Not for long: as one report by McKinsey analysts notes, the notion that insurance is a low-engagement, disintermediated category in which customer relationships can be delegated to agents and brokers is increasingly obsolete: digital disruption is arriving hard and fast.

As a result, insurance now ranks in the top quartile of sectors likely to be disrupted in the next few years, one expert, Jean-François Gasc, says. Digital disruption may have not arrived at the gates, but it is throwing ladders against the walls and climbing fast.

Gasc notes: “We calculate that the approaching shake-down could cost some as much as 40 percent of their traditional risk-protection revenues. This could happen within five years. Insurers need to react quickly to protect themselves. Those that move swiftly can gain the upper-hand over their more sluggish competitors. They’ll not only be able to preserve many of their revenue streams. They could also tap exciting new business opportunities”.

Insurgent Insurtechs Pose a Threat and Teach Lessons

Changing market dynamics and the growing impact of insurance technology startups called insurtechs are, meanwhile, forcing traditional insurers to move from a product focus to a customer-centric philosophy. As insurers examine new business, operating and organisational models, industry leaders are embracing insurtechs rather than competing against them.

As McKinsey puts “digital technology and the data and analysis it makes available give insurers the chance to know their customers better. That means they can price and underwrite more accurately, and better identify fraudulent claims. They can also offer clients more tailored products—and they can offer them in a more timely manner.”

IBM’s Stefan Riedel, Vice President, Insurance and Insurance Solutions Europe agrees: “The proliferation of usage-based services, such as hourly car insurance, mobile microinsurance and hotel-rental coverage also reflects the shift away from traditional risk-calculating insurance product lines and organizations toward richer and more personalized options. As instigators of many of these changes, insurtechs have become a crucial source of innovation for the global insurance industry. Insurers that don’t embrace the power of insurtechs may find themselves threatened not only by insurtechs themselves, but also from entrepreneurial insurers that employ insurtech services.”

Yet as a recent whitepaper from IBM that Riedel co-authored warns, “inflexible existing systems hobble the ability of many insurers to move forward.” To succeed, IBM notes, insurance companies need agile platforms, technologies and tools to move successfully into the future.”

Taking insurance from a product orientation to a client-centric model can be facilitated by a transition from traditional to platform business models.

Because platforms enable connections between producers and consumers directly, they enable organizations to reduce constraints to growth, and generate higher profits. By providing innovative services to customers through new channels, new digital offerings, in turn, also can provide insurers with new insights into the customers they serve.

According to the 2018 IBM Institute for Business Value C-suite Study, organizations across every industry are now investing in platforms. Of those with a strategy designed to disrupt, 57 percent are builders or owners of a platform business model. Although only 7 percent of Insurance CxOs surveyed currently operate platforms, 26 percent are experimenting with the concept and 21 percent intend to reallocate capital to build or expand platforms.

In every industry, organisations are investing in platforms, and the IBM Institute for Business Value estimates indicate that capital reallocation toward this business model could approach a huge $1.2 trillion in the next two to three years.

As IBM’s Riedel puts it: “Whether or not insurance organizations ultimately choose to operate or participate in new platform business models, they are increasingly likely to be competing with them. As platforms proliferate, every industry seems likely to experience what’s often been called the Amazon effect: the endless evolution and disruption of its markets. The choice of whether to own or participate in a platform, or do both, isn’t something organizations should postpone. Insurers that opt not to participate in a platform will either miss out on the complementary services the platform provides or will have to supply those services themselves, which may prove difficult or impossible.”

The company thinks a development platform for the insurance industry would require these features:

• Automated, agile “build and deploy” processes with the ability to constantly update the software weekly.
• Access to and use of data for personalization and optimization of products and services. –
• Co-creation and joint development with an open and “ready-to-use” environment that has a flexible composition of service packages.
• The ability to incorporate a network of partners so the respective strengths of individual service offerings can be bundled.
• Streamlined integration with minimal setup and scaling challenges through provision of ready-to-use adapters
• Compliance with high security standards, including encryption, authentication and backup procedures

One thing seems clear: digital disruption has belatedly come for the industry and to meet today’s challenges, insurers need to look at ways to increase agility and innovation, so they can better engage with their customers. Traditional insurers need to capitalise on their innate capabilities, such as risk management, and combine them with the flexibility and speed inherent in platforms. To learn how they can do so, see IBM’s whitepaper here.

