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Session 27 PD, InsurTech: Blockchain and Automation in Insurance
Moderator:
Han (Henry) Chen, FSA, ACIA, MAAA
Presenters: Carl Ghiselli, FSA, MAAA Marshal Lin, FSA, MAAA
SOA Antitrust Disclaimer SOA Presentation Disclaimer
2018 Life & AnnuitySymposiumInsurTech: Blockchain andautomation in insurance
May 7, 2018
1 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Agenda
3 Automation
4
Concluding remarks5
1 Introductions
2 The changing actuarial competency profile
Blockchain
6 Q &A
Introduction
3 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Introductions and disclaimer
Marshall LinSenior Manager+1 212 773 [email protected]
► The views expressed by the presenters are not necessarily those of Ernst & Young LLP or other members of the global EY organization.
► These slides are for educational purposes only and are not intended to be relied uponasaccounting, tax, or other professional advice. Please refer to your advisors for specific advice.
Carl GhiselliSenior Manager+1 312 879 [email protected]
The changing actuarial competency profile
It seems like everything is changing everywhere
2xThe amount of new technical
information is doubling every 2 years
2billionJobs will be displaced by
2030 as a result of technology advances
50 %of Fortune 500 companies from
2006 no longer exist
3xEmployees more likely to
stay at a purpose-driven company
10-14Number of jobs the average
college senior will have by age 38
5 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Multiple industry trends are impacting insurance
6 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Robotics & automation
Customercentricity
Analytics ineverything
Workerexpectations
Finance, risk and actuarial
convergence
Blockchain
How will the actuarial competency profile change?“Activity processer” to “networked, analytics-focused collaborator”
Actu
arie
sto
day
8 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Increasingly generalist
Virtualized or co-located
Business-connected collaborator
Ecosystem oriented
High technology IQ
Team player
User of information analysis andinsight
Innovative
Strategic mindset
SpecialistGeographically dispersed
Functionally focused
Internally oriented
Administratively burdened
Single contributor
Process driven
Traditional
New
gene
ratio
n
Automation
The insurance industry is embarking a journey towards intelligent automation, building onexisting capabilities and a long-term functional and technical architectural strategy
Tier A
Enterprise enablers Big data Graph databasesCloud technology IoT devices/ InsurTech
Automation operating model/center of excellence
Process AutomationTier B
Intelligent AutomationTier C Tier D
RPA / RDA
BPM
Tier A tech stack
BI
Legacy
Scripting (VBA, Macros)
Deep learning
Advanced analytics
Machine learning
Computer vision
Tier C tech stack
10 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Chatbots
NLP
Next Gen OCR
Digital portal
Tier B tech stack
Case study: typical actuarial reserving process
Play video
Free up valuable resources and focus
on value-add activities
Man
ualp
roce
sses
Clie
ntin
tera
ctio
nD
ata
Ove
rarc
hing
27 h
r pr
oces
ses
(with
RPA
)13
0hr
Reduce manual errors
11 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Fully transparent –each work step is
automatically documented and
auditable
Actuaries have been automating processes for a long time, and theemerging classes of tools are allowing actuaries to do more
Macros
“Automation in silos”
Excel VBA, MS Access SQL SAS
13 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Programming
“Super actuaries”
R, C#, Python, APL
Actuarial platform enhancements
Data analytics technologies
Robotic process automation(RPA)
Business processmanagement tools
EmergingTraditional
Sample actuarial automation opportunities: reporting process
Data Methodology andAssumptions Modelling ReportingResults
Areas with less automation savings potential Areas for automation savings potentialKey:
1. Inputs to Policy Admin System1 and Claims Handling System1
2. Data validation and grouping
5. Projection/reserving model development and
maintenance
4. Review and approval of assumptions and
methodology
3. Assumption and valuation methodology
setting
8. Review and approval
of results
6. Results production (including retained and
reinsurance)
Capital Results Consolidation
IFRS Results Consolidation
Capital Results Reporting
IFRS Results Reporting
9. Results consolidation
10. Reporting and MI
Forecasting Planning
1 Performed by non-actuarial resources
14 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
7. Analysis of results
Automation opportunities often exist for sub-processes instead of the entire end-to-end process
High level actuarial systems architecture
Source/Populate Transform Store Achieve/Delete Output
Scorecards► Finance► Operations► Risk► Strategy
Standard Reports► Limited Drill Down► Canned Reports► Monitor & Compliance
Self Service/Insight► Slice and Dice► Insights► Ad Hoc Querying
Emai
lW
eb/P
orta
lED
ISM
S/Ph
one
Analysis & Reporting Architecture
Risk & Regulatory
Premiums
Financial and Capital
Data Marts
GAAP: UK, IFRS, etc.
