P&C Insurance Middleware

Draft - Q2, 2012 Gregg Barrett

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Index
The Problem Objective P&C Insurance Landscape in South Africa Drivers and Additional Benefits System Foundation System Technology System Overview
o o o o o Party Policy Claims Structure in MS SQL Server Sagent

Areas of Focus Development Strategy Example of a Middleware Framework Target Market Positioning in the Market Going Forward On-boarding So Where is the Revenue It is all about Big Data Competitive Position Why Industry Development is Unlikely Competitive Advantage A Move to Standards Summary Glossary

The Problem
There is no straight-through-processing among participants in the P&C (short-term) insurance industry. Rather islands of information locked-up in disparate systems. Due to this lack of connectivity, the benefits derived from the creation of a value chain are yet to be realised. Participants include: Insurers Brokers UMAs Reinsurers Claims Service Providers The extent of the problem from an insurers perspective: 40% - 60% of necessary data is off platform. That is data sitting in external systems beyond the sight and reporting of insurers.

Objective
Middleware platform utilising smart form technology to provide straight-through-processing for the P&C insurance industry.

P&C Insurance Landscape in South Africa

Short-term insurers: o 99 short-term insurance licenses (FSB, 2010) o Annual premium for 2010: R 72.479 billion, gross premium income (FSB, 2010) o Annual claims for 2010: R 31.110 billion, claims paid (FSB, 2010) Short-term insurance brokers: o >1000 short term insurance brokers (FIA) Short-term insurance broker system providers: o +- 30 broker system providers in South Africa Processing bureauxs: o +-5 processing bureauxs. This relates to a party role to which insurers or brokers or UMAs outsource the processing of policies and claims. There is a sense that this may become illegal as the concept of a binder is now being introduced by the FSB. Underwriting Management Agencies (UMAs): o +- 400 Underwriting Management Agencies in total o +- 74 Underwriting Management Agencies of size (SAUMA) Claims service providers: o In the thousands Short-term reinsurers: o 9 licensed short-term reinsurers (FSB, 2010) o Reinsurance premium for 2010: R 6.730 billion, gross premium income (FSB, 2010) o Reinsurance claims for 2010: R 1.175 billion, claims paid (FSB, 2010)

Drivers Include
Insurers to implement processes and gain access to data required for Binder holder Regulations and SAM (Solvency Assessment & Management) compliance Brokers to adhere to Binder holder agreement requirements

Insurance Laws Amendment Act (ILAA) The ILAA (Insurance Laws Amendment Act) (Sec 48A) at the moment stipulates that an insurer may insist on receiving the data on the risks for which it is on cover, from its appointed Binder Holders. It is envisaged that the regulations supporting the amendments to (Sec 48A) will prescribe that insurers should at all times be in possession of information pertaining to risk and customer detail committed under its licence.

Additional Benefits
Improve the customers' experience through the common view of data Price premiums more accurately and profitably as a result of leveraging more accurate data Obtain more accurate coverage valuations through improved risk portfolio analysis Get to market faster through a consistent and common definition of data and information Enhance data governance and impact analysis of data changes on core insurance processes and underlying business rules Increase profitability through reduced data integration time and costs

System Foundation
- IBM Insurance Application Architecture (IAA) - ACORD - Service Orientated Architecture (SOA)

System Technology
InfoPath SQL Sagent Portrait

System Overview
Party Policy Claims Structure in MS SQL Server Sagent

PARTY

Depiction using test data captured in the staging prototype system The party structure specifies a person or organization or both. In this example, the Party role is defined as an UnderwritingManagerAndContactPerson per the following screenshot. This particular party, an underwriting agent, would be referenced from the Policy entity within the policy as a producer as a secondary producer, along with the broker, as the main producer. The detail party data of address, contact information, banking, licensing data, employment, or credit score is held within the context of the primary party role.

POLICY
Policy Placement Our staging design needs to provide for full flexibility in acting as an interface for sourcing data from different systems, which can also map to the schema developed with Acord RSA AML. A placement binds an insurer to coverage's. At this policy level there is only one coverage and no primary coverage. If we only have one insurer for all the sections we only have one placement ... otherwise there is an additional placement iteration for each insurer (or insurers for a coinsurance placement) containing the coverage's bound to that entity.

POLICY continued
Section and item level as coverage's and secondary coverage's within the Policy Placement structure. This is the most misunderstood and complex data area within insurance. We have used the approach of iterating coverage's within a Policy Placement (one placement for one insurer, two placements for two insurers, etc.). The first coverage iteration applies to the policy level and then one iteration covers each section level.

Clearly the section level does not reference any risk.

