BCG-FICCI Insurance Report - Final - For Distribution

The Changing Face of
Indian Insurance
Bigger, Better, Faster
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s
leading advisor on business strategy. We partner with clients from the private, public, and not-for-
profit sectors in all regions to identify their highest-value opportunities, address their most critical
challenges, and transform their enterprises. Our customized approach combines deep insight into
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organization. This ensures that our clients achieve sustainable competitive advantage, build more
capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with
to 85 offices in 48 countries. For more information, please visit bcg.com.
Established in 1927, FICCI is the largest and oldest apex business organization in India. FICCI has
contributed to the growth of the industry by encouraging debate, articulating the private sector’s
views and influencing policy. A non-government, not-for-profit organization, FICCI is the voice of
India’s business and industry. FICCI draws its membership from the corporate sector, both private
and public, including SMEs and MNCs; FICCI enjoys an indirect membership of over 2,50,000
companies from various regional chambers of commerce.
Indian Insurance
March 2017
CONTENTS
4 FOREWORD
5 THE CHANGING FACE OF INDIAN INSURANCE
14 MEGA TRENDS IN INDIAN INSURANCE INDUSTRY
17 INDIAN GENERAL INSURANCE—GEARING UP FOR NEW AGE TRENDS
2 0 INDIAN LIFE INSURANCE—THE JOURNEY SO FAR AND THE WAY AHEAD
2 2 DIGITAL REVOLUTION IN THE GENERAL INSURANCE INDUSTRY
2 5 INDIAN INSURANCE IN 2020—TARGETING THE UNDER-SERVED
2 8 ENABLING THE GROWTH OF THE INDIAN INSURANCE INDUSTRY
3 1 ACTUALIZING THE OPPORTUNITY AT THE BOTTOM OF THE PYRAMID
3 4 DIGITIZATION—A GAME CHANGER FOR THE INDIAN INSURANCE INDUSTRY
3 6 LIFE INSURANCE FOR EVERYONE
3 9 RISKY TIMES FOR THE RISK TRANSFER BUSINESS
4 2 INSURANCE—AN IMPORTANT STEP TOWARDS SECURITY OF PROPERTY

OWNERSHIP IN INDIA
4 6 MOTOR INSURANCE 2.0
4 8 DIGITALIZATION AND ITS IMPRINT ON THE INSURANCE INDUSTRY
2 The Changing Face of Indian Insurance

5 1 INSURANCE SECTOR—THE ROAD AHEAD
5 3 TRANSFORMATION OF INDIAN INSURANCE INDUSTRY
5 6 CUSTOMER IS KING AS INSURANCE GOES DIGITAL
5 9 INDIAN INSURANCE SECTOR—THE NEW CHANGE AGENTS
6 3 COMPETING IN THE AGE OF ARTIFICIAL INTELLIGENCE
7 0 DRIVING CUSTOMER CENTRICITY IN THE DIGITAL WORLD
7 3 INSURANCE IN THE BIONIC WORLD
7 7 DIGITIZING CUSTOMER JOURNEYS AND THE NEW INSURANCE IT MODEL
82 DELIVERING TRANSFORMATIVE CUSTOMER EXPERIENCE THROUGH

DIGITIZATION IN INSURANCE
8 5 USING BIG DATA AND ANALYTICS ACROSS THE INSURANCE VALUE CHAIN
9 0 USING ADVANCED ANALYTICS TO IMPROVE OPERATIONAL DECISIONS
9 7 BUILDING A DIGITAL TECHNOLOGY FOUNDATION IN INSURANCE
9 9 THE REAL DEAL ON M&A, SYNERGIES, AND VALUE
1 06 CREATING VALUE IN INSURANCE M&A
The Boston Consulting Group • Ficci 3

FOREWORD
W e are pleased to present this joint publication from Federation of Indian Chambers of Commerce and
Industry (FICCI) and The Boston Consulting Group (BCG) on “The Changing Face of Indian Insurance:
Bigger, Better, Faster”.
In our publication last year, “The Changing Face of Indian Insurance: In Pursuit of Profitable and Sustainable
Growth”, we had shared a 14-point action agenda for the Indian insurers to drive sustainable and profitable growth.
This year, we have focused on the industry agenda with a specific nuance of the impact of all digital related trends on
the comprehensive agenda, and to see how the insurers need to adapt to the same to get bigger, better and faster.
The global insurance industry is being challenged by these megatrends to rethink the ways of working, insurers are
forced to adapt in an agile manner, become leaner and more efficient. Big data and digital are common mega-
trends that are causing disruption and driving transformations across all industries and are finding their way to the
core of any insurers’ strategy. We have kept a large focus on the related topics.
This year’s publication is a collaboration between FICCI, BCG and the industry. A number of industry leaders have
contributed to the publication with their own perspectives. We are delighted to present this unique collection of
perspectives on most pressing topics.
We are thankful to all the authors of the perspectives, along with FICCI and BCG teams for their contributions.
Mr. Amitabh Chaudhry Mr. G Srinivasan Mr. Alpesh Shah

Chairman, FICCI’s Insurance Co-Chair, FICCI’s Insurance Senior Partner and
and Pensions Committee & and Pensions Committee & Managing Director
Managing Director & CEO, HDFC Chairman & Managing The Boston Consulting Group
Standard Life Insurance Director, New India
Company Limited Assurance Company

THE CHANGING FACE OF
INDIAN INSURANCE
By Alpesh Shah, Aniruddha Marathe (BCG)
M r. Ajay Kumar is a successful lawyer

who lives with his wife and two
children (12 and 14) in a swanky bungalow
minded of the drive and he opens the insur-
ance manager mobile app that shows all dif-
ferent insurance policies purchased by him.
in Hazratgunj, Lucknow. It is a nice Satur- As he looks at the application dashboard, he
day morning and Ajay jumps into his car to realizes how different his insurance experi-
go for a quick game of squash with his ence is today compared to the year 2015
friend, since his family is travelling. His car when he took his first steps in finance and
welcomes him as he gets in and adjusts the insurance planning for his family. There is a
settings to his preferences. He glances at prompt offering him a brilliant pension plan.
the dashboard indicator, which informs him He clicks on the link and is connected for a
that his car insurance has shifted from video chat with his bank RM. He likes the
home insurer, which handles insurance of pension plan demonstrated by the RM. He is
his car while it is parked at home, to his amazed to see how the pension plan was cus-
driving insurer. As he accelerates onto the tomized for his own saving pattern and how
main road, the dashboard warns him that similar other customers of the bank had cho-
his risk rating could worsen if he continues sen a similar plan.
accelerating heavily and braking suddenly.
Ajay makes a note to himself to be less The car insurance dashboard shows a
heavy footed on the accelerator. Ajay takes ‘thumbs up’. He has earned 5,000 points
pride in proactive management of his over the past quarter, which he could re-
financials, including insurance. He reminds deem at the garage. He earned them be-
himself to do a full review of all his insur- cause he had practiced the right technique
ance policies on his return. to apply acceleration and brakes as suggest-
ed by the app (unlike this morning, thank
It is 9 a.m. when Ajay gets back from his God for sensors) – something he wonders
game. As he starts having breakfast, he is re- why he did not do before. However, he is

disappointed that he could not earn the end-end services meeting customer needs
fourth star in the health-buddy program and not just products
linked to his health insurance. The virtual
chat assistant tells him that missing the Technology advances are transforming differ-
gym and squash sessions and scheduled ent industries at an ever-increasing pace. In-
health check-ups had cost him the extra surance industry will not be isolated. These
star. Before closing the app, he quickly advances will be a lot more potent as they
checks the appointment with a home main- will have widespread applications across dif-
tenance agency, a partner service of his ferent aspects of the insurance business in-
home insurance policy. cluding sales, underwriting, claims and cus-
tomer service.
Does this sound like science fiction? Not real-
ly. This story is likely to be a reality by the And if this were not enough, the rapidly
year 2020, and in India. Just to highlight a few evolving macro-economic landscape – lower
key elements that are highlighted by the ex- interest rates, evolving customer behavior,
ample: impact of digital adoption, changing competi-
tive landscape and the dynamic regulatory
•• Insurance will be dynamic and will cover situation will keep the C-suite busy in devel-
end-to-end customer journeys oping and adapting strategies to leverage the
opportunities and stave off the challenges.
•• Insurance will be highly customized and Basis the above context, we have identified
relevant to each customer individually 12 strategic priorities for insurers that could
help in preparing for the insurance of the fu-
•• Interactions will be “phygital” – a mix of ture (Refer Exhibit 1).
physical and digital, though increasingly
becoming more and more digital 1. Distribution of the future – ‘Phygital’
interactions across channels:
•• Insurers will partner with multiple
different service providers to offer So far, insurers had predominantly focused
EXHIBIT 1 : 12 Strategic Priorities for the Indian Insurers
1 2 3
Customer Ecosystems and

Distribution of the future: Serving the underserved
partnerships a reality—
facing 'Phygital' interactions and uninsured: addressing
leveraging broader
priorities across channels white spaces
ecosystems
4 Process 5 6 7 8
Customer Data and InsurTechs
Priorities digitization
engagement
Products and
analytics will will accelerate
2.0— Pricing 2.0—new,
severely 1.0—digital be king—will industry
customer tailored and
driven by journeys will
will enable
integrated end-to-
separate transformation—
customer winners from learn from &
digital be digitized end
centricity also-rans collaborate
end to end
9 10 11 12
Creating the
People 2.0.2.0 – Ride the wave of Value creation in
technology and
Creating a winning regulatory a changing
Functional data architecture
organization model shifts—be agile shareholder
Priorities while addressing
required to
and ahead of the world—IPOs,
deliver the 'digital
millennials' needs game M&A
insurer'
Source: BCG analysis.

on leveraging digital for direct to customer are under served, for example, the HNWI
interactions. In the immediate future, insur- and mass market from a life insurance per-
ers will drive digital enablement and sophis- spective, and the SME and mass market
tication across all the distribution channels: segments from a non-life insurance per-
spective.
•• Bionic agency: At present, the solicitation
process is heavy on physical face-to-face Let’s talk about the mass market customers
interactions. Going beyond just sales, in detail. Insurers have traditionally found it
some of the potential elements of a difficult to target low-income customer seg-
bionic agency are enablement of agency ments or semi-urban, rural customer seg-
force through mobile apps, agent interac- ments viably. Regulatory requirements as
tions with the customers through digitally well as government schemes such as PMJBY
video tools, streaming demos and real or PMFBY have surely nudged insurers to tar-
time sales support from insurers. get such segments but they have barely
scratched the surface. The headroom for
•• Open architecture banca partners: After growth has always been there but lack of
many years of inactivity, open architec- awareness among customers and low viabili-
ture bancassurance will become a reality. ty of distribution infrastructure did not trans-
While insurers have established strong late the headroom into an addressable op-
physical distribution channels through portunity. The stars are now aligning and a
bancassurance or other corporate number of drivers are set to change this pic-
partners, multi-channel integration across ture. Ecosystems and partnerships will en-
digital platforms including websites, apps able insurers to embed insurance offering in
is yet to achieve full maturity. The customer journeys. Aadhaar linked biometric
challenge is acute especially with brick- authentication will ease the burden of fulfill-
and-mortar heavy partners such as PSU ing KYC requirements. Digital distribution, in-
banks. In open architecture bancassur- tegration with ecosystems and partners will
ance, insurers that will effectively inte- make insurance bite-sized and affordable.
grate with digital channels of the partners Demonetization and PMJDY have bolstered
and leverage partners’ customer data for financial savings and a good part of it will
customized offers will stand to gain a find its way to insurance products. Banca
greater share of the pie. partners, which are aggressively targeting
fee-income, will increase branch activation
•• Direct digital interaction with customers: and use data and analytics to find the right
In the last few years, online insurance targets. By any estimation, the ‘opportunity’
aggregators, email and social marketing, is large and it will play out only gradually.
search engine marketing and website + This will allow insurers to find their sweet
tele-assist based direct sales have estab- spots, fine tune their business models and
lished themselves as key digital marketing target significant growth for years to come.
and distribution channels. Growth
witnessed in these channels leaves no 3. Ecosystems and partnerships a reali-
doubt about their potential. By leveraging ty—leveraging the broader ecosys-
analytics and advances in technology and tems:
digital infrastructure, direct digital
interactions and marketing to the To create ‘sustainable’ differentiation, in-
customers will become highly personal- surers will need to think of new business
ized, more engaging and automated using models that are hard to replicate and that
natural language processing. engulf the customer across broad needs ful-
filled by a suite of services. For example,
2. Serving the underserved and unin- creation of health ecosystem vs. health in-
sured: addressing white spaces: surance, mobility ecosystem vs. motor insur-
ance, retirement ecosystem vs. pension
There are many customer segments that plan, child care and development ecosys-

tem vs. health insurance and so on. Ecosys- also started using the same. The time has
tems are a set of businesses, which address come to commit to this unconditionally.
customer needs in a comprehensive and in-
tegrated manner. •• Digital document storage: Whether it is
de-materialized policy documents or
For example, a health ecosystem will entail claim documents, insurers have the
wellness providers, health food providers, fit- opportunity to eliminate paper from
ness centers, primary clinics, diagnostic cen- most, if not all processes. However, to
ters, secondary or tertiary hospitals, payers take full advantage, it will be imperative
such as insurers / corporate / government, to have data architecture that allows
pharmacies, disease management services capture of semi-structured and unstruc-
linked together by an ecosystem aggregator. tured data. Third party digital lockers are
Ecosystems will help not only in gaining now a reality where users can allow
share of wallet but also in achieving custom- insurers to access paper records issued by
er ‘lock-in’ with more hooks and hence high other third parties such as government or
exit barriers. Insurers will have to either take medical records.
the lead and create such ecosystems or par-
ticipate in existing ones. Since ecosystems •• Digital consent: Insurers in future will
business model is radically different from tra- increasingly use third party data for
ditional insurance business model, it will re- tailored offerings, underwriting and
quire insurers to take large strategic bets, customer service. Digitally signed consent
heavily invest in product design, operations through a modern private data-sharing
and technology and source customers framework will allow insurers to securely
through multiple touch-points across the eco- access specific data allowed by users. It
system. will also enable separation of data and
consent flow reducing the chance of
4. Process digitization 2.0—customer frauds.
journeys will be digitized end-to-end:
•• Digital payments: Accelerating transition
The global trend of digitizing the core in- to cashless economy and adoption of UPI
surance processes of sales, claims settle- interface will significantly enable process
ment as well as back-office operations is digitization and eliminate manual
also gaining roots in India. A number of in- elements of payment collections.
surers have launched processes and apps
for distribution partners and customers. •• New technological advances: Internet of
Apart from productivity gains, digitization Things (IoT) including wearables and
also helps improve process quality through telematics devices, Artificial Intelligence
standardization, process risk controls and (AI) including chat-bots and machine
lower manual involvement. learning, and Robotics will significantly
increase automation leading to greater
For process digitization 2.0, insurers will productivity.
leverage the rapidly developing digital infra-
structure in the country as well as the latest 5. Customer engagement 1.0—Digital
technological advances. The next advance in will enable customer centricity:
process digitization will be driven by the fol-
lowing five key elements: Insurance as a product category faces a key
challenge of limited customer touch-points
•• Aadhaar based biometric authentication: and low customer engagement despite the
Recent entrants in banking and Telecom consultative nature of the product and sig-
have already leveraged Aadhaar based nificant financial implications for the cus-
authentication to roll out fully paperless tomers. BCG experience shows that insurers
customer on-boarding process with high have on an average of 0.3-0.4 customer con-
quality KYC compliance. Insurers have tacts per year. Add to that, the Indian situa-

tion where so far, insurers have focused the opportunity to introduce products
more on intermediaries than the customers, with features that are highly customized
has resulted in even less data on end cus- or integral to the partner’s product
tomers. Customer contactability is abysmal- offering.
ly low.
Product evolution will go hand in hand with
Digital is a key enabler of disintermediation evolving pricing approaches. Pricing will be a
and allows insurers to meaningfully engage key driver of profitable growth. New data
and influence customer experience directly. sources such as partnerships, IoT – wear-
Insurance companies will have to start ables, big data analytics, will put insurers in a
treating end customers as customers. They great position to bridge the ‘data divide’ and
could potentially leverage the opportunity price products appropriately.
to integrate other high frequency transac-
tions such as financial dashboards, health 7. Data and analytics will be king and
apps, social media content or other custom- will differentiate winners from
er journeys (e.g. driving, travel, child educa- also-rans:
tion) and create ‘moments of truth’. The
next imperative will be to excel at customer Like other businesses, insurers are also
experience in those interactions. Insurers keen to leverage big data analytics. Howev-
that will crack the code will surely have a er, they suffer from lack of quality data. In
better chance of increasing customers as India, the challenge is even starker, insurers
well as share of customer wallet and retain struggle from lack of data, leave aside high
customers for longer. quality data. It is driven partly by the na-
ture of the business where customer trans-
6. Products and pricing 2.0—new, tailored actions are limited (BCG analysis shows just
and integrated end-to-end: about 0.3-0.4 contact points per year) and
partly by the focus of insurers on interme-
In the rapidly evolving world, we believe diaries who call the shots and at times
that products will evolve on three key di- mask the data and do not share the full cus-
mensions. tomer data with the insurers. In general in-
surance, for example, since KYC is not man-
•• New products—Evolving needs and datory, insurers often do not have basic
growing niches will drive new product profile information of the customers.
development and product feature
enhancements. E.g. cyber risk, fine arts, Importance of data is beyond debate and in-
extended warranty products will become surers can overcome the challenge by first
more prominent. looking internally for the right processes to
capture the appropriate data as well as look
•• Tailored offers—based on data insights at forging data partnerships. Different data
will make products uniquely relevant to partnerships become relevant in the context
the segment of one and pique customer of sourcing and actuarial modeling. In case
interest. Better understanding of the of sourcing, insurers need to dig deeper into
customer profile and life stage, other sourcing data from intermediaries apart from
financial transactions, social behavior will third party partnerships which provide rich
allow insurers to provide the ‘right information on customer profile, life stage,
product at the right time’. social behavior and transaction context. In
case of actuarial modeling, varied sources of
•• Products integrated with partner offer- data can be leveraged in specific contexts.
ings: Insurance is already sold through For example, weather data can not only be
partnerships as an attachment product used for crop insurance but also for analyz-
primarily in the context of loans or large ing chances of health epidemics, public
asset purchases such as housing and health issues (e.g. pollution), natural disasters
vehicles. Even further, insurers will have impacting life and property.

In future, and this is the immediate future, 9. People 2.0.2.0.—Creating a winning
we believe that data and analytics will truly organization model while addressing
be king, and the insurers that commit to millennials’ needs:
this element and get it right will clearly dif-
ferentiate themselves and emerge as win- Millennials will be a sizeable part of the
ners. workforce by year 2020. Insurers (as will all
businesses) will need to adapt to the new
8. InsurTechs will accelerate industry way of working to deliver the ‘Future of
transformation – insurers will learn Work’. Over the generations, one can ob-
from and collaborate with them: serve the mindset shifts, ‘from one job per
lifetime to one career per lifetime to the
InsurTechs have been late in coming to the millennials’ comfort with a few careers and
start-up party, but come they have with ven- multiple jobs’. A large shift is visible in the
geance. While Insurtechs started later than workforce values and culture. As loyalty
FinTechs, over the past few years, ~2,100 In- takes a new meaning, organizations will
surTechs have received investments in excess need to focus on talent management on ste-
of $38 Bn. Nearly 600 InsurTechs have come roids to manage talent gaps, focus on indi-
up in last 5 years. vidualization and entrepreneurship and ad-
dress the changing employee needs.
Technology driven start-ups are driving a Complexity is also compounded by the im-
range of innovations across the value chain. pact of technology on the people dimen-
From new pricing models (pay as you go - sion.
Metromile), to peer-to-peer insurance
(friendsurance, Kroodle), to connected de- 10. Creating the technology and data
vices/drones for real time information col- architecture required to deliver the
lection for underwriting, claims settlement ‘digital insurer’:
(dropin, domotz), the list is long and each of
these players is disrupting the insurance Infomation Technology has been the back-
space. bone of many transformations within the
Insurance industry over the past two de-
InsurTechs will challenge insurers by com- cades. However, the past two decades will
pletely transforming and disrupting busi- not be a patch on the next few. The multi-
ness models. At the same time, many of ple state-of-the-art technology advances
them will provide an opportunity for insur- from big data and analytics, to machine
ers to collaborate and differentiate on un- learning and artificial intelligence, to the
derwriting, claims and customer service. Internet of Things including wearables and
telematics, to robotics, to chatbots, to voice
Traditional operating models and organiza- recognition and beyond, will completely
tion structures of insurance companies do transform the requirements from IT archi-
not allow for an entrepreneurial approach tecture. Agile, a very small five alphabet
required for disruptive innovations in prod- word, will drive the technology teams cra-
ucts and processes. Insurance companies zy. Let’s take just two of these advances as
will need to explore the opportunity to examples, AI and Big Data.
groom the InsurTechs through separate in-
cubators and innovation labs that isolate Until recently, AI was similar to nuclear fu-
the innovation effort from the traditional sion, an unfulfilled promise. It had been
way of working. Incubators allow insurers around for a long time but had not reached
to engage with start-ups meaningfully in the spectacular heights foreseen in its in-
win-win situations where the parent busi- fancy. Now, however, AI is realizing its po-
ness brings the seed capital, business expe- tential in achieving human-like capabilities,
rience and customer base strength, whereas so it is the time to ask: “How can business
the start-ups bring fresh ideas that business- leaders harness AI to take advantage of the
es can nurture for their own advantage. specific strengths of man and machine?”

There are three implications for the insurers. tioned above, new products driven by part-
nerships and customer data insight, height-
•• AI sounds ‘cool’ but insurers will need to ened risks such as cyber security and data
define clear business use cases. Funda- privacy. Insurers will need to keep pace
mentally, AI will need to address custom- with the evolving regulations.
er needs in an efficient manner
Take for example, the GST rollout, which is
•• Breaking down processes and offerings likely to happen this year. This will have a
into relatively routinized and isolated huge implication for insurers on multiple
elements that can be automated taking fronts, including attractiveness of product
advantage of technological advances and categories, and the operational efforts for in-
data sources. Then, reassembling them to surers. The applicability of different GST
better meet the customers’ needs slabs can significantly influence affordability
and therefore alter the growth trajectory of
•• Incorporating technological advances – different product segments.
The stack of AI services has become
reasonably standardized and is increas- Insurers will need to work with the regulato-
ingly accessible through intuitive tools. ry body to ensure that regulations, while
Even non-experts can use large data sets. aligned with the principles, are also practical
Right platforms and tools need to be in terms of the implementability, the impact
setup for flexible architecture and for on customers and the business economics.
integration with diverse process elements.
12. Value creation in changing
As insurers prepare themselves to leverage shareholder world:
Big Data either by harnessing data that is
available internally or through partnerships, A number of the insurers will have to deal
they need to assess the preparedness to man- with new shareholders over the next few
age such data. Traditionally, insurers have years. In fact, likely all of them. Two big
been used to managing structured data that trends driving this – the listing of insurers,
comes as part of various business processes. including the PSUs and the accelerating
Harnessing new sources of data will require wave of M&A. Retail investors (driven by
the ability to store and process semi-struc- listing), new strategic investors (basis M&A)
tured and unstructured data such as custom- and potential PE investors are all going to
er interactions, images, medical records. Mul- completely transform shareholder expecta-
tiple trade-offs including costs, speed, tions. The scrutiny on the insurers as well
functionality, scalability, data diversity are in- as the many metrics will change drastically.
volved while choosing the right data architec- Typically, not only value creation, but also
ture in line with business objectives. Given consistency of the same (beta) is key for in-
the selection and implementation lead times, vestors. Insurers will have to manage these
this becomes not only important but also ur- new shareholder expectations.
gent for parallel design and execution of
business strategy. In closing, each of the insurers will need to
define their own agenda and priorities basis
11. Ride the wave of regulatory shifts – the 12 strategic priorities outlined above. The
be agile and ahead of the game: journey to deliver a sustainable business in
the face of all the change will not be easy. In-
In case of the insurance industry across the surers will need to place their bets on the
globe, regulatory changes have always had most relevant priorities for them in the con-
large implications for insurers. As one looks text of their business model and pursue
ahead, the regulatory environment will con- them with conviction.
tinue to be dynamic because of the busi-
ness environment changes, such as new
business models like the ecosystems men-

About the Authors
Alpesh Shah is a Senior Partner & Director in the Mumbai office of The Boston Consulting Group and leads
firm’s Insurance practice for the Asia Pacific region. Aniruddha Marathe is a Principal in the Mumbai office
of The Boston Consulting Group and a core member of the firm’s Insurance practice.
For Further Contact

If you would like to discuss the themes and content of this publication, please contact:
Alpesh Shah Pranay Mehrotra

BCG Mumbai BCG Mumbai
+91 22 6749 7163 +91 22 6749 7143
Shah.Alpesh@bcg.com Mehrotra.Pranay@bcg.com
Amit Kumar Prateek Roongta

+91 22 6749 7013 +91 22 6749 7564
K.Amit@bcg.com Roongta.Prateek@bcg.com
Ashish Garg Ruchin Goyal

BCG New Delhi BCG Mumbai
+91 124 459 7083 +91 22 6749 7147
Garg.Ashish@bcg.com Goyal.Ruchin@bcg.com
Ashish Iyer Saurabh Tripathi

+91 22 6749 7249 +91 22 6749 7013

Iyer.Ashish@bcg.com Tripathi.Saurabh@bcg.com
Janmejaya Sinha Yashraj Erande

+91 22 6749 7003 +91 22 6749 7568
Sinha.Janmejaya@bcg.com Erande.Yashraj@bcg.com
Neeraj Aggarwal
BCG New Delhi
+91 124 459 7078
Aggarwal.Neeraj@bcg.com
Acknowledgements
This publication has been prepared by The Boston Consulting Group. The authors would like to thank the
FICCI Insurance and Pensions Team, especially Jyoti Vij, Anshuman Khanna, Gunjan Aggarwal and Nidhi
Tomar for their support.
Ajit Rochlani and Anish Sahni for their contribution to the report and for spearheading the entire publica-
tion process.
A special thanks to all the authors of the perspectives that have been used to put this publication together.
Lastly, a special mention for Jasmin Pithawala and Maneck Katrak for managing the marketing process,
and Jamshed Daruwalla and Pradeep Hire for their contribution towards the design and production of this
report

Market Perspectives
MEGA TRENDS IN INDIAN
INSURANCE INDUSTRY
By Amitabh Chaudhry, Managing Director & CEO, HDFC Standard Life Insurance
Company Limited
T here is no path more hazardous than

the one taken in attempting to predict
what the future entails. Given that the
The primary one among these is ‘digital’
which will manifest itself in multiple ways
for customers, distributors and the back-of-
world we live in is in continuous flux and fice operations of insurers.
every industry faces uncertainties, this is
more true today than ever before. Who Always-on, mobile devices allow for con-
would have thought even a year ago about text-aware, personalized interaction models
de-globalization in a world that was being where insurers can reach out to consumers
rapidly globalized over the past few like never before. Insurers can get deep in-
decades? The world may still be flat, but it sights into customer behavior, based on in-
is not immune to the socio-political and ternal and external data sets. Machine
technology changes which will either raise learning technologies will allow for intelli-
new walls or pull down the existing ones. gent, predictive and learning capabilities to
The implications of these changes on jobs, offer virtual advice and automate deci-
productivity and economies in general are sion-making processes such as underwriting.
unknown today. Despite the challenges of Biometric identification can help prevent
predicting the future, I take solace in the fraud and secure customers’ personal data
fact that over the ages, human ingenuity without compromising customer experience.
has made life better for society-at-large. Insurers can tap in to open ecosystems of
developers to create value-adding solutions
A business like insurance will not be im- like never before. In a world of hyper-con-
mune from some of the mega-trends that nectivity, insurers can build digital ecosys-
stare at us today. I consciously use the tems for different product categories.
word mega-trends for events that I believe
are going to be irreversible in the coming The traditional insurance model was large-
years. ly product-centric and channel market-

ing-driven. The new age model will turn rameters; re-engineering of the policy
this on its head with the customer at the issuance value chain will create a huge dif-
center and a suite of digital technologies, ference in customer experience.
services and ecosystems to tap the custom-
er. If incumbents are unable or unwilling to In several other industries, regulations have
change their business models, they will lagged behind technological innovation,
cede space to new participants. Nothing causing friction between corporations and
prevents search engines or e-commerce regulators. The insurance industry and the
platforms with hordes of customer informa- regulator need to learn from other indus-
tion from disrupting the insurance sector. tries to minimize such friction.
An equivalent of the ‘Banks vs. Wallets’ bat-
tle, while unimaginable today, could Another mega-trend is ‘ageing’ which is
emerge in the insurance sector too. slowly but surely driving up the dependen-
cy ratio. In simple terms, the population of
One often-asked question is whether digital the elderly will increase not just in absolute
will make the existing distribution channels terms over the next two to three decades
redundant? I, for one, believe in the con- but also as a percentage of the overall pop-
trary. Technology is rapidly equipping dis- ulation. In a society that still has substan-
tributors to become more productive, and tial savings in physical assets or in short du-
thereby to improve their returns on effort. ration, open-ended financial assets, the
An agent equipped with greater knowledge opportunity for ‘value migration’ both from
of the customer and supported by a digital physical and short duration financial assets
virtual assistant is likely to be more success- is tremendous. With greater inter-state mi-
ful. There is still some time for robo-adviso- gration within the country for job opportu-
ry and other such platforms to scale up, nities, emergence of nuclear families and
both in terms of reach and domain knowl- limited social security instruments, the ‘pro-
edge, for them to make a difference to con- tection gap’ in India is amongst the highest
sumers in the next few years. in the world. The insurance sector is in a
unique position to offer disciplined savings
The digital push post-demonetization is vehicles for the long-term and protection
leading to a migration of more customers against either the risk of dying early, or liv-
into the formal banking system. Bancassur- ing longer through a suite of product offer-
ance, with greater insight into the consumer ings. Historically, built on the edifice of a
purchase pattern and real time connectivi- tax saving platform, the sector needs to be-
ty, can help nudge the customer to purchase come an integral part of any financial plan-
a variety of insurance solutions. Micro-seg- ning exercise.
mentation and a targeted approach, backed
by analytics, will help improve conversion There are a few other areas that insurance
ratios and reduce customer dissonance. sector management teams would need to
Open architecture ecosystems in bancassur- stay sharply focused on. Attracting and re-
ance will push insurers to improve custom- taining talent is one of these. Insurers who
er value propositions and service standards. offer superior employee value propositions
A greater presence of banks in the hinter- will enjoy greater loyalty in an era where
land will help increase the penetration of the workforce is younger; geographically
insurance across the length & breadth of mobile; technologically skilled; demands
the country at lower fixed costs. more flexibility such as work-from-home;
strives for work-life balance; expects greater
An additional opportunity will be to lever- learning opportunities; and is more aware
age the ‘India Stack’ architecture which en- of what competitors, both within and out-
ables insurers to on-board customers in a side the sector, have to offer them as a val-
paperless fashion. Insurance today is large- ue proposition. The human resource prac-
ly seen to be lagging behind other consum- tices of insurers would need to be grounded
er-driven sectors in ‘ease of purchase’ pain this new reality.

