Getting fit for the future

Getting fit for the future

With you today Grace Ayoub Partner Stephen Smith Partner +1 514 985 1257 gayoub@kpmg.ca +1 416 777 3194 stephensmith@kpmg.ca 2

Getting Fit for the Future 2017 KPMG LLP, a Canadian limited liability partnership 2017 KPMG and a LLP, member a Canadian firm of the limited KPMG liability network partnership of independent and a member firms of affiliated the KPMG with network KPMG of International independent Cooperative member firms ( KPMG affiliated International ), with KPMG International a Swiss entity. Cooperative All rights reserved. ( KPMG International ), The KPMG name a Swiss and entity. logo are All registered rights reserved. ( KPMG trademarks The International ), KPMG or trademarks name a Swiss and of logo KPMG entity. are International. All registered rights reserved. trademarks The or KPMG trademarks name and of KPMG logo are International. registered trademarks or trademarks of KPMG International. 4

Getting Fit for the Future 1. Is disruption real within the Insurance Industry? 2. Industry views - Chief Disruptor CEO view, CIO reality 3. Change the People element. 4. How can you get Fit for Change? reserved. ( KPMG International ), The KPMG name a Swiss and entity. logo are All registered rights reserved. trademarks The KPMG or trademarks name and of logo KPMG are International. registered trademarks or trademarks of KPMG International. 5

Is disruption real within Insurance?

The rapidly changing and complex environment The competence-complexity gap Operational Complexity Level Gap Employee Sophistication Time Source: Uncommon Service, Francis Frei & Anne Morriss Need to continue to drive value Need a different type of thinking reserved. ( KPMG International ), The KPMG name a Swiss and entity. logo are All registered rights reserved. trademarks The KPMG or trademarks name and of logo KPMG are International. registered trademarks or trademarks of KPMG International. 7

Disruption is occurring across the entire value chain Discover Explore Select Product Apply Approve & Underwrite Service & Engagement Claims CUSTOMER VALUE CHAIN Source: Insurance Industry Trend Insights 2016 KPMG Australia reserved. ( KPMG International ), The KPMG name a Swiss and entity. logo are All registered rights reserved. trademarks The KPMG or trademarks name and of logo KPMG are International. registered trademarks or trademarks of KPMG International. 8

Chief disruptor CEO view, CIO reality

CEOs expect growth now, but are less sure about the future KPMG CEO outlook 2017 And in response, strategic priorities are shifting They demonstrate strong customer focus, but challenges remain However, long-term underinvestment may undermine ambition The risk landscape is shifting 10

CEOs expect growth now, but are less sure about the future 85% Insurance CEOs are bullish on growth for the coming year with 85% confident in their company s growth prospects (outperforming the industry) 52% But are more cautious about the medium-term with moderate 3-year growth expectations 52% expect to achieve less than 2% growth over the next 3 years 12

They demonstrate strong customer focus but challenges remain 73% 68% of CEOs are confident their firm can articulate how it creates value for customers However And The biggest challenge is targeting Millennials, who want to interact with brands in a different way say they take personal responsibility for customer interests And 43% are concerned that a lack of quality customer data is hindering depth of insight 15

The risk landscape is shifting The risks that CEOs are most worried about have changed dramatically since 2016: Top of mind risks Emerging technologies Operational risk Talent Cyber 29 % 36 % 19 % 33 % 13 % 27 % 42 % 26 % And, 45% expect disruption in their sector over the next 3 years as a result of technological innovation 2016 2017 18

However long-term underinvestment may undermine ambition 61% While 61% of CEOs see technological disruption as an opportunity rather than a threat 81% And, 81% said that rather than waiting to be disrupted, their organization is actively disrupting the sector Specific investment in innovation is expected to be broadly flat over next 3 years with only slow growth in investment for emerging technologies 21

And, in response, strategic priorities are evolving Top priorities now include: 1 2 3 Fostering innovation (25% vs. 16% in 2016) Becoming more data-driven (25% vs. 15% in 2016) Implementing disruptive technology (24% vs 16% in 2016) And 69% plan to invest into digital infrastructure over next 3 years 59% say the primary objective of their investment is to transform their business and operating models 24

What are CIOs saying

Harvey Nash/ KPMG CIO Survey 2017 Key Insurance Findings The key findings are summarized. Core IT functions remain top priorities despite CEO focus on digital and innovation Insurance lags other industries in next-generation IT capabilities CIOs have the resources for digital transformation, but must overcome resistance to change While digital labor remains in its infancy, insurance has invested more than others Innovation remains an aspiration 2017 KPMG LLP, a Canadian limited liability partnership and a member 2017 firm KPMG of the KPMG LLP, a Canadian network of limited independent liability member partnership firms and affiliated a member with firm KPMG of the International KPMG network Cooperative of independent ( KPMG member International ), firms affiliated a Swiss with entity. KPMG All rights International reserved. The KPMG name and logo are registered trademarks or trademarks Cooperative of ( KPMG International. International ), a Swiss entity. All rights 26

Makes aggressive investments in agile and disruptive technologies 3x average investment in cloud 4x average investment in digital labour 27

Mixed messages Insurance CIO s have a challenge to balance conflicting board priorities of innovation versus stability and cost Board priorities for IT 64% 60% 58% 56% 53% 46% 46% 45% 43% 42% Increasing operational efficiencies Delivering consistent and stable IT performance Developing innovative new products and services Saving costs Improving business processes Improving cyber security Enabling business change Delivering business intelligence/ analytics Managing Driving revenue operational risk growth and compliance Q11. What are the key business issues that your management board is looking for IT to address? 28

