaction execution plans do

ing a training course. It requires people who have embraced

exist; they are just not normally written by people with

the advisor mindset per se. These are people with direct

a project management background. It is also true that the

experience of driving M&A transactions and who are accus-

event-driven approach is helpful in optimizing resource

tomed to achieving their objectives.

commitment, especially if the transaction is not progressing well or slowly. That said, the approach can lead to delays, misunderstandings and unpreparedness from one stage of the deal to the next. In any case, if a transaction is not likely to go ahead, this should be known early in the process. This is an example of where M&A would benefit from adopting

«It is a detailed plan of an M&A transaction from beginning to end that considers contingencies and dependencies.»

project management methodologies and expertise.

There is more to a PMO than meets the eye

The success fee

M&A professionals tend to come from a business adminis-

While compensation models have evolved in consulting

tration background, with a focus on corporate finance. Their

projects well beyond the classic time and material ap-

core competence is in the financial engineering of the M&A

proach, they are still skewed towards the success of an M&A

deal. They are strongly driven by macro-numerical consider-

deal. Often, M&A advisors work for a success fee only. It is

ations and place lot of emphasis on financial modelling.

evident that an M&A deal lends itself to a risk/reward value proposition for advisors. Many M&A deals do not go beyond

On the other hand, they tend to have no track record in

the initial stages and companies are reluctant to commit to

structured project management. M&A professionals typical-

substantial fees without a concrete goal in sight. An impor-

ly lack the focus and the mindset of a project management

tant consideration is that from an accounting perspective,


synpulse

Operational Excellence | 33

M&A transaction costs are ideally booked against the deal.

Driven to success

For the seller, this means they are subtracted from the pur-

It is an accepted wisdom that the success fee is driven by the

chase payment received. For the buyer, they are booked as

purchase price. There are several ways of doing that, rang-

an initial cost for the business acquired. But when a deal

ing from simply applying an agreed percentage to more

fails, what should happen to the transaction costs?

complex ones with tiers of price ranges, floors and ceilings. From the seller’s point of view the case is simple: The advi-

In our experience, it is important that M&A fees other than

sors are incentivized to obtain the highest possible price.

the success fee are linked to outcomes that add value and

From the buyer’s side, this is not desirable. We have seen

that are not dependent on whether the deal goes through.

ceilings on success fees or even mechanisms for disincentiv-

For instance, the advisors could deliver a corporate strategy

ization should the purchase price rise. Our observation is

study that is helpful in any scenario.

that the more complex the success fee mechanism is, the likelier it is that it will hinder the M&A process. If the recom-

Everything has a price

mendation that a purchase price range be agreed from the

Another problem is the behavior optimized by the success

start is followed, we believe it would be best to have a fixed

fee approach. Advisors on both sides strive for the deal to

success fee for that range. A fixed success fee has the advan-

happen at any cost. There is a school of thought that main-

tage of everyone working toward the same goal without the

tains that having a deal at all will always ensure a balanced

risk of the process being «gamed».

outcome. It is assumed that the advisors will converge towards a median price that is acceptable to the seller and

Summary

buyer. However, in most M&A scenarios, imperfect informa-

M&A projects often suffer from the lack of strategic oversight

tion, personality plays and pressure to close the deal will

coupled with actual industry expertise. Best practice in

lead to a purchase price that is skewed toward one side or

project management is also not widespread. Both issues can

the other.

be addressed by an independent strategic advisor with strong project management credentials and industry exper-

Naturally, a relatively high price will make it harder for the

tise. Finally, the M&A mechanism of incentives could lead to

buyer to deliver the M&A business case. Conversely, under-

unintended consequences. This is an extremely complicated

selling the asset will leave the seller vulnerable to criticism

issue to tackle, as the entire M&A advisory industry is built

going forward. Our view is that the best approach is to deter-

around the success fee model. That said, we believe that an

mine a purchase price range that is acceptable to the buyer

innovative value proposition increases the chance of an M&A

and seller at the start of the M&A process.

deal delivering shareholder value over medium to long term.