Very soon, most insurers will also deal with significantly change the affordability and
a more diverse set of shareholders, either thereby influence the growth of different
due to a listing process or an accelerating product categories.
wave of mergers and acquisitions that the
industry is witnessing. Greater public scruti- The challenges posed by the above changes
ny and demanding shareholders pushing are not insurmountable; the opportunities
for sustainable and profitable business to grow and become more efficient are hu-
models will help create greater transparen- mungous. However, the sector can ill-afford
cy for the sector & push insurers towards uncertainties like the ones it faced in the
higher efficiencies and superior customer earlier part of this decade. It is only with
service standards. great effort that a renewed model of sus-
tainable growth has re-emerged for the sec-
Over the next couple of years, GST will be tor; for the fruits of this model to be
another discontinuity that the country will reaped, all stakeholders need to work to-
face. Applicability of different tax slabs can gether in tandem.

INDIAN GENERAL
INSURANCE—GEARING UP
FOR NEW AGE TRENDS
By Bhargav Dasgupta, Managing Director & CEO, ICICI Lombard General Insurance
Company Limited
T he world is witnessing widespread

and far-reaching changes from many
quarters. Environmental impact is causing
On a separate front, lifestyle-oriented dis-
eases are increasing at a worrying pace. The
number of cancer cases has risen by 33 per-
large scale catastrophes to occur at an cent across the globe in the last 10 years. At
alarming rate. These incidents are being the same time, there are over 1.13 billion
witnessed not just outside our borders but people with high blood pressure across the
within as well. The last calendar year, world today. When it comes to India, diabe-
especially, will go down in history as the tes has increased by 50 percent in the last
Year of the Earthquake with tremors 10 years; and 200 million Indians are cur-
experienced in Taiwan, Italy, New Zealand, rently believed to be suffering from high
Japan and Indonesia. Closer home, India blood pressure. Unfortunately, health insur-
too had its share of ‘quakes in Manipur and ance, which can act as an essential risk pro-
Patna. At the same time, in India, we have tection tool in this scenario, is plagued with
suffered recurring floods with the one in low penetration. As per 2016 estimates, re-
Chennai among the most damaging. The tail health insurance penetration (excluding
damage arising out of these incidents is social health insurance schemes) was only
significant. For instance, the Chennai floods around 5 percent.
led to economic losses of around Rs 15,000
crore. Unfortunately, losses amounting to Increasing non-life insurance penetration is
Rs 10,000 crore out of this were uninsured, a must. We need collectively to identify the
leaving it to the impacted entities to recoup issues behind the low penetration and arrive
the damages from their own resources. at solutions. Industry players can also look at
Despite multiple instances of earthquakes the success of recently unveiled insurance
and floods in India, segments such as home schemes for answers. The Pradhan Mantri
insurance continue to show penetration Fasal Bima Yojana (PMFBY) has driven crop
levels of only 0.7 percent. insurance coverage to 29 percent from 23

percent within a year of launch. Similarly, we need to take the lead in defining safety
the Rail Insurance Scheme introduced in and risk mitigation standards. In the past,
September 2016 has already covered more the industry did so globally by innovating
than 9 crore passengers. There would be itself in the era of the industrial revolution,
multiple reasons why each of these schemes when goods production underwent a dra-
has succeeded: the involvement of stake- matic change. It is time we do it again. In
holders including specialists, the for- fact, even as we speak, there is work al-
ward-looking policy framework, as well as ready happening on this front. The World
the use of technology as an enabler to reach Economic Forum is engaging with insur-
a large base. The key point is to learn from ance industry leaders from across the world
the individual models and implement the along with academia, policy-makers and
relevant learning in specific areas to expand technology companies to define and draft
general insurance penetration. recommendations on mitigating risks in the
innovation economy. While global norms
Further, there is a pressing need for the gen- are useful, it may be the right time for do-
eral insurance sector in India to reorient it- mestic stakeholders to initiate the same for
self, as the technology age brings in disrup- local markets, especially since many tech-
tive change. Concepts such as driverless cars; nological breakthroughs are being brought
drones; artificial intelligence; and augmented to India first or are being implemented on
reality, which seemed to be limited to sci-fi a larger scale on our soils.
movies or closed-door R&D labs, have made
their presence felt in the real world in no The third area that we need to focus on is
time. As per estimates by Gartner, there are risk mitigation. For long, insurers have pur-
around 26 billion devices which are intercon- sued the risk financing framework. We have
nected today across the globe. Ten million excelled in terms of settling claims efficient-
self-driving cars are expected to ply on the ly, cutting down on the processing time, etc.
roads by 2020. These developments are hap- Going forward, we as an industry need to re-
pening not just in developed nations but in orient ourselves to focus more on risk miti-
India as well. With 22.5 percent of the gation. We have to provide value to custom-
world’s unmanned aerial vehicle (UAV) im- ers throughout their engagement cycle with
ports between 1985 and 2014, India ranked us and not just at the time of claims. With
first among drone-importing nations, fol- the advent of technology, it is even more fea-
lowed by the United Kingdom and France. sible for insurers to do so. Let us take the
case of healthcare. With wearable technolo-
Insurers need to gear up to cater to these gy becoming a part of our daily life, insurers
new-age trends, as the existing models of have a clear opportunity to take up a part-
risk assessment may not work. This is be- nership role with customers and deploy tech-
cause the nature of risk and its impact may nology proactively to ensure the latter’s
vary with every event. Imagine a situation well-being. By using an individual’s real time
where the core software of driverless cars health data and mapping it with macro data
driving on a road is hacked into and a bug sets, insurers can help customers identify
is installed that makes all the cars turn in risk incidents beforehand and thereby pre-
the wrong direction simultaneously. While vent their occurrence or at least mitigate
we are currently focused on getting more their impact. They can also engage with cus-
and more devices to connect and engage tomers to help them better manage their
with each other, we have yet to understand health by introducing wellness programs for
or experience the impact of any malfunc- them. At ICICI Lombard, we have taken the
tion or deliberate manipulation of devices lead in this area through structured wellness
in this interconnected grid and the resultant benefits that are embedded in our health in-
impact on the connected eco-system. surance policies.
Developing risk management frameworks Let us look at another example here. Use of
to cater to such risks is a priority. Secondly, telematics in the motor insurance segment

provides an opportunity for insurers to of- Similarly, from a service perspective, artifi-
fer relevant risk mitigation solutions. Over cial intelligence-enabled systems will re-
the past couple of years, at ICICI Lombard, duce the speed of decision-making, while
we have deployed telematics solutions to improving the quality and consistency of
minimise marine cargo losses for some of those decisions as type 1 and type 2 errors
our corporate clients during transit of reduce. Insurers also need to migrate to
goods. This enables us to track trucks in these new age tools and delivery platforms
real time using embedded devices and as they get increasingly preferred by cus-
thereby prevent incidents of hijack, cargo tomers. The important point to note here is
theft and pilferage. We are thus able to re- that this may need overhauling of existing
duce losses as well as supply chain interrup- processes to derive maximum advantage
tions for our clients. and truly meet customer expectations.
There are other areas where I see a need In the new technology-driven era, change is
for things to move forward. Insurance pur- inevitable. Further, the pace of change has
chase and customer service need to under- changed. What took years earlier is now
go a transformation in the technology-en- happening in a matter of a few months. As
abled age. We have already witnessed this insurers, we need to stay in sync with the
as e-commerce became a household phe- changing scenario. For many, this could
nomenon. Processes, timelines as well as mean challenges but for those who are pre-
service standards pertaining to policy pur- pared and willing, it entails many opportu-
chase, delivery and customer service have nities. As one looks towards 2020, we as in-
undergone a disruptive transformation as surers, should take the lead in building
customer expectations changed rapidly. To- relevant risk management solutions so that
day, most insurers have deployed tech-en- our citizens can aspire for something new
abled solutions to ensure seamless transac- in their lives, while being assured that any
tions and customer interactions. downside will be handled by us.
Tomorrow’s technology will be far more ad-
vanced. Virtual reality and chatbots will
soon become a common phenomenon. Arti-
ficial intelligence will take center-stage. In
this scenario, physical interactions with in-
surance agents or company sales personnel
for policy purchase may become obsolete.

INDIAN LIFE INSURANCE—
THE JOURNEY SO FAR AND
THE WAY AHEAD
By Sandeep Bakhshi, Managing Director & CEO, ICICI Prudential Life Insurance
Company Limited
T he face of the Indian life insurance

industry has been changing at a rapid
pace and the results are anything but
provide the dual benefits of protection and
savings. Hence, it becomes the responsibili-
ty of life insurers to sustain efforts in terms
inconspicuous. of creating awareness about the benefits of
this product category. The perception that
Over the last decade-and-a-half, there have life insurance products are complicated is
been various regulatory changes as well as in- changing, albeit at a slow pace.
novations by life insurers. These changes, com-
bined with the innovations, have altered the Innovation on the product front—in the
industry dynamics, encouraged the use of tech- form of simplification—will be the game
nology in distribution and customer service, changer. We need to keep in mind the fact
and made life insurance more customer-friend- that if this industry were to grow, we need
ly. The new product structures make life insur- products which are comparable with other
ance cost-effective and easy to understand. savings and investments from mutual
funds, banks, etc.
Changes by the Government, such as in-
crease in the maximum permissible share- There has been a positive trend of growth
holding of foreign investors from 26 percent in household savings which contributes to-
of paid-up equity capital to 49 percent, and wards growth in financial savings, thereby
the focus on digitization supported by de- impacting life insurance. The demonetiza-
monetization, have further supported an in- tion drive contributed to the shift towards
dustry looking to cater to the financial financial assets and augurs well for the in-
needs of a large population. dustry in the future.
One needs to take cognizance of the fact The next five years will be different and the
that life insurance has the unique ability to foundation work for these changes has

been done by the regulator and life insurers Self-service has been gaining popularity in
over the last decade and a half. the life insurance space, enabling poli-
cy-holders to make renewal payments, poli-
For a country as vast and geographically cy-related changes, and accessing all poli-
spread out as ours, technology will be the cy-related information and documents in
key. It will continue to define the way for- real-time.
ward for the industry. The changes in distri-
bution and on-boarding, along with simpli- In the current scenario, it is obvious that we
fied products, will be an attractive Indians are yet to get used to the idea of
proposition for technology-savvy consumers. purchasing financial protection, which we
believe, will undergo a change going for-
Challenges that were earlier faced at the ward. Every working individual with re-
distribution stage are getting minimized, sponsibilities needs to provision for a finan-
thanks to technology-aided distribution and cial safety net which will enable his / her
smooth on-boarding, which makes the family to continue with their lives comfort-
whole process quicker and virtually paper- ably, in case something happens to the pri-
less. Moreover, products are being pur- mary earner. This is where financial protec-
chased / sold post-need analysis, which en- tion will play a key role.
ables consumers to make informed
decisions, thereby ensuring they get the ap- By 2020, the Indian population will have
propriate product and continue with it for the maximum number of young individuals
the entire term. joining the workforce. In the absence of a
social security system, these individuals will
Dematerialization of life insurance poli- require life insurance as a means of finan-
cies—a facility made available to policy- cial protection. The industry stands to bene-
holders in the form of a single platform to fit with growing awareness of the need for
manage multiple policies—is another sig- financial protection. Sustained efforts to-
nificant move that makes it easier for cus- wards creating awareness and working to
tomers to manage policies from anywhere. enhance the industry’s reach will lead to
Also, challenges like loss of a policy docu- fruition of the objective of having a country
ment or physical damage get eliminated of individuals who are financially protected.
through this process.

DIGITAL REVOLUTION IN
THE GENERAL INSURANCE
INDUSTRY
By Ritesh Kumar, Managing Director & CEO, HDFC ERGO General Insurance
Company Limited
T he growth of Indian general insur-

ance is on a springboard, having
taken-off to a much higher level, the kind of
come accustomed to getting in other sec-
tors. Cover will become increasingly com-
moditized and decisions over its purchase
which it has not seen before. In recent will be driven by price and service perfor-
years, the Government has been the biggest mance, validated by social networks. Not
catalyst with its mass personal accident, life many non-life insurers will be able to meet
insurance and weather insurance schemes. these demands. Our traditional focus on
We may see a similar thrust in the universal risk, ratings and products means that our
health sector as well. All this augurs well understanding of our customers may lag
for the industry and all those associated behind the advanced techniques being de-
with it. However, the effort here is to focus veloped by the Internet and telecommuni-
on one of the key trends that will shape the cations businesses. Comparisons with other
way insurance is transacted from product sectors highlights that there will be no way
innovation to distribution to managing the GI industry can manage its customer ex-
claims and loss control measures. Yes, the perience through limited integration be-
attempt here is to highlight the role of the tween channels and the lengthy form-filling
digital revolution in the GI industry. needed for claims and policy issuance and
adjustments. In the connected world one
The Customer: Non-life insurers will find it customer ID should suffice to access all cus-
difficult to engage with customers whose tomer information and validations.
needs and habits will have changed. A large
chunk of customers will be tech savvy and The Distribution: Companies that have cus-
willing to transact online. Customers will tomer ownership and behavioral insights
have access to more information than ever will drive value in the distribution of insur-
before and will demand products that are ance products. More customer-centric com-
simple and accessible as they will have be- panies, including the data-rich and tech-en-

abled entrants such as new age ers in many ways, including prevention
technology-based retail, e-commerce and of diseases, monitoring of health on a
NBFCs will enter into different areas of in- continuous basis, support for treatment,
surance. Google, Amazon, Facebook, elec- and chronic disease management. Using
tronic payment banks and electronic retail- mobile apps, today’s customer can
ers all have access to huge databases and maintain a healthy life and lower
customer information, apart from being healthcare spending.
cash-rich. They also have a considerable
brand name and presence that will enable The Internet of Things (IoT) will have its
them to get a foothold in the distribution of implications on claims servicing as well.
health insurance and other GI products. In- Using big data, insurance companies will
surance companies will have to forge part- have improved their claims-processing
nerships with these companies to improve capabilities. IoT improves turnover time
their distribution without opening brick for initiation of claims by tracing the
and mortar offices. exact location and cause of loss. The
early warning system can reduce the
The Digital Route: Insurance companies frequency and severity of losses. We will
will have to adopt the technology route to be able to identify and report events in
manage their customer needs. They will a fast and effective manner. Claim
have to take the digital route to improve assessment, too, can be automatically
customer experience—the whole cycle of assigned based on the performance of
getting quotes to policy acquisition to poli- the adjuster and complexity of the
cy servicing to proactive claims identifica- claim. The technology will also usher in
tion, assistance and processing. A large part an era of transparency and will help in
of business transacted today will be done minimizing frauds which otherwise
the digital way in 2020. Companies will would have gone unnoticed or been
have to change fast to meet the needs of detected after a long time, with the
new age customers and also lower their culprit getting enough time to get away.
costs, a prerequisite to being a good trust-
worthy insurance partner. The world will This represents a fundamental transfor-
move from a transactional to a more rela- mation of the insurance industry
tionship-based economy. The digital meta- business model from ‘reactionary’
morphosis of the industry will include some (addressing claims after the fact) to
of the following characteristics: ‘preventive’ (addressing risks before
they happen). This is important because
•• The Internet of Things refers to a all stakeholders are now better in-
network of physical objects that contain formed about potential hazards in a
embedded technology to gather infor- more cost-friendly ecosystem. Specifical-
mation about specific objects and also ly, this is good for consumers because
has the ability to transmit information— they will benefit from lower premiums.
vehicle telematics, home technologies This is also good for insurance compa-
and wearables. We will have connected nies because it will lower costs through
home technologies: smart thermostats, claims.
security systems, self- driving vacuum
cleaners. Insurers need to analyze their •• We are living in the age of big data.
customer data and identify their needs High value, high velocity and high
and risks. Wearable electronic devices variety of information will enable
will help us in better-understanding insurers to make better decisions by
customer health risks and serve them providing new insights into the needs
better. Mobile apps will become more and habits of customers both from
prevalent. These will help monitor the underwriting risks and managing claims.
health of customers and reduce health- We will have increased use of digital
care spending. These apps help custom- and aerial imagery which will be used to

view property for inspection purposes can be integrated with telematics to
as well as for claims. The details cap- improve customer and vehicle safety. An
tured will be in real-time, far more even more revolutionary development
accurate and useful for underwriters. will be driverless vehicles. Some coun-
We have seen extensive usage of drones tries have already started pilot runs and
and aerial technology in the rural very soon public transport in some cities
insurances, which have helped under- will move to driverless vehicles.
writers to calculate the yield better and
do more accurate pricing. In claims, •• With the increased usage of digital
wherever there is difficulty in entering technology, we will encounter a new
the area, especially during catastrophes wave of claims for cyber attacks. Almost
and major losses, the aerial route helps every day we will see claims for theft of
in a big way. data, and financial misappropriation of
unheard of magnitudes; and we will see
•• Auto insurers will have moved towards insurance companies devising better
usage-based insurances. A large number cover for customers to get protection.
of them have been promoting telematics Cyber risk insurance may become
which will become cheaper to procure, almost a mandatory cover for all
and gives many advantages both to the insurances.
insurance companies and the customers.
Two concepts of ‘Pay As You Drive’ and The speed of change will define the posi-
‘Pay How You Drive’ will have taken the tion where an insurance company will be
industry by storm. In the first concept, three years from now. These companies will
the customer does not pay an annual only remain relevant through adoption and
premium based on the vehicle’s cubic use of smart technology to automate key
capacity and other parameters. The customer-facing processes, improving effi-
customer pays premiums based on the ciency and making it easier for customers
distance travelled, which means the to use. It is crucial that insurers engage the
person who drives less pays a lower ever-more ‘digitally savvy’ consumer, as cus-
premium as compared to someone who tomers are increasingly going to apply their
drives more. In the ‘Pay How You Drive’ digital research and purchasing habits to in-
model, the concept of paying premiums surance. Only those companies that seem to
depends on your driving habits—safety better understand why their customers are
and how well you drive will have a buying from them get greater loyalty and
direct co-relation to the premium you greater satisfaction.
pay. Moreover, vehicle theft detection
systems and other value-added services

INDIAN INSURANCE IN
2020—TARGETING THE
UNDER-SERVED
By K G Krishnamoorthy Rao, Managing Director & CEO, Future Generali India Insurance
Company Limited
I ndia’s general insurance industry

has been remarkably productive in terms
of growth, innovations and reforms in the
through the automatic route up to 49 per-
cent. Service tax on single premium annuity
policies was reduced from 3.5 percent to 1.4
year 2016. The General insurance market percent of the premium paid in certain cas-
direct premium up to the month of January es. The Pradhan Mantri Suraksha Bima Yo-
2017 is at Rs 12,123.51 crore and at a jana and the Pradhan Mantri Jeevan Jyoti
percentage growth of 31.68 percent. Bima Yojana offered basic insurance at
minimal rates through government agen-
Even as these numbers appear impressive, cies and private sector outlets. The Govern-
the reality is that India accounts for 17 per- ment launched an insurance pool of Rs
cent of the global population but less than 1,500 crore (mandatory under the Civil Lia-
1.5 percent of the total insurance premia bility for Nuclear Damage Act) to provide
collected globally. Even as India is the civil liability for nuclear damage and
world’s 15th largest insurance market (by prompt compensation to the victims of a
premium volume), its insurance density nuclear incident through a no-fault liability
(per capita premium) stands at Rs 3,696 vis- to the operator.
à-vis the global average of around Rs
44,486. Moreover, the Government has planned to
launch Bharatiya Krishi Bima Yojana, an all-
in-one insurance scheme for farmers (com-
Government and Regulator prising crop insurance, health cover, person-
Initiatives: al accident insurance, livestock insurance,
The Government of India announced a insurance cover for agricultural implements
number of initiatives over the last couple of like tractors and pump sets, student safety
years to strengthen the country’s insurance insurance and life insurance). In future,
sector. Foreign investments were permitted these schemes will play a vital role in im-

proving the business of private players in the sector is currently undergoing. It is expected
rural market. They will require companies to to play a vital role in not just developing
cater to the needs of the rural and economi- newer distribution models but also in im-
cally backward population of the country proving customers’ experience and the way
through unique and customized solutions companies serve them. The company’s abili-
via easy and accessible distribution models. ty to serve its customers in a simpler, smart-
er and faster manner will define its rate of
The Insurance Regulatory and Development customer retention and level of market pen-
Authority (IRDA), the regulator of the coun- etration. In future, insurers must be pre-
try’s insurance sector, undertook decisive pared to invest in relevant technology and
measures through the formation of two com- to serve their customers in real-time by pro-
mittees to promote e-commerce and finan- viding immediate solutions to their issues.
cial inclusion. Initiatives, such as e-insurance
account and accidental insurance cover for
train passengers have had a positive impact Customers’ Delight:
towards the growth of the sector. Through As the balance of power shifts slowly to-
e-account, the customers are empowered to wards the customers, the growing demand
maintain their insurance policies in an easy, in the sector will be to develop specific
speedy and efficient manner. The formula- solutions tailored to meet their unique re-
tion of IRDA Regulations, 2015, in line with quirements. In the future, customers will
the amendments made under Section 32 B seek to be increasingly empowered. They
of the Insurance Laws (Amendment) Act, will want to arrive at their own decisions
2015, will also help in extending insurance and solve their issues based on gathered in-
cover to the economically-weaker sections. sights, and not just through the convention-
al method of being serviced and advised.
Economic reforms such as demonetization, Therefore, it will be an insurer’s responsi-
Jan Dhan accounts, Unified Payment Inter- bility to focus on the customers’ delight and
face (UPI) and Aadhaar integration have set empower them with innovative solutions
the ground for a digital and cashless econo- and services.
my. Such a digital revolution is set to im-
pact the value proposition of insurance ser-
vices too. For instance, the need for Profitable Growth in an Aggres-
strategic changes in developing a more rele- sive Marketplace:
vant and better digital distribution model Challenges in the insurance market made it
has become inevitable. hard to achieve profitable growth as players
were required to address a complex distri-
Though digital distribution of policy is chal- bution system, outdated IT systems, ineffi-
lenging due to our existing IT infrastruc- cient business processes, competitive pres-
ture, a high level of digital illiteracy and sures, growth needs and cost management.
limited connectivity in remote areas, it has The fulfillment of shareholder expectations
its own benefits. It offers easy and faster warranted a delicate balance between prof-
policy issuance and improved penetration itability and risk. To achieve long-term suc-
in the market. Therefore, looking at the im- cess, insurers need a more customer-centric
mediate need to increase our market share approach: understand customers better, en-
in the global scenario, there is a greater hance customer delight and optimize cus-
need for a shift in our focus from the con- tomer value through cross-sale opportuni-
ventional method of policy selling to an ad- ties.
vanced and faster method.
Demographic Dividend:
Leveraging Technology: India currently has 605 million people be-
Technology is the key driver of the massive low the age of 25, and 225 million in the
transformation that the Indian insurance age group 10-19 poised for higher educa-

tion. This indicates that for the next 40 increasing awareness could catalyze growth
years, India can enjoy the benefits of a of the sector. Besides, the increased entry of
youthful, dynamic and productive work- large global insurance brands (following an
force even as the rest of the world, includ- increase in the FDI cap to 49 percent) could
ing China, continues to age. widen the size and prospects of the sector.
By 2020, India will have 116 million work- In conclusion, the rise in the insurance sec-
ers in the work-starting age bracket of 20 to tor will be marked by a favorable demogra-
24 years, compared to China’s 94 million. phy, penetration opportunities, relevant
The average Indian age by 2020 will be 29 technology, financial inclusion and rising
years as against 40 years in the US, 46 years financial literacy. To tap the penetration op-
in Europe and 47 years in Japan. Even as portunities and increase profitability, the
the labor force declines by 4 percent in the focus should be on retail segments like mo-
industrialized world and by 5 percent in tor, individual, health, as well as SME seg-
China in 20 years, it could increase by 32 ments through agents, bank assurance prod-
percent in India. The result is that that In- ucts and banking correspondents.
dia’s demographic dividend has the poten- Additionally, for rural penetration opportu-
tial to add significantly to India’s per capita nities, there is a need for large scale tie-ups
GDP growth across two decades (Sources: with common service centers and public
NDTV, ILO, IMF). sector banks for distribution of micro insur-
ance products.
Outlook: In the years to come, ease of insurance por-

The corpus of global insurance premia tability, competitive e-policy pricing and
could grow around 4 percent during the customized health insurance policies are
next two years (3 percent in real terms, ad- expected to fuel the growth of the sector.
justed for inflation), even as the Indian in- The only way to benefit from these changes
surance sector grows by 15 percent each is to embrace them, prepare for them and
year. Going ahead, India’s insurable popula- to be equipped to respond effectively to
tion is anticipated to touch 750 million by them.
2020 with a life expectancy of 74 years. De-
mographic factors like a growing mid-
dle-class, a young, insurable population and

ENABLING THE GROWTH
OF THE INDIAN
INSURANCE INDUSTRY
By G Murlidhar, Managing Director, Kotak Mahindra Old Mutual Life Insurance Limited
T he shape of the Indian life insurance

industry as we see it today has been
moulded by certain key events in the past
2016) which forms about approximately
17–18 percent of the total financial assets
managed by the financial sector as a whole,
few decades, starting from the consolida- including banks, insurance companies, mu-
tion of various insurance companies to tual funds, provident funds and small sav-
form LIC in 1956; opening up of the ings schemes. The industry is currently
industry to the private sector in 1999 growing at a rate of around 12 percent p.a.
(giving rise to bancassurance as a model in new business premiums. The life insur-
which now contributes 52 percent of ance industry plays a significant role in na-
private insurers’ new business); new tion-building, channelizing long-term sav-
product regulations from 2010 onwards ings of households and making a significant
(which influenced a shift in margins and contribution to infrastructure investments
hence in product mix and behavior); in the country, while holding 22.2 percent
increase in FDI limits from 26 percent to 49 of outstanding GOI securities (as of March
percent in 2016; and the advent of open 2016, as per MoF reports).
architecture for bancassurance in 2016. Let
us examine the present and potential of the Apart from playing a significant role in na-
industry, and the key factors and enablers tion-building, life insurance as a product
that will be instrumental in shaping its has a definite role in every individual’s
future. portfolio. Just as it covers the risk of dying
too early by guaranteeing a sum assured
upon death, it also covers the risk of living
The Present too long by ensuring availability of funds at
The industry has evolved to a significant predetermined time intervals. The sum as-
size over the years; the combined AUM of sured is guaranteed over a long period
the industry is Rs 27.7 lakh crores (Sept through various ups and downs of inter-

est-rate cycles. Moreover, returns are ex- find an exit and only players with long-term
pressed as a proportion not of the premium commitment stay and grow.
paid, but of the sum assured which is a high
multiple of the relatively small premium ac-
tually invested by the customer. Distribution Channels
The emergence of new channels like online
distribution will also be important to ob-
The Potential serve, though focus will largely remain on
Where is the industry headed from here? strategic channels i.e. agency (here, improv-
The industry is looking at high growth po- ing productivity will remain the key) and
tential over the next few years. India has a bancassurance. However, technology will
relatively high proportion of working age undoubtedly have an increasingly import-
population and an aspiring middle class ant role in the sales process of all distribu-
with rising disposable incomes. Various re- tion channels. Also, distribution has to de-
ports predict the number of middle class velop capabilities to reach the mass market;
households to rise to 148 million in 2030 the micro-insurance guidelines of 2010 and
from 32 million in 2010. It is also a relative- the Pradhan Mantri Jeevan Jyoti Bima Yoja-
ly under-penetrated market with 2.7 per- na i.e. PMJJBY (over 10 crore people in-
cent penetration as compared to the global sured), are good examples of this. While
level of 3.5 percent. Further, with the recent distribution is indeed expanding with a
measures taken by the Government, savings large number of new agents coming into
of households are gradually shifting away the fold of insurance, it needs to be ensured
from physical assets (like gold and real es- that life insurance remains a worthwhile
tate) towards financial assets. We are al- business for the agents; it is a product for
ready seeing effects like increase in digitali- which the need exists, but the agent is re-
zation and fall in gold imports. Even quired to follow up and help the customers
assuming a moderate growth of 11–12 per- in their decision to enter into long-term
cent in nominal GDP, the life insurance in- contracts; hence agent remuneration has to
dustry will still grow at 15–20 percent per remain front-ended. The industry also
annum, due to the above reasons. That needs to take more steps to drive financial
means we are looking at an industry of the education, and improve customer engage-
size of $100–110 billion in 2020 from cur- ment and persistency.
rent levels of around $55 billion. The indus-
try may double in size in the next four
years. Key Enablers
Some definite steps are required to be tak-
en for the development and growth of this
Key Factors industry, to make it more efficient, and to
Let us examine some key expected develop- create parity with other similar products.
ments and mindsets which will have a sig-
nificant bearing on the shape of the indus- Presently, insurance companies are re-
try going forward. Open architecture for quired to invest at least 50 percent of the
bancassurance has opened up new possibil- life fund in government securities, which is
ities for expansion of distribution with pos- a considerably high threshold compared to
sible implications on both the top and bot- the SLR requirement of 20.75 percent for
tom line of the insurance business, while at the banking industry. The investment re-
the same time serving customers better strictions should be relaxed for better fund
with a wider range of choices. Another de- performance of the insurance industry
velopment to watch out for is the impend- which will improve its efficiency. A separate
ing implementation of GST in 2017 which limit for tax deduction should be provided
can affect the business model. The industry under Section 80C read with Section
may also be headed for gradual consolida- 80CCE. This will incentivize households to
tion as relatively non-serious players try to channelize more long-term savings while

partly compensating for the lack of social Annuity purchased after maturity of pen-
security benefits. sion policies of life insurance companies
should be exempt from service tax. A life
Further, tax treatment of pension products insurance/pension policy is a capital asset
of life insurance companies should be at and only the gain should be taxable on ma-
par with similar products offered on other turity or surrender and not the entire
platforms. Tax treatment should be based amount received from insurance compa-
on the nature and objective of the product nies.
rather than the platform. Premiums paid up
to a certain limit for a pension policy from
a life insurance company should be treated In Conclusion
at par with NPS by providing for an addi- This is one of the very few industries that
tional deduction under Section 80CCD(1B) pursue a noble cause with social benefits as
and further additional deduction under well as provide support to the nation and
Section 80CCC to the extent of 10 percent the Government; we as a society must col-
of salary. This is necessary for creating a lectively support its growth and develop-
level playing field as fundamentally the ment. The industry undoubtedly has a great
product is the same, i.e. a pension fund. growth potential and may very well double
The annuity received out of maturity of a in size by 2020, but if some of the aspects
pension fund under the pension or annuity outlined above play out favorably, they will
policy should be exempt from tax under be decisive in providing the right stimuli.
Section 10(10A).

