June 2016

White Paper The Digital Divide: Are You a Leader or Laggard in Digital Claims Transformation?

Jose Tribuzio Founder & CEO Brian Mack Vice President of Sales & Marketing Systema Software, LLC

June 2016

Contents Introduction 3

What is the Digital Revolution? 3

What Side of the Divide: Leading or Lagging?

4

Components of the Digital Customer Experience

5

The Digital Imperative for Claims 7

A Platform for the Digital Transformation of Claims

8

Business Intelligence for Powerful Results

9

Emerging Technologies 10

Bridging the Divide 11

About Systema Software 12

Introduction An introduction to the Digital Divide with those who “have” and those who “have more”

What is the Digital Revolution? Examine the progression of the digital revolution

What Side of the Divide? Are insurance organizations leading or lagging behind?

Components of the Digital Customer Experience Consumers now expect certain criteria in a superior digital experience

The Digital Imperative for Claims Digitizing claims improves customer service and safeguards the bottom line

A Platform for the Digital Transformation of Claims SIMS Claims™ offers the newest, most digitally advanced claims solution

Business Intelligence for Powerful Results BI allows organizations to dig deeper and get to the information that can truly impact their businesses and bottom lines

Emerging Technologies Monitor these game-changing tech trends for potential added impact to insurance programs

Bridging the Divide The strategies outlined in this paper can propel organizations to be digital leaders

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Introduction The “Digital Divide” has historically referred to the disparity between those who “have” and those who “have not” in regards to access to digital technologies, such as smartphones and broadband Internet service. However, a new digital divide has spread across America. These days, consumers and corporations alike have access to and make daily use of digital technologies. In fact, the authors of a recent article in Harvard Business Review 1 claimed that the “have nots” essentially don’t exist anymore. Instead, they assert that that a “widening gap exists between the ‘haves’ and the ‘have mores’—companies and sectors that are using their digital capabilities far more than the rest to innovate and transform how they operate.” In relation to this divide, the insurance claims industry has traditionally lagged behind, whereas a digital transformation could help these organizations achieve optimal efficiency, performance, and profitability. In this white paper, we take a look at the digital revolution, how it has impacted other market sectors, and how claims organizations can employ similar strategies to position themselves on the “leading” side of this new divide. What is the Digital Revolution? The digital revolution was initiated by two primary innovations—the personal computer and the Internet. In 1994, the World Wide Web exploded with a set of protocols that allowed people to post and access web pages. In the late 1990s, search engines were popularized, with Google significantly supercharging the search concept. The arrival of Salesforce.com in 1999 was a milestone in cloud computing. The company initiated the delivery of applications via a simple website and paved the way for other companies to, likewise, offer applications as a service over the Internet.

1 James Manyika, Gary Pinkus, and Sree Ramaswamy, “The Most Digital Companies Are Leaving the Rest Behind,” Harvard Business Review, January 21, 2016.

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In 2002, Amazon Web Services offered a suite of cloud-based services, and in 2006, it launched its Elastic Compute Cloud (EC2) as a commercial web service, allowing companies to rent their powerhouse servers to run their own applications. In 2007, the migration to mobile began in earnest. The iPhone was launched, followed by the proliferation of other smartphones, tablets, and an app economy. Soon thereafter, social media networks sprung up and propagated. By 2009, Web 2.0 hit its stride as Google and other companies started to offer browser-based applications. The first stage of the digital revolution connected people to information through basic websites. In the past decade, digital technologies brought people together through social media networks, and transformed how businesses operated with more dynamic websites, digital transactions, and cloud computing. Now, in its current phase, digital technologies are linking “things” to the Internet and to one another in a trend known as the “Internet of Things” (IoT). Almost any physical object can be connected, including packages, refrigerators, vehicles, buildings, clothing, and more. The IoT enables powerful, remote monitoring and management of connected items, such as homes and cars, but also creates a wealth of new data sources for the benefit of claims management, loss assessment, and risk prevention. What Side of the Divide: Leading or Lagging? With the latest phase of the digital revolution discussed above, we’re seeing an even greater proliferation of digital devices and an unrelenting march toward digitization of traditional business processes. For example, digitization has been growing in the banking and finance sector, where traditional “blue chip” providers of financial services are now facing increased pressure from nascent “FinTech” companies. These companies gained a foothold by leveraging process efficiencies created by digital technologies.

