Robots are here to help: an innovative approach to automation in the insurance industry

11-05-2016

Robots are here to help: an innovative approach to automation in the insurance industry

Tatiana Shepeleva

A new generation of automation tools are tipped to transform the risk transfer industry. Chris Maiato and Craig Russell from EY’s Advisory practice, explain to Bermuda:Re+ILS what this new wave of so-called robotic technology can do and what it means for re/insurers.

Just when you thought that recent change in the reinsurance industry has been beyond anything you could have imagined or expected, a new wave of innovation is now emerging that could transform the industry in even more fundamental ways.

Robotic process automation has the potential to transform many elements of the industry’s operations, ranging from bordereaux processing to the movement of risk data between submissions slips, pricing tools and exposure management systems.

Chris Maiato and Craig Russell from EY advisory services believe that the evolution of this type of software has the potential to revolutionise parts of the industry.

“When re/insurance underwriters and actuaries sit down to review a final contract proposal in the future, there is a good chance that the vast bulk of the administration of the submission, loading of models and setup of contract and exposure systems will have been completed by software robots. This is one of many examples of reinsurance processes that have the potential to be transformed by automation in the insurance and reinsurance industries,” Russell says.

“A new class of robotic software is being used in the financial services industry that can emulate a user, log into systems, process data and automate the various interactions across a reinsurer’s systems and tools,” says Maiato.

The evolution of automation

The manufacturing and automotive industries were the pioneers of automation. The use of robots has been an integral part of production assembly lines since the introduction of robotic tools and machines in the early 1960s.

“The use of robotics is a major opportunity for re/insurance companies to tackle operational issues and change the way they run transactional processes. Craig Russell

Robots, or a better term might be automated software tools, are now commonplace across almost all industries: automated teller machines have changed the role of bank staff, airport check-in is now often a fully automated process, huge warehouses are being run largely by robots, lawyers are using software to review documents for relevance to cases and online shopping orders can be placed and delivered with limited human involvement.

Many will also have seen that Google’s self-drive cars have now amassed more than one million miles on the roads of California and Austin, Texas, and have the potential to make human drivers a thing of the past.

Russell believes that in some sectors of the financial services industry there has perhaps been less impact to date from robots and automation tools, although progress is being made with advancements in areas such as financial technology, telemetrics and big data.

“The shift of retail banks and insurers to digital channels has begun to change the size and role of customer service functions, as more transactions are completed on a self-service basis. But in the commercial insurance sector a large majority of skilled roles within financial services companies, in research, analysis and finance teams, are just beginning to exploit robotics and automation,” he says.

Russell explains that traditionally reinsurance activities have been difficult to support with automated tools because of the need to review and analyse a vast range of data sources that historically have often been difficult to access, unstructured and often on paper-based slips rather than digital. On top of this, reinsurance processes also often need to interconnect across many different systems and models, which has been a challenge for some automation tools.

But things are changing. “The trends in digital, data and robotics tools are now removing these limitations and as a result financial services companies are taking automation seriously,” Maiato says. He notes that the growth in digital across financial services such as electronic data exchange between brokers and insurers and online customer and broker portals is changing the availability and access to digital data.

What’s more, the new breed of robotic process automation tools, also known as a ‘software robot’, can emulate the various actions of a user and process data, without human intervention. These tools have been around for some time but in the last couple of years their capabilities have matured. A number of ‘real’ pilot case studies are live across the financial services industry and there are specific examples of software robots being used in operations of re/insurance companies and brokers.

“This new type of software robot tool has the potential to redefine the operations and processes of re/insurance companies by helping to automate a wide range of operational activities such as sorting through submissions emails and documents, extracting and loading risk data, sending emails to underwriters and actuaries, processing bordereaux statements, handling claims processing and supporting finance reconciliations,” Russell says.

The benefits of robotic automation

The advantages of using this new generation of software are rapidly becoming apparent. Early adopters of these types of software robotic tools are declaring a wide range of benefits from their pilots and proof-of-concept exercises.

“Many re/insurance operations will have highly skilled and valuable resources in finance and actuarial functions working on low value data entry and robotic tools present an opportunity to refocus these key resources on to critical analysis and unlock improved scale and accuracy benefits,” says Maiato.

Unlocking the value of these key resources is a major advantage conferred by automation, notes Russell, with data processing cost reductions being a welcome collateral benefit.

There are other advantages over the traditional offshore model: robotics can run 24/7, processes can be defined and monitored with a full audit trail, and the challenges of attrition and retraining associated with using offshore operations can be avoided.

“The cost savings are substantial but it is the breadth of potential benefits to improve overall efficiency, accuracy and quality that is making the use of robotic tools most attractive to re/insurance companies,” Russell says.

“For repetitive tasks, the reduction in error rates is estimated to be 25 to 30 percent, leading to substantial quality and service improvement.”

Maiato notes that repetitive, high-volume tasks can be processed by software robots with speed that would not be achievable by human analysts and administration resources.