ACTUALIZING THE
OPPORTUNITY AT THE
BOTTOM OF THE PYRAMID
By Girish P Kulkarni, Managing Director & CEO, Star Union Dai-ichi Life Insurance
Company Limited
I ndia’s strong macroeconomic funda-

mentals present a significant opportuni-
ty for exponential growth and development
egory has considerably increased across all
nooks and corners of the country through
the hugely impactful Pradhan Mantri Je-
of the financial services industry over the evan Jyoti Bima Yojana (PMJJBY).
next 10 years. A young country with a high
share of working age population, India has That said, certain fundamental challenges
seen consistently rising affluence levels still remain: only 8 percent to 10 percent of
with intrinsic consumption driving the rural households have some life insurance
growth of its economy. The country is also coverage; the Prime Minister’s well-received
witness to an unprecedented growth in PMJJBY Scheme is the only product option
urbanization as general awareness regard- available for certain customer segments.
ing financial savings is on the rise. The urban poor continue to remain largely
uncovered. The next phase of growth of the
However, penetration of life insurance still Indian insurance industry will be in extend-
stands at 2.7 percent of GDP, which is lowing coverage to such customer segments,
er than that in developed economies and even amidst internal challenges such as ef-
represents a huge opportunity yet to be un- fectiveness of distribution and financial via-
locked by the industry. The life insurance bility of the operating model; and external
industry has been running into headwinds challenges such as low awareness and val-
since the financial crisis. However, with the ue-utility dilemma in the minds of the con-
increasing onset of customer-centric regula- sumer regarding the product.
tions, the fundamentals of the industry for
the next phase of growth are being laid out. Statistically speaking, 1 billion people
Though general awareness regarding life in- across 206 million households, earning be-
surance continues to be extremely low, low Rs 3.5 lakh a year, represent the ‘blue
awareness regarding life insurance as a cat- ocean’. With every 5 percent increase in

coverage of households under life insur- that may be unlocked is the creation and
ance, nearly one crore additional insured utilization of affinity platforms; examples
lives will be added to the industry. Howev- are generating awareness through gram
er, reaching out to this segment is fraught panchayats and aggregators such as vegeta-
with specific challenges which need to be ble ‘mandis’ as focal points.
addressed and answered:
The concern of variable and unpredictable
•• Awareness regarding insurance is low income, and therefore disposable income,
and the product is not well understood; implies the need for flexibility of liquidity
therefore, conventional means of and a variety of premium provisions. En-
enhancing awareness may not be very abling product regulations such as ‘variable
effective. coverage’—and, therefore, variable premi-
ums—and options for a ‘premium holiday’
•• Distribution challenges, such as ensur- may be explored to generate relevant prod-
ing last-mile access while controlling uct offerings. Leveraging other available op-
costs, are significant in a sub-optimal portunities, such as offering ‘combo-prod-
ecosystem. ucts’, for e.g., life/disability/income
protection with crop insurance, will make
•• The segment has very low economic the comprehensive offering more appropri-
diversification with seasonal and ate and meaningful to the intended custom-
uneven cash flows, and great susceptibil- er segment.
ity to weather conditions; this makes it
challenging to design a relevant, afford- Enabling regulatory architecture such as
able and sustainable product. differential treatment of expenses of man-
agement (EoM), and capital requirements
•• Extending transactional convenience is on such business, may encourage more and
challenging in the absence of required more insurers to reach out to the bottom of
documentation. the pyramid, overcoming inhibitions around
the financial viability of the business mod-
The role of technology in enhancing aware- el. Insurance can accordingly be extended
ness about the product is undeniable. India to those strata of society where the require-
is home to the largest number of mobile ment for protection is paramount. Allied-
phone users and technological develop- flexibilities around documentation and KYC
ments such as 4G will be crucial to reach may help overcome transactional and docu-
out to potential customers across urban and mentation roadblocks.
non-urban geographies. Leveraging technol-
ogy as a vehicle for customer acquisition The next phase of growth for insurance in
may be a step ahead of its time as insur- this country will come from the segment
ance still needs assisted and consultative that is hitherto under-penetrated. The ur-
sales. ban marketplace is crowded and is a focus
area for almost all industry players. Howev-
Managing distribution reach in a cost-effec- er, in the same breath, the industry also
tive manner, right up to the base of the pyr- bears the responsibility of protecting those
amid, has been a challenge to insurers. Pig- at the bottom of the pyramid through the
gybacking on the already existing establishment of sustainable models. To in-
infrastructure of banks and post offices crease overall participation, a dedicated
would serve not only to lower distribution ‘fund for aggregating shortfall’ may be con-
costs significantly, but also increase access sidered by the regulator with pooled partic-
to life insurance from an already trusted en- ipation from insurers on the basis of the
tity. The network of around 200,000 bank magnitude of shortfall towards insuring the
branches and post office outlets in rural ar- bottom of the pyramid. Thereafter, the ad-
eas may be utilized for increasing accessi- ministrative architecture may operate at
bility of insurance. Another opportunity the district level to utilize the fund for in-

suring un/under-protected households. In- and role of technology, in as much as cus-
clusion and buy-in of the administrative tomer acquisition for life insurance is con-
machinery to broad-base social security is cerned, needs to be well understood. En-
critical towards increasing the penetration hancing consumer trust through people
of insurance. interaction continues to be the basic fiber
of insurance. Flexibilities around product
To conclude and summarize, designing a design and cash flow structure hence as-
comprehensive framework to actualize the sume importance and relevance to accom-
‘blue ocean’ opportunity by involving all modate the variable and unpredictable in-
relevant stakeholders is the need of the come flows of the concerned customer
hour for life insurance in India. To be rele- segment.
vant and inclusive, the life insurance indus-
try must enter spaces that are under-pene- By reaching out to the bottom of the pyra-
trated, mainly due to the challenges that mid in a systematic, scientific and sustain-
exist; enabling, supportive and differentiat- able manner, the shared vision of all practi-
ed statutory treatment may be required in tioners and key stakeholders to increase
order to encourage this. As opposed to insurance penetration to first match and
many other industries such as travel, enter- thereafter surpass the global average will
tainment and retail, which have all been undoubtedly be realized.
disrupted by digitization, the effectiveness

DIGITIZATION—A GAME
CHANGER FOR THE INDIAN
INSURANCE INDUSTRY
By V Jagannathan, Chairman Cum Managing Director, Star Health & Allied Insurance
Company Limited
L ike any other industry, Indian

insurance too has, over the years,
steadily evolved and matured. It has
force by way of regulations such as insur-
ance marketing firms, POS, etc., have only
touched the periphery of the issue. In order
displayed healthy growth, and the regula- to increase reach, technologically enabling
tory mechanism has put together an the agency force is inevitable and we see
environment where individual stakehold- this happening more in certain areas.
ers take on the roles of responsible players
and become transparent and consum- Digitization in sales has taken a lead and is
er-friendly. expected to grow phenomenally. The role of
mobile devices that people carry with them
The outlook for the industry is promising, almost everywhere, and the Internet, is un-
thanks to the economic trends and parame- deniable. Online purchase is likely to grow
ters that point to healthy growth of the in certain lines of business.
country in the future.
Customer engagement is another area
Digitization is happening in every sphere of where the industry will focus; digitization
activity—from distribution and sales to has a very important role to play here. The
post sales—and this could be a game market has moved from the real world to
changer. Insurance organizations the world the virtual world in a big way. Today, we
over have realized the need for continuous are in the midst of a digital commerce revo-
customer engagement which means rede- lution, with the rise of the ‘Internet of
fining the way the business is done now. Things’, which is turning every user touch
The Indian insurance industry, particularly point into a potential selling point. Strong
the retail business, is dominated by the data analytics will come a long way in un-
agency force and will continue to be so for derstanding customer needs and focusing
quite some time. Attempts to enable this on customized products for each segment.

Cutting costs will be another focus area for
insurers. Underwriting and claims process-
ing will be more simplified and probably
more automated.
Insofar as health insurance is concerned,

we expect movement towards ‘affinity pro-
viders’ who offer services at pre-fixed prices
with zero additional cost to the insured.

LIFE INSURANCE FOR
EVERYONE
By Manoj Kumar Jain, Managing Director, Shriram Life Insurance Company Limited
Introduction cy, throws up big challenges for life insur-

The life insurance industry in India has ance companies as they struggle to reduce
come a long way since its liberalization in distribution costs and offer higher value to
the year 2000. The industry has had its own their customers, agents and partners.
ups and downs, driven by a multitude of
factors including: the scale and frequency
of regulatory changes; the global financial Population Demography
meltdown; evolving consumer awareness; The Indian demographic profile will contin-
emergence of dominant channels like ban- ue to provide the right opportunity for the
cassurance; and changed market dynamics. continued growth of the life insurance In-
Despite the progress made by the industry dustry. Currently 40 percent of the Indian
since the year 2000, India remains grossly population is below the age of 18. Over the
underinsured as compared to other devel- next 15 years, India will continue to be a
oped economies both in terms of penetra- young country, with a very large part of the
tion and density. The penetration of life in- population below the age of 30 (refer Ex-
surance has increased from 1.5 percent in hibit 1), which means that the need for life
the year 2000 to 2.6 percent in 2015; it hit a insurance, i.e. the need for life cover and
high of 4.5 percent during 2010. The oppor- for long-term savings will continue to domi-
tunity for the industry is immense and nate. This demographic profile has two im-
hence the model of distribution of life in- plications, stressing the importance of find-
surance continues to evolve daily. The geo- ing solutions to the need for family security.
graphical and demographical diversity of On the one hand, the young working popu-
India presents a great opportunity. A large lation needs adequate life insurance cover
uninsured and under-insured population and also appropriate savings to take care of
spread across the wide geography of the their pension requirements. The dependent
country, combined with low financial litera- population is also very large, which implies

EXHIBIT 1 : India 2025
Male Female
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70
Population (in millions)
Source: U. S. Census Bureau, International data base.
that the income earner has to ensure the products, life insurers need to keep in mind
right life cover. It means that life insurance that the online portal is an integral part of
companies cannot afford to ignore product the multi-channel distribution network.
innovation and the delivery mechanism in
respect of meeting up with the needs of
these young customers. Large Non-urban Market
With more than 700 million people living in
This young generation is tech-savvy and rural areas in some 5,80,000 villages, about
uses technology, both the Internet and mo- two-thirds of India’s workforce is engaged
bile for communication and transactions. in agriculture and allied activities. With a
Online business has tremendous potential contribution of 29 percent to its gross do-
for the sale of life insurance policies and mestic product (GDP), India’s economy is
also helps in keeping overall costs low. In- predominantly rural in character. We also
surers are expected to focus adoption of on- keep observing that the sales of FMCG and
line channels increasingly, not only to book automobile companies are increasingly be-
new business but also to provide related coming rural-dominated and a favorable
services to their customers. Online channels monsoon drives sales up for these organiza-
can also be leveraged to provide claims tions. Of late we can also observe that the
management and policy-related services to tempo of development is accelerating in ru-
customers. ral India, coupled with increase in purchas-
ing power because of scientific agriculture.
Life insurers need to provide ‘do it yourself’ The changing lifestyle and consumption
products and processes and also devise a pattern of villagers with increase in educa-
mechanism for an ‘assisted Internet sales’ tion; social mobility; improved means of
facility for ‘from my home’ buying. While transportation and communication; and
developing an online strategy which in- other penetrations of mass media such as
cludes the design of portals and online television and its various satellite channels

have exposed rural India to the outside of acquisition, but also in increasing their
world. Hence their outlook to life has also reach to much larger customer segments.
changed. With such a large section of our Easy-to-sell products, simple processes and
population continuing to live in semi-urban technology-supported customer service ini-
and rural areas, life insurance companies tiatives are expected to drive growth in the
need to figure out an appropriate model life insurance business in the coming years.
which will include both the product and
process of delivery to offer to these custom- The challenge of reaching out to customers
er segments. These semi-urban and rural at the lowest possible cost while ensuring
customer segments have an income stream appropriate remuneration to distributors in
which is more cyclic compared to their sala- order to retain them will continue to pose a
ried counterparts in the urban centers. It is challenge to the profitability of life insurers.
very important to understand the peculiari-
ties of this customer segment while design- In terms of product design, it has to be sim-
ing the product. ple and easy to understand from the point
of view of the customer, whether urban or
Even in terms of affordability to pay premi- rural. We can expect more urban customers
ums, the rural segment has a lower average to move to the online medium for product
premium per policy as compared to the na- research and buying. For this customer seg-
tional average. In order to service this cus- ment, life insurers need to have simple and
tomer segment, while insurers are required easy-to-buy online products at competitive
to reduce the cost of delivery, they need to prices. With the information in their palms,
ensure reasonable commission earnings for the urban customer segment is price sensi-
their agents to reach out to these customers. tive and it is important for life insurers to
offer differentiated products which offer
Simple and easy-to-understand product more value to these customers. This will
benefits are required to cater this non-ur- also involve designing of the portal with us-
ban customer segment. The product struc- er-friendly features which will guide and
ture and benefits are to be designed keep- glide the customer with ease in the pur-
ing in mind the low financial literacy of the chase of the life insurance product by pro-
customer segment and the need to reduce viding product information; and also in
substantially the opportunity for mis-selling completion of the online purchase.
of life insurance products.
In the emerging scenario, life insurers will
Secondly, in the absence of a predictable in- continue to focus both on the online and
come stream, we are already witnessing ‘brick and mortar’ models for distribution
higher mortality among the agency force. of life insurance products. The products will
Moreover, it is becoming increasingly diffi- be customized for target customer groups
cult to recruit a new agent; the cost of re- and will have a customized delivery model.
cruitment and training being higher, it be- The opportunity is enormous and customi-
comes an imperative for life insurers to zation and quicker adoption will be the key
retain their existing agents and improve to profitable growth in the life insurance in-
their earnings through higher productivity. dustry.
We see the emergence of fully automated
tablet-based sales in the coming years in
the life insurance business. This hand-held
device will double up as a sales-enhancing
and a sales-completion tool. The rapid
changes happening in mobile technology
will be a great facilitator in this digital dis-
pensation of life insurance products. This
digital drive in mobile technology can help
life insurers not only in reducing their cost

RISKY TIMES FOR THE RISK
TRANSFER BUSINESS
By Praveen Gupta, Managing Director & CEO, Raheja QBE General Insurance
Company Limited.
W e are all in a constant chatter on

how to grow the business of insur-
ance, rating movements, mergers and
what harms the ecology and supposedly
triggers the AOG perils. The greenhouse ef-
fect for instance. In the larger societal good,
acquisitions, quarterly results, share prices, would it not have made sense to ‘deny’ in-
valuations, inclusivity, protection gaps, surance cover to such risks in a business as
policy-holder protection—with some stretch the usual mode? We continue to insure as-
of imagination we might also succeed in set build-up in vulnerable geographies the
justifying how the customer is at the center world over. As ESG (Environmental, Social
of all this. What we have not started and Corporate Governance) begins to domi-
addressing globally are the inefficiencies nate the fiduciary space of insurers and re-
that we keep embedding and reinforcing in insurers, any second fiddle will not just vi-
the DNA of our business! What are these cariously expose their boards but will put
and why should they be addressed? Mind, them under the spotlight for aiding and
you this is only a random pick… abetting such harmful acts. Lloyd’s recent
warning on ‘stranded assets’ is perhaps an
Insurance is the ‘Hand Maiden’ of Indus- early warning signal.
try: Something that was deeply ingrained in
the mind of my generation from the early Technology Can Work Both Ways: If not
days of apprenticeship, howsoever, repulsive. reined in, it can perpetuate its own forms of
While the emergence of personal lines now inefficiencies. Insurance is a product of the
dominates the overall GWP vis-à-vis the cor- industrial age and technology of the infor-
porate and commercial lines, insurers contin- mation age. The latter, by its very disposi-
ue to play second fiddle to the industry. tion, is a disruptive force. The deliverables,
therefore, can only be short lived. New
How, you may ask, does that retard efficien- forms will evolve. The customer will yearn
cy? Over the years we have been privy to for them while we continue to lament and

address legacy versions. Likewise, how long nomics. Today’s IT capabilities can facilitate
do we choose to invest in solutions like, say cross border trade in insurance, thereby
telematics, that should be in a runaway rendering jurisdictional restrictions passé. It
mode, thanks to the driverless cars in sight? is time for a push back. Neither insurance,
Till the last driver-driven car is sold and in- nor polity is a hand maiden of industry. It
sured? Silicon Valley is in the process of dis- must come of age on its own.
rupting the auto industry. While insurtech
has been generally benign, could insurance Bad Insurer: Detox balance sheets to purge
be the next? any inefficiency that builds in from time to
time. Let us accept we are not charging ade-
The emergence of cyber risk is just the tip quate premiums anymore. We all agree this
of the iceberg. It could become the underly- is owing to oversupply. Neither are we ad-
ing risk rather than an add-on across all dressing this by building adequate premi-
lines of business—thereby literally turning um-deficiency reserves, nor helping the
it all upside down. case by releasing reserves to shore up our
balance sheets. More than a bad bank,
Big Data: Almost touted as a magic wand. there is need for a bad insurer as a means
Let us be reminded that many US state in- of purging the aftermath of ignored pricing,
surance regulators have already banned under-reserving and poor management of
price optimisation in personal lines insur- long tail classes. Lest we forget, say, the sad
ance, and the National Association of Insur- demise of HIH Insurance or compulsions
ance Commissioners (NAIC) has recom- for an Equitas!
mended that all state regulators follow suit.
The Financial Conduct Authority (FCA) of Increased or Increasing Cost of Business
UK is investigating. While insurers will have is the Biggest Current Inefficiency: Grow-
access to big data, will they be allowed to ing capacity flowing from excess capital; de-
use ‘discriminatory’ pricing based on what clining interest rates; pricing pressures; in-
segments they represent? How do you deal creased frequency and severity of claims;
with pricing a one-on-one cover? What do and insured losses catching up with eco-
you do to address the growing privacy is- nomic losses virtually leave no surplus to
sues and the laws around those? cope with the rising costs of running an in-
surance business. Cost escalations are a big-
Admitted: Protectionism is once again the ger threat to regulators as they could end
order of the day. ‘Admitted’ is the global in- up facing angry policy-holders in the event
surance industry’s own historical response. of carrier failures. This calls for an as-
Country after country has replicated it. This set-light approach to ensure a cost-viable
has been further replicated by some provin- risk management process.
cial regulators. With due respect, it is a very
inefficient barrier under the guise of poli- Real-time Management of Balance
cy-holder protection. Insurers surely de- Sheets: Is block chain the answer? Maybe,
serve their own version of an international maybe not! But there is hope. Disasters to
convention to facilitate a global exchange. insurer balance sheets are like snail-paced
Perhaps something to keep the Insurance tectonic movements. Your gut tells you
Development Forum (IDF) engaged. something is not right, everyone keeps
guessing, while the hemorrhage gathers
Too many barriers heighten costs. Offshor- slow momentum and post facto analysts
ing and outsourcing overcame geographic tell you they knew it. Something was wrong.
boundaries but are a form of short-term ar- The blame game goes on and the customer
bitrage. Their time too will run out. What suffers.
next? Imagine the synergies that global in-
surance resourcing, capacities and capabili- Need to Look at Risks Holistically, in Our
ties can generate if only insurance could Overlapped World: Too many silos work
rise above the politics and focus on the eco- counter to each other. We must look at inte-

grated solutions for efficient deployment of Motor insurance accounts for nearly 70 per-
capital in risk transfer. The industry has be- cent of the non-life GWP. Everyone now ex-
come product-centric. Risks are dynamic pects it to continue growing at this pace as
and each type may have a varying pattern if it were forever building at this rate. Are
and seasonality at a given point of time. A insurers ready to accept the reality of a
dynamic approach calls for nimble ongoing driverless car? In what ways can that shrink
reallocation of risk capital corresponding the books of most existing insurers, and
with such ups and downs. how will it benefit those who figure out
what next?
Growing Processes Distract Providers:
From qualitative attention to customers. Let Delivery, Not Distribution: Excessive sales
us honestly look at our customer-centricity obsession and focus on Point of Sale rather
vis-à-vis process-centricity. In terms of num- than Moment of Truth mutates the eco-
bers, the bureaucracy beats those who look nomics of insurance. Again, the insurance
after customer fulfillment. Large risk carri- industry is more inclined to look at the Life-
ers, therefore, end up spending more time time Value (LTV) of a customer. The POS
in internal dialogue than in customer well focus erodes and aborts the LTV that cus-
being. True, the likes of governance and tomers derive from insurance.
risk management need high priority. How-
ever, the litmus test ought to be: anything In Conclusion: Risky times for the risk
that distances and distracts us from the end transfer biz could get riskier if we do not at-
user of our solution must be fixed. tempt to rid it of its inefficiencies. The com-
fort zone of being in what we have inherit-
Why Do Promising Persons Not Join In- ed and its ‘logical’ progression, howsoever
surance? Our education, training and certi- illogical, inclines us to not question its inef-
fication suffer from a time warp. Simultane- ficiencies. What must we do to remain
ously, we are faced with a paucity of quality meaningful and capture the imagination of
human capital. We need to realize the the mainstream? For sure, reinvent our-
short-termism and instant gratification of selves. Lest a more efficient version will de-
the work force-to-be and design our learn- throne the current regime!
ing, recruitment, retention and progression
in light of the same. The career path is dead
too. Can we facilitate revolving doors be-
tween multiple professions and us?
Metrics: Is it claims-paying ability or capa-

bility? Market share, top-line and valuations
dominate the emerging markets business
press when reporting on insurance. It does
not matter how you perform on gross basis
as long as you manage to make money on
net. There are enough hungry and gullible
reinsurers. While socio-political-economic
issues may be fine with a 100- to 200-year
cycle, the Cat-Geo time scales ought to be
several thousand times, corresponding to
the evolution of planet Earth. Tech is short-
lived by the day!
Linearity: Not many saw the scale that the

Chinese market would eventually assume
even as recently as the early nineties. To-
day it is the world’s largest auto market.

INSURANCE—AN
IMPORTANT STEP
TOWARDS SECURITY OF
PROPERTY OWNERSHIP IN
INDIA
By Sakate Khaitan, Senior Partner, Khaitan Legal Associates and
Reema Mannah, Senior underwriter, Titlesolv
India—The Need for Title proceedings and unknown events that may
Security have occurred prior to the date of the issue
Property ownership is always an emotive of the title insurance policy and have ad-
subject as no other asset represents genera- verse impact on the property owner. The
tional security as much as a ‘brick and mor- Policy is retrospective in nature and globally
tar’ dwelling. However, property ownership is bought by investors, occupiers and finan-
is convoluted by historic rights and complex ciers. This type of Policy typically indemni-
title chains; and an owner or potential own- fies the insured for known defects in title
er is often concerned that the title to the which are identified during a title diligence
land or property in question is free from exercise on the acquisition of a property.
previous encumbrance. Therefore, it is of The Policy can also be drafted to cover un-
utmost importance that while purchasing known defects in title which are undiscover-
any property, a person receives clear title to able or could not be discovered when no ti-
such property. tle diligence was done on an investment.
Often, even after conducting extensive due Title insurance can stabilize property trans-
diligence and obtaining the best legal ad- actions and create confidence in the prop-
vice, it is not possible to guarantee that the erty market and specifically in systems of
current owner of a property is protected land tenure, which are the fundamental pil-
from the risk of historic rights, encumbranc- lars of a developed society.
es, liens, frauds, disputes, etc. Title insurance
(‘Policy’) is a form of insurance policy which There are two types of Policies: the ‘Owners
indemnifies the property owner from the Title Insurance Policy’ which is bought by
adverse consequences of title risks. It is a the purchaser of a property; and a ‘Lenders
shield that also protects the owner of a Title Insurance Policy’ which may be pur-
property against losses arising from legal chased by banks, financial institutions and

property investors as it protects their inter- time of entering into the agreement, the
est in the collateral of loans secured in real benefits under the Policy will also be trans-
estate. ferred to the individual along with the
property. The promoter shall also hand
The Lenders Title Insurance Policy is a over all the documents related to the Policy
globally sought after Policy as it gives inves- to the individual.
tors and lenders significant comfort to in-
vest their funds in the property. Such Poli- Encouraged by the RERA, and in recogni-
cies are envisaged to boost the developing tion of the need to create a more stable
real estate market of India which, in 2016, land tenure system, the Indian Government
attracted USD 6.5 billion in investment. has empowered the Indian insurance regu-
lator, Insurance Regulatory and Develop-
Since investors do not invest directly but by ment Authority of India (IRDAI) to consti-
way of partnership or joint ventures with tute a working group on the scope of ‘Title
Indian developers, such a Policy will allevi- Insurance in India’ (‘Group’). The Group
ate investor concerns over property title has been mandated to study the need and
risk and could arguably result in an in- scope of the Policy in the domestic market
crease in the flow of private equity funds vis-à-vis the existing global practices and
into Indian real estate. identify the insurable risks and compensa-
tion structure. The Group will also assess
the availability and accessibility of local
Legal Framework: Progress Thus revenue records and suggest the design of
Far and the Way Forward the product and the framework for assess-
Almost 95 percent of India’s housing societ- ment of risk, pricing, reserving and account-
ies do not have any form of insurance. In ing with actuarial inputs, keeping in mind
the absence of a well-designed title insur- the long-term sustainability of the product
ance policy, a property’s current owner may on a stand-alone basis.
find himself amidst claims originating from
previous owners, unsuspected heirs, old Moreover, steps taken by IRDAI to globalize
liens and various other unsuspected sourc- the Indian insurance industry by allowing
es. To overcome these issues, the Indian the entry of foreign reinsurers in India
Government has introduced a provision in through branch office presence, will provide
the recently enacted Real Estate (Regula- Indian insurers with the required reinsur-
tion and Development) Act, 2016 (“RERA”), ance support and underwriting expertise to
which makes it mandatory for builders and be able to offer title insurance covers in the
promoters to ensure title to the property. Indian market. Global reinsurers entering
This provision further imposes an obliga- the market bring with them the experience
tion on promoters and builders to obtain all of providing capacity in other mature mar-
such insurances that are required with re- kets, which will help them support new
spect to all real estate projects. Such insur- markets in India.
ance includes, but is not limited to, insur-
ance in respect of:
Tailor-Making the Product for
1. Title of the land and building as a part India—Drawing from Interna-
of the real estate project; and tional Experience
In the US, title insurance as an insurance
2. Construction of the real estate project. product was initiated in 1868 as a mecha-
nism to fortify titles by covering undiscover-
Under RERA, promoters will be liable to able risks. Today, the product is regulated at
pay premiums and other charges with re- both the national and state level and there
spect to the Policy. Once the promoter has is standardization of the product forms and
entered into an agreement of sale of the pricing through the American Land Title
property with an individual, then at the Association.

In Europe, the product was imported anec- Additional coverage could also be struc-
dotally in the 1960s to complement solicitor tured based on the market needs and ac-
diligence and to cover identified defects in cordingly, this Policy can be tailored as per
title via an underwriting process premised the needs and requirements of the insured.
on a sound understanding of property law
and the case law precedent around defend- Introduction of title insurance products in
ing title claims. India can go a long way in making owner-
ship of built-up and land property far more
While both the US and European policy credible and secure, leading to renewed
styles are well established in their respec- confidence among buyers which will, in
tive jurisdictions, a variant of such policies, turn, positively impact the real estate mar-
which draws from the experience of both ket. The current owner of the property will
but specifically designed after taking into no longer have to depend solely on the de-
account the ground realities in India, will veloper’s or seller’s written assurances with
be required to be fashioned for the Indian regard to the legal sanctity of the property
market. Given that property transactions in title. Furthermore, with the help of the Poli-
India are subject to both central as well as cy, property transactions will become more
local state laws, the product features, while transparent and expedient, and banks will
being ubiquitous across jurisdictions, will also be encouraged to lend on proper-
also be subject to local legal idiosyncrasies. ty-backed transactions with fewer misgiv-
ings. It is imperative that the IRDAI, insur-
The product features which will equally ap- ers, reinsurers and other intermediaries
ply to the Indian title insurance offering income together to make title insurance a
clude the setting of the limit of indemnity success in India.
at the property value. The premium rates
will be calculated as a percentage of the

value of the property and will be deter-
mined following underwriting of the nature
of the transaction, the history of the title of
the property and the legal defenses avail-
able in the event of a claim.