Authors

Daniele Concari Associate Partner (Synpulse United Kingdom) daniele.concari@synpulse.com

Dr. Alexander Cassar Managing Director (Synpulse United Kingdom) alexander.cassar@synpulse.com


34 | Digital Transformation Insurance

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Tackling Information Overload: Equipping the Digital Risk Professional Emerging technologies place increasing amounts of data at the fingertips of insurance risk professionals but with mixed results. To leverage the right information at the right time, an optimal mix of technologies is needed. It will allow you to analyze and price risk in a profitable manner. Authors: Marc Kirchhofer | Joel Smith

2018 will be recorded as another challenging year for proper-

volume of data available today and just over the horizon to

ty commercial insurance carriers. This is a continuation of

the Risk Professional will grow exponentially. No single tech-

the soft market experienced over the previous three years.1

nology will provide the silver bullet for delivering increased

Paradoxically, the current period of low premium growth

accuracy and efficiency in calculating risk. Instead, the suc-

coincides with natural disasters resulting in record claims.

2

cessful Risk Professional will require the right information at

With climate change expected to lead to increased frequency

the right time in a cost-efficient manner; and this, in turn,

and severity of such disasters, the ability of insurers to model

requires the right ecosystem of technology to collect, collate,

for such events and the resulting risks is essential.

visualize, analyze and price risk in a cost-efficient manner.

Such pressure mounting on the top and bottom lines intensi-

Tapping into the potential of data

fies the need to accurately and efficiently assess risk as key

Commercial insurers are motivated to seek better risk

to underwriting profitable business. Today’s Risk Profess­

information and efficiencies in their underwriting process

ional leverages expertise, experience, gut feeling and data

to boost performance and cost savings. «Lean Underwrit-

to assess the internal and external risks facing a potential

ing», «Expedited submission handling» and «Express

client’s business. 3 Due to emerging technologies, the sheer

Quote» are some of the buzzwords that describe industry

Swiss Re, «World Insurance in 2017: Solid, but Mature Life Markets Weigh on Growth», Sigma 3/2018, 14. Munich Re, «Hurricanes cause record losses in 2017 – The year in figures», January 4, 2018 3 Risk Professional is a holistic term for the expert employed by commercial insurance carriers to assess the underlying risk associated with the insurable objects of a prospective or in force contract. In today’s industry, the risk assessment process is conducted by underwriters and risk engineers. They are responsible for specific sub-processes that vary across companies and markets. 1

2


synpulse

Digital Transformation Insurance | 35

initiatives to improve speed to quote and hit ratio. 4 In this

These technologies do not necessarily guarantee a better

austere and competitive market, the Risk Professional

or faster understanding of the overall risk. For this, a holis-

must expedite the delivery of high-quality risk assess-

tic approach is required, combining speed and accuracy.

ments. This includes information to quantify and qualify

For an overview of the key pain points and the techno­

risk exposure.

logical solutions available to alleviate them across the risk assessment value chain, (please see

1). The ability

Much of the technology investment to date has focused

to interpret information early on and to steer the risk

on the submission process. Just a few years ago, the indus-

assessment process accordingly is key to improving under-

try standard was to process submission information by

writing.

keying it manually. This was often conducted by relatively

With the advancement in technology, a plethora of data

low-cost workers offshore. Today, insurers increasingly

sources providing risk insights is available and this informa-

employ robotic process automatization (RPA), text mining

tion pool will continue to grow. However, such information

and other automation tools to improve data quality and

is only useful when it supports the decision-making process

value while avoiding manual and error-prone data entry.

without overwhelming the recipient. Technologists argue

This enables insurers to extract, classify, enrich and ana-

that «the difference between a modernized insurer and one

lyze client data faster than ever before. But is it enough?

stuck in the last century is the ability to procure the right Critical pain points & inefficiencies

Su

b m is

sio n Han d

lin

Manual data population

g

Inefficient and inaccurate triage Insufficient Underwriting – Risk Engineering system integration Time-consuming screening of risk documentation High costs for data collection

Pre -

li e n t Se r v i c i n g

Inefficient client, broker or co-insurer interaction

As s

C ing

bindin g Risk

d

es s

m

in

Speed & accuracy enablers Submission data extraction through automation Dashboard for risk triage, qualification and monitoring Integrated processes through Operational Excellence AI-driven risk report scanning and scoring AI-driven aerial imagery assessments

en

t

Po

s t-

b

Integrated client interaction with self-service portal

Source: Synpulse 1: Overview of Key Pain Points and Technology Enablers Hit ratio measures the ability to convert opportunities into contracts. It is typically expressed as the number of policies in force relative to the total number of submissions. 5 PropertyCasualty360, «3 InsurTech updates to the underwriting process», May 2017 4


36 | Digital Transformation Insurance

synpulse

data at the right time». 5 The Risk Professional therefore

based on proximity, occupancy or construction similarities

requires an easy-to-use solution that aggregates, categoriz-

to further refine the risk analysis.

es and filters all relevant data.