Operator CLS, which settles some $ 5 trillion daily, anticipates that the system, CLSNet, will optimise intraday liquidity, improve operational efficiency, and reduce settlement risk.

As first reported by Computer Business Review, the FX settlement firm worked closely with IBM to develop the payment netting system, which is built on IBM’s Hyperledger Fabric-based distributed ledger technology (DLT). IBM’s blockchain lead, Marie Wieck, described the launch as “testament to the ongoing maturity of blockchain technology and the value that it can deliver in practice.”

Netting entails offsetting the value of multiple positions or payments due to be exchanged between two or more parties, for example to account for currency volatility caused by timezone difference. It can be used to determine which party is owed remuneration in a multiparty agreement.

Blockchain to Resolve Settlement Disputes

A whitepaper by IBM and CLS suggests that the former’s blockchain solution can handle the 2.9 million daily transactions that lead to an average of 25,000 disputes annually and tie up about $100 million in capital. Through use of the system, the time to resolve disputes is expected to drop from more than 40 days to fewer than ten, improving capital efficiency by 40 per cent.

Speaking at IBM Think, CLS’s Chief Strategy and Development Officer Alan Marquard said: “People in the markets currently spends thousands and thousands on reconciliation and even litigation, trying to settle every little thing…”

He added, however, on the broader use of blockchain in the financial services sector: “If there is one thing I would say it’s that tech providers need to have respect for business knowledge.”

“What you want to disrupt is inefficiency… but if something looks inefficient there may be 1000 reasons for that: regulators may be intolerant of change, for example. Disruption may sound exciting but make sure you do it with those who know the business processes you are trying to solve.”

“If I have to be brutal… in the early days of blockchain there was a lot of pretty uninformed promise of changing the world, by people who haven’t taken the effort to understand the space.”

CLS said: “It’s important that blockchain-based solutions leverage the capabilities of the wider organization. We started by extending an existing process to augment a service, a consideration that reduced risk. This enabled us to deliver a blockchain-based solution that is integrated with an existing ecosystem spanning processes, governance and supporting applications.

“Instead of replacing a business process with a new one or reengineering it entirely, we found during one of our first projects, at the IBM Global Financing (IGF) Unit, that adding new functionality to an existing process is a good place to start. At IGF, which extends credit to partners who purchase from IBM suppliers, we began with dispute resolution, which had been a lengthy and labour intensive process. IGF’s blockchain for dispute resolution can handle the 2.9 million transactions that lead to an average of 25,000 disputes annually and tie up about USD 100 million in capital. As a result, the time to resolve disputes is expected to drop from more than 40 days to fewer than ten, improving capital efficiency by 40 percent.”

IBM also offers its IBM Blockchain Platform Starter Plan, priced affordably for most medium to large enterprises. The news comes as IBM announced a host of new clients for its blockchain offering. These include Telefónica which is working on a proof-of-concept to help solve one of the major challenges of operators, the management of international mobile phone call traffic.

“The project resolves in real time the veracity and traceability of the information generated by the different networks of the operators when they route an international call thanks to a decentralised platform to which all the operators that intervene in the process have access. As a consequence, fraudulent behaviors and discrepancies between the information recorded by each operator are significantly reduced,”.

Yet many financial services companies feel caught between increasingly strained legacy systems and the challenge of migrating to the cloud: to extend the simile, neither parking on the hard shoulder, nor attempting this tyre change on the move seem enticing.

Simply coasting along is no longer an option: younger consumers expect personalised digital experience; low return on equity (ROE) is rife amid slow growth, and the imposition of strong cost controls and regulatory (as well as macroeconomic) headwinds persist.

Regulators Demand Open Banking: But Legacy Architecture is a Challenge

Regulators meanwhile have made clear what they expect under regulations such as Payment Services Directive 2 (PSD2): agility, resilience, transparency and a host of data.

All of these factors mean change is urgently needed in most financial institutions.

Yet fears of welcome “digital disruption” causing unwelcome disruption to business-as-usual for clients abound. The regulatory requirement for API-powered Open Banking meanwhile is rendered even more challenging by the fact that convoluted banking IT architecture often makes it difficult to categorise disparate core IT systems into clear business functions.

