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Digital Transformation & the Legacy Challenge How Europe’s Leading Insurers are Advancing their Digital Strategies & Future Approaches to Application Modernization

2015

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Executive Summary

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Key Findings

2015 2

Digital Polarization

There is a huge range in the level of digital maturity of European insurance providers. While the sector as a whole trails other industry domains in how quickly it has embraced the digital revolution, there are many examples in this study of real digital innovation. This ranges from interesting uses

of digital channels and analytics tools to enhance customer engagement, and the deployment of sensor technology to transform motor and health insurance processes.

50% of European insurers believe that their software applications will become more of a challenge to them achieving the goals of their digital strategies in the next three years. This reflects that many

remain dependent on ageing, often home-grown systems. In response, 42% of insurers will undertake systems modernization initiatives in the next two years, with a focus on applications

supporting key processes such as claims and policy administration.

Legacy Systems a Big Digital Barrier

There are some interesting differences in the digital maturity of insurers in the UK and continental Europe. UK insurers expect a much steeper decline in the importance of the physical branch and a much more important role for social media than their continental counterparts. The main goal of the digital strategies of UK is to gain improved insight into customer and operational data, whereas

those in continental Europe are aiming for greater process automation.

Data Analytics 2.0 to Focus on Customer

Insurers are data rich organizations, but have historically trailed other sectors such as retail in converting it into actionable insight. To date, a lot of the analytics investment and project focus has gone on supporting risk calculation and crunching operational data in order to take cost of the

business. But with sales growth named by three quarters of respondents as a major or clear challenge, the focus in shifting to understanding how they can better engage with the customer.

External Help is Needed

More than 40% of insurers say that they see high value in using external providers to support the modernization of their application landscapes as part of their digital strategies. Some 94% of respondents stated that IT services providers will play an important role in assisting their digital journey, which represents a higher level than digital agencies (74%) and cloud providers (69%).

UK Ahead of Continental Europe

Digital Transformation & the Legacy Challenge – Executive Summary

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About the Study

2015 3

200 survey respondents in Western Europe

50% business respondents

50% IT respondents

UK Survey conducted between Jan-Feb 2015

51% of respondents had over 1,000 employees

Life

Pensions

Commercial

Personal

Health

32%

8%

11%

18%

31%

FR DACH

> 27% 24% 15%

12% 10%

IT IBERIA

J F M A M

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Executive Summary (1/4)

2015 4

Q. What are the key goals for your company’s digital strategy?

It is clear from the study that ‘digital’ things mean different things to different insurers. Encouragingly, digital is seen as a way to tackle what insurers perceive to be their biggest challenge in 2015 – growing the business through increased customer acquisition. Against a backdrop of heightened competition and growing use of aggregators, almost 60% state that improving client retention is a ‘primary’ goal of their digital strategy. Again, there are some interesting contrasts between the UK and continental Europe. Only 33% of insurers in the former territory state that increasing process automation is a primary goal of their digital strategy, versus 52% in the latter. A greater proportion of UK insurers (52%) see gaining improved insight into customer and operational data as a primary goal for their digital strategies than those on the continent (40%). A picture is emerging where UK insurers are slightly ahead of their continental cousins in terms of focusing their digital efforts on enhancing their relationship with new and existing clients, rather than driving internal efficiency.

Increased customer acquisition 63%

Increased customer retention 60%

Improve operating efficiency 61%

Increase process automation 47%

Remain competitive 55%

Increase cross-selling 40%

Improve insight into customer & operational data 42%

Shares in percent of the companies surveyed that stated that the options were a ‘primary’ goal for its digital strategy

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Executive Summary (2/4)

2015 5

Q. What do you see as the main challenges for implementing your digital strategy?

Legacy technology 49% The primary challenge that European insurance providers identify in implementing their digital strategy is legacy technology. Implementing a digital strategy should not just be about deploying new technology. But legacy systems – some of which are decades old – are preventing them from making important structural and cultural changes at speed. Data and security issues are also perceived to be a challenge by almost half of the respondents, and interestingly, this level is higher in continental Europe (51%) than in the UK (42%). This reflects the wider concern that exists in the region, far beyond the insurance sector, over issues such as data sovereignty and location. Budget and capacity constraints are also highlighted as important digital barriers. Ongoing pressure on premiums means that the IT function is under pressure to reduce costs in the traditional technology landscape in order to free up funds for more innovative projects. As we shall see, this is driving a growing interest in working with external providers in order to help drive efficiencies through economies of scale.