To enable data collection from external sources, the deployment of an API-oriented landscape is critical. Application

Equipping the digital Risk Professional

programming interfaces (APIs) serve as the vehicle for

What is required of an insurer to ensure that Risk Profess­

obtaining a vast amount of third-party risk information.

ionals have actionable data available at the right time to

Service providers like «CatNet®», «NatCatSERVICE» and

make analytical-driven decisions while improving accuracy

«HazardHub» provide data to better understand the natural

and speed? To answer this question, we must take a close

catastrophe side of exposure. Artificial intelligence-driven

look at the ecosystem of technology that will underpin this

solutions like «Betterview’s Property Profile» transform

process.

geospatial imaging into risk insights to better assess the type and condition of building construction. Pertinent news alerts

Enabling tools for triaging risk data:

and web browsing algorithms reveal occupancy, activity or

A variety of technologies can be leveraged to produce an

claims-history related information. For an overview of the

instantaneous overview of insurable objects based on inter-

various data source types, (see

2).

nal and external sources. Reports submitted by the broker and carrier can be analyzed by machine learning or seman-

Enabling tools for data synthesis and analysis:

tic rule-based tools (e.g. «Cogito» by «Expert System») to

While APIs are the highways for delivering risk data, one

extract and score relevant text passages. This information

problem still remains: What does one do with the huge

can be considered beside claims histories and benchmarks

amount of data once it arrives? In order for a Risk Profession-

Drone report

ISO reports Web research

Street view Geocoding

Sensors Public cameras

Hazard maps

Satellite Carrier reports Weather history

News alerts Data aggregators

Benchmarking Claims history

Weather alerts Source: Synpulse 2: The Digital Risk Professional’s Information Ecosystem


synpulse

Digital Transformation Insurance | 37

al to handle the data, it must be standardized and synthe-

for business interruption coverage. Data governance and

sized. Powerful, insurance industry-specific tools using

process compliance needs to be prioritized.

machine learning and big data analytics are required to

An additional challenge is financing such solutions, particu-

quickly sift through large amounts of data. This enables

larly in a soft market where budgets are tight. Benefits like

insurance carriers to clean, organize and present informa-

a higher hit ratio or timesaving are straightforward and,

tion to the user via an interconnected dashboard, visualizing

hence, easy to justify. However, the benefit case of

the most important indicators in a clear, condensed way.

a particular technology solution might be difficult to meas-

Having achieved this, the Risk Professional can decide how

ure. Furthermore, investments are more likely to be ques-

to proceed with the risk assessment.

tioned if the only goal is to gain a higher confidence level in the underwritten exposure. Subjectivity and uncertainty

Overcoming industry barriers

will always remain no matter how much time or resources

Industry, legal and financial issues stand in the way of

are used. Technology investment for the sake of risk

realizing benefits from advanced, automated risk assess-

assessment must be justified by identifying outliers and

ment solutions. The risk assessment and broader commer-

patterns that would not be possible through existing means.

cial insurance industry lacks standardization and a high degree of integration. Insurers use different frameworks,

The right tools for the road ahead

methodologies and guidelines to differentiate good from

Accuracy and speed are regarded as trade-offs in commer-

bad risk. Terminology, rating criteria and processes vary

cial insurance. Technology cannot fully resolve this issue,

and make transferability of risk information difficult.

but it will enable both to be achieved to a greater extent

As information can be easily obtained, one must be careful

than they are today. Having the tools and infrastructure to

not to violate contractual and/or legal agreements related

consider actionable data will be the key differentiator of

to data usage and storage. Risk assessments are often based

successful insurers in delivering superior risk analysis and

on proprietary or even confidential information, particularly

ultimately, underwriting.

