Automation for actuarial processes - Robotic

Karen Ko, Director, Ernst & Young Advisory Services Limited

Vincent Tsang, FSA, MAAA, Executive Director, Ernst & Young Advisory Services Limited
2nd ASHK General Insurance & Data Analytics Seminar
Friday 7 October 2016

1
Agenda
Introduction to virtual robotic workforce 3
Transforming insurance operations through robotic process automation 8
Digitize the insurance operations 12
RPA and how RPA can help 14
Q&A 18

2
Introduction to virtual robotic workforce

3
Going forward, your strategy must include virtual workforce

One robot is a curiosity.

Virtual workers Humans
A virtual workforce is
Stand-up to increased differentiating. Make mistakes, despite
regulatory scrutiny and good intentions (fat
eliminate costly fines fingers, miscommunicate)

Enable speed and

Only know what they
innovation for growth and
individually know, at any
competitive advantage
precise moment in time
(Fintech)

Agility at industrial scale Act through old habits,

with less privacy and data creating barriers to
exposure Monetizing robotic capabilities change

value = speed x scale

4
The virtual robotic workforce is transforming how organizations
move data, operate and engage customers

Robots link capabilities together to Create sustainable operations in a heightened

simplify, accelerate efficiency and provide quality and customer-centric environment
flexibility
In-house Sits on top of existing infrastructure
Cloud
systems Unwind legacy of people-based quick fixes

Perform laborious and repetitive tasks reliably

Scale up and down to match peak loads

Core account Third-party
management capabilities
Transaction Industry utilities Emulate the best business user behavior
processing Internet / intranet
Core accounting capabilities Shift control toward the business and reduce
Reporting Data storage
reliance on IT to get things done
Enterprise Desktop
automation automation Deliver ROI in weeks through a rapid, agile
approach

Workflow and rules Spreadsheets

Imaging Word documents
Roboticenables organizations to automate existing high
Digital channels PDFs volume and/or complex data handling actions as if the
Analytics / reporting Emails
Collaboration tools Collaboration business users were doing the work.
Data & analytical
tools

5
An introduction to robotic
Three primary ways to leverage robotic and their benefits

Data movement Digital enablement Virtual handling

Trial
1:41 Video Guidewire 2:19 video Claims 1:42 Video Balance

Sourcing, lightly transforming and loading Adding digital/mobile to application(s), such Rapidly performing repetitive tasks
data for reporting, analytics, data profiling, as customer preference/profile, sales or otherwise done by humans to reduce cost,
and system testing and migration service transactions accelerate timing, improve reliability and
reduce risk

Reduce people expense or avoid hiring by automating frequent manual repetitive tasks, improving exception handling and
Save on human effort
moving work to best location

Improve knowledge worker value add by increasing focus on highest return activities (i.e., time dividend) and improve their
Get more talent value
satisfaction/retention by eliminating dull routines

Reduce costly errors and Improve auditability (every step could be logged), consistency and control over error-prone manual activities that elevate
improve quality risk, noncompliance, financial or reputational harm

Accelerate and shorten Reduce end-to-end time to handle peak periods, meet deadlines and smooth post-M&A integration by virtually connecting
critical path disparate systems and data sources
Draft For Discussion Only

Sits on top of existing architecture enabling functional ETL, virtual API, and simulated web service to speed deployments
Speed-to-value
without consuming scarce IT/capital resources

6
 There are many ways to put robotic to work inside the typical
finance operations

Robots provide flexibility and connectivity between applications, increase the effectiveness of
applications, and complete routine activities that previously required manual effort, but they
do not replace existing computing capabilities, and they do not generally replace entire roles.