The item level iteration requires a primary coverage and references the applicable risk (which in turn references a risk address). This primary coverage nests all extensions or clauses as secondary coverage's. We also provide for a section item level coverage where the typical example of claim preparation costs applies to all items within one section.

CLAIMS
A claim and a number of claim items and related financials. The Claim Activity log would reflect all activities within the life-cycle of the claim. The structure allows more than one claim item to attach to a claim as this is also planned as an enhancement. Each claim item reflects lists the information to track financial movements to the income statement and balance sheet of the insurer. The movement of estimates is added to any payment less any recovery to make up the claim incurred amount. This is added to any deductible to make up the ground up amount.

STAGING SYSTEM STRUCTURE IN MS SQL SERVER

1 - Case or Order to process new or changed or cancelled Party and/or Policy and/or Claim Party
CaseOrder_SK Party_SK sPartyId sFileAs sVatRegistrationNumber bVatableIndicator

Policy
CaseOrder_SK Policy_SK sPolicyId sPolicyNumber sPolicyVersion sPreviousPolicyNumber sLOBCode sPolicyStatusCode

CaseOrder
CaseOrder_SK sCaseOrderId sProcessMessageCode sTransactionMessageCode sOriginatorCode sUserName sFileAttachmentId sFileAttachmentName sFileAttachmentCode sFileAttachmentURI

sProcessCode sReasonDescription sLanguageCode

Claim
CaseOrder_SK Claim_SK sClaimId sPolicyIdRef sAddressIdRef sInsurerClaimNumbe r sProducerClaimNumber sCurrencyCode sClaimNarrative sLossCauseClassCo de dLossDate dDiscoveredDate cClaimIncurredAmount cClaimGroundUpAmount

sCurrencyCode fVatRate sPaymentMethodCo de sBillingMethodCode sContractFrequency Code sPaymentFrequency Code dOriginalStartDate 2 - Insurer, Reinsurer and Producer referencing Party dInsurancePeriodSt artDate dInsurancePeriodEx piryDate dReviewDate dSignedOn
CaseOrder
sCaseOrderId sProcessMessageCode sTransactionMessageCode sOriginatorCode sUserName sFileAttachmentId sFileAttachmentName sFileAttachmentCode sFileAttachmentURI

Party
CaseOrder_SK Party_SK sPartyId

Insurer
PolicyPlacement_SK Insurer_SK sInsurerId sPartyIdRef sFileAs sInsurerCode sInsurerProductCode sInsurerProductDescription sInsurerPolicyNumber sInsurerAgencyNumber sInsurerGroupId

Policy
CaseOrder_SK Policy_SK sPolicyId sPolicyNumber sPolicyVersion sPreviousPolicyNumber sLOBCode sPolicyStatusCode sProcessCode sReasonDescription sLanguageCode sCurrencyCode fVatRate sPaymentMethodCode sBillingMethodCode sContractFrequencyCode sPaymentFrequencyCode dOriginalStartDate dInsurancePeriodStartDate dInsurancePeriodExpiryDate dReviewDate dSignedOn sSignedAt sSignedBy

sFileAs sVatRegistrationNumber bVatableIndicator

sSignedAt CaseOrder_SK sSignedBy

PolicyPlacement
Policy_SK PolicyPlacement_SK sPolicyPlacementId

fPlacementPercent bLeadIndicator

Producer
PolicyPlacement_SK Producer_SK sProducerId

Reinsurer
PolicyPlacement_SK Reinsurer_SK sReinsurerId sPartyIdRef sFileAs sReinsurerCode sReinsurerAgencyNumber

sPartyIdRef sFileAs sProducerProductCode sProducerProductDescription sProducerPolicyNumber sProducerRole sCommissionLevel1 fCommissionLevel1Percent sCommissionLevel2 fCommissionLevel2Percent sCommissionLevel3 fCommissionLevel3Percent sCommissionLevel4 fCommissionLevel4Percent sCommissionLevel5 fCommissionLevel5Percent sCommissionLevel6 fCommissionLevel6Percent

SAGENT PLAN TO MOVE DATA FROM XML FILE TO STAGING SYSTEM IN MS SQL SERVER

SAGENT PLAN TO CALCULATE MOTOR PREMIUM FROM DATA IN STAGING SYSTEM

Areas of Focus
Complete definition of broker, insurer and uma roles Smart form performance Accommodating the rules Data warehouse

Development Strategy
Mid-term: - Reporting and analytics:
Business intelligence solution based on dimensional structures to facilitate predictive analysis and price determination as a service.

Long-term: - Business services platform for financial services

Example of a Middleware Framework

Target Market
Our major clients to target:
+- 30 broker systems +- 5 processing bureauxs
(where insurers or brokers or UMAs outsource the processing of policies and claims. Total premium income in this domain is +- 20 billion rand.)