Authors

Marc Kirchhofer Manager (Synpulse United States of America) marc.kirchhofer@synpulse.com

Joel Smith Senior Consultant (Synpulse United States of America) joel.smith@synpulse.com


38 | Digital Transformation Insurance

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How to Recover Gems in Reinsurance Contracts

Reinsurance contracts are a paradise for treasure hunters. They are teeming with precious data waiting to be extracted and put to good use. Reinsurance companies, therefore, need to know as much as possible about the contracts in their portfolio. Authors: Patrick Roder | Konrad Niggli

Underwriting

A contract is a legally binding agreement between two or more parties. While contracts can be implied or oral, in

During the underwriting process, the policy adminis-

a business setting they are most often in written form.

tration system needs to be filled with key information

Contracts affirm the rights and duties of each contracting

about the cover. Underwriters also must study the

party and form an integral part of a business transaction. In

contracts to know the extent of cover they are offering.

the insurance industry there are numerous initiatives to Claims

simplify legal language, especially for consumers. But the review and interpretation of legal documents, especially in

The claims staff needs to thoroughly study the con-

B2B transactions, remains a difficult but important task.

tracts. This is important in order to decide whether and

Contracts are full of valuable information. Some of the legal

to what extent a claim is covered under a special policy

terms in a contract might seem unnecessary for the layman

and to analyze what the agreed payment conditions are.

but there are real gems hidden in them. Those gems can help

Whether and to what extent a claim is covered under

to improve overall company performance, which is why they

a policy and what the agreed payment conditions are.

need to be extracted. In reinsurance, where contracts worth Technical Accounting

millions are not uncommon, the systematic collection and interpretation of information contained in contracts is even

more crucial.

bordereaux are important for technical accountants.

The beneficiaries of contract information Almost all functions use information contained in reinsurance contracts. These are the following:

Information such as content and agreed timelines for

Actuarial

Pricing actuaries need to understand the extent and type of cover to be able to calculate a risk adequate technical price.


synpulse

Digital Transformation Insurance | 39

Exposure Management

ent of reports that are based on the data contained in reinsurance contracts.

Exposure monitoring is dependent on information contained in the contracts – especially for non-natural catastrophe business-lines. To answer, for instance, the

Challenges in extracting information

question of the overall asbestos exposure a reinsurance

An effective contract (information) management system is

company must know the content of all contracts.

needed to tap the potential that reinsurance contracts present. To make the information available for processing by

Client Markets

those systems, the information must be extracted and struc-

To ensure a positive client experience, client managers

tured. However, a written contract is a form of legal text and

must quickly respond to client requests relating to in-

as such we are dealing with unstructured data that is more

formation contained in reinsurance contracts.

complex to process than structured information. This is true for the human reader and even more so for computers (

Legal

1).

summarizes some of the challenges of this task. Legal texts

Legal staff can be tasked with quality assurance of the

use legal language, which is distinctively different than natu-

overall reinsurance contract portfolio and with provid-

ral language. This makes makes the extraction of informa-

ing guidance to underwriters by assessing the quality of

tion for the human reader and computers difficult. Moreover,

individual clauses or whole contracts.

while reinsurance is arguably one of the most globalized industries, reinsurance contracts are often drawn up in the

General Management

language spoken in the country where the cedant is located.

General management is unlikely to analyze reinsurance

This makes information extraction more complex as the per-

contracts to get insights. However, it is often the recipi-

son or computer that is tasked with the information extrac-

Unstructured data

Legal language

Heterogeneity of contracts

Challenges

Optical character recognition

Different languages

Local standards

Source: Synpulse 1: Challenges in Information Extraction from Reinsurance Contracts


40 | Digital Transformation Insurance

synpulse

tion must work with different languages. Local market stan-

deviations are sometimes necessary. A hybrid approach

dards and the local legal framework also play a crucial role.

where humans and machines work together in the con-

Whether the information is extracted by a human or by

tract creation process is also possible. Indeed, even in

a computer, optical character recognition is a precondition

a machine-based approach, some human input is nec-

for non-machine readable documents. It would be extremely

essary, because the machine cannot know everything

inefficient to ask a human to extract information from

by itself. The hybrid approach assumes human inter-

a document that is not even searchable. And computers

vention, including, for example, the drafting of certain

cannot extract information from a non-machine readable

new clauses.

document. Optical character recognition is not a recent technology and not always as straightforward as it sounds. One

How to extract information from contracts

of the biggest challenges in information extraction from

As mentioned, information can be manually or automatical-

reinsurance contracts is the great variety of the contracts.

ly extracted. In the former case, a human looks at the con-

A reinsurance company needs to handle hundreds of con-

tracts and fills a database with the desired information. In

tracts with differences in format and structure. There are

the latter case, computers automatically extract informa-

three reasons for the variety:

tion. There is also a hybrid approach, where a computer extracts certain attributes while humans extract other,

1.