Preliminary ideas for consideration

Identify where teams are manually Intercompany transfers

accessing and gathering data from multiple systems
moving data from one system to another Reconciliations
checking data consistency in multiple systems Accruals
updating the same info in multiple systems
remediating data across several accounts Bad Debt write-offs
Month-end close heavy lifting
Journal entry processing

Select processes that are Entity updates and master accounts

well-defined, relying on rules rather than judgment Allocations and adjustments
time consuming, while being time-critical
executed very often (i.e. daily or weekly) Vendor and client on-boarding
using multiple systems that are not fully integrated
needing improvements in quality and control

7
Transforming Insurance Operations through
Robotic Process Automation (RPA)

8
Digital disruption further complicates the challenging landscape
Lower economic growth
Slow economic growth and lingering low
interest rates is impacting both sales and
investment revenue for insurers
Increased regulatory scrutiny
Increased regulatory scrutiny /
pressures will impact balance sheets
and insurer resources
Increased competition
Increased competition from
overseas and non-financial players
will impact revenue
Steady decline in global GDP growth rate Rising customer expectations
and insurance rates in recent years
5% 1.1
Marshs Global Insurance Index The customer landscape has shifted in ways in
4% 1.0
which customers interact, and the experiences
3% 0.9 they have come to expect including:
2%
Global GDP growth
0.8
Speed, quality and painlessness of processes
Tailored products and service
1% 0.7
Easy access to products/transactions/services
0%
2010 2011 2012 2013 2014 2015 Reward for loyalty and value
Regulatory activities address solvency,
capital and risk management (e.g., RBC
framework)
Regulators act on issues such as data
privacy, cybercrime, and treating customer
fairly
The volume of Fintech digital disruptors in Declining margins and high
insurance is set to soar over coming years
disruptive and innovative business models costs, particularly in a climate
are fundamentally challenging the insurance of soft market conditions and
industry
increased competition, mean
New entrances in the HKG insurance market greater margin compression
increase the intensity of competition
9
Digital disruption further complicates the challenging
landscape
The insurance industry is ripe for disruption
Industry characteristics
Large number of intermediaries
Generally poor user experience
High number of human touch-
points and little self service
Domination by largely old brands
Grudge purchase
Illustrative example of a disruptive model,
using Blockchain and Internet of Things
Disruptor characteristics
Disintermediation typically via 1. Two vehicles are involved in an accident
emerging digital technologies
Delightful user experience
2. Sensors in the cars know that they are
New business models featuring incapacitated, and write this info to the
self service options Blockchain over Internet of Things
Position as alternative to stale
legacy brands, defined by public
3. Blockchain knows car A is insured and
(e.g. social media) rather than ads
immediately executes claim approval

4. Claims is processed straight through

Emerging digital technologies are set to impact Insurance electronically. policyholder is emailed to.
No claims handler is involved
Sensors Internet of Things Blockchain
5. Towing and motor repair scheduling is
automatically initiated through GIS
Wear- Sensors GIS
ables on objects
Value Delivered: Delightful user experience
Rich, real-time info about Cloud computing and inter- Blockchain will change identity
customers will impact both communication of devices will and underwriting, business No paperwork
premium and policy holder reduce intermediaries and models (e.g. p2p), and help Immediate claims decision
behaviour manual processes fraud prevention Quick turnaround for help

Digital Disruption is happening and is unavoidable. It will transform Insurance.

10
Insurance has a long way to go in building good digital experiences

Value Chain Component

Channel / Distribution Simple Insight Influence Personalised
Distribution Transparent, low Data driven, predictive, Social media, viral, Contextual, relevant,
and Sales Sales and Accounts cognitive load actionable advocate Just for you

Marketing

Underwriting Mid/back office challenges

Underwriting Technical Pricing Different tools e.g. for ratings and pricing
(including spreadsheets)
Reinsurance
Complexity. Multiple pricing methodologies which
require complex actuarial operations
Claims Processing
Claims Inconsistency. Inconsistent processes, quality
Claims Supply Chain and usage on disparate technology
Policy Administration MI. Excessive time and effort spent on data
Digital distribution and sales is just
Ops and Shared
management
Operations the tip of the iceberg
Services Waste from:
Billing & Collections Resource pacing
Digital Operations represents an
Errors and rework
opportunity to address
Finance significant challenges across
Excess capacity

Procurement the remainder of the value chain

Information by Customer and Risk is not
readily available
HR
High duplication of effort with inefficient
Legal procedures
Back Office
Functions Tax Variable business process and outcomes

Risk & Compliance Complex data integration; many feeds

and interfaces
IT
Labour-intensive data collection and storage
Facilities

11
Insurance companies are planning to
digitise their operations with the objectives
to
deliver a better customer experience,
improve expense ratios, better utilize of
human resources, and free up capital to
invest in core systems

12
Taking a holistic view to improving your operations

With the assumption that one size does not fit all, taking a holistic view of the operation processes is
fundamental in determining the most effective efficiency levers.