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Insurance, which has historically had a bad rap for lagging behind, is also experiencing increased digitization—in a trend similarly coined “InsurTech.” These companies have leveraged digital technologies to innovate, streamline, and grow. InsurTech is also seeing an increase in investor funding, which will drive further innovation in this space. In regards to the question of whether an organization is leading or lagging, rather than pointing to a single sector or industry, it seems companies across all sectors are slightly behind in optimal adoption and optimal use of digital technologies. According to recent research from McKinsey Global Institute, the U.S. economy operates at only 18% of its digital potential. In addition, the productivity gains, which should have materialized from these advancements, have not yet shown up in the broader economy. The authors of the Harvard Business Review article claim that if the U.S. captured the full potential of digitization, an additional $2 trillion could be generated in the economy.2 With such a huge potential yet to be realized, it’s an exciting time for innovation. And a huge opportunity for insurance companies exists in digitizing their claims operations. Generally speaking, a digital enterprise is an organization that strategically leverages technology to make operations more efficient and cost-effective, employs new business models, achieves a competitive advantage, and deepens connections with customers. To do this for claims, it’s important that organizations first understand what components comprise a superior digital experience. Components of the Digital Customer Experience Consider today’s digital consumer—they’re almost always connected to the Internet, email, and social media. They often own several digital devices, including smartphones, tablets, and wearables. Members of this “touch and click” generation embrace technology, as well as the use of digital transactions. They have high expectations that systems will be easy and intuitive to use. In fact, many of their expectations have been shaped by digital experiences with companies like Amazon and Uber. Needless to say, the bar is high and continues to rise.

2 James Manyika, Gary Pinkus, and Sree Ramaswamy, “The Most Digital Companies Are Leaving the Rest Behind,” Harvard Business Review, January 21, 2016.

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Here are important components to consider when creating a digital experience for today’s consumer market: § Intuitive Interfaces. In the digital revolution, user interface (UI) design is

crucial to compete and stay relevant. As Apple discovered, design and simplicity are important to consumers. With the introduction of the iPhone and the iPad, Apple advanced the concepts of elegant, intuitive, and easy-to-use products. It won die-hard fans, and thrived in a highly profitable market that it essentially created. By now, ease-of-use is no longer a trend; it’s a competitive imperative that has led other technology companies—such as Google and Microsoft—to refresh their UIs in order to remain viable in an increasing digital society.

§ Speed & Flexibility. Today, transactions must occur at a “digital” pace or risk being perceived as slow and antiquated. Digital business is all about speed, flexibility, and convenience. No longer do consumers expect to walk paper checks into banks for deposit. Instead, they expect funds to be transferred electronically, and welcome when transactions can be securely and conveniently performed from their smartphones. In summary, processes must be real-time, mobile-enabled, and driven by data and analytics.

§ Mobile. Today, 68% of U.S. adults have a smartphone, up from 35% in 2011, and tablet ownership has edged up to 45% among adults, according to 2015 survey data from the Pew Research Center. With mobile and tablet use growing exponentially, neglecting mobile will be akin to turning one’s back on the future.

§ Cloud Computing. Digital consumers are accustomed to subscribing to products, like Microsoft Office 365, Google Docs, and Adobe products, and they’re now willing to make similar selections for their companies’ computing needs. Findings from a recent Economist Intelligence Unit study found that many mature enterprises now turn to cloud computing (both for software and infrastructure) as a strategic means to achieve their business objectives. And with good reason, cloud computing can provide organizations with a

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flexible, scalable, low-cost alternative to traditional IT and software delivery models, and therefore, has emerged as an importal digital strategy. According to a report from Technology Business Research, the global software-as-a-service (cloud-based application) market is projected to grow from $49B in 2015 to $67B in 2018. Due to the many benefits and increased trust in cloud computing, it’s expected to remain “all the rage.”

§ Digital Intelligence. Business leaders realize they need to be able to gather and analyze data, as it can fuel the insights and innovations that can set companies apart and give them a competitive advantage. As such, organizations need powerful and sophisticated Business Intelligence (BI) tools capable of dealing with the exponential growth of data, as well as numerous data sources that are often external to an organization. Whereas business processes once relied on the judgment of employees, analytics can help predict outcomes, drive prescriptive actions that address problem areas, and ultimately, result in more informed decision-making. In essence, BI is required to obtain optimal value from any digital investment.

§ Social Media. Insurance organizations need to embrace the social media wave. They must take social media seriously, recognizing its value as a relatively inexpensive marketing tool and a means to engage with and influence digitally savvy younger customers.