Digital Perspectives

MOTOR INSURANCE 2.0
BCG and Morgan Stanley Report
A uto insurers are basking in a false

sense of security, seemingly oblivious
to the impending decline in market size
•• Shrinking Mature Markets. The auto
insurance market could decline to 40%
to 50% of its current size by 2030, and
and the threat of new entrants. The sector even to 20% to 30% by 2040 in certain
is ripe for disruption: the value of insurers’ mature markets.
proprietary data and traditional expertise is
diminishing, and other players are emerg- •• An Even Greater Reduction in Person-
ing with the data, analytics, and customer al Lines. We expect the proportion of
access needed to attack the value chain. In personal lines to commercial lines to
light of the combined threat of these shift from about 80:20 in 2015 to 50:50
dynamics, incremental change is not an by 2030 and 30:70 by 2040. In mature
option. Insurers must adapt. markets, this means a 65% reduction of
the personal auto insurance market by
The Boston Consulting Group and Morgan 2030.
Stanley Research conducted 45 interviews
with senior executives of insurers, OEMs, •• Rise of Nontraditional Players. The
and technology providers around the world. incumbent motor insurance model is
In addition, we surveyed drivers and auto likely to be heavily disrupted by new
insurance customers in 11 countries. Final- players with access to proprietary driver
ly, we modeled the impact of technology data, superior analytics capabilities, and
change and shared vehicles on the industry direct customer access. For instance,
from 2015 through 2040. shared-mobility players not only will
own the data but are likely to perform
Although specific dynamics will vary by their own analytics, leaving insurers
market, our research yielded several key struggling for insight into the growing
conclusions: commercial-line market. Furthermore,

we see a credible threat that tech giants, •• Partnership Play—turning to strategic
OEMs, and, to a lesser extent, telcos partners (most likely, OEMs, new
could corner a significant (and profit- mobility players, telematics manufactur-
able) share of the remaining person- ers, and telcos) to secure access to data
al-line market. Our consumer survey and customers or to complement
supports this potential outcome, show- coverage-related services, so as to keep
ing that nearly 50% of today’s young increasing revenue within the motor
driver population is prepared to pur- insurance value chain and defend
chase motor insurance from nontradi- against potential disruptors
tional players.
•• Adjacency Play—expanding into
•• Higher Growth in Emerging Markets. mobility-related adjacencies (possibly
Insurance premiums in emerging including car safety features, car repairs,
markets will keep growing, predomi- services related to roadside assistance,
nantly driven by increasing vehicle new mobility solutions, and products
volumes and miles driven. China, which covering new risks such as cyber) in
today represents approximately 13% of order to increase consumer engagement,
the global motor market, will capture collect more data, replace lost revenue,
some 20% of it by 2025. and fuel future growth
Insurers must respond quickly to defend The relevant strategic choices and timing of
their turf against these combined threats. execution will depend on each insurer’s
We recommend a fundamental rethinking size and business mix. For example, multi-
of all aspects of the operating model—in- national insurers are in a better position to
cluding product and business mix, under- form partnerships with disruptors such as
writing capabilities, distribution channels, OEMs and tech giants. Insurers with a
cost structure, and acquisition strategy. younger, more urban customer base should
Broadly, we see three nonexclusive strategic consider diversifying even more rapidly.
plays: There is no standardized approach, and the
path to the future state is unlikely to be lin-
•• Digital Play—leveraging technology ear.
throughout the value chain to exchange
data and engage with consumers,
optimize the cost of risk, and achieve
superior cost efficiency
This is a joint publication by BCG and Morgan Stanley, to read the full report and
disclosures, please use the below link or scan the QR code from your smart phone
https://www.bcgperspectives.com/content/articles/automotive-innovation-motor-insurance-20/

DIGITALIZATION AND
ITS IMPRINT ON THE
INSURANCE INDUSTRY
By Tapan Singhel, Managing Director & CEO, Bajaj Allianz General Insurance
Company Limited
L et’s reflect to a scenario a few years

back. In 1995, I make a claim for my
Maruti 800 and get my claim amount of Rs
industry has had its presence in the country
for over 150 years, yet its penetration is less
than 3 percent of the GDP. A conventional
20,000 within one-and-a-half months and I approach, coupled with lack of infrastruc-
am happy. In 2005, I file for a claim for my ture, has been the root cause of the indus-
Honda City and I am glad to receive my try’s inability to realize its full potential
payment within 20 days. Today, if my car and penetrate the Indian market. However,
meets with an accident I expect my claim today, the industry is embracing digitaliza-
instantaneously. Is it possible to receive a tion and transforming the way business is
claim within minutes? Has the insurance done. It has affected all the areas of opera-
industry evolved out of its traditional mode tion of an insurer, including employees, cus-
to cater to today’s customers or to the tomers and business partners. Most impor-
millennials who are looking at instant tantly, it has helped us address some of our
services and more contextual and personal- major challenges.
ized solutions? The moot question is
whether the industry today is equipped to
reach out to the hugely untapped potential Distribution Transformation
that India offers. A weak distribution network and inability
to penetrate into tier two and three cities
The insurance industry is undergoing a was one of our biggest challenges. The
transformation today. Digitalization has brick-and-mortar model did not prove to be
opened up major opportunities for us. It feasible in terms of cost effectiveness after
has given us a breakthrough to deal with a certain level. Digital infrastructure and
the challenges that we have been battling rise in mobile connectivity in the country
over decades. The advent of the insurance offered an opportunity to reach out to these
business in India dates back to 1818. The areas and offer solutions and spread aware-

ness about this subject. At present, insur- their budget, make a comparison of the
ance transactions like policy issuance, re- benefits and make a purchase straightaway
newal, claim intimation and processing or in few easy steps. The use of big data, prox-
accessing any policy or insurance-related ies and risk engines has enabled insurers to
information can be done through mobile deliver simple solutions. Motor claims are
applications via tabs or smart phones. Em- now being settled via tablets; claims within
ployees and business partners armed with the range of Rs 20,000 can now be settled
smart phones and cashless payment solu- within 1 hour. In the near future, big data
tions are taking insurance to customers’ and technology will help us further empow-
doorsteps. Bajaj Allianz, with the help of er our customers by allowing us to provide
this technology, has created virtual offices a platform through which they can settle
and has been able to reach out to 800 tier their claims on their own and receive the
two and three towns in the last two years. payment instantaneously via mobile appli-
Going forward, it will revolutionize the way cations.
this industry works and insurance will leave
its imprint in the remotest corners of the Most importantly, digitalization has en-
country. abled the industry to provide customers
with touch points that allow them to make
a purchase or look for a solution in re-
Simple Products and Solutions al-time anywhere anytime. For instance, the
Anytime Anywhere Bajaj Allianz mobile application, Insurance
A complex array of product offerings and Wallet, empowers the customer to conduct
long processes involved in making a claim all insurance transactions in real-time. The
have also been a deterrent when it comes aim is to transform the entire customer ex-
to insurance purchase in India. The digital perience and make it digital with no manu-
revolution changed the way customers al intervention.
make purchase decisions or buy a product
and paved the way for insurers to simplify Digitalization has created disruption across
this process to offer simple, customized and the insurer’s value chain. It has enabled
digitally-integrated products. Today, insur- seamless integration across systems that
ers are in the process of de-jargonizing has reduced complexity and has improved
products and simplifying the underwriting the efficiency and efficacy of operations.
processes using advanced automation, ma- Today, not only is it imperative for insurers
chine learning and strong analytical capa- to adjust to this rapidly changing environ-
bilities. Considerable progress has been ment, but also to be agile towards identify-
made in offering motor or travel insurance ing future opportunities and challenges to
solutions to customers on an online or mo- leverage on.
bile platform. These products can be easily
bought and renewed by the customer either
online or via a mobile device within a cou- The Internet of Things and its
ple of minutes. Implication on the Industry
The Internet of Things (IoT) opens up ma-
Going forward, we aim to create flexible jor opportunities for us. Internet connec-
products that fit customers’ needs and al- tion in nearly every type of consumer de-
low them to tailor the product according to vice will result in huge implications for the
their requirement, easily on the go. insurance industry over the next couple of
years. It will help us improve business prac-
For example, if a family is looking at a tices and better assess clients’ risk levels.
home insurance cover as protection against Most importantly, it will help the industry
burglary and malicious damage for the du- move from reactive compensation to proac-
ration when they are travelling or are away tive prevention. For example, integration
from their home, they could tailor the prod- with IOT devices like telematics in the car,
uct to their requirement for a price that fits health fitness trackers and Internet-based

home security devices will help the insurers tomers directly via platforms like Facebook,
provide usage-based insurance by tracking Twitter, YouTube or even Google Hangouts.
the customer’s activity and subsequently In the future, digital media will help us fur-
offering discounts and other rewards for ther intensify our contact with customers
healthy and safe behavior. Bajaj Allianz set and provide them with knowledge and ser-
the platform for usage-based insurance in vices, when and where it is most relevant
India by launching the industry’s first for them.
telematics-based solution, Drive Smart, for
its motor insurance customers. The future offers a bright prospect for the
Indian insurance sector. Riding on the digi-
tal wave, insurers will harness the power of
Social and Digital Media technology, social media tools, new e-pay-
As India’s middle class emerges with great- ment models and distribution channels to
er force, digital media is empowering cus- reach out to more and more people across
tomers to make informed choices. Previous- the country. This will ensure that the major-
ly, insurers did not have direct access to ity of our population has a financial safety
their customers. Today, social media has en- net in the form of insurance, so that in the
abled them to gauge customer sentiment di- wake of any unforeseeable crisis, nobody
rectly and address their needs through has to sell their land, home or jewellery in
products and solutions. It has also opened order to make ends meet.
up a platform to share information pertain-
ing to insurance seamlessly. This technology
is giving insurers more and more mediums
to influence retention by engaging with cus-

INSURANCE SECTOR—THE
ROAD AHEAD
By V K Sharma, Chairman, Life Insurance Corporation of India
T he insurance sector in India has

evolved to a greater degree over the
last couple of decades. There are new
in retirement savings of today’s generation.
In this scenario, life insurance is a thrift
promoting investment with risk cover. The
trends driving the demand for life insur- life insurance sector provides solutions by
ance, with customer aspirations and actively managing these savings with a
expectations being raised. While regulatory long term view on asset markets and with
reforms and advances in technology have value addition through unique activities
profoundly influenced the growth and such as distribution, underwriting, servic-
development of the sector, there is still ing and more. More importantly, the insur-
immense potential as the economy contin- ance companies invest accumulated funds
ues on its growth trajectory. and manage the portfolio to achieve com-
petitiveness.
We are a young country that is ready to
reap the benefits of demographic dividend, The insurance sector has also played a key
along with the rapid pace of investment in role in the financial inclusion drive
infrastructure and increasing mobility. through its products. The PMJDY launched
on 15th August, 2015 has been an extreme-
Recently, the speed of financial access and ly successful and visible scheme that
inclusion has picked up as well. The insur- aimed for speedy financial inclusion. In-
ance sector’s future success would depend surance coverage through top up schemes
on critical factors including visibility, aware- include the Suraksha Bima Yojana which
ness, outreach, and technology adoption. provides coverage of Rs. 2 lakh on acciden-
tal death at a premium of Rs. 12, and Je-
However, protection gaps are evident from evan Jyoti Bima which provides life insur-
the low levels of insurance density and ance coverage of Rs. 2 lakh for an annual
penetration. Similarly, there is a wide gap premium of Rs. 330

Insurance sector insurance. Since awareness and visibility
The sector must provide more options of are key to encourage this behaviour, it is re-
buying life insurance in order to stay rele- quired that campaigns disseminate infor-
vant to customers with changing lifestyles. mation regarding life insurance on a large
Distribution is an important factor to cap- scale.
ture opportunities in the market. As more
and more people adapt to a digital lifestyle, In the near future, technology is going to
insurers are keen on offering simple, ser- create an impact on every sphere of life.
viceable solutions through the digital medi- The last few years have seen dramatic im-
um. Existing channels are being refurbished provements on several fronts linked to the
with the help of technology adoption, train- supply-side infrastructure. The Unique
ing and new skills achieved through expert Identification (UID) project has already cov-
mentoring. ered crores of Indians and expects to com-
plete the task of issuing a UID to every citi-
Since the structure of the economy is un- zen in the country soon. By linking UID
dergoing change the insurers also need to numbers to Know Your Customer (KYC)
respond to these challenges in a positive norms, the process of reaching out to pro-
manner. There is also the need to reinforce spective customers will be easier. The fu-
a conviction for improvements in all ar- ture looks promising for the life insurance
eas—especially in the efficiency of servic- industry with several changes in the techno-
ing and the redress of grievances regarding logical domain which will lead the industry
policies. To succeed in the age of hyper to engage with its customers in a meaning-
competition in the financial services space, ful manner.
insurers would have to embrace a diversi-
fied distribution system, use capital wisely, Technological advancements and data driv-
while improving the qualitative aspects of en insights are transforming the sector
products and services. Today, with the help while helping it to provide effective insur-
of data and analytics, the insurance sector ance solutions. Insurers are also using social
can derive value to provide solutions to tools for engagement with customers, en-
risks based on market research and seg- abling direct communication between cus-
mentation. The biggest potential in data an- tomers and providers. In the competitive
alytics is to gain insights into customer be- scenario, it is important to feel the pulse of
haviour and needs while maintaining a the customers and technology allows just
surveillance of market trends. this. With the power of various forms of
technology, insurers can revise the perspec-
tive by segmenting the demographic and
The Way Ahead other profiles of the users in order to ex-
The insurance sector will have to be at the ploit the potential of the medium to create
forefront for providing sustainable security long term value for all.
products to address various risks that affect
people and also play an active role by un-
dertaking activities that promote the pene-
tration and density of insurance. The mar-
ket for insurance is an interplay of several
variables and economic factors; the pattern
and behaviour of savings and investment of
a household determine the choice of finan-
cial products and there is also the problem
of lack of awareness. It is the need of the
hour to overcome the problem of under in-
surance with behavioural change so that
people come forward and protect their as-
sets and life first through the products of

TRANSFORMATION OF
INDIAN INSURANCE
INDUSTRY
By Alice G Vaidyan, Chairman Cum Managing Director, General Insurance
Corporation of India
I ndia is well and truly on the path of

transformation—socially, culturally,
economically and technologically. These
nology has acted as a catalyst in this engine
of transformation, providing a platform and
enabling the rapid dissemination of ideas.
sweeping winds of change have been so And Governments and institutions have
pervasive that they have swept all segments been forced to take cognizance and respond
of our society with them, leaving none in kind, using the same technology that act-
immune. As the old adage goes, ‘change is ed as a bane for them in the first place, as a
the only constant’; nowhere is this more boon.
visible than in the India of today. The
country is collectively crossing new divides Although the increased adoption of tech-
and surpassing expectations on a daily nology has engendered challenges too, such
basis. Whether it be the record breaking as cybercrime and privacy concerns, the
launch of satellites, building the world’s benefits far outweigh the shortcomings,
largest solar power plant, our Supreme which would have existed in a different
Court removing barriers of entry for contour in its absence. We have transi-
women in temples or our tech startups tioned into an increasingly interconnected
receiving record funding, it is evident that world, which grabs, crunches and analyzes
the country is on the cusp of significant everything that is said, written or posted,
change and is poised to be the next great every second of the day.
superpower in the coming decades.
The insurance sector is in the midst of a
Much of that change has been propelled by digital revolution as well. Insurers are pro-
the rising middle class. As incomes rise and viding customers with innovative techno-
awareness grows, the country grows more logical tools such as mobile apps and web
confident in its outlook and demands re- aggregators to compare and purchase insur-
sponsiveness from its Governments. Tech- ance plans at the mere click of a mouse.

This has resulted in wider customer reach, New and emerging risks will demand more
better information dissemination, enhanced attention from insurers. The world is in the
operational efficiencies and an improve- grip of a technological revolution. 3D print-
ment in process-based administration of ing, nanotechnologies, autonomous vehi-
business. cles, telemedicine and the Internet of
Things are just some of the ideas which
The key to this transformation has been the have already started gaining traction within
rapidly rising Internet penetration in the the global community. It is estimated that
country, coupled with ubiquitous smart- these technologies will achieve scale and
phone usage. India is home to more than start becoming widely adopted within the
300 million Internet users, second only to next decade.
China, and this number is expected to dou-
ble by 2020, according to studies. The num- Cyber-insurance is another area that is ex-
ber of smartphone users is expected to pected to grow, in order to provide protec-
touch 520 million in 2020, from 240 million tion to institutions towards their IT infra-
currently. The combined might of the Inter- structure and business conducted via the
net and smartphones has prompted many Internet. The above innovative technologies
traditionalists to jump onto the digital band- are poised to alter our daily lives at a fun-
wagon. It is evident that going digital is the damental level and revolutionize the way
way forward, and the key to this revolution we interact with our environment. The ben-
will be data and algorithms, which when efits they proffer will come with concurrent
combined, will modernize underwriting and risks which will need to be addressed ap-
the concomitant pricing of products. propriately.
The next big transformation is going to be Alternate capital and insurance-linked secu-
in the nuances of customer segmentation rities such as catastrophe bonds have been
and innovation in product design. It is im- around globally for a while now. These ave-
perative to increase insurance penetration nues allow insurers to transfer risk and
in the country, which stands at a measly 3.4 raise capital efficiently. They generally have
percent currently, in order to expand the little or no correlation with the wider finan-
ambit of financial protection. This is line cial markets, as their value is linked to
with the Government of India’s vision of a non-financial risks such as natural disasters
financially inclusive and secure society. In- or mortality. These low-cost products have
surers will increasingly resort to customiza- become increasingly popular across the
tion of insurance products so that more of world and are set to gain traction in India
the populace can be covered. in the coming years as well. With foreign re-
insurers in the process of opening branches
Low disposable incomes and poor aware- in India, Indian insurers shall have access to
ness have traditionally been the reasons be- abundant reinsurance capital along with al-
hind the meagre offtake of insurance in re- ternative capital, for their risk transfer
mote rural locations. Micro-insurance and needs. This shall have a direct impact on
coverage of hitherto untapped risks can be the Indian industry which will feel embold-
the driver behind increased insurance pen- ened in carrying out its business expansion
etration and closing the yawning protection and capital investment plans.
gap. This will undoubtedly have to be sup-
ported by more robust marketing and With rising disposable incomes, technologi-
awareness campaigns on the part of the in- cal advances and vast untapped potential,
surers. In addition, changing consumer be- India has stood out as a bright spot in the
havior in terms of price sensitivity, and a global landscape. The world’s fastest grow-
growing propensity to use smartphones for ing major economy is poised on the thresh-
any and every transaction, will force insur- old of a bright future. With renewed thrust
ers to restructure their existing offerings by the Government of India towards self-re-
and establish new distribution platforms. liance and financial inclusion through digi-

tization, the insurance sector is set to act
both as a catalyst and a beneficiary. It has
been said that the best way to predict the
future is to create it. And creating a bright
and sustainable future for all segments of
our society is imperative, if we are to pull
our citizens out of poverty. A prosperous
and egalitarian India is waiting in the
wings.

CUSTOMER IS KING AS
INSURANCE GOES DIGITAL
By Trevor Bull, Chief Executive Officer & Managing Director, Aviva Life Insurance Company
India Limited
C ustomers world over—from show-

biz to the business of insurance—have
evolved and are still evolving as digitization
uously search for the best product or ser-
vice that suits their unique requirements.
Besides, they continuously compare the
takes over all aspects of life and business. same service provided by different provid-
Smartphones with on-the-move connectivity ers. The present-day social media-active
have impacted customer behavior like never customer also has round-the-clock access to
before, as buying or paying for a service information via blog forums, Facebook,
online is now the norm. However, customers LinkedIn, Twitter, and company websites.
today are more discreet and tech-savvy than Data shows that nearly 86 percent of Inter-
they were a decade ago. They sift the dross net users access social networking sites to
from the gold before they choose from a keep themselves updated with the
plethora of services offered by competitive fast-changing global business trends. Thus,
service providers. The insurance industry, digitized insurance is the natural next step
too, has evolved in the last few years but its in the evolution of the insurance industry
pace of technology adoption has been slower for both the customer and the insurer. An
compared to the fast-evolving base of online platform instantly connects the two,
digitally-connected customers. The need of providing unique and customized services
the hour for the insurance sector is digital to the customer. Thus, mapping the custom-
mapping of the entire customer lifecycle; er lifecycle digitally heralds a new era of
companies will have to communicate and customer journeys in insurance.
serve the customer the way they want. And
this is the mantra of any successful business Digital Mapping—the Future
in today’s digitized world.
•• Straight-through processing (STP) will
With easy access to smartphones, customers become the norm and radically alter
sift through a lot of information and contin- customer experience, opening up new

vistas for insurers to interact with is equal to economic empowerment in In-
customers in the context of both sales dia, as it cuts across the barrier of gender,
and service. age and economic status.
•• Service communication used by custom- Statistics and surveys show that on an aver-
ers on technology platforms such as age, Indians use broadband on PCs, laptops
Skype, FaceTime, WhatsApp and other or low-cost tablets for more than five hours
social media applications will make a day. Those on mobile phones are hooked
businesses grow with ease by providing on to the Internet for nearly three-and-a-
instant connectivity. half hours a day; while those who concen-
trate on social networking devices do so for
•• Service standards across all industries more than two-and-a-half hours, day-in and
are changing fast and will grow expo- day-out.
nentially, proclaiming the dire need for
digitization in the financial services This revolution has now spread from me-
world. tropolises to the rural interiors of India; and
businesses are mapping the changing pat-
•• The demand for instant and real-time terns of Internet consumption by reaching
service is extending to the insurance out to customers in the rural sector. Accord-
industry, and companies will have to ingly, business analytics is catering to the
invest in digitizing their back-end new-found customers in rural India; the in-
operations to provide instant service to surance sector can ill-afford to ignore this
their customers, such as investing into growing trend. It is this customer arena that
advanced policy administrative systems; the insurance industry must lay its footprint
auto-underwriting and workflow upon, through digital analytics.
platforms; CRM tools; digital sales tools;
analytics engines; etc. Digitization as a growth driver across all
verticals is the only way forward, especially
•• Artificial intelligence and robotics are for the insurance sector. People in India are
tools for on-the-spot service decisions more insurance-conscious now than any
using algorithms, and will be the next time before, for they want risk-cover to life,
big thing in insurance. limb and property. However, the fact of the
matter is that, as seen by a study by S&P, 70
•• Big data and analytics will play an percent of Indians do not fare very well on
important role, enabling the industry to financial literacy. Thus, there is a need to
serve its customers better, and also provide the right kind of financial informa-
understand the evolving needs of the tion in a simple and accessible way.
customer. This will equip the industry to
become enablers with better tools,
ready to offer more and in tune with Why Digitization
customers’ needs. ‘Information is a click away’ has become
clichéd today because customers demand
more than this. The highly evolved custom-
Digital Empowerment er has raised expectations not just in terms
Digitization is poised to make the insurance of the type of service or product, but also in
business in India take a gigantic leap ahead terms of post-sales experience. Thus, busi-
as mobile phones are fast becoming power- ness models are increasingly shaped by dig-
houses of e-information and e-commerce. itization to the maximum extent possible
The mass of tech-savvy young Indians in with data analytics focused on customer be-
e-tailing and entrepreneurship are looking havior, preference and need. Customer care
for opportunities to have their start-ups and post-sale of a product, policy or service is
themselves insured against unforeseen and the most important factor for a company to
accidental disasters. Digital empowerment acquire a large and lasting base of customer

loyalty, which is the cornerstone of a suc- Ripple Effect
cessful business. The cutting-edge technolo- Digitization has played a major role in
gy that digitized data analytics offers by boosting India’s growth rate, too. Going dig-
way of capturing and constant monitoring ital is the only way to the top, especially in
of the customer’s changing preference/ the milieu created by corporate houses go-
choice/life stage needs helps the company ing the retail way; small and medium busi-
diversify and develop its business, too. This nesses burgeoning; customers becoming
proves that the service expectations have more aware and demanding; and Prime
evolved, which can only be met effectively Minister Narendra Modi’s bold initiative to
through a digitized system. High-tech busi- reinvigorate the country’s economy post-de-
ness process-enablers help develop a busi- monetization.
ness in a customized manner which leads
to utmost end-user satisfaction, enabling Encouraging people and businesses to go
the growth of the business model into a cashless and adopt the digital mode of buy-
wholesome, profitable organization. ing and paying is paying dividends, albeit
piecemeal. After all, nothing succeeds like go-
Secondly, digitization is the key to a new ing digital, and that is the mool(ah) mantra.
way of functioning, not just efficiently but
also smartly. Financial companies need to
move away from the jargon and make ev-
erything simpler for themselves and for
their customers. Robust digital systems
backed with the right analytics tools will
serve to drive efficiencies across depart-
ments, whether operations or sales or ser-
vice. Time-consuming and error-prone pro-
cesses will be done away with through the
judicious use of digitization. With the right
tech-tools, the insurance business processes
can be standardized and improved upon
dramatically, thus helping the enterprise to
grow organically.

INDIAN INSURANCE
SECTOR: THE NEW
CHANGE AGENTS
By Sandeep Patel, Managing Director & CEO, Cigna TTK Health Insurance Company
Insurance in India: Come a Long ance premiums. India is the fifteenth larg-
Way est insurance market in the world in terms
Indian insurance companies have come a of premium volume and has a huge poten-
long way, from a tightly regulated and mo- tial.
nopolized environment which was primari-
ly dominated by state owned insurers, to a The participation of foreign insurance play-
market-driven competitive atmosphere, ers in Indian markets has helped create the
where private players are redefining the in- much needed awareness about insurance
surance market with innovative products products. The emergence of health insur-
and distribution channels. The Govern- ance as a category has helped in creating a
ment, by permitting 49 percent foreign di- cohesive framework within the healthcare
rect investment (FDI) under the automatic system in India. The number of insurance
route, has given the much needed impetus players has grown multifold over the years,
while changing the landscape of the insur- from a mere 5 in 2000, to 53 by the end of
ance sector. This has encouraged interna- 2016, of which 24 are in the life insurance
tional players to offer their global expertise business, and 29 are non-life insurers. The
and best practices to India. number of private players also rose to 29,
from 4 in 2002; and during this period the
industry witnessed the emergence of ban-
Harnessing the Growth Potential cassurance, digitalization, de-tariffing, and
in India regulatory activism, which have contributed
India is an attractive market for insurance, to its growth. Insurance companies have
given the size of the market. India currently launched innovative products and services
accounts for less than 1.5 percent of the across segments to cater to different mar-
world’s total insurance premiums and kets. Customization, based on the diverse
about 2 percent of the world’s life insur- needs of customers, has helped build dyna-

mism to the product portfolio as well as the where insurance companies have to merge
channel mix. These transformative changes traditional marketing tools with the new
have propelled growth in the insurance age ones. Digital disruption is not just a
marketplace. possibility but a reality for the insurance
sector. Hence, companies have to rethink
Four Key Drivers that Will Bring Further their strategies and business models while
Change in the Insurance Industry realigning with customer needs and expec-
tations.
Digital Revolution in Insurance
Insurance companies will continue to invest Social media will continue to play a crucial
in technology. Currently, companies are em- role as customers will be influenced by con-
bracing digital transformation technologies versations on social media platforms. Stud-
such as the Internet of Things (IoT), big ies suggest that a large majority of millenni-
data, cognitive computing and blockchain, al consumers will consider purchasing
amongst others. These changes are taking insurance products online, indicating con-
place at a rapid pace and we have interest- siderable consumer interest if companies
ing times coming our way in this space. decide to launch insurance products online.
These technologies are poised to transform According to a PricewaterhouseCoopers re-
the entire insurance value chain, benefiting port, new and social trends will shake up
both customer and insurer. The promise of the traditional insurance industry business.
protection is no longer enough to engage We at Cigna TTK are using the power of so-
young customers; they are now increasingly cial media in a multifaceted way and we
demanding interactive and better experien- plan to go much deeper through our social
tial benefits for goods and services. media strategy.
Digitization has changed consumer behav- Cohesive Health Ecosystem

ior and preferences; and purchaser profiles Healthcare and health insurance continue
are changing radically due to new lifestyle to get cohesive. A recent TechCrunch report
and social arrangements. Here lies the chal- explained that increasing accessibility of
lenge and an opportunity for the insurance health apps is completely transforming the
business. A digitally connected customer is consumer medicine landscape. Customers
more aware about insurance, and this is are tracking their health conditions through
EXHIBIT 1 : Four Key Drivers that will Further Bring in Change to the Insurance Industry
Cohesive Health
Ecosystem
Digital Analytics
Revolution
Accessibility

tools which monitor their heart rate, blood whole new market has opened up for us. I
pressure, and similar physical attributes. see a healthy convergence of traditional
Solutions that help patients monitor their channels and new age platforms that will
medication intake, track broad health met- cater to different customer segments in In-
rics, and otherwise improve patient care are dia. Accessibility is the key to greater pene-
also increasing. New solutions are constant- tration.
ly emerging in markets, and applications
are becoming more sophisticated. Health Analytics: The Game Changer
insurance companies are seamlessly inte- Analytics is emerging as a game changer for
grating themselves with the healthcare eco- the insurance industry which is facing sig-
system. For example, as people start living nificant profitability and growth challenges.
healthier lifestyles and get more conscious, Actuarial and underwriting analytics are
health insurance companies will devise en- helping companies in more accurate risk
gaging propositions to help customers pricing, overall reserve estimates, and iden-
achieve their fitness targets. Fitness gad- tification of key drivers behind changes in
gets, wearable devices and apps have made loss ratios, while advance predictive and
their mark in 2016 and we see this trend as- prescriptive analytics are enabling insurers
suming more sophisticated and scientific to build a sustainable competitive advan-
levels in the coming years. At Cigna TTK, tage. Analytics solutions are also helping in-
we recently launched the Get ProActiv In- surers in understanding customer retention
dia app where we reward customers who opportunities by comparing costs, risks,
lead a healthy and fit life. This is our value pricing, and variability. Advanced analytics
proposition to meaningfully engage with is emerging in all types of product lines and
customers. Wellness and preventive health- business functions, delivering not only
care will take center-stage in the near fu- great value to the customer but also to soci-
ture and we see a portfolio of enriched ety at large. Clearly, integrating data analyt-
products and services that will hit the Indi- ics into the core of the insurance business
an shores. will be an evolving journey for insurance
companies. Of course, there will be learn-
Accessibility ings along the way, but eventually the deci-
Insurance companies have to grow and sion-making will be scientific, based on em-
there is no other way. New distribution pirical data, and we will witness path
channels and the self-service revolution will breaking changes in insurance.
help drive product penetration and capture
new markets. Distribution of insurance is
moving towards efficiency, transparency Combating Challenges and
and mapping unique insurance needs that Seeking Opportunities
are spread across geographies. Insurance The Insurance sector has its own share of
companies are increasingly realizing the challenges. With low awareness about the
need to have customer service representa- benefits of insurance, there are serious is-
tives who have the ability to be interactive sues of trust-deficit with consumers which
and responsive. The use of ‘chatbots’ or ro- need immediate attention. Insurers face a
bots will be more prevalent in the industry, high incidence of doubtful/suspect claims.
when it comes to servicing or selling insur- Issues in the health insurance segment,
ance products to customers. Needless to such as large variations in healthcare costs
state, traditional channels will still be very for the same ailment due to the treatment
prevalent and will continue to exhibit dyna- value chain; and limited product range cov-
mism. Bancassurance proved to be a suc- erage resulting in a mismatch between de-
cess in 2016 and we at Cigna TTK wit- mand and supply of insurance should also
nessed a huge opportunity. With be addressed to gain the confidence of cus-
partnership tie ups with mammoth coveted tomers. While much needs to be done, we
banks like Bank of Maharashtra, Andhra see momentum. Insurance companies are
Bank and Saraswat Bank to name a few, a moving towards affordable policies and in-

novative products for primary and tertiary need to evolve in response to market dy-
healthcare financing needs. Micro-insur- namics and changing consumer preferenc-
ance, condition management products and es, while regulations need to drive transpar-
life stage products will set a new trend and ency and simplification of products and
open up new avenues, thus addressing services. Sincere efforts from the industry
some of the issues. will definitely change the landscape of the
insurance sector with higher growth and
profitability.
Regulator: Plays a Pivotal Role
Insurance Regulatory and Development Au-
thority (IRDA) has played a pivotal role in
defining the growth and future of the insur-
ance industry. The regulatory framework
has undergone many changes since 2000,
when the first set of companies was regis-
tered with IRDA. The regulator has devel-
oped a strong foundation by aligning its
regulatory structure to international best
practices and facilitating technical knowl-
edge, innovation in products and processes,
and the distribution network; thus evolving
an ecosystem that is best suited for the in-
surance sector. IRDA has further encour-
aged insurance players to play a key role in
simplifying and standardizing products and
this has given a huge boost to the industry.
Look forward to exciting times after demon-
etization: cashless will be the way forward
in the insurance sector too. Universal
health insurance is another boost that the
IRDA is working on, which will change the
insurance segment in a big way.
Growth is the Only Way