48% Perceived data and security issues

46% Budget constraints

46% Capacity constraints

28% Culture

Shares in percent of the companies surveyed that stated that the options were a ‘primary’ challenge for its digital strategy

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Executive Summary (3/4)

2015 6

50%

“Applications will become more of a challenge to achieving our business

objectives.”

The applications estate is clearly a major challenge for insurers.

The vast majority (94%) of respondents stated that legacy applications modernization is important to achieving their digital strategies.

Many European insurers continue to run applications that are often decades old. One respondent to the survey ran more than 15 different policy administration platforms, which it had accumulated partly through M&A activity. Another continued to use green screen systems that were first installed in the 1980s.

There has historically been a reluctance to update these systems due to the potential for disruption to the business, and because many of these platforms – often developed internally – performed reliably. But the findings of the study suggest that being able support ‘business as usual’ is no longer sufficient to support the changing demands of the organization.

Half of the respondents to the survey said that they believe their software applications will become more of a challenge to achieving their business objectives.

This picture is the same in both the UK and continental Europe, with 48%in the former expecting the challenge to become more difficult versus 49% in continental Europe.

So why are they becoming more of a barrier? Our respondents played back a number of reasons, including challenges in linking into new mobile services, a lack of speed in being able to support the launch of new products, and integration challenges posed by recent M&A activity.

But as we shall see, a According to PAC’s latest research, European insurers will increase their investment in software by 3.4% to €4.1bn in 2015, which makes it one of the fastest-growing industry sectors in this regard.

94%

“Legacy modernization is important to achieving our digital strategy.”

Digital Transformation & the Legacy Challenge – Executive Summary

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Executive Summary (4/4)

2015 7

European insurers believe that IT services vendors & systems integrators will play a major role in implementing their digital strategies.

Some 51% of survey respondents said they thought IT services providers would be “very important” in supporting their digital agenda, while a further 43% said the group would be “important”. In contrast, only a quarter said that digital media agencies and cloud providers would be “very important” external partners.

This is encouraging, as it reflects that insurers believe that the

really important work will be in the area of modernizing the existing IT landscape, and that they will need to work with an established IT services provider or integrator with the requisite risk profile and capabilities to help with the heavy lifting.

Several of the respondents use an IT services partner to manage and coordinate their relationships with smaller providers, and we expect more insurers to follow this model in order to help bridge the gap between the existing IT estate (where performance and quality are essential) and the digital front (where speed and agility are the top priorities).

Q. How important do you believe the following supplier groups are in implementing your digital strategy?

94%

IT Services Companies

86%

Software Vendors

82%

Strategy Consultants

74%

Digital Agencies

69%

Cloud Providers

Shares in percent of the companies surveyed that stated that the options were either “very important” or important” in implementing their digital strategy.

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Sponsor Profiles

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Key solutions

Facts

Digital transformation

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About CGI

Founded in 1976, CGI Group Inc. is the fifth largest independent information technology and business process services firm in the world. Approximately 68,000 professionals serve thousands of global clients from offices and delivery centers across the Americas, Europe and Asia Pacific, leveraging a comprehensive portfolio of services including high-end business and IT consulting, systems integration, application development and maintenance, infrastructure management as well as a wide range of proprietary solutions. With annual revenue in excess of C$10 billion and an order backlog exceeding C$20 billion, CGI shares are listed on the TSX (GIB.A) and the NYSE (GIB).