Solvency II
Data Stewardship
Data Policies
Data Ownership
Data Standards
Data Profiling Data Monitoring
Data Compliance Data TraceabilityBusiness Data Dictionary
Automation Process Flow Reconciliation
Surrogate Keys Error Handling Logging and Time stamping
Accounting, Actuarial and Data Warehouse
Claims
Master Data Master Data
Dat
aQ
ualit
y
Dat
a
Gov
erna
nce
Dat
a
Man
agem
ent
Audit and Change Control
Data Normalisation
Data Integration
Data Quality and ControlsFinancial Consolidation
General Ledger
Sub-Ledger Environment
Calculation Engines
Accounting Events and Rules
Sub-Ledgers
Actuarial Reserving
Population Architecture
Reserves
Policy data
MQ
Serie
s,et
c.Bl
ade
Inpu
tPo
rtal
EUC
Source Systems
Premium
Losses
Investments
Expenses
Claims data
Third Parties & Others
R
R
R R
R
R R RRejection and recycling
R R
R
R
R
R
R
R
Local and Group Data Warehouse(s)
R
RR Robotics can be applied Robotics can be partiallyapplied
Actuarial processes are complicated Business-owned vs. IT-owned automation
15 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Establishing a successful RPA program – understanding the life cycle
2.1 - Opportunityidentification
2.2 - Opportunityprioritization
2.5 - Ongoingoperations
2.4 - Development& deployment
2.3 - Automatedprocess optimization
Plan Build Run
16 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Following the life cycle is essential to realizing sustained business value
Automation life cycle
RPA critical success factors“Start small and agile and build for scale”
It is key to create stakeholder incentives
to automate manual activities
Critical success factors
Stakeholder incentive and engagement
Process prioritization
Robust and agile operating model
Business and IT accountability
Benefit realization
17 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Blockchain
“Everyone Is Getting Hilariously Rich and You’re Not”
19 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Bitcoin
ZCASH
ethereum
Blockchain
20 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Type of distributed ledger that is composed of a chain of cryptographically linked ‘blocks’ containing batched transactions; generally broadcasts all data to all participants in the network.
01 Someone requests a transaction
02 Transaction is broadcastTo the Peer to Peer network consisting of multiple computers, known as nodes
03 ValidationThe network of nodes validates the transaction using known mathematical algorithms
04 Block creationThe transaction is combined with other transactions to create ablock of data for the ledger
05 The new block is added to the chainCurrent block is hashed with the prior block to make it unalterable
Blockchain vs. Status Quo
De-centralized
21 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
► One party controls the infrastructure and performs and validates transactions
► Allows others to see pieces of the ledger for their own purposes
► Requires trust from users to central party
► ‘Permissioned ledger’► Control is distributed across a
group of trusted peers► Consensus mechanism is used, but
on a smaller scale► Small network to avoid trust issues
► No party controls the ledger, eachnode has it replicated on their ownserver
► No trust required
Centralized Hybrid
Do we care at all?
1 1
2 2
? 3
22 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
invention of the WWW► Standard protocol through lowering of
cost of connections
That’s because blockchain is nota “disruptive” technology, which can attack a traditional businessmodel with a lower cost solution and overtake incumbent firms quickly. Blockchain is a foundational technology: It has the potential to create new foundations for our economic and social systems.
Marco Iansiti andKarim Lakhani, “The Truth AboutBlockchain” – Harvard BusinessReview, January/February 2017.
► No centralized adoption ► No centralized adoption► Non-standard use cases ► Primarily a single use case (ARPA)► Technology iteration and growth ► Technology iteration and
implementation
►
►
Innovative companies begin usingfor internal use casesLimited use cases with external parties
►
►
Localized networksImplanted on some machines forinternal use (Sun)
► Can reduce the cost of transaction ► Adoption accelerated throughthe► Can it become more of a standard?
Blockchain Transmission Control Protocol/Internet Protocol (TCP / IP)
Blockchain is foundational
► Blockchain performs poorly as a query-able database
► Can have data populated fromtheblockchain to a standard database
► Can hold data off-chain, using the chain to perform the transaction, pointing to data elsewhere
Getting Data off the Blockchain
Business processes
Applications
DatabaselayerNetwork
Hardware
► Still requires nearly all of current technology stack► Blockchain is a ledger designed for a specific
purpose with multiple entities, and will feed data to a single entity view
23 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Distributed ledger
Blockchain does not eliminate need for ERP (yet)
Data may or may not reside on the chain
Current Impact of blockchain on insurance
Starting simpleSmart contracts in a self-governing network
Aigang is partnering with aerial imaging company Skyglyph to provide an autonomous crop insurance using drone image data.