Positioning in the Market

Position the forms as industry forms used by all role players to frontend their systems and as the major connectivity tool. This would reduce complexity, minimise training, cut-out major duplication in the market. Enrichment of data is also a major thrust. A multi-channel web services oriented architecture based on cloud computing. Be the first to market. South African legislation will be a driver for a risk-based capital business model.

Going Forward
Step 1: Complete the middleware solution Step 2: On-board industry participants Step 3: Revenue generation from Reporting/Analytics/Business Intelligence

On-boarding
Why industry will come on board:
Industry participants need connectivity Industry participants currently have little options for connectivity We are providing them with connectivity We are providing the platform at no cost We are on-boarding them onto the platform at no cost No on-going cost to utilise the platform

Thus very little risk to industry participants, only potential gain.

So Where is the Revenue?

For industry participants there is NO competitive advantage from backend systems:
o Only potential competitive disadvantage o A properly functioning backend is the baseline

For industry participants competitive advantage lies in data and service provision:
o o o o ALM (Asset/Liability Management What you choose to underwrite At what price Service provision Including claims procurement

Revenue lies in Big Data

o Provide products and services around Reporting/Analytics/Business Intelligence

It is all about Big Data

big numbers..
A free middleware platform for the industry attracts a large user base A large user base provides big data Big data provides the opportunity to provide products and services around this data

Note: we are not claiming ownership of the data nor disclosing it to 3rd parties. We are simply best positioned to assist users of the middleware platform in turning their data into valuable information
Think along the lines of a Bloomberg terminal for the P&C insurance industry

Competitive Position
Market Participants: Insurers cannot send and receive (bi-directional) ACORD messages Brokers cannot send and receive (bi-directional) ACORD messages UMAs cannot send and receive (bi-directional) ACORD messages System Providers: No insurance system provider with a full middleware platform No broker system provider with a full middleware platform No UMA system provider with a full middleware platform No third party provider with a full middleware platform Industry platform (Stride) is a messaging platform

Competition anytime soon? Straight-through-processing has been spoken about in the industry since the 90's, yet nothing exists to provide it. This solution has been development for the better part of 10 years and is the nearest to being a fully operational middleware platform that obviates the need for the industry to rewrite their applications. The ACORD standard for claims was based on this solutions claims framework. +- 20 000 drop down data fields

Why Industry Development is Unlikely

Using Stride as an example:
Stride state that much development work from all industry participants is required for participants to attain the required connectivity.
In todays environment it is unrealistic that the numerous industry participants are going to start establishing risky, costly and lengthy development projects to rewrite their applications. Further there is the question of resources who will be able to undertake the work, let alone the cost?

On the ACORD front:

ACORD is NOT a panacea. (ACORD does not equal connectivity.) There is also NO ACORD schema that deals with the claims service providers amongst others.

Ultimately the business will go to those who can provide a solution - a solution that works and at low cost.

Competitive Advantage
To compete:
Need to have a middleware platform Need to have a large user base

First to market and no cost barrier drives a large user base. Enduring competitive advantage:
Barrier: Cost and skill to develop middleware platform Barrier: Cost and skill to on-board users Barrier: Once established existing users have no incentive to switch Barrier: Need critical user base to generate revenue Potential competitors would face problems:
Sufficient capital to cover period to critical user base Risk of not reaching critical user base - due to little incentive for industry participants to switch

A Move to Standards
OASIS - Universal Business Language (UBL) OASIS - Reference Architecture Foundation for SOA OASIS - Web Services Business Process Execution Language (WS-BPEL) OASIS - Unstructured Information Management Architecture (UIMA) OASIS - Customer Information Quality (CIQ) OASIS - Business-Centric Methodology (BCM) OASIS - Content Assembly Mechanism (CAM) XBRL - Extensible Business Reporting Language ACORD - Message Library (AML)

Summary
The business problem is well understood The technology exists The standards exist

What remains is to deploy the solution.

Glossary
P&C - Property and Casualty. P&C is international terminology for short-term insurance FSB - Financial Services Board SAIA - South African Insurance Association FIA - Financial Intermediaries Association of Southern Africa ACORD - Association for Cooperative Operations Research and Development SAUMA - South African Underwriting Managers Association IISA - The Insurance Institute of South Africa IBM IAA - IBM Insurance Application Architecture SOA - Service Orientated Architecture UMA - Underwriting Management Agency OASIS - Organization for the Advancement of Structured Information Standards. XBRL - Extensible Business Reporting Language XML - Extensible Markup Language