For more information, please visit www.cgi.com

About CGI in Insurance

CGI is the partner of choice for P&C and Life insurers, brokers and agents across the globe, including 12 of the top 20 global insurers and 200+ clients worldwide. Our 3,500 insurance professionals deliver end-to-end services and solutions that drive results - from infrastructure and application management services, to business and IT strategy and consulting, to data analytics and cyber insurance, to core systems transformation. Our 35+ years of insurance experience includes policy, claims and billing system implementations across the globe, the development of innovative solutions such as CGI Ratabase®, the industry’s leading rating and product configuration software, and the annual delivery of more than 15 million risk information product transactions and processing of $50 billion in premium through the systems that we manage for our clients.

For more information, please visit www.cgi.com/insurance

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About Endava

Endava is a leading European IT services organisation with over 1,800 full time employees. Headquartered in London, Endava has offices in the UK, USA, Germany, Romania, Macedonia and Moldova and reported revenues of £64 m for the financial year 2013 -2014.

Supporting the full software lifecycle, we cover application development and management, testing, digital media, infrastructure management and cloud services. Our solutions transform systems, platforms and processes for the world’s leading brands in Insurance, Banking, Payments, Media, Retail and Telecommunications.

Endava has the industry insight and the technology expertise to help insurance firms address the complex challenges they face and we can become a strategic partner for organisations who aim to accelerate their digital capabilities, introduce new technologies and new engagement models for servicing today’s sophisticated customers, while also enhancing operational efficiencies.

For more information, please see http://www.endava.com

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About HP Insurance Services

HP Insurance Services provides back-office support to streamline policy and administrative processes for life and annuity. With more than 35 years in the insurance services business, our teams have the critical skill sets to address the needs of clients' organizations - such as relationship management, delivery expertise, sales knowledge, and business and industry understanding.

We enable insurers around the world to transform their businesses and embrace new opportunities. HP Insurance Services is a leader in software solutions and consulting services for the life insurance and annuity industries.

About HP

HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers’ most complex challenges in every region of the world. More information about HP (NYSE: HPQ) is available at http://www.hp.com.

2015 12 Digital Transformation & the Legacy Challenge – Executive Summary

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About TIA Technology

TIA Technology offers the industry's most flexible and comprehensive integrated suite of core insurance applications for property/casualty and composite insurers. A proven solution with more than 60 customers and 100.000 daily users in 40 countries, TIA helps insurers across the globe to get closer to customers through operational excellence, superior sales and service and exceptional product leadership.

About the TIA Solution

The TIA is ideal for insurers who are looking for an open, end-to-end solution based on future-proof technology, ultimate usability and configurable functionality. If your vision is to be the front runner in your market, TIA is the solution that can help you develop your business into a customer-centric, high-performing company, miles in front of your competition.

It is a modular, integrated core insurance solution providing insurers with benefits throughout the entire value chain. It is built as a complete end-to-end package supporting all lines of business and capable of managing the entire insurance process including policy administration, claims management, sales/marketing & product development. The TIA Solution is built by insurance experts with years of industry insight. The entire solution is flexible and broad enough to meet specific insurer’s needs regardless of geography, line of business or strategic inclinations.

TIA gives your employees a 360° customer view across functional areas and arms your frontline workforce with all of the information they need to respond, interact and take advantage of opportunities with customers as they arise. TIA is a truly customer-centric solution, meaning that it stores your customer data independent from the functional areas, allowing users to access relevant data according to their given role and tasks.

For more information, please see www.tiatechnology.com

2015 13 Digital Transformation & the Legacy Challenge – Executive Summary

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From strategy to execution, PAC delivers focused and objective responses to the growth challenges of Information and Communication Technology (ICT) players. PAC helps ICT vendors to optimize their strategies by providing quantitative and qualitative market analysis as well as operational and strategic consulting. We advise CIOs and financial investors in evaluating ICT vendors and solutions and support their investment decisions. Public institutions and organizations also rely on our key analyses to develop and shape their ICT policies. Founded in 1976 and headquartered in Paris, France, PAC is part of the CXP Group, the leading European research & advisory firm in the field of software and IT services. For more information, please visit: www.pac-online.com PAC’s latest news: http://blog.pac-online.com

About us

2015

Nick Mayes

Principal Analyst & Research Director +49 (0)30 28 52 96 20 n.mayes@pac-online.com