(Many in the financial services sector can admit to a stab of envy at the fintech startups disrupting the value chain; upstarts that are starting from scratch with an entirely new stack built to deliver an API-powered services marketplace, however limited their scale).

Bridging the Legacy-to-Cloud Chasm

Yet meeting both customer and regulatory requirements for Open Banking doesn’t have to be a “rip-and-replace” task, experts emphasise.

Ahead of the annual Sibos conference, IBM for example, has released a modular Open Banking Platform that allows users to continue using existing systems.

It uses microservices and modern architectural tools to build a layer on top of legacy systems that allows them to interact with cloud-based application ecosystems.

As Bharat Bhushan, IBM’s CTO, Banking & Financial Markets tells Computer Business Review: “This platform is a really exciting offering for the industry. It is a solution built using modern architectural practices with options to run on premises or in the cloud, with a business domain powered by the Banking Industry Architecture Network (BIAN), Information FrameWork (IFW) and other standards.”

He adds: “What it does, simply speaking, is add a modular microservices layer on top of your existing systems, with an easy to integrate “plug and play” design and access to a curated fintech catalogue of potential partners providing third-party services via APIs; that means users can augment existing systems, rather than undertake a complete replacement.”

“We have been working with clients on the compliance implementation for PSD2 since 2016 and this announcement completes the circle for us. Not only do we have technology, assets and people to comply with the regulation, using the new capabilities, we can also help incumbents or challengers consume and exploit the APIs that are exposed by financial institutions. Open Banking is a very exciting opportunity and we are delighted to be a part of this change and our client’s successes regardless of how they approach the regulation.”

Launch Comes as BIAN Releases Standardised API Library

The launch comes the Banking Industry Architecture Network (BIAN), an industry not-for-profit, launched a free online market, containing APIs developed by firms including IBM.

BIAN is providing a digital library of over 65 standardised API definitions designed to reduce the complexity of building and delivering open banking capabilities for banks.

It aims to provide clear guidance on how to implement digital services across both back-end and customer-facing functions. This standardised set of APIs will enable incumbents to collaborate with challenger banks, technology experts and fintechs.

The API exchange covers areas such as onboarding, payments, loans, and mobile access, with additional API definitions to be added in the coming months.

Registered banks, software vendors and fintechs can access definitions from the API Exchange for free. All APIs have been created using Bian established data models and in accordance with the ISO20022 global standardisation approach.

Hans Tesselaar, executive director, Bian, said: “An open library of standardised API definitions will supercharge banks’ digital transformation efforts. Bian’s member community has done all the leg work; our network of leading banks and technology businesses have worked hard to create impactful APIs for a large majority of critical banking functions, ensuring they meet global standards, and work reliably.”

For those, meanwhile, just looking to a looming PSD2 compliance deadline in March, IBM’s Open Banking platform provides a one-stop shop, the company’s Bhushan says.

He said: “It supports OBIE compliant Payment APIs (payment initiation, payment submission, payment initiation status, payment submit status, get banks, merchants); oAuth services and pre-defined payment processing workflows. It is guided by BIAN and PSD2 standards and it is ready to integrate into core systems.”

Together they have launched openIDL an open insurance data link that is built on the IBM Blockchain; in turn, based on Hyperledger Fabric.

“Ultimately, the goal of the openIDL is to turn expensive regulatory and compliance requirements into investments in operational efficiency and improved insights,” IBM said, adding that the system helped with “updating an antiquated compliance process”.

IBM commented in a released statement that: “Ultimately, the goal of the openIDL is to turn expensive regulatory and compliance requirements into investments in operational efficiency and improved insights.”

The system is built on The Linux Foundation’s Hyperledger Fabric which is the first blockchain system that runs distributed applications written in standard, general-purpose programming languages, (e.g., Go, Java, Node.js), without a systemic dependency on a native cryptocurrency.

Real Business Results

With openIDL, AAIS is updating an “antiquated compliance process” and pioneering a blockchain-based method whereby insurers can contribute data directly onto a secure blockchain platform to satisfy state regulatory requirements.

“Data is stored on an immutable blockchain ledger where historical and current information is recorded. Regulators are provided permissioned access to view only the information they need. Participating carriers will also be able to see their own data profile to understand how they compare to the market. Ultimately, the goal of the openIDL is to turn expensive regulatory and compliance requirements into investments in operational efficiency and improved insights”, the two said in a release.