Business Business
Opportunities Improvements

Reputation Process efficiency

Robotic Process
Compliance Automation (RPA)

Cost reduction
Growth

Digital
Improved customer
Performance Business Process Operations Business Process
Reengineering Management experience
(BPR) (BPM)
Cost management
Accelerated delivery

Agility in business / IT

Competitive advantage Improved control

As well as off-shoring, using business process re-engineering (BPR) (lean), business plan management (BPM) (straight through
processing) and RPA are all valid Operational Excellence enablers. To truly deliver Operational Excellence and drive sustainable costs
across operations, a holistic approach is required that combines each of these enablers.

13
What is RPA and how RPA can help?

14
RPA executes processes as humans do, at a significantly
lower cost
How does Robotic Process Automation (RPA) work? What are the quantifiable
benefits of RPA?
It orchestrates existing
RPA uses software to A robot is 1/10th of the cost
legacy applications for
execute business It does all of this with of an on-shore FTE & 1/3rd
transaction processing,
processes in a very limited human of an off-shore FTE
data manipulation,
repetitive, audited and participation
response triggering and
controlled manner
communication
An unattended automated
solution that works 24/7,
without complaint

What are the key features that define RPA?

Double-digit reduction in
They sit alongside existing
Robots automate low value error ratesrobots never
Robots are a virtual workforce infrastructure, which is
or repetitive tasks where forget their training
controlled by the business governed and supported by
humans add little or no value
IT
RPA works with the
Robots automate as-is, with Processes are executed with existing IT landscape
Processes can be automated
no changes required to a full audit log, in a centrally
by business users with very
existing systems or monitored secure
little IT knowledge
processes environment
Robots can be trained by
existing business users
How can RPA be integrated alongside a human workforce?
An effective deployment plays to both robotic and human strengths:
Speed and accuracy of
Robots deliver repetitive, deterministic, high-volume tasks efficiently
process execution
People build relationships, provide subjective judgement, deliver low-frequency and exception improves significantly
tasks, and manage change and improvement

15
RPA achieves high ROI by avoiding legacy system changes
and process reengineering
Illustrative
Project Type:

Cost
Enterprise system
enhancements Time to implement
(e.g. legacy)
ROI

Business process
management
(e.g. PEGA)

Robotic process
automation
(e.g. Blue Prism)

low high

RPA is not a strategic tool for process or systems change it automates in place, as-is; this significantly reduces the
time and expense typically associated with process reengineering, legacy system integration and application testing
Robotic produces a significant amount of management information much more than any process data generated today;
this information provides invaluable insights to improve the precision of future transformation projects
The operations cost saved with RPA can then be invested in more strategic change for even greater levels of
business transformation

16
Developing the business case and cost-benefit analysis

Key Considerations
These are the types of benefits you can expect by applying robotic to operations processes, notably reduced cost and
processing time, and enabling staff to focus on higher value-adding activities.

More flexible Improved Enhanced Freeing up Improved

scaling to enable processing focus on human capital value-cost ratio
the ability to reduce accuracy with customers, to be refocused on of traditionally high-
backlogs during reduced errors and facilitating significant more complex and cost administrative
demand spikes rework, and removal of improvement in high-impact functions processes
manual controls customer satisfaction

A comprehensive approach to cost-benefit analysis

incorporates the overall cost of robotic as a process improvement tool and methodology, not simply an IT solution.

Cost of training IT support for

Business support People costs, Termination
robots on a each robotics server
to train and operate each including training and costs or other fees
process by process or workstation, plus
robot, monitor outputs and redeployment payable for
basis software licensing
manage exceptions renegotiating contracts
with BPO providers

17
Questions and Answers

For further questions, please contact:

Phil Joubert phil.joubert@hk.ey.com
Mi Namkung mi.namkung@hk.ey.com
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