The insurance industry is aiming to hike
penetration levels to five percent by 2020.
However, health insurers continue facing
rising claim costs and increasing pressure
on underwriting, though private health in-
surance stands to gain from revenue
growth, as consumers are becoming more
involved in decision-making related to their
health care needs. The Indian insurance
market is poised for strong growth, with the
insurable population expected to touch 750
million in 2020, and life expectancy reach-
ing 74 years. This will deliver stable profit-
able growth on account of the increase in
per capita incomes and awareness. Product
innovation, responsible sales and market-
ing, and improved distribution will contin-
ue to have deeper focus. The channels also

COMPETING IN THE AGE OF
ARTIFICIAL INTELLIGENCE
By Philipp Gerbert, Jan Justus, and Martin Hecker (BCG)
OMPETING IN THE AGE OF

RTIFICIAL INTELLIGENCE
ilipp Gerbert, Jan Justus, and Martin Hecker
U ntil recently, artificial intelli-

gence (AI) was similar to nuclear
fusion in unfulfilled promise. It had been
with people intuitively and naturally on
a wide range of topics at considerable
depth.
around a long time but had not reached
the spectacular heights foreseen in its • Because they can identify objects and
infancy. Now, however, AI is realizing its recognize optical patterns, machines
potential in achieving human-like capabili- can leave the virtual and join the real
ties, so it is time to ask: How can business world.
leaders harness AI to take advantage of the
specific strengths of man and machine? A field that once disappointed its propo-
nents is now striking remarkably close to
AI is swiftly becoming the foundational home as it expands into activities common-
technology in areas as diverse as self- ly performed by humans. (See Exhibit 1
driving cars and financial trading. Self- and the sidebar.) AI programs, for example,
learning algorithms are now routinely em- have diagnosed specific cancers more accu-
bedded in mobile and online services. Re- rately than radiologists. No wonder that
searchers have leveraged massive gains in traditional companies in finance, retail,
processing power and the data streaming health care, and other industries have start-
from digital devices and connected sensors ed to pour billions of dollars into the field.
to improve AI performance. And machines
have essentially cracked speech and vision Because AI systems think and interact, they
specifically and human communication are invariably compared to people. But
generally. The implications are profound: while humans are fast at parallel process-
ing (pattern recognition) and slow at
• Because they know how to speak, read sequential processing (logical reasoning),
text, and absorb and retain encyclope- computers have mastered the former in
dic knowledge, machines can interact narrow fields and are superfast in the

For more on this topic, go to bcgperspectives.com
Exhibit 1 | By Cracking Language and Vision, Machines Have Entered the Real World
Processing power and data
EMERGING SAMPLE AI
AI CAPABILITIES APPLICATIONS
Human Natural-language
language processing
Speech recognition
Computer Pattern recognition

ACTION IN THE vision
nce Real-world mobility
REAL WORLD
te llige
l In
ACTION IN THE ficia
DATA WORLD Arti Real-time sensor data Predictive
maintenance
Online behavior Recommendations
Structured system data Advanced analytics
Time
latter. Just as submarines don’t swim, started by Elon Musk and others, is making
machines solve problems and accomplish AI tools and research widely available. And
tasks in their own way. many prominent AI researchers have insist-
ed on retaining the right to publish their
Without further quantum leaps in process- results when joining companies such as
ing power, machines will not reach artificial Baidu, Facebook, and Google.
general intelligence (AGI): the combination
of vastly different types of problem-solving Rather than scrap traditional sources of
capabilities—the hallmark of human intelli- competitive advantage, such as position
gence. Today’s robo-car, for example, and capability, AI reframes them. (See Ex-
doesn’t exhibit what we would consider hibit 2.) Companies, then, need a fluid and
common sense, such as abandoning an ex- dynamic view of their strengths. Positional
cursion to assist a child who has fallen off advantage, for example, generally focuses
her bicycle. But when properly applied, AI on relatively static aspects that allow a
excels at performing many business tasks company to win market share: proprietary
quickly, intelligently, and thoroughly. assets, distribution networks, access to cus-
tomers, and scale. These articles of faith
Artificial intelligence is no longer an elec- have to be reimagined in the AI world.
tive. It is critical for companies to figure
out how humans and computers can play Let’s look at three examples of how AI
off each other’s strengths as intertwined shifts traditional notions of competitive
actors to create competitive advantage. advantage.
• Data. AI’s strongest applications are

The Evolution of Competitive data-hungry. Pioneers in the field, such
Advantage as Facebook, Google, and Uber, have
In simpler times, a technology tool, such as each secured a “privileged zone” by
Walmart’s logistics tracking system in the gaining access to current and future
1980s, could serve as a source of advantage. data, the raw material of AI, from their
AI is different. The naked algorithms them- users and others in ways that go far
selves are unlikely to provide an edge. beyond traditional data harvesting. Their
Many of them are in the public domain, scale gives them the ability to run more
and businesses can access open-source soft- training data through their algorithms
ware platforms, such as Google’s Tensor- and thus improve performance. In the
Flow. OpenAI, a nonprofit organization race to leverage fully functional self-

| Competing in the Age of Artificial Intelligence 2
ibit 2 | Competitive Advantage
Exhibit That Leverages
2 | Competitive Man
Advantage andLeverages
That Machine Man and Machine
URE SOURCES OF COMPETITIVE ADVANTAGE MAN MACHINE

FUTURE SOURCES OF COMPETITIVE ADVANTAGE MAN MACHINE
Act where others cannot

Act where others cannot
es d
zonvilege
es d
zonvilege
Talented Business Data and tech
Pri
workforce ecosystems Talented
Data access Business
ecosystems Data access Data and tech
Pri
Privileged Learning workforce ecosystems ecosystems
zones Privileged
and execution Learning
zones and execution
Merge exploitation and exploration

Lexecu Merge exploitation and exploration
e
Lexecu
arn tio
e
arn tio
Machine
ing n
Agile forms of working Machine
ing n
Agile forms learning
of working
&
learning
&
Embrace continuous change
Embrace continuous change
AI-driven job
Adaptive AI-driven
Scalable central job
systems
adaptation Adaptive
Flexibility
Flexibility organizations and training and decentralized
organizations agents Scalable central systems
adaptation
and training and decentralized agents
Flexibility
Flexibility
rce: BCG analysis.

driving cars, for example, Uber

driving hasfor
cars, theexample, them—and
Uber has theconveniently provide conveniently provide
them—and
advantage of collecting 100 million miles familiar,
advantage of collecting 100 million miles complementary, or entirely
familiar, complementary, or entirely
of fleet data daily from its drivers. This new purchasing
of fleet data daily from its drivers. This options. The suggestive
new purchasing options. The suggestive
data will eventually inform
data willtheeventually
compa- inform power of many of these
the compa- poweroffers
of has
many of these offers has
ny’s mobility services.ny’s
Facebook and generated
mobility services. Facebook and fresh revenue at negligible
generated fresh revenue at negligible
Google take advantage of their
Google scale
take and
advantage of marginal
their scalecost.
and marginal cost.
depth to hone their addepth
targeting.
to hone their ad targeting.
• Capabilities. Capabilities traditionally
• Capabilities. Capabilities traditionally
Not all companies canNot realistically as- have been
all companies can realistically as- segmented into
have beendiscrete
segmented into discrete
pire to be Facebook, Google,
pire to be or Facebook,
Uber. sources
Google, of advantage,sources
or Uber. such asof knowl-
advantage, such as knowl-
But they do not needBut to. By building, edge,
they do not need to. By building, skills, and processes. AI-driven
edge, skills, and processes. AI-driven
accessing, and leveraging shared,
accessing, and leveragingautomation
rent- shared, rent-merges these areas inmerges
automation a these areas in a
ed, or complementaryed, data sets, even if continual
or complementary data sets, even if cycle of execution, explora-
continual cycle of execution, explora-
that means collaborating
that with
means collaboratingtion,
competi- withand learning. Astion,
competi- an algorithm
and learning. As an algorithm
tors, companies can complement their incorporates
tors, companies can complement their more data, the qualitymore
incorporates of data, the quality of
proprietary assets to create their own its output
proprietary assets to create their own improves. Similarly, on the
its output improves. Similarly, on the
privileged zone. Sharing is not azone.
privileged dirty Sharing ishuman side, agile ways
not a dirty of working
human blur ways of working blur
side, agile
word. The key is to build an unassail- distinctions
word. The key is to build an unassail- between traditional
distinctions between traditional
able and advantaged ablecollection of open capabilities
and advantaged collection of open as cross-functional
capabilities teams
as cross-functional teams
and closed data sources. build quick prototypes
and closed data sources. andquick
build improveprototypes and improve
them on the basis of fast themfeedback fromof fast feedback from
on the basis
• Customer Access.• AICustomer
also changes the customers
Access. AI also changes the and end users.
customers and end users.
parameters of customer access. Well-
parameters of customer access. Well-
placed physical storesplaced
and high-traffic
physical stores andAIhigh-traffic
and agile are inherentlyAI anditerative.
agile areIninherently iterative. In
online outlets give way to customer both,
online outlets give way to customer offerings and processes become
both, offerings and processes become
insights generated through
insights AI.generated
Major through continuous
AI. Major cycles. Algorithms
continuous learn
cycles. Algorithms learn
retailers, for example,retailers,
can run for loyalty, from experience,
example, can run loyalty, allowing
from experience,to
companies allowing companies to
point-of-sale, weather,point-of-sale,
and locationweather,
data andmerge the data
location broad and mergefast exploration
the broad of and fast exploration of
through their AI engines to create
through their AI engines to new opportunities with
create new the exploitation with the exploitation
opportunities
personalized marketing and promotion of
personalized marketing and promotion known ones. This helps companies
of known ones. This helps companies
offers. They can predict yourThey
offers. routecan
and thrive
predict your under
route andconditions of high
thrive underuncer-
conditions of high uncer-
appetite—before youappetite—before
are aware of tainty
you are aware of and rapid change.
tainty and rapid change.

HOW MACHINES THINK AND ACT
Three milestone events made the mance showcased state-of-the-art speech
general public aware of AI. Each one recognition, natural-language processing,
illustrates key aspects of the technology. and search. The victory, however, was
clinched by a different skill: Watson
Deep Blue’s Defeat of World Chess outperformed the other contestants in
Champion Garry Kasparov in 1997. the “Daily Doubles,” in which players
Chess was originally considered an can wager all or part of their current
exercise that captures the essential winnings to secure a decisive lead.
tactical and strategic elements of human Making the best bet requires fast
intelligence, and so it became the sequential reasoning, knowledge of game
standard by which new AI algorithms theory, and an ability to calculate
were tested. For decades, programmers probabilities and outcomes correctly. All
made little progress in defeating human these are areas in which humans are
players. But in 1997, Deep Blue, a notoriously weak, as the Nobel laureate
computer developed by IBM, won the Daniel Kahneman observed in his
match against the world champion. Still, famous book Thinking, Fast and Slow.
many people were disappointed when Machines, on the other hand, think fast
they realized that solving chess was not and fast in making data-heavy decisions.
the same as solving artificial general
intelligence. They did not like that Deep Google’s Demonstration of a Self-Driving
Blue relied heavily on brute force and Car in 2012. Google is not the pioneer of
memory. The program did not learn and self-driving cars. That distinction arguably
certainly did not excel at any task but goes to Ernst Dickmanns, a German
chess. computer vision expert who rode 1,785
kilometers in autonomous mode on a
The event, however, revealed two German autobahn in 1995, reaching
important lessons. First, machines solve speeds above 175 kilometers an hour.
problems differently than people do.
Second, many “intelligent” tasks are Dickmanns, however, never had to turn
ultimately narrow and so can be solved left. In their 2004 book The New Division
by specialized programs. of Labor, Frank Levy and Richard
Murnane argue that “executing a left
With AlphaGo’s 2016 victory over Lee turn against oncoming traffic involves so
Sedol in Go, computer dominance of many factors that it is hard to imagine
board games was complete. AlphaGo, discovering the set of rules that can
developed by DeepMind Technologies, replicate a driver’s behavior.” Google’s
relied on deep learning—a neural net- self-driving car, however, routinely
work, or computational brain, with managed this exercise without incident.
multiple layers—to beat a Go world The car combined robots, computer
champion. An intriguing fact about this vision, and real-time data processing to
match was how the machine prepared: produce the ultimate intelligent agent
having run out of human games to study, that was capable of both exploring and
it spent the final months before the learning from the real world.
match playing against itself.
Watson’s Victory over Top Jeopardy

Champs in 2011. By winning this
challenging game show, IBM’s Watson
effectively passed a Turing test of
human-like intelligence. The perfor-

In addition to reframing specific sources of the chief operating officer of an innovative
competitive advantage, AI helps increase mobile bank admitted, his biggest struggle
the rate and quality of decision making. was to transform members of his leader-
For specific tasks, the number of inputs ship team into skilled managers of both
and the speed of processing for machines people and robots.
can be millions of times higher than they
are for humans. Predictive analytics and
objective data replace gut feel and experi- Getting Started
ence as a central driver of many decisions. Companies looking to achieve a competi-
Stock trading, online advertising, and sup- tive edge through AI need to work through
ply chain management and pricing in retail the implications of machines that can
have all moved sharply in this direction. learn, conduct human interactions, and
engage in other high-level functions—at
To be clear, humans will not become obso- unmatched scale and speed. They need to
lete, even if there will be dislocations simi- identify what machines do better than hu-
lar to (but arguably more rapid than) those mans and vice versa, develop complemen-
during the Industrial Revolution. First, you tary roles and responsibilities for each, and
need people to build the systems. Uber, for redesign processes accordingly. AI often
instance, has hired hundreds of self-driving requires, for example, a new structure, of
vehicle experts, about 50 of whom are both centralized and decentralized activi-
from Carnegie Mellon University’s Robot- ties, that can be challenging to implement.
ics Institute. And AI experts are the most Finally, companies need to embrace the
in-demand hires on Wall Street. Second, adaptive and agile ways of working and
humans can provide the common sense, setting strategy that are common at start-
social skills, and intuition that machines ups and AI pioneers. All companies might
currently lack. Even if routine tasks are benefit from this approach, but it is man-
delegated to computers, people will stay in datory for AI-enabled processes, which
the loop for a long time to ensure quality. undergo constant learning and adaptation
for both man and machine.
In this new AI-inspired world, where the
sources of advantage have been trans- Executives need to identify where AI can
formed, strategic issues morph into organi- create the most significant and durable
zational, technological, and knowledge advantage. At the highest level, AI is well
issues, and vice versa. Structural flexibility suited to areas with huge amounts of data,
and agility—for both man and machine— such as retail, and to routine tasks, such as
become imperative to address the rate and pricing. But that heuristic oversimplifies
degree of change. the playing field. Increasingly, all corporate
activities are awash in data and capable of
Scalable hardware and adaptive software being broken down into simple tasks. (See
provide the foundation for AI systems to Exhibit 3.) We advocate looking at AI
take advantage of scale and flexibility. One through four lenses:
common approach is to build a central
intelligence engine and decentralized semi- • Customer needs
autonomous agents. Tesla’s self-driving
cars, for example, feed data into a central • Technological advances
unit that periodically updates the decen-
tralized software. • Data sources
Winning strategies put a premium on • Decomposition of processes

agility, flexible employment, and continual
training and education. AI-focused compa- First, define the needs of your customers.
nies rarely have an army of traditional em- AI may be a sexy field, but it always makes
ployees on their payroll. Open innovation sense to return to the basics in building a
and contracting agreements proliferate. As business. Where do your current or poten-

Exhibit 3 | Four Lenses to Shape Advantage from AI
CUSTOMER • Explicit or implicit

NEEDS unmet needs
• Customer journeys
ADVANTAGE
• Sensing and input EVALUATION CRITERIA FROM AI
TECHNOLOGICAL
ADVANCES • Platforms and tools Richness of data
• Agents and output
Scale and speed
Opportunity for
DATA • Internal systemic learning
SOURCES • External
• New investments
DECOMPOSITION • Exposure of “routine”

OF PROCESSES and isolated activities
tial customers have explicit or implicit un- For many organizations, these steps can
met needs? Even the most disruptive recent be challenging. To apply the four lenses sys-
business ideas, such as Uber and Airbnb, tematically, companies need to be familiar
address people’s fundamental requirements. with the current and emerging capabilities
of the technology and the required infra-
Second, incorporate technological advances. structure. A center for excellence can serve
The most significant developments in AI as a place to incubate technical and busi-
generally involve assembling and process- ness acumen and disseminate AI expertise
ing new sources of data and making partial- throughout the organization. But ultimately,
ly autonomous decisions. Numerous ser- AI belongs in and belongs to the businesses
vices and platforms can capture incoming and functions that must put it to use.
data from databases, optical signals, text,
and speech. You will probably not have to Only when humans and machines solve
build such systems yourself. The same is problems together—and learn from each
true on the back end as a result of the in- other—can the full potential of AI be
creasing availability of output technologies achieved.
such as digital agents and robots. Consider
how you can use such technologies to trans-
form your processes and offerings.
Third, create a holistic architecture that

combines existing data with new or novel
sources, even if they come from outside.
The stack of AI services has become rea-
sonably standardized and is increasingly
accessible through intuitive tools. Even
nonexperts can use large data sets.
Finally, break down processes and offerings

into relatively routinized and isolated
elements that can be automated, taking
advantage of technological advances and
data sources. Then, reassemble them to
better meet your customers’ needs.

About the Authors
Philipp Gerbert is a senior partner in the Munich office of The Boston Consulting Group and a BCG
Fellow analyzing the impact of artificial intelligence on business. You may contact him by e-mail at
gerbert.philipp@bcg.com.
Jan Justus is a principal in the firm’s Munich office and an active member of the Strategy practice with
a focus on digital transformation. You may contact him by e-mail at justus.jan@bcg.com.
Martin Hecker is a senior partner in BCG’s Cologne office and the leader of the Technology Advantage
practice’s artificial intelligence work. You may contact him by e-mail at hecker.martin@bcg.com.
Acknowledgments
The authors would like to thank their BCG colleagues James Spanjaard, Sebastian Steinhäuser, Ralf
Dreischmeier, Yashraj Erande, Philip Evans, Charles Hendren, Ashish Iyer, Mark Kistulinec, Massimo
Portincaso, Martin Reeves, and Leonid Zhukov for many discussions and comments. They also would like
to thank Jürgen Schmidhuber, the codirector of the Dalle Molle Institute for Artificial Intelligence
Research, and César Hidalgo, an associate professor at the Massachusetts Institute of Technology and
the head of the macro connections group at the MIT Media Lab, for stimulating interactions.
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advi-
sor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all
regions to identify their highest-value opportunities, address their most critical challenges, and transform
their enterprises. Our customized approach combines deep insight into the dynamics of companies and
markets with close collaboration at all levels of the client organization. This ensures that our clients
achieve sustainable competitive advantage, build more capable organizations, and secure lasting results.
Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please
visit bcg.com.
© The Boston Consulting Group, Inc. 2017.

All rights reserved.
1/17

DRIVING CUSTOMER
CENTRICITY IN THE
DIGITAL WORLD
By Sandeep Ghosh, Chief Executive Officer, Bharti Axa Life Insurance Company
T he insurance industry in India has

reached an inflexion point. On the one
hand, it is grappling under upcoming
In the insurance category, there are largely
three ways in which customers look for sur-
rogates for trust: firstly, by lineage—where-
technology and new distribution models, in a company leverages the association and
and on the other, it is striving to meet credibility of its promoter company; second-
ever-evolving customer needs. Insurers are ly, by financial credibility—being part of a
exploring to find new ways to manage the reputed financial institution; and thirdly, by
evolving environment, and innovating to service professionalism and salience. A
stay up-to-speed with consumers. clutch of insurance companies have worked
on building trust through the third route
A combination of digitization, social media with a core philosophy of customer-centrici-
and Internet comparison means that cus- ty. These companies are constantly innovat-
tomers are more connected, better in- ing to provide their customers concrete rea-
formed and have more purchasing options sons to believe and trust. Now and forward
than ever before. They want products that into 2020, trust will be created through dif-
address their needs and are transparent ferentiation in a way that revolutionizes
and easy to understand. They also want the this highly competitive market. This philos-
convenience of dealing with insurers at the ophy is going to create future-ready organi-
time and place and by the means they de- zations that give their customers tangible
sire. Insurers are expected to launch, test, and differentiated reasons to trust, and will
obtain feedback and respond in a model lead the category in 2020. The challenges
similar to that used by many of today’s tele- that customer-centricity will bring for com-
com and technology companies. Above all, panies are going to be multi-fold and will
what drives the insurance category is trust, shake up the existing frameworks, starting
and any company that wins the trust of the with product and service propositions and
customers wins the market. their benefits.

Customers’ needs have been diverging and searches, consumers have highlighted
that is playing out in the way products and claims as the key MOT across insurance
services across industries are being custom- products. It is the raison d’être for the cate-
ized and positioned. Insurance is no differ- gory and the expectation at this point of
ent; we are witnessing, and will continue to the life cycle far exceeds any other. Claims
witness segment-specific propositions. To- still are, and will continue to stay the most
day, in a lot of cases, these propositions are important aspect of customer-centricity.
bolt-ons (called riders) to the base products Any innovation in the area of claims servic-
and create a customized offering for diverse ing is going to create a big shift in customer
needs. This trend will continue and gain preference. Insurers need to start working
momentum towards 2020 and beyond. The on this area at the earliest if they truly
segments themselves, from numbering a want to create a top-of-the-line insurance
few almost a decade ago, are now fragment- experience for their customers. At Bharti
ing at a very fast pace every year. By 2020, AXA life, we have been obsessed with
there will be really small segments for claims servicing for a while now. Starting
which there are going to be specific product with a claims servicing benefit on our ULIP
propositions. Beyond 2020, we wouldn’t be products where we release ULIP fund value
surprised to see every individual owning a to the claimants within 48 hours, we offer
different product in its composition and an industry first servicing benefit of a dedi-
benefit. The future of products lies in diver- cated claims handler to the family and kin
sion of benefits and creation of new bene- of our customers.
fits that are unheard of today. In order to
be ahead of the game in 2020, insurers will A trend that has started recently and will
need to start creating data lakes and insight gain strong tailwinds in the future is that of
pools early to listen into customer trends companies going beyond transactions to-
and expectations more intently. For that we wards building a deep relationship status
need to start putting new frameworks of for their brands. Going beyond the call of
learning about our customers and design- duty is a phenomenon that creates a per-
ing propositions that are truly custom- sonality for the company. It breaks the
er-centric, today. mould of the classically defined buyer and
seller market. It suddenly converts a give-
As much as the customers’ needs have been and-take process into a heartfelt engage-
diverging and will continue to diverge, their ment. And finally it changes the paradigm
experience is converging. Customer expec- through which we define a successful and
tation is fast changing from the lowest to profitable business for now and in the fu-
the highest denomination of experience , ture. At Bharti AXA Life, we recently
and this shift is quite evident. This change launched the ‘Grief Support Program’,
has been a direct outcome of an ever-evolv- where we go beyond the call of duty and
ing buyer’s market. This reality will become provide the family of our deceased custom-
even more acute in the future, as digital ers with emotional therapy, financial plan-
starts enhancing its circle of influence ning assistance, and legal opinions on wills.
amongst our customers. Customer-centrici- It is a small step in the bigger journey to Go
ty will take center-stage as companies Beyond for our customer.
spend time, money and energy to under-
stand the customer deeply. This custom- Last but not the least, digital will redefine
er-centric experience can be principally cre- pretty much every aspect of our existence
ated in the insurance industry through a as an industry. It started with online prod-
strong servicing architecture. In order to un- ucts, which have turned the industry on its
derstand customer-centricity better, it is im- head, from being a distribution-push busi-
portant to deep-dive into the customer life ness to a customer-pull business on the net.
cycle. There are three ‘moments of truth’ Though online products form a small part
(MOT) during a customer journey: buying, of the insurance category today, we feel
servicing and claims. Across multiple re- that the tipping point for this category,

when the choice and the process will be- An exciting journey beckons us as an indus-
long only to the customer, is not very far. try. It involves learning and relearning ev-
Small but significant areas of innovation in ery aspect of our business and getting
digital have also sprouted, led largely by ready for competition not from our peers,
companies that have never been in this but from the unlikeliest of companies. To
business. This phenomenon will not only manage our way through this constant flux
shake us out of our comfort zones, but com- that awaits us, we need to make custom-
pel us to relook at our business models, er-centricity our lighthouse now, in 2020,
governance structures and people. Driven and beyond.
primarily by digital, data solutions are gain-
ing importance amongst businesses and
marketers alike. Big data is the new buzz-
word but will require serious work for us to
deploy as an engine that drives the future.
In a lot of ways, the next decade will be the
decade of data.

INSURANCE IN THE
BIONIC WORLD
By Vighnesh Shahane, CEO & Whole Time Director, IDBI Federal Life Insurance Company
Insurance in the Bionic World As most insurers chase newer technologies

Life insurance is about covering lives and is in their quest to improve service capabili-
best done by pricing risks efficiently. Thus ties and business outcomes, there are some
for the insurance industry across the globe, key themes that have come to the fore.
data is the foundation or the bedrock of the These include the cost of changing to newer
entire process. systems, enhancing customer experience us-
ing technology and last but not the least,
Data today is available across multiple building an agile workforce. These themes
forms and mediums and increasingly on a have been explained in detail below.
real-time basis. From health apps, wearable
technology, personal fitness bands that
monitor people’s day-to-day vital signs, to The Cost of Change
connected smart devices in cars and homes, Most other industries have already wit-
technology is increasingly integrating all as- nessed massive technological transforma-
pects of our everyday lives. tions—be it in online travel, retail, trading,
or mobile banking. Insurance has clearly
Like most other industries, the insurance remained a laggard. It is still the actuarial
industry too is trying to figure out ways to spreadsheets, brokers, agents and physical
make sense of this treasure trove of data. paperwork that dominate this industry.
Both insurers and technology companies Most companies continue to struggle with
are looking for ways to best use these data legacy systems and complex regulatory re-
cuts to build better risk models, price poli- quirements. Although one cannot deny
cies more efficiently, create better products, that in recent times we have definitely
service customers better and enter niche moved faster than before, it still needs to
markets that today are simply too hard to keep pace with its other global counter-
enter or price. parts.