Speaking to Computer Business Review Craig Bedell, Global Insurance Industry Executive and IBM Industry Academy Member commented that: “As permissioned blockchain, openIDL allows insurance companies to share with AAIS richer data than is regulatorily necessary with which AAIS can provide more robust analyses and bench-marking.”

“As an immutable record, blockchain will guarantee State Depts of Ins that they can audit past information much more effectively and efficiently.”

“This alone will reduce the scope and duration of periodic Market Conduct Exams, which will save carriers millions of dollars in associated expense while providing regulators assurance of a healthy insurance market in their jurisdiction.”

Sandip Patel, GM of IBM Global Insurance Industry said: “This is an exciting example of how blockchain can bring together an entire ecosystem of users and allow information to be shared in new ways to drive real business results. Hyperledger Fabric’s support for private and confidential transactions allows insurers to share data with the network, knowing that they own their data and have control over who has access to it.”

“While the initial phase of the openIDL focuses on data sharing and regulatory reporting, the open platform provides a foundation for even broader innovation and new applications in the future, while providing full privacy and confidentiality protection among parties.”

While AAIS CEO Ed Kelly said that: “We recognized the potential for blockchain to streamline the regulatory reporting process for our Member carriers, as well as the opportunity to improve security, accessibility and accuracy of data for regulators.”

See Also: IBM, Barclays and Citi Bank and foreign exchange settlement specialist CLS have teamed up to trial LedgerConnect.

IBM’s Blockchain offering has been used by other companies to bring the technology to main stream suppliers, such as their contract with Moller-Maersk the world’s largest container shipping company. Together they have created and released TradeLens a blockchain platform operating through IBM’s cloud offering.

TradeLens uses the blockchain to build smart contracts which allow multiple groups to work together with a single shared view of transactions that doesn’t break standards around privacy and sensitive data.

Although going to Wimbledon to watch the tennis has long been a key date for financial services companies keen to court new, and old, clients, it was not where you’d expect go to see examples of transformative customer services.

But the 150th anniversary of the competition is seeing some interesting uses of technology to change the way spectators and fans around the world interact with the sport, the venue and the competition as a whole.

The All England Lawn Tennis Club is using intelligent technology to transform itself from a historic sporting event organiser to a full service, data-driven media company. It is using technology to gain a deeper insight into its audience as well as using it to bring together the physical experience of visiting the club with the digital and social media experience. It hopes to give the audience physically present at matches a better experience as well as deepening engagement with fans around the world.

The AELTC is using various parts of IBM’s Watson AI technology to change Wimbledon fortnight for visitors and fans.

IBM’s Watson will power ‘Fred’ the virtual assistant and chatbot who helps visitors to the club get the most from their visit. This year Fred will also be available via Facebook messenger and will be more fan and social media focused than ever before.

Similar chatbots are used by banks to provide customer information and advice, often without the need for any human intervention.

IBM’s Watson is also powering cognitive, AI-assisted highlights of video footage to support the Lawn Tennis Association strategic shift to fully fledged media organisation. IBM used Watson to create the Wimbledon Cognitive Highlights Solution system which can automatically select, edit and package highlights for use on the web or by broadcasters. To do this Watson first uses audio and video tools to choose the most interesting points of play. It analyses players behaviour and crowd responses as well as scoring information to find the most important and exciting parts of any match.

Watson’s Visual Recognition classifier is then used to identify just the footage suitable for broadcast and remove any non-essential content. It was even taught to recognise the end-of-match handshake to use as the final sequence of every package.

The system then checks each clip was in the right place in the game order before sending content onto the asset manager system for watermarking, adding graphics and transitions. Clips will then go automatically for distribution on the Wimbledon website’s content management system.

Last year this reduced turnaround time from an hour to just fifteen minutes. It created 250 video highlight packages which helped produce 200m video views on all platforms. The project proved so successful that it has created a template production approach which IBM is offering to other sports events.

Although nothing will change the impact of strawberries and cream at Centre Court there clearly are lessons for other organisations looking to transform how they deliver services to new customers.

Accelerating service delivery and providing access to information on any platform are key first steps to making this change.

This year’s day out at Wimbledon could be quite an education for those changing the way the City shapes their infrastructure .