“Finally, the deployment of these tools is very different from traditional IT or system implementations. Robotic tools work directly with existing user interfaces and they can be trained by existing business users leading to rapid deployment and significantly lower implementation costs compared with those of more traditional IT projects.”

Potential to improve the insurance industry

A combination of factors has resulted in a marked increase in the operating model complexity for the specialty and reinsurance sector in Bermuda. Russell says this change in the market highlights the need for companies to find more efficiencies.

“We have seen a high-level of merger and acquisition (M&A) activity over the last couple of years as re/insurers seek scale and diversification of their product lines. At the same time, many Bermuda players have also been rapidly establishing new operations to take advantage of the influx of alternative capital into the market,” Russell says.

“This combination of market movements has compounded the level of operating model complexity for many re/insurers. The priority has been about getting to market and expanding scale and not necessarily about efficiency of operations, post-merger integration and the standardisation across traditional re/insurance and new third party capital operations.”

He notes that, as a result, some organisations have duplication of activity and roles, operations in underwriting and finance are not as simple and scalable as before and many re/insurers are operating with a range of core policy administration systems that are not yet fully integrated post-merger.

“Within this context robotic tools can play an important role in driving efficiencies across re/insurance operations in what is expected to be more challenging and margin-focused reinsurance market environment.”

There is a range of re/insurance processes that have high potential for automation. In the front-office, these include the movement of risk data which is often a manual effort. In finance functions, operations often require a high level of manual data entry and high-volume reconciliations. Internal, external and regulatory reporting activities can also often demand significant manual effort to gather and consolidate information from various systems, reports and data sources.

“Handling the peaks in volume demand during the key renewal seasons is another major operational challenge for all re/insurers. Underwriting administration and finance resources are placed under significant pressure to set up, review, bind and process all their treaty renewals over a short period,” Russell says.

“Robotic process automation is a potential solution to this annual challenge by providing a mechanism to virtually increase headcount, and give the operations extra processing capacity to cope with the renewal demand with little additional costs.”

Robotic tools can also sometimes play a role in data migration between systems as part of post-merger integration activities or to support interim process during periods when companies are going through the post-merger development of strategic systems.

Russell adds: “The only real alternative approach to driving substantial operating model cost reduction is outsourcing, but the scale of some Bermuda operators has traditionally restricted the feasibility of shared services and offshoring.

“Robotic tools offer a cost reduction technique that is suitable for any size of reinsurer, retains administration activity close to key underwriting and control functions, keeps overall control of processes in-house, reduces inefficiency, improves scalability and delivers results quickly.”

How do robots impact people?

There may be the fear of a threat to staff and jobs on the back of this new technology. A range of research studies has been conducted that aim to assess the impact of robotic automation on employment prospects and to identify the types of jobs that are most at risk from automation.

“Automation tools are more likely to change jobs than replace entire jobs within companies. They will eliminate the routine and low-value tasks and allow human staff to focus on the higher value analysis and relationship management activities,” says Russell.

“It is the blend of software robots and people working in tandem that offers the most powerful combination: robots to deliver the repetitive, deterministic, high-volume tasks quickly and cheaply, and people to focus on providing the subjective judgement-based and relationship management tasks that differentiate service to brokers and cedants.

“The use of robotics is a major opportunity for re/insurance companies to tackle operational issues and change the way they run transactional processes.

“EY has experience of working with a broad range of robotic process automation tools, helping clients to conduct proof-of-concept exercises, training client teams to set up robots and working to establish the infrastructure required to increase automation levels across key processes,” says Maiato.


 

What can robots do?

‘Software robots’ are a software application that can be programmed to carry out a process in the same way that a human user interacts directly with systems, spreadsheets, email, websites and other tools.


Robots can be set up to follow any structured process to emulate human interactions on systems, eg, the software is given its own user identity and login details. It can then be ‘trained’ to collect and enter data to/from various systems, run models and perform any routine administration processing tasks.

There are three primary ways organisations are using software robots:

1. Data Movement: 

  • Collecting data from systems, online forms or documents and then loading data in/out of systems and tools; and 
  • Moving data as part of M&A activity from a legacy system into new target systems.

2. Digital enablement

  • Adding a web/digital front-end to application(s) with a robot providing the integration;
  • Effectively the robot manages the passing of data to and from the core system, as if an administration staff user was logging into systems; and 
  • This is particularly beneficial with legacy systems that are challenging to create a technical interface with.

3. Data processing 

  • Performing repetitive tasks otherwise done by staff to reduce cost, accelerate timing, improve reliability and reduce risk; and
  • Automating a series of routine administration activities across an end-to-end process by shifting data between documents, emails and internal systems and tools.

 

Chris Maiato is a principal and EY’s advisory leader for the Bahamas, Bermuda, British Virgin Islands and Cayman Islands. He can be contacted at: chris.maiato@bm.ey.com

Craig Russell is a senior manager in EY’s advisory practice. He can be contacted at: craig.russell@bm.ey.com

Chris Maiato, Craig Russell, EY, Robots, Insurance, Reinsurance, Bermuda, London, UK

Bermuda Re