Playing catch up Despite aspirations to be forward thinking insurance organizations are still struggling to really drive innovation Next-generation capabilities 21% 19% Integrating core business systems with newer digital solutions 15% 18% Using digital technologies to advance business strategy 11% Facilitating the use of data and analytics 16% 16% 5% Fostering innovation Insurance All Industries IT capability effectiveness (percent very effective) Q27. How effective has your organization been in using digital technologies to advance its business strategy? Q33. How effective is your IT organization in each of the following capabilities? 29

The digital challenge The challenge to be digital is not technical or financial for insurance organizations Barriers to implementing digital capabilities 64% 42% 33% 32% 53% 28% 23% 20% 19% 15% Overcoming resistance to change Being able to easily implement new technologies Attracting the right talent Achieving adequate return on investment (ROI) Dealing with legal and regulatory compliance issues Satisfying privacy and security requirements Securing the required financial resources Gaining executive-level sponsorship Proliferation of technologies controlled outside IT Q30. Which of the following represent the greatest challenges to your organization's successful implementation of digital capabilities? 30

Change

Which of the following quotes best describes how you feel about the ongoing changes? A.Change in all things is sweet. (Aristotle, Philosopher) B.Change is such hard work. (Billy Crystal, Actor) 32

Change is good 33

Workforce distribution likely to be impacted by digital Front-office Middle-office Back-office Virtual assistants Intelligent pricing Automatic Claims Processing Assessment of damages Source: Suess for Bloomberg (2017), Sato for Google Cloud (2017), Gartner (2017), McCurry (2017) 34

Change is hard 35

We form habits to reduce uncertainty About 40% of what we do each day is performed in almost the same situations The Habit Loop Cue / trigger Tiredness Routine Coffee Reward Briskness Source: Nature.com, Society for Personality and Social Psychology, The Power of Habit - Charles Duhigg. 36

Humans are creatures of learning and change Our capacity to adapt to change is the secret to our success as a species. Source: KPMG Analysis, Kinderra (2016) for UC San Diego, fast Company (2015) 37

Learning and changing requires a conscious and deliberate effort The brain s ability to change in response to experiences The amount of effort such change requires AGE 2 4 6 8 10 20 30 40 50 60 70 Source: Levitt (2009) 38

Question How much return on investment (ROI) can expect a company when change is not planned or is poorly managed? a) 176% (76 points profit) b) 143% (43 points profit) c) 100% (no profit/no loss) d) 35% (65 points loss) Source: McKinsey (2009) 39

Change Management is Critical to a Project s Success Change management planning helps organizations minimize the degree and the duration of impact and maximize success potential PERFORMANCE Less Disruption Faster Recovery Typical change Influence of change management TIME Source: KPMG Behavioral Change Management Methodology 40

Managing organizational change effectively Clear vision and direction High engagement of sponsors TOP 5 facilitators of effective organizational change Employee ownership Alignment of people processes, policies, and systems Enhanced employee capability Source: KPMG Behavioral Change Management Methodology 41

How do you change behaviours? Make it Clear Make it Known Make it Real Make it Happen Make it Stick Clear Aware Ready Willing Able Change Leadership Communication and Engagement Impact and Measurements of Change Workforce Development and Transition 42

Building muscle for the future CHANGING 1 MIND-SET 2 DEVELOPING CAPABILITY 3 NEW WAYS OF WORKING Recognize the signs of change resistance Strengthen key competencies Prepare yourself to be agile 43

How can you get fit for change? 1. 2. 3. Recognize the signs of change resistance Strengthen key competencies Prepare yourself to be agile reserved. ( KPMG International ), The KPMG name a Swiss and entity. logo are All registered rights reserved. trademarks The KPMG or trademarks name and of logo KPMG are International. registered trademarks or trademarks of KPMG International. 44

How can you get fit for change? Tip 1 Recognize the signs of change resistance? Anxiety Disbelief Happy Excitment Threat Losing Confidence Fear Uncertainty Denial Ignoring Disillusionment Unmotivated Moving On New Confidence Acceptance Exploring & Testing Guilt Shame Depression Crisis Hostility Undermine 45

Question Which of the following competencies do you think has the biggest impact on the business? a) Self-awareness b) Orgnizational Awareness c) Analytical ability d) Critical Thinking Source: 2012 CEB Senior Executive Survey 46

How can you get fit for change? Tip 2 Strengthen key competencies Rank Order of Importance by Executives Most important Least important Customer Orientation Change Receptivity Critical Thinking Relationship Management Technology Fluency Analytical Ability Risk Management Business Acumen Systems Thinking Cross-Cultural Agility Network Building Integrity Creativity Communication Project Management Continuous Learning Resource Allocation Social Intelligence Professionalism Teamwork Decision Making / Judgment Problem Solving Proactivity Influence Learning Agility Information Management Managing Others Process Design Technical/Functional Expertise Organizational Awareness Self-Awareness Prioritization Least important Most important Rank Order of Impact on Enterprise Contribution Source: 2012 CEB Senior Executive Survey 47

Strengthening your change leaders Activating networks Driving agility Creating a compelling story Pacing implementation Creating an enabling environment Sustaining outcomes Managing political dynamics Challenging viewpoints Source: KPMG Behavioral Change Management Methodology 48

How can you get fit for change? Tip 3 Prepare yourself to be agile 49

Next steps 50

Building muscle for the future CHANGING 1 MIND-SET 2 DEVELOPING CAPABILITY 3 NEW WAYS OF WORKING Recognize the signs of change resistance Strengthen key competencies Prepare yourself to be agile 51