For instance, eBaoTech, the leading global ground to cover in the area of customer ser-
software provider for the life and property vice and enhancing customer experience.
and casualty insurance industries in China, Many customers still go through insurance
last year announced its partnership with Ali- brokers to find the right policies, and
baba to launch eBaoCloud, the world’s first through agents to file paperwork and pro-
Internet insurance cloud platform. This plat- cess claims. Transactions can be slow; as cli-
form enables insurers to ‘check in’ like at a ents struggle with complex processes and
hotel and enjoy suites of standardized Inter- slow turnaround timelines, the experience,
net insurance capabilities without the need when compared to other industries, feels
to self-build or deploy their own systems. primitive. In fact, so far in the insurance in-
dustry, it was the intermediary who was
eBaoCloud is a combination of Internet and treated like a customer, with actual consum-
insurance. It enables insurance companies ers’ needs taking a backseat.
to take on the challenges of the Internet
age, shorten the process of product launch, Customer-centric transformations were pain-
manage hundreds of millions of orders ev- fully slow in our industry; however, things
ery day, and support big data analytics. In have begun to change today. This has been
the past, it took three to six months for in- largely possible because of digital accelera-
surance companies to launch new products. tion and the increased use of social media
After deploying the cloud platform, insurers tools. One can find insurers directly interact-
are able to shorten the launch cycle to one ing with customers using social media plat-
to two weeks. forms, gradually doing away with middle-
men. It is becoming commonplace to employ
This example clearly demonstrates the fact tech-innovation and artificial intelligence to
that technology has begun to break down a enhance customer experience. However, we
lot of barriers, and is providing incentives to still need to cover some ground in optimal
innovate. The Internet of Things (IoT) is an technological utilization to build a sustained
up-and-coming new world where most of the superior service trajectory.
participants are not people, but rather the
appliances we use, the homes we live in, the Having said that, today we have come a
cars we drive and the smart devices we carry long way in facilitating online engagement.
around everywhere. The growth of the IoT Customers are able to handle most of their
has opened vast new information technology transactions online, preferably via their
fields for big data miners seeking that essen- smart phones using apps or widgets. It has
tial competitive edge in the new data. become possible for customers to track
their NAVs in real-time or transfer funds in-
For traditional insurers, one way to get a leg stantly. Customers not only get instant,
up may be to partner with innovative tech- competitive quotes online, but are also able
nology start-ups like eBao or other such to file or track claims online. Customers can
platforms. By complementing business out- now also be rewarded with lower premi-
comes, both sides stand to benefit. This ums, with the insurer automatically regis-
means it reduces the cost to reinvent the in- tering their efforts to lower health risks
frastructure and tools, and instead fulfils through wearable devices.
gaps in experience and innovation that the
other lacks. In effect, they need to pool
their expertise—and their risks. Intelligent Claims Management
automation is an essential new co-worker An effective and efficient claims function is
for the digital age. critical for driving business value in terms
of customer satisfaction and profitability.
Insurers have begun digitizing the claims
Improving Consumer value chain, including claim intimation,
Experience claim settlement, servicing in claims, and
The Indian Insurance industry has a lot of closure.

Self-service Claim Intimation force. It is important for insurers to bring
Claim intimation is the first point of con- back the tech-focus to transform their people,
tact for customers in the claims manage- projects, and entire organizations into highly
ment life cycle. Insurers have digitized the adaptable and change-ready enterprises. In
claims registration process to refine custom- short, insurance leaders are realizing that
er experience. Well-designed mobile apps their new liquid, agile workforce can become
are enabling customers to self-register their their new competitive advantage.
claims, thereby reducing TAT.
With insurers being pushed to change prod-
ucts, services, and even business models in
Analytics-based Fraud Detection response to technology innovation, they
Insurance companies are using predictive need to confront a looming skills crisis. To-
data analytics for fraud detection. With an- day’s insurance workforce isn’t aligned with
alytics, a rules-driven system is capable of the demands of the digital era. It is largely
spotting evidence of possible fraud. There hierarchical, often organized in silos, and in
are multiple ways of using analytics to de- many companies, arranged according to
tect suspicious claims, such as: tightly defined job functions.
•• Historical analysis of referrals; Without a fresh look at the workforce, tradi-

tional insurers may find themselves unable
•• Historical analysis of fraudulent claims; to keep pace with the digital change brought
about by the next wave of digital technolo-
•• Identification of networks; gies. To cope with disruption, insurers will
need to reshape their people into a more liq-
•• Identification of suspicious claim uid workforce, one able to drive and manage
patterns; and change. They will need to become agile at
each level of their business: their skills, their
•• Combination of analytics and adjuster projects, and their organizations. They must
experience. operate on the assumption of continuous
change—which means they need to access
IDBI Federal has implemented internal mod- critical skills sooner, innovate faster, and op-
els that detect fraudulent proposals based on erate more effectively.
historical experience data. The Company is
also implementing data analytics solutions to Digital technology is fundamentally chang-
completely automate this model. ing every aspect of the insurance business:
strategies, processes, job functions, and
The increase in digital adoption has trans- business models. The workforce needs not
formed the way claims are handled, but it only to adapt to meet evolving demands
continues to be low. from employees and consumers, but also to
develop the skill-sets to achieve its new
goals. For example, underwriters need to
Building an Agile and Respon- team with data scientists to leverage new
sive Workforce for Today’s Digi- and broader sets of data from both within
tal Demands and outside the company. Product develop-
Insurers are investing in tools and technolo- ers, meanwhile, need to become proposi-
gies galore to keep pace with constant tion designers, focused on developing and
change in the digital era. However, in order delivering outcomes that customers value.
to achieve ambitious goals, insurance lead- And new roles may start to come to the
ers will need to focus on their workforce fore, such as innovation architects who fa-
with renewed vision. cilitate disruptive business models.
Technology, while providing a disruptive Insurance executives across surveys have

edge, is also about enabling the current work- repeatedly opined that ‘deep expertise for

the specialized task at hand’ is the most im- more technology, but rather on enabling
portant characteristic that employees will people—consumers, workers and ecosys-
need in order to perform well in a digital tem partners—to accomplish more with
work environment. The ‘ability to quickly technology. They will have to create a new
learn new work requirements’ and ‘profi- corporate culture that looks at technology
ciency with digital technologies’ ranked as the means to enable people to constantly
higher; also ranked highly was ‘the ability adapt and learn, continually create new
to work differently with minimal notice’. solutions, relentlessly drive change, and dis-
rupt the status quo.
Some insurers are experimenting with inno-
vative business models and technologies
that help them take advantage of a more
agile workforce without bringing wide-
spread upheaval in their workplaces. Alli-
anz in the US is just one of many insurers
to create an innovation lab to incubate
ideas, experiment and pilot innovations.
Ping An Insurance of China recently
launched a large-scale pilot mobile-learning
program that delivered hundreds of mobile
courses within one year. The program is an
innovative and cost-effective way to serve
not just employees of the Ping An group
but also those of 200-plus partner compa-
nies.
A whole lot of companies abroad, as well as

in India, are building in-house social plat-
forms to facilitate informal conversations to
incubate new ideas.
At IDBI Federal we have launched new pro-

grams like ‘You Said, We Did’ or ‘Employee
Suggestion Schemes’. These initiatives have
allowed us to pull ideas from across the
board including employees, and weave
them into our strategic framework.
Creating an agile workforce might sound

challenging, but the rewards on offer are
immense. Once insurers start to harness the
power within such a workforce, they will
find that they can grow smarter and faster
than they ever imagined.
To emerge triumphant in the digital age, in-

surers will need to look beyond a tick-off on
a technology checklist. Companies will be
defined by their ability to evolve their cor-
porate culture to take advantage of emerg-
ing technologies and of the new business
strategies that those technologies drive. In-
surers should not focus simply on using

DIGITIZING CUSTOMER
JOURNEYS AND THE NEW
INSURANCE IT MODEL
IGITIZING CUSTOMER
OURNEYS AND THE NEW
By Michael Urban, Bodo von Hülsen, Gilles Fabre, Jeff Chookaszian, and Tjun Tang (BCG)
NSURANCE IT MODEL
chael Urban, Bodo von Hülsen, Gilles Fabre, Jeff Chookaszian, and Tjun Tang
C onsider this scenario. Rolf, age 32,

lives in Berlin with his wife and their
infant daughter, who is approaching her
Before Rolf reaches work, his agent sends
him an e-mail inquiry about his car cover-
age (which is with a different carrier), ask-
first birthday. One Monday morning, as he ing whether the move to a new home
rides the bus to work from his new apart- means less driving, which could in turn
ment in the city’s Wilmersdorf section, mean lower premiums. Rolf arrives at his
where the family moved over the weekend, office wondering why he hadn’t thought of
Rolf downloads his insurance company’s those needs himself—but grateful that his
mobile app and updates his account insurer and agent had.
information. He is surprised and impressed
when he discovers that inserting his new Although this scenario is unlikely to unfold
address triggers a series of 12 questions. today—in Germany or anywhere else—it
will soon: the data and the technology nec-
After providing the answers (which takes essary to support it already exist. The pri-
only half his 20-minute bus ride), Rolf real- mary holdup is lack of ambition. Most in-
izes that he should consider increasing his surers are locked into a products-and-process
property coverage for the contents of his business model; they don’t put themselves
home (the new apartment is larger than in their customers’ shoes and consider the
the old one, and he and his wife bought journeys that people need to take. Often,
new furniture), and that he needs liability life events—such as an expanding family
coverage against problems such as leaks or a move to a new flat—trigger such jour-
(since he now lives on an upper floor). He neys. Many insurers also fail to think about
has an appointment to speak by phone the how they can adjust their products to make
next day with his agent to discuss life insur- them more adaptable to digitization. And
ance to protect his newly expanded family. they may not assess how their business mod-
And the company has e-mailed him a link el, and the data and systems that support it,
to information on its retirement products. could better serve customers—and gener-

ate new revenue streams for the company In order to successfully reimagine business
while cutting costs—if they adapted the processes and meet customers’ rising ex-
model to help guide these journeys. pectations with regard to service, insurance
companies must shift their point of view to
the customer’s perspective. Neither the
The Journey, Not the Process product in question—be it property, casual-
Insurers need to modernize and digitize ty, life, or health coverage—nor the inter-
their systems and business models. This is nal organization is the correct lodestar for
true even though companies throughout digitization. The focus must be on the un-
the industry have already invested billions derlying customer journey. Developing an
of dollars or euros, and years of effort, in up-to-date business model starts with ask-
updating their systems. They have—or ing the right questions.
think they have—digitized the customer
experience by building websites and mo-
bile apps, creating digital offerings (online Following the Customer
auto insurance, for example), and con- A customer journey starts with a trigger
structing in-house digital capabilities. event. An insurance claim is one example,
but so is Rolf’s move to a bigger apart-
The flaw in all of these undertakings, how- ment—or a wedding, a divorce, the birth of
ever, is that they attempt to apply digital a child, a promotion at work, or a new job.
technologies to a company’s existing prod- Any such event can spark the need for new
ucts and processes—underwriting, claims, insurance and can call for adjustments in
and so forth. Meanwhile, from their inter- one or more insurance products that a cus-
actions with service leaders such as Ama- tomer already has. Customers don’t consid-
zon, Zappos, and Google, customers have er the company’s internal processes or or-
come to expect convenient digital solutions. ganization when they encounter a trigger
Among the advanced features that custom- event. Indeed, like Rolf, they may not even
ers appreciate and demand are one-click consider the insurance ramifications with-
buying, set-and-forget refill ordering, prod- out third-party guidance. But customers do
uct recommendations based on purchase know that they need to change their on-file
history and social media review, and per- address after a move; and once informed of
sonalized suggestions curated according to that event’s insurance policy implications,
their own purchase history and the experi- they will want to resolve all of its insurance-
ences of similar people. related aspects. A smart insurance compa-
ny will ask, not how big the new apartment
Customers are also less and less likely to is, but what caused the customer to move
discriminate between traditionally discrete in the first place?
industries and sectors: if a bank can pro-
vide quick, effortless ways to manage A digital solution delivers value only if it
household finances online or on the go, enables the company to solve all of the cus-
customers see no reason why other service tomer’s trigger-related needs and requests
providers—including insurers—should not comprehensively and conclusively (at least
be able to do the same thing. from the customer’s perspective), without
additional process loops or delays. For the
In BCG’s annual Brand Advocacy Index— insurer, this means following (or anticipat-
which identifies and ranks the percentages ing) the customer journey across segments,
of surveyed consumers who are likely to products, and channels. Product features,
recommend a brand to friends and fami- processes, and company departments and
ly—the top-ranking car and health insurers functions must follow the customer—not,
routinely receive index scores in the 20s, as is usual today, the other way around.
30s, and 40s in such markets as France,
Germany, Italy, and Spain. Many banks (as Taking a customer-centric approach offers
well as companies in other industries) reinsurers a huge and multifaceted opportu-
ceive scores in the 50s and 60s. nity to address customer needs. Improve-

| The New Insurance IT Model 2
ments in this area will promote customer customer needs (obtained through research).
satisfaction and increase the likelihood of It should include a mapping of current pro-
cross-selling. At the same time, reducing cesses and IT architectures, and detailed
the number of process loops decreases the decision trees for the customer journey.
internal processing capacity necessary, and
thus reduces costs. The next step is to develop a digital jour-
ney prototype. This involves combining
deep ethnographic research into custom-
What Insurers Need to Do ers’ digital usage and behaviors, and the
The insurer should assess each customer agile methodology of concept and proto-
journey along two dimensions: customer type development. (See “Five Secrets to
benefits (for example, the potential to in- Scaling Up Agile,” BCG article, February
crease customer satisfaction, or the gap be- 2016.) Multiple development sprints, inter-
tween current digitization and customer spersed with customer and agent feedback,
expectations) and efficiency gains (such as produce iterations of the target journey
the elimination of redundant or unneces- prototype that reflect actual customer use.
sary processes, or the expected acceptance (See Exhibit 2.) By proceeding in this way,
rate calculated by the customer journey the insurer can maintain its focus on user
digitization tool).After examining the re- needs. These sprints also help identify
sults of these assessments, the company which products and processes are easy to
can create a prioritization model combin- digitize and which require a more compre-
ing customer benefits and efficiency gains. hensive transformation.
This model can then serve as the basis for
the practical methodology of digitizing cus- Finally, the company must develop an im-
tomer journeys. plementation plan. In a relatively short pe-
riod (typically about ten weeks), the insur-
The first step toward digitizing individual er can produce a ready-to-implement
customer journeys is to develop a design prototype of a digitized customer journey
platform for the reimagination of such a as a proof of concept. It can then use this
journey. (See Exhibit 1.) The design platform prototype to advance the broader digitiza-
must start with a deep understanding of tion of all customer journeys.
Exhibit 1 | Customer Journey Digitization Has Three Key Dimensions
COMPANIES ACHIEVE MAXIMUM BENEFITS

BY ADDRESSING ALL THREE DIMENSIONS
1. Omnichannel experience
• Coherent client experience across all channels
• For example, the company collects missing information via dedicated links; agents have
the same tool and view as customers
2. Digitization
• Digital interaction to facilitate a smooth and successful journey
• For example, the company offers video chats and connections to third-party providers
3. Comprehensive redefinition
• End-to-end redefinition of the customer journey
• For example, all policies reflect a change in the customer‘s marital status, or the company
quickly settles all issues related to a claim

Exhibit
Exhibit 22 || A
A Concept
Concept and
and Prototype
Prototype for
for aa Digital
Digital Customer
Customer Journey
Journey Can
Can Be
Be Developed
Developed in
in 10
10 to
to
12 Weeks
12 Weeks
WORKSHOP-DRIVEN,
WORKSHOP-DRIVEN, AGILE
AGILE REINVENTION
REINVENTION PROCESS
PROCESS WITH
WITH
CONTINUOUS
CONTINUOUS ITERATIVE
ITERATIVE TESTING
TESTING BY
BY CUSTOMERS
CUSTOMERS AND
AND AGENTS
AGENTS
Kickoff
Kickoff with
with design
design
platform
platform
Values/reframe statement
Values/reframe statement
(guiding
(guiding principles)
principles)
User
User profiles
profiles Discussion
Discussion of
of and
and feedback
feedback Discussion
Discussion of
of and
and feedback
feedback Handover
Handover of
of final
final
Decision
Decision driver
driver tree
tree on
on first
first prototype
prototype on
on second
second prototype
prototype prototype
prototype and
and concept
concept
~ 2–3 weeks
~ 2–3 weeks
preparation ~ 3-week sprint ~ 3-week sprint ~ 3-week sprint
preparation ~ 3-week sprint ~ 3-week sprint ~ 3-week sprint
•• Development
Development of •• Development
•• Ethnographic
Ethnographic •• Development
Development of of first
first second
of Development of of third
third •• Preparation
Preparation
customer
customer andand prototype
prototype and
and second prototype
prototype and
and prototype
prototype and
and for
for
agent iterative customer iterative customer iterative customer implementation
agent interviews
interviews iterative customer iterative customer
feedback loop iterative customer
feedback
implementation
•• Assessment
Assessment of of
feedback
feedback loop
loop feedback loop feedback loop
loop
current
current IT
IT
capability
capability
Customer
Customer journeys
journeys have
have implications
implications for
for the
the whole
whole value
value chain:
chain: operations,
operations,
products,
products,processes,
processes,business,
business,digital,
digital,IT,
IT,distribution,
distribution,and
and end
end customer
customer
Source: BCG project experience.
Source: BCG project experience.
Benefits
Benefits of
of the
the Digital
Digital Journey
Journey too.
too. So
So insurers
insurers must
must establish
establish the
the interac-
interac-
Fully
Fully digitizing
digitizing thethe customer
customer journey
journey offers
offers tion logic for the digital customer journey
tion logic for the digital customer journey
insurers
insurers multiple benefits. Most important,
multiple benefits. Most important, on
on all
all channels—especially
channels—especially agents,
agents, brokers
brokers
when
when itit works
works seamlessly
seamlessly (and(and invisibly
invisibly to
to and
and call centers—to ensure that customers
call centers—to ensure that customers
the
the customer), the digitized customer jour-
customer), the digitized customer jour- can
can complete
complete their
their journey
journey seamlessly
seamlessly
ney
ney can
can lift
lift customer
customer satisfaction
satisfaction levels
levels sig-
sig- across multiple channels.
across multiple channels.
nificantly
nificantly and can yield cost savings of
and can yield cost savings of 15%
15%
to
to 25%.
25%. ItIt also
also increases
increases organizational
organizational As
As we
we pointed
pointed out
out recently
recently withwith regard
regard toto
speed
speed and
and agility.
agility. And
And itit can
can reduce
reduce by
by up
up customer
customer service
service journeys
journeys in in several
several indus-
indus-
to 40% the number of process
to 40% the number of process loops re- loops re- tries
tries (including
(including insurance),
insurance), digital
digital technolo-
technolo-
quired
quired toto complete
complete aa customer
customer journey.
journey. gies
gies have added at least seven channels
have added at least seven channels to to
the
the customer
customer service
service mix:
mix: website
website self-ser-
self-ser-
The
The key
key to
to achieving
achieving these
these benefits
benefits isis to
to vice,
vice, e-mail,
e-mail, website
website live
live chat,
chat, mobile
mobile app,
app,
generate traffic that uses the digital
generate traffic that uses the digital solu- solu- text
text messaging, online forums, and
messaging, online forums, and social
social
tion.
tion. Customers
Customers cancan complete
complete digitized
digitized cus-
cus- media.
media. (See(See Digital
Digital Technologies
Technologies RaiseRaise the
the
tomer
tomer journeys by using an app or
journeys by using an app or the
the com-
com- Stakes in Customer Service, BCG Focus, May
Stakes in Customer Service, BCG Focus, May
pany
pany website,
website, or
or by
by working
working with
with an
an agent,
agent, 2016.)
2016.) These
These new
new avenues
avenues of of interaction
interaction
broker, or call-center agent who has
broker, or call-center agent who has access access are
are aa lot
lot for
for any
any company
company to to manage.
manage. But But
to
to the
the same
same digital
digital solution
solution asas the
the custom-
custom- most
most of the added complexity relates
of the added complexity relates toto the
the
er.
er. Either way, the journey relies on
Either way, the journey relies on self-
self- omnichannel
omnichannel interaction
interaction thatthat many
many path-
path-
service
service rather
rather than
than onon processed
processed opera-
opera- ways
ways involve.
involve.
tions,
tions, which
which decreases
decreases staffing
staffing needs
needs inin the
the
back office. We expect self-service
back office. We expect self-service rates rates To
To build
build an
an overall
overall picture
picture ofof their
their service
service
from
from customers
customers or or from
from agents
agents and
and brokers
brokers users, all companies need to understand
users, all companies need to understand
to
to approach
approach 80%,
80%, depending
depending on on the
the com-
com- why
why aa customer
customer chooses
chooses aa specific
specific channel
channel
plexity of the customer journey.
plexity of the customer journey. in each instance, and how the customer’s
in each instance, and how the customer’s
journey
journey progresses
progresses through
through channels
channels over
over
Nevertheless,
Nevertheless, somesome customers,
customers, especially
especially time.
time. This understanding should inform
This understanding should inform
older
older ones, may not be
ones, may not be keen
keen to
to complete
complete both
both the
the explicit
explicit design
design of
of the
the transition
transition
their
their customer
customer journey
journey themselves
themselves via
via an
an between
between channels—such as online
channels—such as online click-to-
click-to-
app or a website. And agents and brokers
app or a website. And agents and brokers connect—and
connect—and the the seamless
seamless sharing
sharing ofof in-
in-
need
need to
to be
be in
in the
the digitized
digitized journey
journey loop,
loop, formation
formation collected along the pathway at
collected along the pathway at

| | The New Insurance IT Model
The New Insurance IT Model 44
each stage. Productive use of customer • Pursue agile development with
pathway information is vital. Customers cross-functional teams using short time
mark down the service experience when frames and high-frequency user/
they encounter no recognition of what they customer tests.
have already done or when they have to re-
peat the same information multiple times. • Pursue continuous development and
Anticipating customers’ needs and address- improvement (because, from a custom-
ing them proactively are other features er’s perspective, products and processes
that customers cite as being part of a flaw- always have room for improvement).
less experience.
• Communicate broadly and focus on
enabling the organization to ensure
Defining Success sustainable results.
In our experience, five factors are crucial to
the success of any effort to reimagine and Insurers that focus on these success factors
digitize insurance customer journeys: will be able to make the transition relative-
ly quickly from trying to digitize products
• Adopt the customer’s perspective, and and processes to delivering digital custom-
be ambitious. er journeys. Such companies will set them-
selves on a path of continuous improve-
• Subordinate both products and process- ment. Early movers have the opportunity
es to strict development of customer to establish a digital advantage over the
journeys from the customer’s perspec- competition—an advantage that will grow
tive, and make ease of switching among over time and pay continuing dividends as
channels a priority so that customers fast-moving technologies evolve.
have a seamless experience.
About the Authors

Michael Urban is a partner and managing director in the Düsseldorf office of The Boston Consulting
Group. You may contact him by e-mail at urban.michael@bcg.com.
Bodo von Hülsen is a principal in the firm’s Munich office. You may contact him by e-mail at
vonhuelsen.bodo@bcg.com.
Gilles Fabre is a partner and managing director in BCG’s Paris office. You may contact him by e-mail at
fabre.gilles@bcg.com.
Jeff Chookaszian is a partner and managing director in the firm’s Chicago office. You may contact him by
e-mail at chookaszian.jeff@bcg.com.
Tjun Tang is a senior partner and managing director in BCG’s Hong Kong office. You may contact him by
e-mail at tang.tjun@bcg.com.
visit bcg.com.
© The Boston Consulting Group, Inc. 2016. All rights reserved. 8/16

DELIVERING
TRANSFORMATIVE
CUSTOMER EXPERIENCE
THROUGH DIGITIZATION
IN INSURANCE
By Kshitij Jain, Managing Director and CEO, Exide Life Insurance Company Limited
O ver the last decade, amidst chal-

lenging conflicts faced by the insurance
industry—upheavals in financial markets,
have changed the way consumers engage
with their insurers. Undeniably, the biggest
driver of embedding a digital strategy is to
phenomenal losses from the onslaught of enrich customer experience and relation-
natural disasters, low interest rates and ship; this leads the other drivers (attracting
regulatory changes to name a few—the new buyers and enabling sales) by a long
global insurance market has not suffered mile. Customer retention is a critical neces-
from waning growth potential, be it in the sity, especially as customer acquisition costs
developed or emerging regions across the continue to spiral.
globe. Today though, the wave of digital
disruption has transformed consumer The digital route to customer-centricity re-
behavior to drive massive changes in their volves around transforming operations to
expectations of fulfillment. enhance customer loyalty and advocacy. It
is easy to understand why. Loyal customers
Call it a challenge or opportunity, this trans- stay longer with their insurers, may most
formative market force calls for radically dif- probably buy more, but above all, end up
ferent professional skills and business mod- recommending the insurance company to
els. Considering that the industry by itself their friends. This serves the triple advan-
lags behind others (banking, telecom, retail, tage of customer service, retention and ac-
media and entertainment…), insurance can quisition at lower cost.
no longer afford to sit on the digital fence.
The digital channel enables customer-cen-
tric companies to interact regularly with
A Changing Paradigm of Consum- their customers—be it for making premium
er Engagement and Experience payments easier or renewals less painful;
Digital technologies, niche and emerging, providing better value-adding options and

enhancements; or simplifying updates and •• Which customer segments do we target?
modifications. The equation is simple: ev-
ery single customer touch point is another •• Which touch points may be considered
step to cementing stronger loyalty. Digital most effective for earning loyalty?
footprints provide insurance companies di-
rect and indirect feedback from customers; •• Can we extend the idea of digital
by leveraging analytics they can identify channels for transactions and communi-
patterns, segment audiences and take in- cations too? Will it improve or mar the
sight-led actions to further enhance custom- customer experience?
er experience.
Here is where analytics capabilities (in the
Beyond supporting and automating internal form of customer segmentation, data ana-
processes, digital technology also accommo- lytics and visualization and predictive mod-
dates customers’ priorities to delight them. eling) play an important role.
From a contact center perspective, incen-
tives and processes may be aligned to pro- With the customer as the central focus, in-
vide customers with a superior experience. surance companies need to consolidate and
For example, the insurer may measure the analyze the huge amounts of customer data
performance of their contact center on the that reside in their systems to understand
criteria ‘first time right’ call resolution in- their customers more intimately than be-
stead of average handling time. fore. There is a big benefit to this type of
thinking. Better customer knowledge opens
up avenues for omni-channel experiences
Sharpening Digital Custom- that in turn provide insurers up-sell and
er-centricity with Analytics cross-sell opportunities, while enhancing
The insurance industry is a strongly da- consumer delight.
ta-driven industry with huge volumes of
structured and unstructured data residing
in their systems. This is a boon to the cus- Catching the Millennial Atten-
tomer-centric insurer for whom the digital tion—Portals, Mobility and the
model kindles the following questions: Social Media
When we talk of improving digital capabili-
•• How do we consolidate and parse the ties, the roles of portals, mobile applica-
available data to understand diverse tions and services, and social media are
customer segments? never far behind.
EXHIBIT 1 : Internet of Things (IoT)—A Gamechanger
IoT has game-changing potential for insurers in the following areas
Customers’ data analysis to better segment needs and risks.
Accurate determination of health risks through use of wearables.
Transformation of policyholder services to an insurer-initiated activity.
Reduced turn-around time for initiation of claims with location services.
Use of IoT sensors as warning systems to reduce claim frequency and severity.