Authorship

possibly more complex , attributes. Full automation is desir-

Unlike the retail insurance market, where each insur-

able because of efficiency gains but is, given the heterogen-

ance company produces policies according to a prede-

ity of contracts, unrealistic and probably not needed. If

fined template, reinsurers do not have this privilege.

a large portion of a contract’s attributes are extracted auto-

Reinsurance contracts might be drafted by the reinsurer

matically, the person that previously did so manually can

itself, but also by the cedant, the broker or another rein-

focus on more complex tasks.

surance company. This means that contracts will vary from a portfolio point of view as there is no single mar-

The extraction method depends on the type of information

ket standard.

targeted. Entity extraction will, for instance, need a different approach than concept extraction. Advanced text mining

2.

Standardization

techniques are, in any event, key to successful extraction.

There is a low degree of standardization for reinsurance

Machine-learning techniques are often discussed in this

contracts. Although there are some standard clauses,

context. However, to get statistically significant results the

forms and data (e.g. the market reform contract), they

data set needs to be sufficiently large. The higher the dimen-

do not cover all aspects of reinsurance contracts. While

sionality of the data, the larger the data set needs to be.

some reinsurance companies and brokers have stan-

Unfortunately, the relationship is not linear. Reinsurance con-

dard contract wordings, others do not. For those that

tracts exhibit a high dimensionality and most of the time the

have, it cannot always be taken for granted that they

number of contracts available is insufficient to make this

are consistently used. Depending on the type of infor-

approach work for all types of attributes.

mation to be extracted, the priority will either be the standardization of the contract’s structure or of the

An approach that combines various techniques, one of for

reinsurance clauses.

instance machine learning, promises the highest chances of success, as long as the techniques are tailored to the type of

3.

Creation method

information that needs to be extracted. Even though the field

A determining factor of the degree of contract stand-

of text mining has made huge progress, the task of informa-

ardization is the creation method. Machine-created

tion extraction from reinsurance contracts still presents

contracts will inevitably follow a standardized con-

signifanct challenges. Full automation seems unrealistic. For

tract. Contracts created by humans will be less standard-

reinsurance companies that draw up wordings themselves,

ized and contain deviations. Reinsurance contracts can

the task of information extraction should be redundant if

be highly complex, especially when it comes to struc-

a contract management tool is used to store the desired

tured and bespoke reinsurance transactions. Such

attributes in a database.


synpulse

Digital Transformation Insurance | 41

Advantages of automatic information extraction The advantages of automatic information extraction from reinsurance contracts are as follows:

Reduction of operational risk

Human oversight can be reduced since the computer will extract all attributes that are supposed to be extracted.

Efficiency gains

Automatic extraction can be performed 24/7 and at

Conclusion

a much higher speed than manual extraction.

Reinsurance contracts are like rough diamonds: You need an expert to appreciate its value and it needs to be shaped and

Increased amount of information available

polished before that value becomes obvious to others. Rein-

Because automatic information extraction is more effi-

surance contracts are full of information that is extremely

cient and scalable, more data points can be extracted.

useful to almost any department within a reinsurance com-

These data points enable additional applications.

pany. Extracting this information adds real value to the business by making risk assessment more accurate, internal

Consistency of available information

processes more efficient and the portfolio more transpa-

The attributes that are being extracted do not depend

rent. An automated extraction mechanism requires invest-

on what each individual person thinks is important.

ment, but it is likely to yield long-term returns as the amount

The computer will consistently extract those attributes

and quality of data that can be extracted in this way surpass

that have been defined.

that done by manual extraction.