Adapting to meet the needs of today’s digital consumer and creating a superior digital experience can present significant challenges for insurance organizations. According to the McKinsey & Company report, “Making of a Digital Insurer,” only 5% of an insurer’s processes are fully digitized or automated, meaning there’s significant potential for improvement. The report estimates that 25% of processes are partially digitized, and 70% of processes are not digitized, meaning they are mostly manual in nature.3 As previously mentioned, the claims operation poses a vital opportunity for digitization, allowing organizations to achieve significant and immediate gains. The Digital Imperative for Claims An organization’s claims strategy is the cornerstone of its competitive advantage. There are a plethora of solutions out there, but examiners need a claims system that provides meaningful functionality and a work environment

3 McKinsey & Company, “The Making of a Digital Insurer: The Path to Enhanced Profitability, Lower Costs, and Stronger Customer Loyalty.

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that is conducive to advancing claims toward optimal end results. The interface of a claims system can make a huge difference in productivity and the ability to deliver a high level of customer service. In addition, providing an excellent customer experience throughout the process is essential to retaining business. Policyholders will not hesitate to switch carriers if they’ve suffered through a poorly managed claim or experienced service issues in the claims process. Insurance companies could lose money not just in direct claims costs, but also in lost revenue if customers decide to switch carriers. An investment in digitizing claims goes a long way toward not only improving service but also safeguarding an insurer’s bottom line. In short, digital strategies can enable more effective claims management, exemplary service, and proactive communication—all essential ingredients to making customers feel doted upon. At the same time, digital technologies also enable organizations to reduce overall claims cycle times and costs. To leverage these benefits, however, organizations must be prepared to let go of legacy claims systems—resistant to the change and integration necessary to create a digital experience—and adapt more modern solutions. A Platform for the Digital Transformation of Claims Systema Software offers the newest, most digitally advanced claims solution, SIMS Claims™. This system provides a modern platform, elegant user experience, robust functionality, and extreme flexibility. SIMS is easy to configure to meet any organization’s business needs. With an agile approach to implementation, clients can quickly put SIMS into production, so they can reap the efficiency and cost-saving benefits sooner rather than later. Following in the footsteps of other digital innovators, Systema Software has updated SIMS Claims with a completely refreshed UI design, making it contemporary but keeping the same powerful engine and logic underneath. The company leveraged HTML5, CSS3 and the latest design standards to strip away framing, so SIMS is streamlined and can run at accelerated speeds. Key features and benefits of the new interface include: § Browser Compatibility. Users will be able to access SIMS using various

browsers, including Safari, Chrome, Firefox, Internet Explorer, and Edge. This is appealing as competition among browsers yields ongoing performance improvements.

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§ Amplified Performance. With its streamlined design, SIMS is even faster than before.

§ Intuitive Design. It’s easier to learn, navigate, and use SIMS; adjusters can focus on the tasks that drive claims toward closure and optimal outcomes.

§ Powerful and Flexible Architecture. Under the hood of the new SIMS interface is the same power, but with more flexibility in terms of custom fields, client branding, globalization capabilities, configurable claims modules, and a dockable/undockable diary.

§ Any Device. Users will be able to access SIMS from any device, from desktop to tablet.

User experience was a critical part of the UI design. Systema examined how users interacted with SIMS. Many adjusters arrived at the office in the morning, fired up SIMS, and pretty much worked in the system all day. As a result, the company wanted the users’ experience of the system to be light and pleasing to the eye, while also feeling modern and sophisticated. Systema’s team observed the types of tasks and actions users performed on a day-to-day basis to understand how it could reorganize and restructure the interface to make users more productive and efficient. For example, Systema optimized the real estate on each screen. It looked at how features were accessed and found more effective ways to group tasks. In the end, this provided more intuitive navigation and a seamless workflow throughout. Business Intelligence for Powerful Results In addition to an elegant design, Systema saw a vital opportunity to leverage digital BI tools. SIMS Insight is a BI module that offers powerful data analysis and reporting capabilities. With it, clients have the metrics they need to improve claims results, reduce costs, and minimize future risk. For example, using SIMS, one client identified trends and used targeted programs to reduce claims by 50% in one year. Another insurer client was able to leverage SIMS to improve productivity so 70% of new claims were closed within 30 days. SIMS Insight fully integrates Microsoft Power BI, so customers have the ability to transform data into stunning visuals, easily share reports among team

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members, and focus on the information and performance measures that matter most to their business and their bottom line. SIMS Insight with Power BI also includes these impressive capabilities: § Ask a simple question; get a powerful answer. With a feature known as

Power BI Q&A, users can type in a question using everyday, natural language, such as “What offices experienced the highest claims costs last month?” Q&A decides on the best chart or graph to display the information, and users reap the benefit of a powerful, visual answer.