It is time to bid websites goodbye if the in- regulatory compliance. This will enable in-
dustry is serious about wooing millennials surance companies to have real-time access
and Gen Xers. For them, websites are just to information and ensure that their pro-
too inconvenient to use. In fact, these are cesses are compliant. Reports and docu-
the customer segments that will not only be mentation can also be customized for spe-
channel-agnostic, but will dictate the chan- cific requirements, thereby minimizing the
nels they prefer to use at any point of time. risk of non-compliance.
For the same reason, ignoring the mobile Standardizing data across the transaction
and social media factors is like bidding chain allows automation systems to com-
goodbye to future opportunities. In truth, municate seamlessly and streamline opera-
the immense value of social media lies in tions for enhanced cost savings.
its inexpensiveness as a marketing tool, its
ubiquity in engaging with, and its influenc-
ing power over digitally savvy customers. The Way Ahead
Simplicity, transparency and speed—these
Social media is all about connecting people. are the unequivocal demands of customers
Leveraging social media tools can provide today. Additionally, there is a push towards
just the right connects between insurance direct interaction of consumers with insur-
companies and consumers, consumers and ance companies across personal lines and
agents, and between consumers themselves individual life insurance sectors. With the
to collaborate and share information. For online world becoming increasingly mobile,
insurance companies, social media tools the demand for localized, anytime and any-
can improve relevant decision-making with where information will only increase.
active social listening.
The scope and opportunities are tremen-
dous today for insurance companies to digi-
Intelligent Automation tize their operations. With most insurers
Automation of repetitive business processes believing that they have not transformed
that require minimum decision-making themselves to reach anywhere near being
skills across the insurance value chain is not digital, there is significant scope to close the
new. It paves the way for enhancing effi- gap that exists today.
ciencies of back-office functions with quick-
er, transparent, and error-free transactions. The challenges are real: legacy technology,
What is emerging is the move to automa- slow pace of delivery and culture con-
tion of more complex and risky processes. straints. The good news is that these are
controllable internal slowdowns and not
The automation of business processes and crippling external factors. The time has
back-office tasks needs to be looked at us- come to focus on pushing the pace to digiti-
ing artificial intelligence (AI) and applica- zation; else it will not be long before they
tions such as robo-advisors, machine learn- will find themselves at an increasingly com-
ing, computer vision, and natural language petitive and functional disadvantage.
classification. Chatbots that provide person-
alized customer interactions may be used The near future thus needs to be more
to resolve customer queries. transformative than it has been so far. In-
surers need to stay focused on their custom-
With insurance being a highly regulated in- ers and grasp digital business opportunities
dustry, there is a critical need for insurance as they arise.
carriers to embed regulatory compliance
into their business processes. Maintaining
processes in compliance with changing reg-
ulations is a challenge that can be ad-
dressed effectively through automation of

USING BIG DATA AND
ANALYTICS ACROSS THE
INSURANCE VALUE CHAIN
By RM Vishakha, Managing Director & CEO, IndiaFirst Life Insurance Company Limited
B ig data analysis has revolutionized

many areas of modern life—from
healthcare to politics to sports. The insur-
dynamically. Based on this observation,
unique recommendations can be proposed.
ance sector is yet to see its impact. The high volume of data and the accompa-
nying risk of its secure usage is higher than
Data analytics is no longer restricted to the ever. Needless to say therefore, a sound in-
realm of technology in insurance. Today it formation management system is the back-
is a business imperative. While providing bone of successful deployment of big data
solutions to long-standing business chal- analytics. It comprises the data itself; an ap-
lenges, big data and analytics offer support propriate IT infrastructure; a host of analyt-
in the fight against fraud. They present new ics tools; and a comprehensive analytical
opportunities of fulfilling customer needs, data mart auto-updated cyclically to con-
aptly combining the right pricing, respon- tain relevant information pertaining to cus-
sive risk management systems, appropriate tomers, products or transactions in a given
underwriting and accurate claims. From im- period of time.
proving business processes and aiding pen-
etration into newer markets, to establishing
long-term, credible relationships with cus- The Current Situation
tomers, the rewarding possibilities they of- There is immense scope for big data and
fer are many. analytics in the insurance domain in build-
ing better cost and operational efficiencies,
Big data and analytics pave the way for pre- while improving the overall customer expe-
dictive intelligence that uses algorithms to rience. This is currently challenged due to
anticipate the intent of the customer. This limited interactions between insurers and
can help closely observe customer behavior customers. There are valid concerns around
and build a profile of customer preferences, privacy of sensitive information relating to

EXHIBIT 1 : ...and the Insurance Digital Experience Lags Behind Other Industries e.g.,
US Illustration
Consumer Satisfaction with online experience, by industry
Relative satisfaction utility score1
20
15.2
15
11.8 11.1
10.0
10 8 .9 8 .5 8 .5 8 .0
5.8 7.3
5.0 4.3 4.2
5 4.1 4.0 3.8 3.5
0
Airlines
Automobiles
Services
Retail
Providers
Insurance
Cable
Investments
Government
Merchants
Reatil
Hotels
Supermarkets
Banking
Real Estate
Media Retails
Online
Personal
Electricity,
Appareal
Electronics
Health Care
Gas, Water
Telco &
Current online satisfaction levels of insurers are achieved
thru substandard offer, suggesting much room to improve
Source: BCG digital satisfaction survey March 2013 (n=3,135).
1Based on MaxDiff technique: consumers distributed 100 utility points across segments according to how positive they felt their
online experiences are.
health, lifestyle and behavioral information insurance industry also to be attuned to cus-
of customers. Advanced technologies such tomer needs. We see such innovations in oth-
as cloud computing masked data, and en- er domains which have scope of high engage-
cryptions can ensure robust data privacy in ment levels with their customers, such as
a cost-effective manner, and build more banking, FMCG, etc. This said, evolving digi-
trust and confidence in customers relating tal capabilities—particularly mobile, social
to the integrity of their information held by media, big-data, and cloud technologies—
the insurer. could open up avenues to offer well-timed
and ingenious services through understand-
Mobile, which has now taken over web, ne- ing, serving, and engaging customers.
cessitates an engagement model specifically
devised for a digital world. Overall, consum- While data analytics will help life insurance
ers are far less satisfied with their experi- players deliver as per contractual obliga-
ence in digital insurance than with that in tions towards their customers, it is equally
other industries (see figure 1). This is espe- vital for customers to perform due diligence
cially true when it comes to ‘moments of with regard to their investments.
truth’ such as paying claims. Consumers
have significant unmet needs, with many
products perceived to be expensive and in- Big Data Analytics—Bringing
flexible. the Customer to the Heart of
the Insurance Value Chain
Often, insurance companies experience dis- It is increasingly important to track, attend
sonance of expectations among customers. to and anticipate consumer expectations
With more industries offering an intuitive and behavior as closely as possible. With
customer experience across various digital customer expectations dramatically chang-
platforms, it is increasingly necessary for the ing, a fixed approach to products and distri-

EXHIBIT 2 : Frequency of Interaction is Much Higher in Other Industries Than in Insurance...
Frequency of interaction with service providers1
% of respondents
100.0 3 3 6 5
4 11 5 8 10 Never
4 6 15
6 15
5 6 12 Less than once a year
80.0 15 4 16
13 16
16 33
14 14 30 Yearly
35
60.0 20
16
47
40.0 45
34
60 29 34 37 Monthly / Quarterly
47
20.0 Weekly
12
19 18 9 8 8 Many times a day / Daily
9 7 6 6
0.0
Search Social Banks Online Mobile Energy Insurance Insurer
Engine Media Retailer Company Utility Co Broker
Website
Adjacent industries with higher interaction frequency and

higher client satisfaction may present threat of entry
Sources: MS and BCG Insurance Customer Survey 2014; (n=500 p. country; Australia, Canada, China, France, Germany, HK, India, Italy, Japan ,
S.Korea, UK, US); BCG e-Intensity; BCG analysis.
1QF5: "How often do you interact with each of the following companies? Examples of this could be you calling them, visiting them, using their website
or using a mobile app they have provided".
bution channels will soon be archaic. So far, pany’s relationship with them by cross-sell-
consumers have engaged less with insurers ing other products or services to them. It
than with any other industry* (see figure 2). can segment the existing customer base of
Thus in comparison, customer experience the insurer using contact center, demo-
with insurers has trailed behind that with graphic, transactional and external market-
other industries. ing/risk-related data. Suitable marketing
and customer communications can be tai-
The digitalization push is getting more and lored to reach out directly to niches thus
more customers online for management of created in the most lucrative manner. This
insurance-related transactions. In line with creates a capability to subtly bundle intui-
this phenomenon, a new environment that tive products which may be of value to
will influence every area of the insurance these customers.
industry value chain is in order. In this
evolved ecosystem, possibilities afforded by Predictive underwriting: Advanced un-
the big data approach will be actively ex- derwriting analytics allows insurers to
ploited by insurance players aspiring for the have a predictive view of risks, given the
leadership position. need for accurate pricing of insurance
products for sustained competitive advan-
Cross-selling capabilities: As acquiring tage, with faster turnaround time. This
new customers becomes increasingly ex- could stretch an insurer’s ability to under-
pensive, the strategic focus is now on write new risks that could earlier not be
cross-selling new products to existing cus- covered profitably, by studying ‘triggers’ of
tomers using the propensity-to-buy model. health or other relevant lifestyle-related
data. Advanced underwriting will enable
Predictive analytics can be used to identify insurers to charge customers as per their
profitable customers and lengthen the com- lifecycle/lifestyle, as against conventional

underwriting systems. This could translate friends and family as a crucial source of in-
into extended relationships between an information for their insurance choice, versus
surer and its customers. 16 percent and 18 percent in the UK and
Germany respectively. Dependence on so-
Claims and fraud management: Predic- cial media is likely to grow further, indicat-
tive analytics can help determine whether a ing the need for insurance firms to develop
claim intimation needs further investiga- a well-defined strategy on managing social
tion. It will also help in determining the media.
complexity of the claim, accurately. This ex-
pedites processing of legitimate claims, Insurance companies gather huge volumes
leading to enhanced customer satisfaction, of text through various touch-points such
while simultaneously deterring payouts for as agents, contact centers, blogs, emails
fraudulent claims. Insurers dedicated to and social networks. The information col-
fighting fraud will be able to send a strong lected includes policies, expert and health
message to fraudsters and enhance their reports, claims, complaints, results of sur-
image in the eyes of genuine customers. veys, relevant interactions between cus-
This also does away with introduction of tomers and non-customers in social net-
cautionary processes which leaves a blot on works, etc. Insurance players are among
the experience of a majority of customers. those who could benefit most through in-
telligent analysis of free text (text analyt-
Persistency and surrender: In a setting ics), wherein interactions could be catego-
wherein insurance is already being pushed rized according to the product or service
and sold and not bought willingly, lapse or offered, the marketing channel used, type
surrender situations will impact not just the of interaction, resolution status, etc. As
insurer’s persistency ratio as a firm, but part of this, sentiment analysis and auto-
also customers’ protection against future matic opinion techniques help identify the
risks. In the latter situation, the surrender polarity of the sentiment (positive, nega-
value needs to be paid out to the customer, tive or neutral) towards specific aspects of
which in turn could impact all the stake- a product, process or channel.
holders involved such as the customer, dis-
tributors etc. Analysis of information across multiple
channels will be used in combination with
Through propensity modeling techniques, hypothesis-driven analytics to develop and
insurance companies can predict the likeli- tailor personalized products, services, deliv-
hood of a customer lapsing or surrendering ery methods and communications. Superior
a policy. This will enable insurers to moni- consumer experience drives valued
tor relevant customer sets and in turn, in- cross-selling and persistency improvements.
fluence them to stay committed to their in- Companies can achieve this through a com-
vestment for the longer haul and maximize bination of consumer-centric design, brand-
their benefits. ing, and social media engagement. With
these capabilities, insurers will also model
Better engagement and servicing: Insur- and test new products regularly, inventively
ance customers the world over now look and seamlessly; be it region-wise, as per
forward to a different digital experience. specific customer cohorts, or specific time
This fact constitutes one of the key insights scales, to generate newer insights. Thus, a
from a global consumer survey carried out truly user-friendly and integrated experi-
in 12 countries, as part of a 2014 study by ence across channels will be offered to cus-
Morgan Stanley and BCG. People are now tomers, while ensuring higher value for
relying on social media to research purchas- money for the organization.
es. It is also the gateway through which con-
sumer buying happens. Roughly 50 percent To a large extent, this level of customer-cen-
of respondents from India and China tricity calls for changes at the structural lev-
claimed to count on social media posts by el of an organization, wherein focus on the

customer is at the heart of the firm’s value
system. This implies a re-haul in orientation
from selling products to delivering in line
with customers’ needs.

USING ADVANCED
ANALYTICS TO IMPROVE
OPERATIONAL DECISIONS
USING ADVANCED
ANALYTICS TO IMPROVE
By Ravi Srivastava, Vlad Lukic, Simon Miller, Michael Dallimore, Rohin Wood, and
Adam Whybrew (BCG)
OPERATIONAL DECISIONS
By Ravi Srivastava, Vlad Lukic, Simon Miller, Michael Dallimore, Rohin Wood, and
Adam Whybrew
O perations leaders routinely make

critical decisions across the entire
value chain. What combination of raw
terms are often used synonymously, it is
challenging for leaders to determine how
they can employ each of these techniques
materials will minimize total cost? How to the best advantage. Indeed, many busi-
can we plan production to maximize nesses are losing potential value because
throughput? How can we schedule mainte- they cannot spot the opportunities to make
nance tasks to minimize disruptions? the most of advanced analytics.
Although such decisions typically involve Building comprehensive expertise in the

complex tradeoffs, managers have often available analytics techniques is beyond
made them using rules of thumb or basic the call of duty for most operations lead-
data analysis. Today, though, leaders can ers. However, it is essential to gain a better
apply advanced analytics techniques—sup- understanding of how to use advanced an-
ported by cheaper computing power and alytics to inform business decisions.
improved data capture mechanisms—to
make better-informed decisions that opti- We recommend thinking about analytics in
mize value. terms of three categories: analysis, model-
ing, and optimization. These categories fol-
However, many operations leaders must low the application of analytics from per-
climb a steep learning curve to understand formance measurement to predictive
the best ways to apply advanced analytics. modeling to optimal decision making. (See
For those without quantitative back- Exhibit 1.)
grounds, sorting through the hype and dis-
tinguishing among popular terms in the an-
alytics field—such as big data, operations Analysis: What Happened
research, decision support, and Industry in the Past?
4.0—can be a daunting task. Because these The most basic use of analytics entails

ibit 1 | Advanced Analytics Enables Better Decisions
Exhibit 1 | Advanced Analytics Enables Better Decisions
ANALYSIS MODELING OPTIMIZATION

ANALYSIS MODELING OPTIMIZATION
MEASURE AND UNDERSTAND EXPERIMENT DECIDE

MEASURE AND UNDERSTAND EXPERIMENT DECIDE
X X X X X X
X X X X X X
Output
Output
Output
Output
Output
Output
X X X
X X X
Input Input Input

Input Input Input
Examples
• Testing interventions to remove

• Performance dashboards • Network optimization
Examples
bottlenecks • Testing interventions to remove

• Performance dashboards bottlenecks • Network optimization
• Root cause analysis • Forecasting • Sales and operations planning
• Root cause analysis equipment performance
• Forecasting equipment performance • Sales and operations planning
rce: BCG experience.

Source: BCG experience.
gathering and analyzing data about the actions, such as enhanced approaches to
gathering and analyzing data about the actions, such as enhanced approaches to
company’s past performance. This back- motivating workers or improvements to
company’s past performance. This back- motivating workers or improvements to
ward-looking analysis describes and sum- training programs.
ward-looking analysis describes and sum- training programs.
marizes a selection of KPIs, typically over
marizes a selection of KPIs, typically over
time. In doing so, the analysis provides in-
time. In doing so, the analysis provides What
Modeling: in- Does the What Does the
sights regarding the factors that drive val-
sights regarding the factors that drive val- Modeling:
ue; it can also suggest interventions to in- Future Hold? Future Hold?
ue; it can also suggest interventions to in-
crease value. By gaining this visibility, the A model is an abstract representation of a
crease value. By gaining this visibility, the A model is an abstract representation of a
company also obtains a fact base for mod- business. A company can use a model to
company also obtains a fact base for mod- business. A company can use a model to
eling future performance and making deci- predict how it might perform in the future
eling future performance and making deci- predict how it might perform in the future
sions that optimize value creation. under different scenarios. Modeling makes
sions that optimize value creation. under different scenarios. Modeling makes
it possible for companies to experiment
it possible for companies to experiment
The fact base is typically presented using with their operations in a risk-free manner.
The fact base is typically presented using with their operations in a risk-free manner.
business intelligence software (such as Tab- Companies can test different strategies,
business intelligence software (such as Tab- Companies can test different strategies,
leau, QlikView, or Tibco Spotfire). The dash- and make mistakes, in a virtual representa-
leau, QlikView, or Tibco Spotfire). The dash- and make mistakes, in a virtual representa-
boards created by such software give non- tion of reality.
boards created by such software give non- tion of reality.
specialists the ability to perform complex
specialists the ability to perform complex
data analysis. With a few clicks, a manager A company must be able to use models ef-
data analysis. With a few clicks, a manager A company must be able to use models ef-
or executive can generate an impressive ar- fectively to test how changes to variables in
or executive can generate an impressive ar- fectively to test how changes to variables in
ray of insights from millions of data points. the business environment will affect com-
ray of insights from millions of data points. the business environment will affect com-
Only five years ago, a specialist with company performance. And, because business
Only five years ago, a specialist with company performance. And, because business
puter science skills would have needed leaders are often skeptical about the accu-
puter science skills would have needed leaders are often skeptical about the accu-
hours to generate such extensive insights. racy of the results, analytics teams must be
hours to generate such extensive insights. racy of the results, analytics teams must be
prepared to demonstrate that models are
prepared to demonstrate that models are
On the most basic level, companies can use realistic. For a model to be realistic, it must
On the most basic level, companies can use realistic. For a model to be realistic, it must
the insights to identify where value may be be fit for purpose—that is, it must be a suf-
the insights to identify where value may be be fit for purpose—that is, it must be a suf-
“leaking” from the business. A manufactur- ficiently accurate representation of the
“leaking” from the business. A manufactur- ficiently accurate representation of the
er we worked with found that welders’ pro- business system. The availability of the ap-
er we worked with found that welders’ pro- business system. The availability of the ap-
ductivity is 15% lower on Fridays, for in- propriate data is also a prerequisite.
ductivity is 15% lower on Fridays, for in- propriate data is also a prerequisite.
stance. Another company found that its
stance. Another company found that its
sales staff typically provided the maximum Many different modeling tools exist, and
sales staff typically provided the maximum Many different modeling tools exist, and
authorized discount to customers rather the correct tool for a specific application
authorized discount to customers rather the correct tool for a specific application
than negotiating on price—a common depends on the characteristics of the sys-
than negotiating on price—a common depends on the characteristics of the sys-
problem throughout businesses. Insights tem being modeled. For example, bulk
problem throughout businesses. Insights tem being modeled. For example, bulk
like these point to the need for corrective commodity supply chains are typically
like these point to the need for corrective commodity supply chains are typically

| Advanced Analytics to Improve Operational Decisions 2
modeled using “discrete event simulation,” from models developed by the company on
a technique designed to emulate systems the basis of physics and chemistry. The
that have complex dynamics. company applied the insights to improve
yield by 0.5% to 1.0%, amounting to tens of
Applications for supply chains and equip- millions of dollars in additional value.
ment performance illustrate the potential
for using models to inform decision making.
Optimization: What Decisions
Simulation Models for Supply Chains. Maximize Value?
Supply chains often have complex, dynam- The payoff from applying analytics arises
ic characteristics, such as variability arising from using the results of modeling to make
from breakdowns or changes in demand or decisions that optimize value creation. By
supply patterns. They typically require a experimenting with a model to test the re-
buffer or inventory to manage this variabil- sults of different decisions, a company can
ity. A model of a supply chain must emu- often determine the actions required to
late these dynamics. achieve the optimal outcome. However,
some business problems involve such a
For example, we have used a supply chain complex array of variables that the poten-
model to help mining companies decide tial solutions literally number in the tril-
where to invest capital. The model allows lions. Optimization techniques help compa-
companies to test what happens if they nies determine the solutions to these
change variables, such as the number of highly complex business problems.
trains or the frequency of conveyor belt
breakdowns. A leading mining company An optimization technique is a mathemati-
used the model and discovered that its op- cal algorithm that calculates which deci-
erations could be served by a single-track sions will maximize value in a given set of
rail line, rather than the double-track line circumstances, taking into account the ob-
proposed by project engineers. This insight jectives and the applicable business rules or
enabled the company to avoid a planned constraints. These techniques are prescrip-
$500 million capital expenditure. tive: they tell companies what to do. In
modeling, the input is a set of decisions and
Supply chain models are also useful for the output is the value that would result
testing different operating strategies or from implementing these decisions. Optimi-
philosophies. For example, a port authority zation reverses this relationship: the input
applied the insights from modeling to is the value-maximizing objective and the
change the rules by which ships were output is the set of decisions that would
brought through a tidally constrained chan- achieve the objective. (See Exhibit 2.)
nel. Applying the new rules enabled the
port to increase its capacity by 5%. The sophistication of optimization tech-
niques has increased exponentially during
Machine Learning for Equipment Perfor- the past decade, making it possible to solve
mance. Machine-learning techniques are a much wider variety of problems. The fol-
used to model very complex systems, such lowing examples illustrate the scope and
as jet engines and copper smelters. These potential for value creation for companies
techniques use historical data to learn the across industries:
complex, nonlinear relationships between
inputs and outputs. We used a machine- • A Foundry. Foundry operations are
learning algorithm to help a metals compa- remarkably complex, making it nearly
ny model the performance of a copper impossible for an operator to determine
smelter, including the highly complex the optimal schedule of tasks. One
relationships among temperature, oxygen, foundry applied an optimization
flux, and feed rate. The predictive insights algorithm to overcome this complexity.
generated by the machine-learning algo- Inputs included the foundry’s goal for
rithm proved superior to those obtained the number of components manufac-

ibit 2 | Optimization Prescribes How to Maximize Value
Exhibit 2 | Optimization Prescribes How to Maximize Value
ODELING IS UNDERSTANDING HOW TO PLAY CHESS, OPTIMIZATION IS UNDERSTANDING HOW TO WIN.
IF MODELING IS UNDERSTANDING HOW TO PLAY CHESS, OPTIMIZATION IS UNDERSTANDING HOW TO WIN.
ODELING Example
MODELING Example
Decisions Value
(educated guesses Decisions Value
MODEL
(educated guesses (savings in logistics
about best new MODEL
costs) (savings in logistics
warehouse locations) about best new costs)
warehouse locations)
TIMIZATION
OPTIMIZATION
Objective:
Maximize value Objective: Decisions
Maximize value MODEL (best locations for Decisions
(savings in logistics MODEL (best locations for
costs) (savings in logistics warehouses)
costs) warehouses)
ce: BCG experience.

Source: BCG experience.
tured per week as well as constraints make complex decisions about how to
tured per week as well as constraints make complex decisions about how to
relating to the availability of labor and produce and process birds in order to
relating to the availability of labor and produce and process birds in order to
material. The output of the optimiza- most profitably meet its customers’
material. The output of the optimiza- most profitably meet its customers’
tion was the order in which components needs. Poultry production is a complex
tion was the order in which components needs. Poultry production is a complex
should be manufactured. By imple- business with challenging constraints.
should be manufactured. By imple- business with challenging constraints.
menting this decision, the foundry For example, suppose the sales team
menting this decision, the foundry For example, suppose the sales team
increased capacity by 20% while asks the operations team to produce an
increased capacity by 20% while asks the operations team to produce an
reducing delivery times. additional 100 tons of breast meat.
reducing delivery times. additional 100 tons of breast meat.
Boosting production of breast meat by
Boosting production of breast meat by
• A National Broadband Network. A
• A National Broadband Network.this amount will also generate an
A this amount will also generate an
national broadband network is engaged additional 150 tons of leg meat and 40
national broadband network is engaged additional 150 tons of leg meat and 40
in a multiyear project to roll out inter- tons of wings. Significant waste will
in a multiyear project to roll out inter- tons of wings. Significant waste will
net service across the country. The net- result if the sales team does not consider
net service across the country. The net- result if the sales team does not consider
work comprises a number of technolo- whether it can sell the additional
work comprises a number of technolo- whether it can sell the additional
gies, whose cost and speed vary signifi- tonnage of leg meat and wings.
gies, whose cost and speed vary signifi- tonnage of leg meat and wings.
cantly, as does the number of engineers,
cantly, as does the number of engineers,
construction workers, and managers re- To determine how to address this type of
construction workers, and managers re- To determine how to address this type of
quired to build and maintain them. To complexity while meeting customer de-
quired to build and maintain them. To complexity while meeting customer de-
determine the optimal mix of techno- mand, the company used an optimiza-
determine the optimal mix of techno- mand, the company used an optimiza-
logies and the schedule for rolling them tion algorithm. The output specified the
logies and the schedule for rolling them tion algorithm. The output specified the
out, the company applied an optimiza- quantity of each type of meat to produce
out, the company applied an optimiza- quantity of each type of meat to produce
tion algorithm. The objective was to in each factory, which size of birds to pro-
tion algorithm. The objective was to in each factory, which size of birds to pro-
maximize net present value. The con- cess, and how to most efficiently trans-
maximize net present value. The con- cess, and how to most efficiently trans-
straints included the number of engi- port the products to customers. It also
straints included the number of engi- port the products to customers. It also
neers available and limitations on debt. specified which customers were not prof-
neers available and limitations on debt. specified which customers were not prof-
The output was a fully optimized roll- itable to serve. The optimized approach
The output was a fully optimized roll- itable to serve. The optimized approach
out plan that specified which technolo- is expected to generate additional EBIT
out plan that specified which technolo- is expected to generate additional EBIT
gies to use in which locations and how of more than $20 million. The approach
gies to use in which locations and how of more than $20 million. The approach
to sequence the rollout. The optimized has allowed the business to serve a large
to sequence the rollout. The optimized has allowed the business to serve a large
plan has enabled the network to reduce new customer it had previously believed
plan has enabled the network to reduce new customer it had previously believed
its funding requirement by $2 billion. it lacked the capacity to serve. The addi-
its funding requirement by $2 billion. it lacked the capacity to serve. The addi-
tional business is worth millions of dol-
tional business is worth millions of dol-
• A Poultry Company. A poultry compa-
• A Poultry Company. A poultry lars of margin, and demand can be met
compa- lars of margin, and demand can be met
ny had been using rules of thumb to with no additional capital investment.
ny had been using rules of thumb to with no additional capital investment.

• A Steel Producer. A steel producer technique. When building an in-house ana-
sought to redesign its supply chain to lytics function, it is important to create clear
meet customer demand at minimal cost. linkages and feedback mechanisms between
Taking into account the capacity the field and analytics teams to ensure that
constraints of production lines and the new function is effective and continues
warehouses, an algorithm specified the to add value over time.
optimal supply chain for 2025—one that
would enable a flow of goods across the Companies should be mindful that devel-
producer’s network at the lowest cost. oping support tools to compute the optimal
The producer has already reduced decisions represents only a small part of
logistics costs by 10% through better the work necessary to capture the benefits
decisions about which products to make of analytics. To convert insights into ac-
where and how to distribute them. tions, a company must establish processes
that enable company-wide, optimal deci-
sion making. It must also ensure that deci-
Getting Started sion rights and accountabilities promote
As a first step to enhancing the value de- the use of these processes and the analytics
rived from analytics, a company should re- systems. Finally, it must establish KPIs that
view its value chain to identify all the busi- incentivize employees to use these ad-
ness decisions it is currently making. Look vanced techniques and implement the rec-
for decisions that are: ommendations from analytics teams.
• Difficult to make owing to their com-
•
plexity
High margin, because the difference

L eading companies are already captur-
ing significant savings and a competitive
edge from applying advanced analytics in
between good and best (that is, opti- operations. Today’s applications are just the
mal) has a material impact on value starting point. In many industries, advanced
analytics has the potential to transform how
• Currently being made using gut instinct companies manage their operations. Com-
or unsophisticated analytics tools (such panies that fail to understand and pursue
as spreadsheets) the opportunities risk falling permanently
behind the leaders in their increasingly
If all three circumstances exist, analytics can competitive markets. Now is the time to em-
almost certainly be valuable to support de- brace advanced analytics as a fundamental
cision making. Having identified the deci- enabler of operational excellence.
sions to prioritize, most companies will need
new expertise—either in-house or provided
by a third party—to match their business
problems to the most appropriate analytics
About the Authors

Ravi Srivastava is a senior partner and managing director in the New Delhi office of The Boston Consult-
ing Group. He leads the Operations practice for the Asia-Pacific region. You may contact him by e-mail at
srivastava.ravi@bcg.com.
Vlad Lukic is a partner and managing director in the firm’s Boston office. He is a coleader of BCG’s digi-
tal agenda and has helped found and expand BCG’s advanced analytics and geoanalytics capabilities. You
may contact him by e-mail at lukic.vladimir@bcg.com.
Simon Miller is a partner and managing director in BCG’s Sydney office. He is a nonexecutive director of
The Simulation Group, an advanced analytics firm specializing in simulation and optimization that is a stra-
tegic partner with BCG in serving clients’ analytics needs. You may contact him at miller.simon@bcg.com.

Michael Dallimore is a founding partner and director of The Simulation Group, based in Melbourne. You
may contact him by e-mail at michael.dallimore@thesimulationgroup.com.
Rohin Wood is an expert principal in BCG’s Sydney office. He leads the optimization topic for the firm.
You may contact him by e-mail at wood.rohin@bcg.com.
Adam Whybrew is an expert principal in BCG’s Sydney office. He leads BCG’s Big Data and Advanced
Analytics topic in Asia-Pacific. You may contact him by e-mail at whybrew.adam@bcg.com.
visit bcg.com.

