SOA, BPM and Event Driven Architecture Applicability to Financial Services' Business Issues? Object Management Group San Diego March 27 th, 2007 Presented by -- Cindy Maike

P&C Insurance Carriers— Claim costs have to decrease dramatically  Hand-off increasing lifecycle and cost of claim  Skilled staff tied up on routine and largely manual process  Number of fraudulent claims  Legacy systems non-integrated but difficult to replace – ‘rip out and replace’ pain too big  Expensive multi point-to-point technology development and maintenance costs Challenges (as formulated by participants)  “More emphasis on automatization.”  “Get rid of the paper mountain and welcome imaging”  “Integrate certain processes using the Internet”  “Change from product oriented claims processes towards process oriented behavior. Uniformity is key.”  “Fighting fraud is becoming a major assignment for us.” Required changes (as formulated by participants) Source: Trend & Benchmark Study June 24, 2003

Challenges in claims management  The challenges and changes required can be categorized into 4 main areas: Costs Quality Customer Satisfaction Timing Challenges & Changes Customer Satisfaction Quality Timing Costs Combined Ratio Customer Satisfaction Source: Trend & Benchmark study June 24, 2003

The Combined Ratio & the Customer Satisfaction are influenced by a number of indicators NOT EXHAUSTIVE REPRESENTATION OF VALUE DRIVERS Combined Ratio Average payment per claim file Cost per claim file ALAE ratio ULAE ratio # Claims per claims administrator Customer Satisfaction Average claim cycle time Fraud ratio Recovery ratio IT assessment Percentage files closed without payment Complaint ratio

Best Practices in claims focus on three key value levers Improve customer satisfaction –Improved retention and increased revenues Reduce operational expenses –Loss adjustment and Allocated Loss Adjustment expenses Reduce loss costs –Indemnity payments –Eliminate fraud –Reduce leakage –Accurate and stabilized reserving Customer Service Loss Adjustment Loss

Customer Service LossLoss Adjustment What it is Accessibility Responsiveness/ courtesy Speed of settlement Process and payment explanation Current state of market Objective: Address and satisfy customer needs What it isCurrent state of market Focus on refusing claims to the detriment of customer relationships Excessive investigation and decision support Excessive specialization, increasing staff costs Objective: Minimize leakage Work flow differentiation Actual vs. appropriate payment Anti-fraud efforts Supply chain management Speed of assignment What it is Current state of market Reluctance to change claims Limited specialization – focus on total service teams Excessive staffing levels and limited IT leverage to support uneconomic service levels Objective: Reduce friction costs & increase in efficiency Increase efficiency of adjusters Focus special services/resources IT enabled and leveraged The claims process can be decomposed into three broad sets of activity categories, each with its own objective Focus on increased throughput and reduced overhead Performance based on claims throughput productivity (tendency to overpay to expedite claims Reduced specialization to balance loads Source: IBM analysis.

Evaluating the Claims Value Chain/Process lends insight into the value levers NotificationAssignmentCoverageContact Investigation & Evaluation Negotiation & Settlement Litigation Management Recovery & Salvage Management, Supervision & Review

Could we Instrument the Process for the component metrics based on process events? NotificationAssignmentCoverageContact Investigation & Evaluation Negotiation & Settlement Litigation Management Recovery & Salvage Management, Supervision & Review Event Repository

Evaluating current position – generating event Loss Sustainable 63.5 Hollow 67.5 Destroyers 68.5 Total Industry 69.1 Reserves Not Within 5% of actual payout* Not receiving Field assignment on serious claims* Trigger components Business Response Allocate more staff to audit claims and correct combined ration Action Fire Excessive Loss Event

Operational Profiles provide for implementation of specific “business policies” to respond key activities/events Profiles define explicit policy responses to events triggered via model –Business rules that should be invoked –Specific processes that need to happen –Values that make sense for the context Needs to support both internal events (based on model) and external events, such as pending weather Natural Disaster

Could an Event Repository help drive analytical analysis and lead to the activation of an operating model/profile? Event Repository Analytics

Value of Event Modeling Standards – Insurance Industry Modeling for Predictive Analytics leading to autonomic processes –Examples of Operational Profiles: Operation Profiles for Catastrophes Enhance Catastrophic Models Seasonal events

Discussion, Next Steps…….