§ Dig deeper. Users can visually explore data using a free-form canvas. They can “drag and drop” datasets and dimensions to incorporate them into the analysis. Information can be displayed with a broad range of visualization capabilities including charts, graphs, and maps.

§ Leverage dashboards. Users can create dashboards, keeping their finger

on the pulse of their businesses through key performance measures. Dashboards can be configured and personalized to provide one quick glance of all the statistics that organizations need to make fast, informed decisions.

Emerging Technologies As organizations undergo their digital transformations, they should also keep an eye on new and emerging technologies that could provide additional game-changing benefits. For example, these innovations should be monitored: § Drones. The use of flying robotics in the form of small, unmanned aircraft

systems (UAS), also known as drones, is predicted to increase over the next 10 years. Drones are attractive for many insurance applications. Potential use could include crop inspection, damage assessment after a storm, or search and rescue. There are potential benefits for claim situations as well. For example, drones could eliminate or significantly reduce the need to send inspectors into the field or into damaged properties, which could improve examiner safety and claims-handling efficiency.

§ Internet of Things. We’ve already discussed IoT, but it’s worth

emphasizing again. According to Cisco research more than 50 billion devices could be connected to the Internet by 2020. All of these devices will generate various forms of data—statistics, text, audio, and video. It’s yet to be determined how all of this connectivity and this large amount of data will affect insurance and claims, but the potential is vast.

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§ Telematics. This branch of IT deals with long-distance transmission of

information. Vehicle telematics is a popular example. Most insurers believe telematics will have a huge impact on auto insurance. If people are responsible drivers and don’t mind using telematics to verify their safe driving habits, they could save considerable costs on auto insurance through specialized programs.

§ Wearables. Although wearable devices first gained traction as fitness

trackers, like Fitbit and Misfit, they're quickly advancing in capabilities, and many experts forecast a transition from fitness to healthcare. In the near future, wearables could predominantly be used to monitor vital statistics, such as blood pressure, body temperature, heart rate, respiratory rate, and sun exposure. This could have far-reaching implications for insurance.

Emerging technologies will yield a flood of new information, meaning BI will be more important than ever. Organizations will need powerful and sophisticated tools to compile, assimilate, and crunch new statistics for the benefit of their insurance programs. Bridging the Divide In the march toward digitization, insurers cannot sit on the sidelines. Staying in place is tantamount to lagging behind. Instead, organizations must establish “digital” as a priority to tackle the challenges ahead. The strategies discussed in this white paper will enable organizations to start to bridge the divide, becoming peers with other digitally advanced companies. When looking for a place to start, claims is a prime opportunity that will yield immediate and significant gains. Using digital strategies, insurers can reengineer claims to leverage greater efficiency, increase savings, and enhance customer service. And as discussed, BI is a mandatory item on any digital agenda. Digitally enabled solutions are agile enough to deal with any changes and challenges the future may hold, whether it’s emerging technologies, new regulations, or staffing issues. For example, the industry is set to face a staffing

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shortage as baby boomers retire. Losing the most senior-level experts could take up to 15 years to retrain and replace the existing knowledge base. A digitally sophisticated solution can help. It provides the simple, intuitive interface that attracts today’s millennial workforce and enables these new employees to ramp up faster. Pre-programmed logic embeds and shares knowledge, and guides new examiners through the complex claims process. With a digital approach, insurers will be well equipped to deal with the uncertain although exciting path ahead. Rather than playing catch-up, a focused strategy and ongoing momentum can propel them to take a leadership position. To receive more information on digital capabilities, or to schedule a demo of SIMS Claims and SIMS Insight, please contact: Brian Mack Vice President of Sales & Marketing Phone: (800) 272-9102 ext. 710 Email: brian.mack@systemasoft.com About Systema Software Systema Software, LLC, provides flexible, comprehensive solutions and services to the insurance industry. SIMS Claims is an innovative, award-winning claims administration system, which is highly praised by clients and well recognized by industry experts as a leading claims solution. Together, our team of Big 4 consulting and industry veterans, experienced software developers, and project managers deliver an architecturally strong enterprise platform, designed for superior speed, scalability, and performance. With advanced technology and focused customer service, Systema Software has experienced phenomenal growth and success, earning high rankings on the national Inc. 5000 and local Fast 100 lists of fastest-growing private companies. For more information, visit us online at www.systemasoft.com.