ICS, Agrics, Achmea, Swiss Re, EARS (satellite company) and Kenyan insurer UAP have joined forces to test a blockhain concept in 2018. It is meant to reduce cost of insurance and allow smallholdersaccess.
AXA is using similar technology on their ‘Fizzy’ flight insurance producthttp://insureth.mkvd.net/
25 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Reinsurance prototype is built in Hyperledger, andhosted by IBM.
Expect to see 30% reduction in cost of administrationof reinsurance.
Insureth Crop Insurance
B3i
Decentralized autonomous organizations (DAO)
26 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
A DAO is a business or organization whose decisions are made either electronically (automatically) or through a vote of its members. It is at its core a system of hardcoded rules that define which actions a company will take.All cryptocurrencies on a public blockchain are DAOs; modern DAOs are smart contracts that sit on top of a blockchain
► Removes human intermediaries:► Reduced transaction cost► Elimination of errors
► May or may not use the current legal system► Open, transparent and incorruptible► Higher degree of auditability
► Public records: marriage certificates, birth certificates,deeds, mortgages, titles
► Taxi companies► Dropbox► Kickstarter
► (Lack of) participation by shareholders► Rigidity of the code – nearly impossible to change
► Almost no ability to debug► Legal status is uncertain
http://www.dynamisapp.com/index.html
Advantages
Use cases
Potential problems
DYNAMISThe DAO
Teambrella
Impact on Life and Annuities
Finance Function is Exploring
28 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Every piece of the value chain is impacted
Product mgmt
29 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Marketing
Sales &distribution
Underwriting
Policy acq& service
Claims management
Finance and
accounts
New product venturesDAO and P2P insurance
Decentralized marketplaces (eliminateintermediaries)
Multi-signature contracts easier Improved sales processes
Facilitates independent agent process
Automated underwriting data capture, review and release
Improved KYC (Know Your Customer), auditable premium trails Seamless beneficiary trail
Automated claims processing
Elimination of intermediaries Immutable intercompany risk transfer
Impactful use cases
► Automated underwriting► Verifiable (immutable) data requires less verification► More data shared in an easier fashion
► More customer friendly► More accurate rating and underwriting
► Policyholder or applicant can permission data to beviewed by the company
► Can be re-hashed and removed from calculationengines. “Forgotten”
► General Data Protection Regulation (EU)
Company risk and
sales Medical data blockchain
Underwriting data
blockchain
► Always looking to decrease time to close – blockchainis immediate► Potentially remove standard reporting cycles
► Reconciliation processes are timely and costly (50-100 days/month lost). With one ledger, reduce reconciliations
► Auditability and transparency is increased► Regulators can be added to the process for seamless
integration, and reduced reporting► Reorganizations are reflected immediately
Company ledger
Regulator
30 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Internal or external companies
Underwriting and data (GDPR) Financial reporting and regulators
Blockchain suitability
Are there multiple parties in the transaction cycle?1
Would the parties and transactionsbenefit from improved transparency?2
Do the transactions require a high levelof resources and time for reconciliation/ verification between parties?
3
Are there costly or slow intermediaries within the transaction ecosystem?4
Is it critical to have a tamperproof permanent record of transactions?5
Is it important to establish provenanceor traceability of an asset?6
31 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Blockchain has started to move from hype to reality, but it still isn’t clear where it can be applied in its most useful state.
There are 6 points to consider that have a strong impact into which processes would be good for blockchain solutions:
Concluding remarks
Optimization andinnovation
Analytics in everything
High levels of automation
Exceptional human challenges
1 Work will look different
2 New organizational capabilities will beemphasized
3 The competency profile for an actuary will change
4 Leadership will be redefined
5 Talent management investments will differentiallyincrease
6 Actuarial strategy will include distinctiveassociate experience
33 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
The future of work in
actuarial
It is an exciting time to be an actuarial leader
Better questions to think about future of work in actuarial
How will you reduce the manual processing activities that actuaries currently perform?
How will data scientists impact actuaries? Will they compete or complement? How will actuaries meet the needs for these new competencies?
How will you leverage highly compensated and big thinking actuaries to be focused on value-added, strategic topics?
How will you update our approach to the actuarial career path and workforce to meet the changing demographics?
How will you gain efficiencies by centralizing process and people? What are potential low cost locations?
How will junior actuaries be trained on key actuarial concepts and learn the fundamental economics of the business?
How will you make yourselves more attractive to recruit and retain millennials?
How will the next generation of actuaries learn if they aren’t doing the hands-on modeling work?
How will you centralize the actuarial team, but stillprovide a flexible work environment include virtualand remote locations?
34 2018 Life & Annuity Symposium | InsurTech: Blockchain and automation in insurance
Q &A
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
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