The Innovator’s Journey: Insurance Sector Insights

The Innovator’s Journey:Pathways to Data DexterityState Street 2014 Data and Analytics Survey

Insurance Sector Insights

March 2015

Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research

State Street 2014 Data and Analytics Survey

2

About the Research

Insurance Companies by Country (%)

On behalf of State Street, Longitude conducted a global survey of senior executives at investment organizations during October and November 2014. We asked them to self-assess their confidence and progress across six data capabilities, including infrastructure, insight, adaptability, compliance, talent and governance. The 400 respondents were drawn from 11 countries and included insurance companies, private and public pension funds, fund-of-funds, foundations, central banks, endowments, sovereign wealth funds and supranationals. One-hundred insurance companies participated in the survey.

3 55

5

8

8

910

11

18

18

Canada South Africa Singapore

Brazil Hong Kong Australia

United Kingdom China France

United States of America Germany

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Insurance Companies Have The Highest Proportion of Data Innovators of All Industry Sectors in Our Survey

3

Data Starters Companies at an

early stage in their data journey

Data Movers

Companies actively moving toward better

data capabilities

Data Innovators

Companies with advanced data infrastructure,

expertise and high-quality data governance

21%

34%

45%

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Data Starters

Data Movers

Data Innovators

Infrastructure• Incompatible

legacy systems

• Most data in separate silos

• Separate platforms for different asset classes

• Aggregation, visualization, other data management capabilities upgraded

• Improved data integration across investment portfolio

• Infrastructure & tools fully upgraded

• Silos broken down

• Seamless integration of unstructured data

Insight• Limited ability to

generate performance and risk analysis

• Fragmented view by asset class

• Ability to conduct scenario & stress testing across portfolios

• Integrated view of risk & performance across multi-asset portfolios

Adaptability• Capabilities take

much time & effort to adapt to any changes in investment strategy

• Capabilities can adapt quickly to support new products or investment strategies

Compliance• Systems struggle

to keep up with existing regulatory requirements

Talent• Data team can

manage data collection and basic analytics functions

Governance• Basic data

policies and processes in place, but governance is patchy; little standardization

• Data gaps, errors identified; cleaning under way

• Coherent, agreed framework for data governance

• Reduction in time to market for new product additions, or new asset classes

• Systems fully compliant with existing requirements, but slow to adapt to new rules

• Team can manage data collection & integration; some capabilities to perform & manage analytics

• Rich, partly integrated performance & risk analysis in individual asset classes

• Ability to analyzeperformance & risk of wide range of alternative assets

• Excellent data quality and traceability back to source

• Reporting systems adapt quickly to new requirements across global footprint

• Regular flow of insights; smooth interaction with fund managers

• Team has fully optimized data management; advanced Insight generation

• Large degree of standardization across internal databases; external providers aligned

• Strong leadership on data governance; policies & processes entrenched throughout

Note: Above sequencing is illustrative only; milestones may be reached simultaneously or in other sequences.

Our Survey Benchmarked Companies on Six Paths to Innovation

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Why Data Innovators Are Pulling Ahead of the Competition

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The Innovator’s Advantage

1. Robust, tightly integrated data infrastructure

2. Ability to join dots on data yields new insights

3. Adaptive architectures meet new business needs faster

4. Global solutions that are ready for regulatory change

5. World-class data and analytical talent

6. A sophisticated approach to data governance

Key Characteristics Marking Innovators Apart

• Innovators see data and analytics as the single most important strategic priority

• They invest more in technology — and translate this into a competitive advantage

• They can take regulatory compliance in their stride, so technology investments focus on value-adding activity

• They are exploring cutting-edge tools including big data and advanced analytics, and hiring data scientists to drive innovation

Why Starters Get Stuck, and Movers Have Further to Go

• Legacy systems prevent organizations from gaining an integrated view of investment data

• Weak data governance leaves these organizations vulnerable to problems with data integrity and security

• More than half these organizations fear their systems will not keep pace with new regulatory requirements

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Data Dexterity Gives the Innovators Much Greater Confidence For the Future

6

Please Indicate the Level of Confidence You Have in Your Institution’s Current Data Capabilities in the Following Specific Areas. (% of insurance companies with high confidence)

24

27

36

29

24

33

31

19

26

23

6

10

32

19

0

13

13

4

8

0

4

Reducing investment costs across your asset portfolio

Evaluating risk and performance across the entire portfolio

Optimising our electronic trading strategies

Extracting investable insights from a large volume of data

Managing multiple internal and external data streams in varyingformats

Generating forward-looking insights from our data

Conducting comprehensive, accurate scenario and stress testing onour investment portfolio

Starters Movers Innovators

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Investing in Data

7 Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research

Insurance Companies Are Investing More in Data and Analytics


Which of the following statements best describes your organization’s investment in data and analytics capabilities in the past three years? (% of insurance companies)

78%of insurance companies report growth of 5% or more in the last three

years

2

28

48

16

6

Investment has increased each year bymore than 20%

Investment has increased each year bybetween 10% and 20%

Investment has increased each year bybetween 5% and 10%

Investment has been flat, or increasedby less than 5%

Investment has remained flat or declinedeach year

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4

36

42

13

4

0

29

45

19

6

0

13

63

17

8

Investment has increased each year by more than20%

Investment has increased each year by between10% and 20%

Investment has increased each year by between5% and 10%

Investment has been flat, or increased by less than5%

Investment has remained flat or declined eachyear


… But Innovators Are Investing at a Faster Rate


Which of the following statements best describes your organization’s investment in data and analytics capabilities in the past three years?(% of insurance companies) 40%

of Innovators have increased investment in data

by over 10% each year

vs.