Authors

Patrick Roder Associate Partne (Synpulse Switzerland) patrick.roder@synpulse.com

Konrad Niggli Managing Partner (Synpulse Switzerland) konrad.niggli@synpulse.com


42 | Operational Excellence Insurance

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Succeeding in the Millennial Insurance Market with Speed and Stability Competing with insurtech disruptors and catering to the millennial generation requires speed, while increasing oversight and compliance demands stability. By deploying a twospeed architecture, traditional insurance companies can improve both and more effectively respond to new age market dynamics. Authors: Anant Goyal | Zoe Lang


synpulse

Operational Excellence Insurance | 43

Rapid disruptions and changing customer expectations are

like channels and client journeys change faster. A two-

transforming the insurance market. Large companies with

speed architecture addresses these changes and provides

proximity to the industry are venturing into the space, there-

an end-to-end view of the business.This kind of architecture

by creating new distribution channels. Digital excellence,

is a rethink of the existing enterprise architecture (EA) to

product innovation, data utilization and customer focus are

accommodate new digital capabilities, while retaining the

at the heart of the new digital-first insurance companies. This

operational base of the organization. It speeds up the exter-

has changed the rules of the game for traditional insurers.

nal facing aspects of the organization, while minimizing the impact on the daily operations and reporting structure. It

Insurers and reinsurers in the Asia-Pacific region have re-

allows the enterprise to operate at different speeds.

ported losing more market share to these disruptors than those in Europe and North America.1 For example, «Tencent»,

In a two-speed architecture, current digital trends and shifts in

the owner of the popular Chinese communication platform

customer preferences are implemented in an agile, structured

«WeChat», has launched an online insurance business that

framework. From an IT perspective, a front and/or middle lay-

has gained significant traction in the Chinese market.

er solution that can easily incorporate new ways of doing business is implemented. The solution is built to serve high fre-

By 2030, Asia is expected to represent 66% of the global mid-

quency, high performance and 24/7 sales activities. This is

dle-class population. This large underinsured population

accompanied by an organizational ability to support these

promises significant opportunities.

new channels resulting in quick responses to disruptions.

Responding to challenges effectively

It is done while maintaining operational stability at the back.

There are several options for insurers to respond to these

Continuing the IT example above, the fast-moving, front-end

challenges, while improving the organization’s ability to ex-

solution is integrated with an existing core solution. The core

ploit future opportunities. These include exploring new mar-

system serves the stable but low frequency of operational

kets by ramping up a greenfield business or via acquisition

needs. It provides business continuity, leveraging existing

and diversifying the product portfolio. Upstreaming integra-

data and reporting structures including compliance man-

tions and strategic partnerships can also bring long-term

dates.

benefits, while mitigating the impact of competitive threats. The front/middle office is, in other words, de-coupled from Another effective method to respond to the new market dy-

the back office and can move at a different level of pace.

namics is to improve the agility of the existing business. This

This is what is meant by a two-speed EA. For the IT example,

leads to an immediate and sustainable improvement in the

it allows for ongoing utilization of the established core sys-

way business is conducted. It enables it to pivot quickly,

tem while running new, agile and customer centric systems

while continuing to derive value from existing investments.

in parallel (see

1).

Insurtech companies, with a fully embedded digital philosophy, have increased the transparency and agility for insur-

The modern digital engagement layer acts as the enable-

ance customers. Competing with such disruptors and cater-

ment channel for sales, while the core system layer functions

ing to the millennial generation requires speed, while

as the single source of truth for the organization.

increasing oversight and compliance demands stable data sources. Deploying a two-speed enterprise architecture im-

Benefit assessment for two-speed EA

proves both.

Responsiveness to market conditions, flexibility to adopt emerging distribution channels, automation and operation-

Introducing two-speed enterprise architecture

al cost reduction are among the key business objectives

Some aspects of the insurance business like coverage, con-

achieved with two-speed architecture. We analyze the

tracts and underwriting guidelines change slowly. Others

impact of the architecture as follows.