12/16

Functional Perspectives
BUILDING A DIGITAL
TECHNOLOGY
FOUNDATION IN
UILDING A DIGITAL INSURANCE
ECHNOLOGY FOUNDATION
N INSURANCE By Hanno Ketterer, Jonathan Koopmans, and Rolf Mäurers (BCG)
anno Ketterer, Jonathan Koopmans, and Rolf Mäurers
I nsurers today face a host of digital

to-dos if they want to stay competitive—
much less gain an advantage on their
centage of incumbents still rely on static
HTML-based digital channels that do not
work well on mobile devices—the consum-
peers. These undertakings include digitiz- er’s digital device of choice.
ing the customer experience, building
digital offerings and business models, and We recently researched the readiness of in-
constructing in-house digital capabilities. surers to go digital. We interviewed CIOs
Underpinning them all is the question of and IT architects at leading insurance com-
how to adapt legacy IT systems and panies worldwide. We also interviewed ex-
architectures to the needs of digital ecutives at prominent solution providers.1
business models. This challenge can We conducted a “follow the money” assess-
require new front-end architectures to ment of some $17 billion in venture capital
mimic the mobile-first customer experience investment in more than 900 technology
of digital natives. It can also necessitate a startups with relevance to the insurance
fundamental overhaul of core insurance sector. And we analyzed the main IT trends
systems to digitize end-to-end customer on the basis of four years of architecture
journeys and automate decision making benchmarking with top insurers in the Ger-
in basic functions such as underwriting man market.
and claims handling. The prospect is
daunting. Insurance CIOs and other IT executives
will not be surprised to learn that we
Most insurers need to overcome significant found multiple pain points at all levels of
constraints in their current IT landscape. IT architecture. For example, only 36% of
For example, BCG research shows that insurers use a central customer-data reposi-
about 35% of all applications in the indus- tory or CRM application to engage with cli-
try run on legacy technology stacks that are ents, and only 64% have mobile apps. Such
not “cloud ready” and that a similar per- shortcomings limit insurers’ ability to gain

a full view of client needs and to provide •• What emerging architectural strategies
omnichannel interactions. The average age can help insurers accommodate future
of core insurance systems in the companies developments in technology?
we interviewed and benchmarked was 13
years. •• How do incumbent insurers jump-start
digital implementation and stay ahead
Insurance companies have their IT work cut of the competition?
out for them. This article provides a frame-
work for their efforts that is based on three
questions:
•• What are the main technological

building blocks of a digital insurer?
To read the full report and disclosures, please use the below link or scan the QR
code from your smart phone
https://www.bcgperspectives.com/Images/BCG-Building-a-Digital-Technology-Foundation-in-Insurance-
Aug-2016_tcm80-213302.pdf

THE REAL DEAL ON M&A,
SYNERGIES, AND VALUE
By Decker Walker, Gerry Hansell, Jens Kengelbach, Prerak Bathia, and Niamh Dawso (BCG)
HE REAL DEAL ON M&A,

YNERGIES, AND VALUE
ecker Walker, Gerry Hansell, Jens Kengelbach, Prerak Bathia, and Niamh Dawson
S ynergies” have been used to justify

some of the worst and best M&A
transactions in history. M&A is supposed to
mium—to gain control of their targets.
What sorts of synergies did these acquirers
really get in return for their investment?
be about value creation, and for many How did they know—or did they know—
deals, synergies are cited as the primary whether they were overpaying for those
means to that end. But relatively few synergies? From the viewpoint of acquiring
companies provide hard numbers to shareholders, what were the predictors of
support these claims. Even seasoned value-creating synergies?
executives and M&A advisors use the term
in varying ways that engender different We found that, when it comes to synergies,
interpretations. And empirical evidence on value-creating acquirers are different from
the role of synergies in determining M&A others in the way they do three specific
outcomes is hard to find. things:
This article aims to set straight the role of • They limit the control premium that
synergies in M&A value creation. they pay on the basis of a rigorous
assessment of the synergies that they
expect to achieve.
A Definition
Start with a straightforward definition: syn- • They are candid with their investors
ergies are the source of the tangible expect- about their synergy expectations,
ed improvement in earnings (calculated at publicly describing explicit synergy
an annual run rate) that occurs when two commitments when they announce
businesses merge. In our analysis of almost a deal.
300 recent significant M&A transactions,
we found that the acquiring companies • They practice rigorous postmerger inte-
paid an average of $3 billion—a 34% pre- gration (PMI) to capture synergies fully

and rapidly, and they are transparent a more powerful indicator of whether the
with investors about their progress. transaction is likely to create value for inves-
tors. (See the sidebar “The P/E of Synergies:
A Key Metric for M&A Success.”)
The Data
Not all M&A is pursued in the name of
achieving synergies; for example, some- Synergies and Shareholder
times an asset simply may be perceived as Value
undervalued and therefore a good deal. In We also reviewed each acquirer’s relative to-
other cases, companies want to acquire a tal shareholder return (rTSR)—its stock
critical technology or capability that they price performance relative to an industry
lack. But most deals do involve synergies index—to determine which deals did and
(or so investors are told). To examine the which did not create value. Not only did we
role that synergies play, BCG analyzed find consistent outperformance in value cre-
286 major acquisitions. The deals, span- ated by companies that accurately valued
ning a dozen industries in North America, synergies, paid appropriately, and delivered
were conducted from 2010 through 2015. on their projections, we also found that the
Each transaction was valued at more than market consistently penalized less disci-
$500 million, involved two public compa- plined acquirers. (See the exhibit, “A Disci-
nies, and was a significant deal for the ac- plined Approach to Synergies Leads to Su-
quirer, meaning that the total deal value perior M&A Value Creation.”)
was greater than 30% of the acquirer’s mar-
ket capitalization. Acquirers in our data set that paid less
than the average P/E of synergies outper-
For each deal in our sample, we asked the formed by about 5 percentage points of
following questions: rTSR those that paid more than the aver-
age. Those that paid more than the average
• How much did the acquirer pay (in the P/E of synergies were penalized with a neg-
control premium) relative to the an- ative rTSR. Moreover, the acquirers in the
nounced synergy targets? cheapest quartile (those that paid a medi-
an P/E of synergies of only 1.5x) outper-
• Did the acquirer disclose the synergy formed those in the most expensive quar-
expectations publicly? tile (those that paid a P/E of synergies of
17.6x) by 4.8 percentage points of rTSR.
• Did the acquirer report on the progress The data is consistent. The second quartile
relative to the initial synergy targets outperformed the third quartile by 3.1 per-
within 12 to 18 months of the acqui- centage points. To put this in context, con-
sition? sider that an acquiring company with a
$30 billon market capitalization could ex-
As part of the analysis, we developed a pect to see more than $1 billion of market
simple metric that we call the P/E of syner- capitalization added (or subtracted), de-
gies. It is the control premium paid (the pending on how it handled its valuation
absolute-dollar amount, using share price and disclosure of synergies.
data 30 days before announcement) divid-
ed by the pretax synergies (the absolute-
dollar amount at the expected annual earn- Preparation, Candor, and
ings run rate). For example, if a company Delivery
pays a control premium of $3 billion and ex- The research shows that acquirers should
pects $300 million of pretax earning syner- do their homework: they must be in a posi-
gies, the P/E of synergies is 10x. Dealmakers tion to publicly announce the synergies
often focus on the control premium they they expect to result from the combination.
need to pay to get a deal done. Since the P/E Yet only 58% of acquirers in our sample
of synergies compares the control premium (167 out of 286 companies) announced syn-
with the deal’s effect on earnings power, it is ergies, and the percentage varied by sector.

| The Real Deal on M&A, Synergies, and Value 2
THE P/E OF SYNERGIES: A KEY METRIC FOR M&A
SUCCESS
The P/E of synergies is a complementary companies paid a lower-than-average
valuation indicator to the more tradition- control premium of 25.5% and a higher-
al measure, overall percentage of the than-average P/E of synergies of 12.7x.
control premium paid. It also appears to The median rTSR for the companies
have clear predictive ability to estimate announcing synergies was –5.7%.
how well a deal is likely to be received by High-tech acquirers paid an average
investors. control premium of 40.1% and an
average P/E of synergies of 7.1x, 1.5
For the 167 companies in our data set percentage points below average. Those
that announced expected synergies, the announcing synergies received a 20-day
average premium paid was 34% and the rTSR of 1.65%. (See the exhibit below.)
average P/E of synergies was 8.6x. But in
the retail sector, for example, the average
control premium was 45.4%, while the
average P/E of synergies was only 5.1x. It
is not surprising that retail acquirers that
announced synergies achieved a 20-day
relative total shareholder return (rTSR)
of 4%. On the other hand, energy
Average Synergies and Control Premiums, 2010–2015, by Industry
Pretax
Number Deal Premium Premium announced P/E of
of size paid paid synergies synergies
Industry deals ($millions) (%)1 ($millions)2 ($millions) (multiple)
Health care 30 $17,657 36.0 $7,105 $481 8.0x
High techno-
19 $5,842 40.1 $2,267 $193 7.1x
logy
Materials 18 $6,639 27.2 $1,257 $257 6.5x
Energy and
18 $8,833 25.5 $1,765 $370 12.7x
power
Industrials 12 $5,783 22.5 $1,136 $384 4.1x
Consumer
products and 12 $3,639 43.7 $1,239 $158 6.9x
services
Media and
entertain- 12 $15,843 31.0 $3,987 $287 7.8x
ment
Telecommu-
10 $8,287 48.2 $2,985 $599 7.6x
nications
Financial
10 $2,786 33.0 $1,008 $152 6.8x
services
Retail 9 $4,926 45.4 $2,396 $347 5.1x
Real estate 9 $3,863 16.2 $532 $33 26.9x
Consumer
8 $7,261 41.1 $3,293 $217 10.0x
staples
Total 167 $8,779 34.0 $2,889 $314 8.6x
Sources: Thomson One; BCG analysis.
1
The premium paid is based on the stock price four weeks prior to announcement.
2
The premium paid is a percentage of the average.

A Disciplined Approach to Synergies Leads to Superior M&A Value Creation
ACQUIRERS IN THE CHEAPEST QUARTILE ACQUIRERS THAT ANNOUNCE ACQUIRERS THAT FOLLOW UP
OF THE P/E OF SYNERGIES OUTPERFORM SYNERGIES OUTPERFORM ON SYNERGIES OUTPERFORM
THOSE IN THE MOST EXPENSIVE BY 4.8 p.p. THOSE THAT DON’T BY 3.7 p.p. THOSE THAT DON’T BY 6.0 p.p.
+20 / –20 day rTSR from the date +20 / –20 day rTSR from the date rTSR from the date of announcement
of announcement (%) of announcement (%) to 9 months after the close date (%)
5 5 5 4.6
4 4 4
3 2.5 3 3
2 2 2
6.0 p.p.
1 1 0.5 1
0 4.8 p.p. 0 0
–1 –1 –1
3.7 p.p.
–2 –2 –2 –1.4
–3 –2.3 –3 –3
–4 –4 –3.1 –4
–5 –5 –5
P/E of P/E of Announced No Acquirers Acquirers
synergies: synergies: synergies announced that that did
cheapest most expensive synergies followed not follow
quartile quartile up up
Number of
transactions 42 41 167 119 48 62
Median P/E
of synergies1 1.5x 17.6x
Sources: Thomson One; BCG analysis.

1
P/E of synergies = premium paid (absolute-dollar amount 30 days before announcement) / pretax announced synergies. Excludes six
transactions with incomplete data.
For example, 69% of high-tech and 59% of companies worldwide, we have observed
energy acquirers announced expected syn- that most successful acquirers go after a
ergies while only 38% of health care com- significantly larger synergy number than
panies and 45% of materials companies did they publicly announce, and they achieve
the same. Investors bid down the shares of the synergies much faster than they project
acquirers that did not announce synergies. publicly. The thinking is simple: if we can’t
In the 20 days before and after the an- get the synergies within 12 to 18 months,
nouncement date, the TSRs of these com- they are not likely to happen. Management
panies averaged –3.1%, which translates teams that put themselves on the line do
into almost $300 million of lost value per so secure in the knowledge that they plan
transaction. to outperform—a good strategy for man-
agement and shareholders alike. (See the
Of the acquirers that initially announced sidebar “Outperforming on PMI.”)
synergies, only 29% then saw fit to follow
up with investors on their progress against
their targets. Those that did were further Putting It All Together
rewarded by shareholders, outperforming In the competitive bidding market for cor-
those that did not by a median of 6 percent- porate assets, many acquisitions transfer
age points nine months after their deals all, if not more than all, of the synergy val-
closed. Moreover, those that did not follow ue from the acquirers’ shareholders to the
up saw positive rTSRs at the time of the an- seller’s shareholders. (See Divide and Con-
nouncement turn negative (a median rTSR quer: How Successful M&A Deals Split the Syn-
of –1.4%) nine months after their deals ergies, BCG Focus, March 2013.) This is why
closed. more than half of all deals destroy value
for investors.
There is good reason for these discrepan-
cies, and it’s not only that investors gener- Value-creating M&A requires discipline in
ally appreciate management transparency. the assessment, valuation, and delivery of
In our PMI work with more than 1,000 synergies. Take the example of Martin

OUTPERFORMING ON PMI
Acquirers project two types of synergies: Delivering on Promises
cost and revenue. Very few of the com- These are big gains even if one factors in
panies that announce their synergy some conservative downplaying of
expectations break out the two, but they initially announced expectations. So how
do tend to track each one internally. do successful companies do it? In our
experience, they practice four subdisci-
On the basis of our work with more than plines, all of which are related to ac-
1,000 PMI projects, BCG has built a countability within the organization.
database that tracks the PMI results of
some 200 transactions over the past • Bottom-Up Accountability. Smart
decade. Our data and analysis show that companies don’t leave synergy projec-
companies’ internal synergy expectations tion to the bankers and the M&A
are significantly higher than the targets team; early on, they involve the line
they provide publicly: on average, they managers who will be responsible for
are 15% higher for cost synergies and achieving the targets. These line
21% higher for revenue synergies. In managers play a part in setting their
addition, companies that practice targets.
particularly rigorous PMI, holding firm to
the accountabilities outlined below, • Individual Accountability. Manag-
substantially exceed even their internal ers are assigned individual responsi-
targets. These companies boost cost bility for their specific targets and
synergies by another 15% (so the total held accountable for meeting them
achieved exceeds the announced syner- by the project management office
gies by 32%) and revenue synergies by (PMO) and top leadership. Further-
25% (for a total of 51% over announced more, targets are hardwired into
expectations). (See the exhibit below.) managers’ budget and performance
Acquirers That Track PMI Progress Achieve Higher Synergies Than

They Initially Announce
INDEXED SYNERGIES
1%
nergies: 5
revenue sy
Increase in
REVENUE
+21% +25% SYNERGIES
+15% COST
+15%
SYNERGIES
Increase in co
st synergies:
32%
Publicly Internally Actually
announced planned achieved
+XX% Target synergies Acheived synergies
Source: BCG’s PMI Synergy Database, June 2016.

Note: Calculated only for deals with available announced-planned, planned-achieved, or both data pairs.
The upside was calculated by comparing averages of announced-planned or planned-achieved pairs. Actual
synergy numbers are not shown because of differences in the sample sizes. Based on 19 announced-planned
and 6 planned-achieved pairs for revenue synergies and 51 announced-planned and 19 planned-achieved
pairs for cost synergies.

OUTPERFORMING ON PMI
(continued)
objectives, eliminating any ambiguity virtually no market benefit increase for

about what is required. projecting revenue synergies.
• Leadership Accountability. Top That said, in our experience, many

management leads from the front frequent acquirers have become adept at
throughout the PMI process. It realizing these synergies. They demand
actively supports the PMO and stays the same level of rigor that they require
the course until target realization is when they go after cost synergies
well underway. precisely because revenue synergies are
so difficult to project and execute. Best
• Public Accountability. Individual practices from best-in-class acquirers
managers are held publicly account- include the following:
able for meeting their targets.
“Heroes” are acknowledged and • Using detailed account mapping and
rewarded (often with meaningful allocation to identify precisely the
leadership roles in the acquired opportunities for increased revenues
company); managers who come up
short must answer to their peers as • Quantifying cross-selling quotas and
well as the boss. linking associated compensation and
incentives to achieving them
In addition, companies that excel at PMI
move fast, especially with respect to • Clearly articulating future sales
revenue synergies. One highly effective models (such as reselling and
technique that enables companies to hit referral) and implementing sales
the ground running the day after a deal force enabling programs (such as new
closes is the establishment of a so-called training)
clean team that gets a jump-start on
planning for revenue synergy execution. • Moving quickly to capture key-
The clean team is a group of outside account upside potential and to
advisors or soon-to-retire managers who protect against major account loss,
can work with confidential customer not waiting to identify top cross-
data from both companies during the selling targets or key accounts at risk
period between contract and closing while IT systems are being integrated,
without running afoul of anticompetition and using manual solutions to
laws or regulations. address the greatest upside opportu-
nities and downside risks
Realizing Elusive Revenue Synergies
Identifying cost synergies is a relatively
straightforward exercise, and achieving
them is largely a matter of accountabil-
ity and discipline. Revenue synergies
present bigger challenges in both quan-
tification and realization. This may be
one reason why relatively few companies
(only one-third of those that announce
any synergies) announce revenue
synergies in advance and investors are
skeptical of those that do. Acquiring
companies in our database received

Marietta and TXI. The two companies an- rTSR of 18.7%. Martin Marietta followed up
nounced a $2.7 billion merger in January on its synergy estimates on February 11,
2014 to “create a market-leading supplier 2015, indicating that the company expect-
of aggregates and heavy building materials, ed to exceed its original estimates by 40%.
with low-cost, vertically integrated aggre- Nine months after closing, the company’s
gate and targeted cement operations.” The TSR had outperformed the industry index
combined company had a market capital- by 8.3 pecentage points.
ization of about $9 billion. The announce-
ment highlighted the expectation of signifi-
cant synergies: “The transaction is expect-
ed to generate approximately $70 million
of annual pretax synergies by calendar
M &A is risky business—especially for
the shareholders of acquiring compa-
nies. To be sure, many factors that contrib-
year 2017.” ute to M&A success or failure are beyond
management’s control. But acquirers can
Martin Marietta paid a P/E of synergies of tilt the odds strongly in their favor by con-
5.8x, which is lower than our data set aver- sistently applying discipline to how they as-
age of 6.5x for the materials industry. In- sess, value, and deliver synergies from their
vestors reacted to the deal with a 20-day acquisitions.
About the Authors

Decker Walker is a partner and managing director in the Chicago office of The Boston Consulting Group
and the leader of the M&A practice in the Americas. He has extensive experience in all aspects of corpo-
rate development. You may contact him by e-mail at walker.decker@bcg.com.
Gerry Hansell is a senior partner and managing director in the firm’s Chicago office and a BCG fellow
actively involved in the Corporate Development practice. You may contact him by e-mail at hansell.gerry
@bcg.com.
Jens Kengelbach is a partner and managing director in BCG’s Munich office, the global head of M&A,
and a leader of the BCG Transaction Center. You may contact him by e-mail at kengelbach.jens@bcg.com.
Prerak Bathia is a project leader in the firm’s Chicago office and a core member of the Corporate Devel-
opment practice, specializing in M&A. You may contact him by e-mail at bathia.prerak@bcg.com.
Niamh Dawson is an associate director in BCG’s London office and a postmerger integration expert
with particular focus on Europe, the Middle East, and South America. You may contact her by e-mail at
dawson.niamh@bcg.com.
visit bcg.com.

11/16

CREATING VALUE IN
INSURANCE M&A
By Pia Tischhauser, Miguel Abecasis, Miguel Ortiz, Davide Corradi, and
CREATING VALUE
Jens Kengelbach (BCG)
IN INSURANCE M&A
By Pia Tischhauser, Miguel Abecasis, Miguel Ortiz, Davide Corradi, and Jens Kengelbach
This article is based on “Influencing Outcomes Insurers can do better. Our experience with
in a Consolidating Insurance Industry: Three companies throughout the industry shows
Keys to Value Creation,” by Pia Tischhauser, that acquirers can tip the playing field to
published in January 2016 in The Geneva As- their advantage. The keys to success in in-
sociation’s Insurance and Finance Newsletter. surance M&A relate to strategy and target
analysis, deal execution, and postmerger
A lthough not quite at the stage of

mania, mergers have been sweeping
the global insurance industry. Exor-
integration (PMI). This article explores how
to apply this framework.
PartnerRe, Willis Group–Towers Watson,

Willis–Gras Savoye, ACE-Chubb, and Multiple Forces Drive
Anthem-Cigna are just a few of the Consolidation
high-profile transactions announced over A multitude of macro-level forces will con-
the past year. tinue to propel consolidation in insurance
over the next five years or more. They in-
Behind the headlines, however, lies a stark clude more stringent regulatory require-
reality. The Boston Consulting Group’s ments, continued low investment yields,
analysis of one-year relative total share- new entrants, rapidly advancing technolo-
holder return in 778 transactions involving gy, and limited growth opportunities.
insurance companies between 1990 and
2014 found that only 51% created value Regulatory requirements, especially those
and 49% actually destroyed value. In having to do with capital adequacy (the
other words, the odds of success are simi- EU’s Solvency II Directive is one example),
lar to those in a coin toss. The half of in- continue to intensify, putting pressure on
surance deals that failed to deliver value both independent insurers and conglomer-
had fallen prey to a variety of culprits. (See ates. The provisions of the EU’s Insurance
Exhibit 1.) Mediation Directive 2 (IMD2), which the

Exhibit 11 || Corporate
Exhibit Corporate Leaders
Leaders Cite
Cite Three
Three Main
Main Reasons
Reasons for
for Failed
Failed Acquisitions
Acquisitions
MAIN REASONS
MAIN REASONS WHY
WHY 49%
49% OF
OF DEALS
DEALS FAILED
FAILED TO
TO CREATE
CREATE VALUE
VALUE
Percentage of responses
Percentage of responses
Wrong candidate
Wrong candidate 41
41
Deal preparation
preparation Unclear strategic
Unclear strategic fit
fit 69
69
Deal
and execution
and execution
Overpaid
Overpaid 49
49
Bad process
Bad process structure
structure 36
36
Lack of
Lack of integration
integration 55
55
High complexity
High complexity 64
64
PMI
PMI
Difficult cultural
Difficult cultural fit
fit 61
61
Low synergies
Low synergies 64
64
Market timing
Market timing Bad market
Bad market timing
timing 58
58
Sources: BCG 2015 Corporate Leaders M&A Survey; From Buying Growth to Building Value: Increasing Returns with
Sources: BCG 2015 Corporate Leaders M&A Survey; From Buying Growth to Building Value: Increasing Returns with
M&A, the BCG 2015 M&A report, October 2015.
M&A, the BCG 2015 M&A report, October 2015.
Note: A total of 54 corporate leaders responded on this subject; respondents could cite multiple reasons for
Note: A total of 54 corporate leaders responded on this subject; respondents could cite multiple reasons for
failed acquisitions.
failed acquisitions.
EU says
EU says “is
“is designed
designed toto improve
improve EU EU regula-
regula- pects of
pects of their
their business
business internally
internally are
are espe-
espe-
tion in the retail insurance market,
tion in the retail insurance market, inin- cially likely to feel the competitive heat.
cially likely to feel the competitive heat.
crease consumer
crease consumer protection,
protection, and
and improve
improve
consistency between the regimes
consistency between the regimes operating operating Insurance companies
Insurance companies are
are prime
prime candidates
candidates
in the different member states,”
in the different member states,” must be must be to exploit insights into customer behavior
to exploit insights into customer behavior
written into member states’ national
written into member states’ national law law and needs, but building the necessary
and needs, but building the necessary
by early
by early 2017.
2017. Among
Among other
other things,
things, IMD2
IMD2 big-data technology,
big-data technology, culture,
culture, and
and teams
teams is
is
will likely decrease some consumers’
will likely decrease some consumers’ will- will- cost prohibitive, especially for smaller
cost prohibitive, especially for smaller
ingness to
ingness to pay
pay for
for financial
financial advice
advice at
at cur-
cur- players.
players.
rent levels.
rent levels.
Insurers face
Insurers face limited
limited opportunities
opportunities forfor
Interest rates
Interest rates asas well
well as
as investment
investment yields
yields growth. Mature markets are consolidating,
growth. Mature markets are consolidating,
are likely to stay low for some time
are likely to stay low for some time (at (at and, although
and, although thethe risks
risks that
that consumers
consumers faceface
least in
least in mature
mature markets),
markets), making
making profits
profits in
in are expanding (data security, for example),
are expanding (data security, for example),
traditional life insurance difficult.
traditional life insurance difficult. the industry
the industry hasn’t
hasn’t succeeded
succeeded at at demon-
demon-
strating the need for coverage beyond
strating the need for coverage beyond the the
New entrants
New entrants as as varied
varied as as supermarket
supermarket most basic.
most basic. Emerging
Emerging markets
markets offer
offer poten-
poten-
chains and telecommunications
chains and telecommunications companies companies tial for growth, but they have their
tial for growth, but they have their own own
are in a position to disrupt the
are in a position to disrupt the insurance insurance complexities; building
complexities; building aa presence
presence organi-
organi-
value chain:
value chain: they
they have
have aa powerful
powerful asset
asset in
in cally can be slow and difficult; and
cally can be slow and difficult; and near- near-
the customer data they collect,
the customer data they collect, and they and they term profitability is a challenge. Scale
term profitability is a challenge. Scale in in
own the
own the “last
“last mile”
mile” link
link toto the
the customer.
customer. new markets can be achieved most
new markets can be achieved most realisti- realisti-
New operating models are
New operating models are making it making it diffi-
diffi- cally through
cally through acquisition.
acquisition.
cult for incumbents to play across
cult for incumbents to play across the en- the en-
tire value
tire value chain.
chain. The
The incumbents
incumbents are are vul-
vul-
nerable to specialists that disrupt existing Three Steps
Three Steps to
to Creating
Creating
nerable to specialists that disrupt existing
models—one example
models—one example being being online
online aggre-
aggre- M&A Value
M&A Value
gators that offer consumers
gators that offer consumers a variety ofa variety of Creating value—and
Creating value—and mitigating
mitigating risk—
risk—
price-transparent product
price-transparent product choices fromchoices from through M&A in insurance, as in
through M&A in insurance, as in other other in-
in-
multiple providers.
multiple providers. Large
Large incumbent
incumbent play-play- dustries, requires three steps: rigorous
dustries, requires three steps: rigorous
ers are best placed to make
ers are best placed to make the invest- the invest- strategy and
strategy and target
target analysis,
analysis, strong
strong deal
deal
ments needed
ments needed to to fend
fend offoff such
such assaults.
assaults. execution, and effective PMI. (See
execution, and effective PMI. (See Ex- Ex-
Midsize insurers
Midsize insurers that
that still
still handle
handle allall as-
as- hibit 2.)
hibit 2.)

| | Creating Value in Insurance M&A
Creating Value in Insurance M&A 22
Exhibit 2 | Companies Can Create Value and Mitigate Risk During Each Step of the Deal
Process
Announcement Acceptance
Approach of firm offer of offer Deal close Day one
PRE-ANNOUNCEMENT PRECLOSE POSTCLOSE

PRIMARY Manage and communicate legal
and regulatory constraints and Manage the wind-down of the
TASKS Define target operating model entity’s headquarters
dependencies
Prepare legal structure, Define retention measures for Integrate the management
communications, and filings
with regulators critical staff organization
Approach target and assess Ensure that the target organization

contingencies and interlopers is ready to launch by deal close Implement the new legal structure
Perform due diligence and quantify Select and prepare on-boarding Transition to an integrated channel
potential synergies of new management team and go-to-market model
Prepare day-one communications
Plan integration timing and and measures to ensure business Detail and implement a roadmap
deliverables continuity for systems migration
• Fully assigned and clear central • Clear lean-integration governance • Quick implementation after close
PMI team already defined • Clarity on future management • Continued internal
• Clear view of the target company’s team communication
RISK board of director and executive
MITIGATORS • Clear day-one and integration plan • Clear tracking and escalation
roles until full integration procedures
• Early preparation of clean-team
setup
Rigorous Strategy and Target Analysis. of the industry in the next five to ten
Many insurance acquisitions are made years.
opportunistically, in a time-pressurized
To read the full report and disclosures, please use the below link or scan the QR
window, and often with an investment code from your smart• Don’t phonepursue M&A without a strategy. A
bank serving up the target. Candidates are sound portfolio analysis is the starting
analyzed largely on their financials, but point for a target search.
this assessment is only one component
of a successful acquisition. Smart acquirers • Follow a systematic approach and focus
actively seek out proprietary deals, employ- efforts on quantifiable value creation.
ing a proven, systematic approach and Pay particular attention to the strategic
an analytical framework. They think fit between candidate and acquirer.
https://www.bcgperspectives.com/Images/BCG-Creating-Value-in-Insurance-M-A-Apr-2016_tcm80-208770.pdf
through all aspects of a merger before

initiating the transaction (including poten- • Be rigorous: invest the time required to
tial bids by competitors and other inter- analyze targets in depth.
lopers).
• Embed the search process in your
Two of the reasons for failed acquisitions organization. Approach the search as an
cited most often by respondents to BCG’s opportunity to set up a permanent
2015 Corporate Leaders M&A Survey were screening process for future acquisitions.
unclear strategic fit and lower-than-expect-
ed synergies. Acquirers should be able to A company may need to devote more re-
surface both of these issues with a disci- sources and attention to a small deal in an
plined review-and-selection process. In our emerging market than to a much larger
2015 M&A Report, we recommended five transaction in its home market. Cultural
imperatives to guide the target selection and market differences complicate integrat-
process: ing the two companies’ businesses, which
is a prerequisite to realizing synergies. (See
• Understand industry dynamics, includ- “From Acquiring Growth to Growing Val-
ing the factors influencing the direction ue,” BCG article, October 2015.)

| Creating Value in Insurance M&A 3
Indian Insurance
© The Boston Consulting Group, Inc. 2017. All rights reserved.
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3/17

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The Changing Face of

5 THE CHANGING FACE OF INDIAN INSURANCE

14 MEGA TRENDS IN INDIAN INSURANCE INDUSTRY

17 INDIAN GENERAL INSURANCE—GEARING UP FOR NEW AGE TRENDS

2 0 INDIAN LIFE INSURANCE—THE JOURNEY SO FAR AND THE WAY AHEAD

2 2 DIGITAL REVOLUTION IN THE GENERAL INSURANCE INDUSTRY

2 5 INDIAN INSURANCE IN 2020—TARGETING THE UNDER-SERVED

2 8 ENABLING THE GROWTH OF THE INDIAN INSURANCE INDUSTRY

3 1 ACTUALIZING THE OPPORTUNITY AT THE BOTTOM OF THE PYRAMID

3 4 DIGITIZATION—A GAME CHANGER FOR THE INDIAN INSURANCE INDUSTRY

3 6 LIFE INSURANCE FOR EVERYONE

3 9 RISKY TIMES FOR THE RISK TRANSFER BUSINESS

4 2 INSURANCE—AN IMPORTANT STEP TOWARDS SECURITY OF PROPERTY

4 6 MOTOR INSURANCE 2.0

4 8 DIGITALIZATION AND ITS IMPRINT ON THE INSURANCE INDUSTRY

2 The Changing Face of Indian Insurance

5 3 TRANSFORMATION OF INDIAN INSURANCE INDUSTRY

5 6 CUSTOMER IS KING AS INSURANCE GOES DIGITAL

5 9 INDIAN INSURANCE SECTOR—THE NEW CHANGE AGENTS

6 3 COMPETING IN THE AGE OF ARTIFICIAL INTELLIGENCE

7 0 DRIVING CUSTOMER CENTRICITY IN THE DIGITAL WORLD

7 3 INSURANCE IN THE BIONIC WORLD

7 7 DIGITIZING CUSTOMER JOURNEYS AND THE NEW INSURANCE IT MODEL

82 DELIVERING TRANSFORMATIVE CUSTOMER EXPERIENCE THROUGH

9 0 USING ADVANCED ANALYTICS TO IMPROVE OPERATIONAL DECISIONS

9 7 BUILDING A DIGITAL TECHNOLOGY FOUNDATION IN INSURANCE

9 9 THE REAL DEAL ON M&A, SYNERGIES, AND VALUE

1 06 CREATING VALUE IN INSURANCE M&A

The Boston Consulting Group • Ficci 3

Mr. Amitabh Chaudhry Mr. G Srinivasan Mr. Alpesh Shah

4 The Changing Face of Indian Insurance

M r. Ajay Kumar is a successful lawyer

The Boston Consulting Group • Ficci 5

EXHIBIT 1 : 12 Strategic Priorities for the Indian Insurers

Customer Ecosystems and

Source: BCG analysis.

6 The Changing Face of Indian Insurance

The Boston Consulting Group • Ficci 7

8 The Changing Face of Indian Insurance

The Boston Consulting Group • Ficci 9

10 The Changing Face of Indian Insurance

The Boston Consulting Group • Ficci 11

For Further Contact

Alpesh Shah Pranay Mehrotra

Amit Kumar Prateek Roongta

Ashish Garg Ruchin Goyal

Ashish Iyer Saurabh Tripathi

Janmejaya Sinha Yashraj Erande

12 The Changing Face of Indian Insurance

T here is no path more hazardous than

14 The Changing Face of Indian Insurance

The Boston Consulting Group • Ficci 15

16 The Changing Face of Indian Insurance

T he world is witnessing widespread

The Boston Consulting Group • Ficci 17

18 The Changing Face of Indian Insurance

The Boston Consulting Group • Ficci 19

T he face of the Indian life insurance

20 The Changing Face of Indian Insurance

The Boston Consulting Group • Ficci 21

T he growth of Indian general insur-

22 The Changing Face of Indian Insurance

The Boston Consulting Group • Ficci 23

24 The Changing Face of Indian Insurance

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