13%of Starters who raised

investment at the same rate

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31

37

40

41

42

51

Ability of data systems to keep pace withregulatory requirements

Data governance (e.g. clear policies, processesand leadership)

Data infrastructure

Analysis and visualisation of data

Adaptability of your data systems to new needs

Quality and availability of data talent


Talent is the Priority – But Governance and Regulation Must Not Be Neglected

10

But are investors giving proper attention to the fundamentals?

In which of the following areas do you intend to prioritize investment in the next 3 years? (% of insurance companies)

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Innovators Will Outspend Their Peers Across a Broad Range of Technologies

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Over the next 3 years, what changes do you expect to the level of investment your institution makes in the following types of technology or data? (% of insurance companies)

42

13

38

27

38

16

29

38

32

10

3

19

39

32

32

13

29

25

13

17

29

25

33

21

Data management system

Accounting

Compliance/reporting

Portfolio modeling/ optimisation system

Electronic trading system

Performance analytic

Risk analytics

Order management / execution management systems(OMS/EMS)


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Data Strategy and Challenges


Insurance Companies Understand the Value of Data


How do most senior leaders at your institution view the importance of investment data and analytics relative to other major strategic priorities?(% of insurance companies)

“Our investment in data and analytics capabilities

are a source of competitive advantage for us”

38%21%

Strongly agree

Somewhat agree

4

18

49

29

It is a low-level strategic priority (nearthe bottom)

It is a mid-level strategic priority

It is a high strategic priority (near thetop)

It is the most important strategic priority

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Data and Analytics as Their Top Priority

But Innovators Are More Likely to View This Area as a Top Priority


How do most senior leaders at your institution view the importance of investment data and analytics relative to other major strategic priorities? (% of insurance companies)

44%19%

Innovators

Movers

13% Starters

0

13

42

44

0

23

58

19

17

21

50

13

It is a low-level strategic priority (nearthe bottom)

It is a mid-level strategic priority

It is a high strategic priority (near thetop)

It is the most important strategic priority


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Globalization and New Risk Standards Drive Change

15

Which of the following are most likely to require changes to the way your firm manages investment data over the next 3 years? (% of insurance companies)

16

22

24

26

26

28

29

30

34

37

Increased demands from internal staff

Electronification of trading

Competitive pressure

Expansion into new asset classes

Increased demands from regulators

Growing volume of trading data

Increased demands from clients/investors

Increase in threats to cyber security

More stringent risk management standards

Expansion into new regions

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Many Insurance Companies Believe They Will Struggle to Cope With More Regulation

16

55%

Which of the following statements best characterizes your expectations for regulatory reporting requirements over the next 3 years? (% of insurance companies)

3

10

53

34

Reporting requirements will ease

Reporting requirements will largely remain unchanged from today

Reporting requirements will increase, and our data capabilities willstruggle to cope

Reporting requirements will increase, but our data capabilities will copeadequately

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More Than Half of Starters and Movers Will Struggle to Cope With Evolving Regulatory Reporting Requirements

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Which of the following statements best characterizes your expectations for regulatory reporting requirements over the next 3 years? (% of insurance companies)

4

2

51

42

3

19

42

35

0

13

71

17

Reporting requirements will ease

Reporting requirements will largely remain unchanged from today

Reporting requirements will increase, and our data capabilities willstruggle to cope

Reporting requirements will increase, but our data capabilities will copeadequately


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232424

35

Finding betterways to visualise

data

Increased volumeof data

Accuracy of dataSecurity of data


Data Security is Paramount – As Is Accuracy

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• 71% of insurance companies believe data security is a key strategic issue for the investment industry

• Legacy systems, siloes and plethora of providers make improving data accuracy a difficult challenge

What do you consider to be the top challenges related to investment data and analytics overall for your business today? (% of insurance companies)

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Governance Will Need to be Strong in the Highly Complex Investment Data Environment


What are the toughest data integration challenges your company faces? (% of insurance companies)

60%“” “The complexity of managing our data

distracts key employees from the areas where

they should be focusing most.”

19

20

26

28

29

29

32

33

37

Cleaning data

Working with data warehouses that are tooslow

Accessing external data

Standardising data formats acrossdepartments

Working with data from external providers

Cost of external data

Reconciling older data from multipledepartments

Integrating legacy systems

Integrating unstructured data

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How to Become a Data Innovator

Break the “legacy trap” by replacing outdated systems that lock your data in silos

Learn how to exploit unstructured data to drive new sources of insight

Integrate your analytics across the entire investment portfolio to spot new investment opportunities and to identify hidden risks

Embrace outsourced models and the cloud to become more flexible and cost efficient

Crack the compliance challenge with systems that can cope with global regulatory changes

Create compelling career opportunities for data scientists, and learn how to knit them into existing teams

Ensure data governance and security standards are understood by, and entrenched throughout, the organization

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Expiration: March 31, 2016

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The Innovator’s Journey: Insurance Sector Insights

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