1

Insurance Nexus 2017


44 | Operational Excellence Insurance

synpulse

Faster time to market

ensures more long-term stability for the core system

A responsive, high availability front-end coupled with

and improved data governance across the organiza-

a stable core provides the freedom to experiment with

tion.

potential disruptors while significantly reducing the Return on Investment

integration effort. This speeds up the response time. For example, a competitor may launch a new package

The upfront costs for setting up an agile digital engage-

product that is received well by the market. An agile

ment layer are lower than for a complete core system

front-end will enable the organization to quickly create

replacement. Integrations to the existing core can be

and enable the sales proposition for that package.

governed by a standardized integration framework,

Internally, it continues to be a combination of multiple

thereby reducing integration costs.

individual products. The two-speed organization is digitally enabled to pursue Additional capability

additional revenue by monetizing its services for partners

The engagement layer provides the capability to inte-

and distributors alike. For example, insights from the large

grate with new digital channels, including social media

data repository available at traditional insurers can be given

connectors. This enables new distribution mediums

to distribution partners to enable targeted propositions for

to be utilized while improving data governance. For

potential clients. If charged for, this service can provide addi-

example, WhatsApp conversations can be used to drive

tional revenues for the organization.

business and be managed within the enterprise environment. In addition, the digital channels provide

Implementing two-speed EA successfully

partner establishments the flexibility to conduct busi-

To implement two-speed EA successfully, focused effort and

ness seamlessly with the hosting organization. In fact,

effective collaboration are required. A defined action plan for

a leading Singapore insurer now allows travel claims to

the following aspects of the organization is also necessary.

be notified via WhatsApp. Leadership-driven governance Stability

Building two-speed EA is a strategic investment and

As frequent changes are isolated to the front-end, the

should be treated as a key business enabler. By

data model of the back-end changes less often. This

embracing digitalization and customer centricity, two-

Customer

Agents

Aggregators/brokers

Eco-system partners

Agility Front office (engagement layer) Transparrency Scalability Adaptability

System of engagement

Middle office (standardized connectivity)

Back office (stable layer)

System of records

Rapid development Source: Synpulse 1: Application of Two-Speed Architecture


synpulse

Operational Excellence Insurance | 45

speed EA can help insurers reach their strategic goals.

bles a quick assessment of the impact of the new func-

To successfully deploy the new EA, a leadership-driven

tionality, thus providing the organization the flexibility

governance model should be established to provide

to experiment.

appropriate organizational support. DevOps for the stable back-office Driving organizational consensus

Core systems, on the other hand, do not respond very

A two-speed EA creates «fast-moving» and «stable»

well to agile development. DevOps, a software develop-

sub-organizations. To operate at two different speeds,

ment methodology, should be adopted to help the

mutual trust needs to be built by open communication

development and operations teams to work togeth-

between different stakeholder groups. The aim is to

er to achieve the business objective. DevOps helps

ensure that various teams collaborate in the most effi-

break down internal silos and fosters the organization-

cient and effective manner to drive the whole organiza-

al collaboration across multidisciplinary teams. These

tion towards meeting their strategic business objec-

two methodologies can be effectively linked together

tives. Equitable incentivization across different speeds

by a robust organizational change management pro-

is essential to the success of two-speed EA.

cess.

Agile for the fast-moving organization

Conclusion

The inherent need for the digital layer to be responsive

Digital innovation and customer centricity are the focus of

makes it well suited to employ an agile methodology.

a significant number of digitally aware insurance companies.

Rapid sprints enable the organization to respond effec-

Tactically, the transformation to two-speed EA can help

tively to new market dynamics while pre-empting the

insurers that want to develop a competitive advantage and

possibility of late or significant changes. This also ena-

are looking for a value-for-money proposition.

Authors

Anant Goyal Manager (Synpulse Singapore) anant.goyal@singapore.com

Zoe Lang Consultant (Synpulse Singapore) zoe.lang@synpulse.com


Masthead Articles can be accessed via www.synpulse.com. Published by: Synpulse Management Consulting Editor: Stefanie Walter ASSET PR | Realization: Synpulse Management Consulting | Printer: Gremper AG | Feedback and inquiries to: Synpulse Switzerland AG, Thurgauerstrasse 32, CH-8050 Zurich, phone +41 44 802 2000, fax +41 44 802 2001, info@synpulse.com | 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: Fotalia Llc, Shutterstock Inc | Layout/Illustration: ASSET PR


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Profile for Synpulse

The Magazine 01/2019  

Management know-how for practical use

The Magazine 01/2019  

Management know-how for practical use

Profile for synpulse