2018Client insights and CGI perspectives

on business and technology trends

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An outlook on trends and priorities based on in-person conversations with business and

IT executives around the world

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INFORMING STRATEGY THROUGH CLIENT INSIGHTS

Each year, CGI leaders meet face-to-face with business and IT executives to hear their perspectives on the trends affecting their organizations and the implications for their business. Our experts incorporate the findings and insights from these conversations into our annual strategic planning process and share them with clients through CGI Client Global Insights reports.

In this report, CGI presents the insights and perspectives from our conversations with insurance executives who cite digital transformation as their top priority to meet the needs of both customers and brokers.We thank the more than 1,400 commercial and government executives across the globe who participated in interviews this year, and we value the opportunity to help drive forward their future strategies and investments.

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Percentage of interviews by region

67%

60%

24%

9%

40%

INTERVIEW INFORMATION

99 insurance clients

Percentage of interviews by role

United Kingdom

North America

Europe

IT leaders

Business leaders

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CLIENT INSIGHTS

INDUSTRY TRENDSCompliance moves to front and centerSpurred by regulations such as the General Data Protection Regulation (GDPR), regulatory compliance is the top insurance industry trend for 2018. Insurance executives we interviewed continue to feel the impact of fast-shifting consumer product and digital servicing expectations — last year’s top trend — which ranks just below regulatory compliance. The need to manage costs to maintain and improve combined operating ratio is this year’s third top trend, followed by cybersecurity concerns and the impact of emerging technologies.

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CLIENT INSIGHTS

All responses North America Europe

1

Meeting and optimizing regulatory compliance 94%

83%97%

70%

2

Fast-shifting consumer product and digital servicing expectations 93%

96%92%

92%

3

Managing costs to maintain/improve combined operating ratio 86%

92%84%

73%

4

Widespread concern of cyber attacks 76%

88%72%

53%

5

Growing impact of emerging technologies 74%

75%73%

54%

2018 top trends 2017All responses

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CLIENT INSIGHTS

BUSINESS PRIORITIES

2018 top business priorities

All responses North America Europe

1

Drive differentiated, seamless digital customer experience 94%

100%92%

77%

2

Comply with stream of regulations 88%

79%91%

62%

3

Continue to drive end-to-end process automation 87%

92%85%

74%

4

Derive value from data to improve underwriting and customer evaluation 83%

96%79%

68%

5

Protect the organization and its clients from security risk 77%

83%75%

50%

Spotlight remains on the digital customer experienceThe top insurance industry business priority this year continues to be providing a digital customer experience. However, the advent of GDPR has increased attention to regulatory compliance, not just in Europe, but across all geographies. Protecting the organization has become an even greater business imperative, as for the first time, cybersecurity is cited as a top five business priority.

We asked both business and IT leaders to provide their perspectives on these business priorities. While top priorities align closely among these leaders, business leaders cited the need to protect the organization and its clients from security risk more frequently than their IT counterparts.

Business priorityBusiness leaders

IT leaders

Drive differentiated, seamless customer digital experience 90% 97%

Comply with stream of regulations 90% 86%

Continue to drive end-to-end process automation 85% 88%

Protect the organization and its clients from security risk 85% 71%

2017All responses

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CLIENT INSIGHTS

IT PRIORITIES

2018 top IT priorities

2

Rationalize, simplify, modernize applications and infrastructure 83%

88%81%

89%

1

Innovate in products and customer experience 84%

88%83%

62%

3

Improve service quality and productivity 80%

75%81%

56%

4

Continue to develop data insights to support the business 78%

83%76%

75%

5

Establish plan for digital transformation 76%

88%72%

73%

In terms of IT priorities, innovation in products and customer experience rises dramatically in priority (from sixth in 2017 to first). Rationalizing, simplifying and modernizing applications and infrastructure continues as a top IT priority, followed by improving service quality, developing data insights, and establishing digital transformation plans (where executives in North America are placing greater emphasis than in Europe). Last year’s fifth top priority was cybersecurity at 65%. While this year 72% of executives interviewed also said it was a priority, it just misses the top five.

Cybersecurity and data privacyIn 2018, cybersecurity and regulation figure prominently among business and IT priorities, increasing in frequency across all industries. In insurance, 63% of executives interviewed are focusing on employee training and awareness as the most common response in this area, followed by testing and verification of response capabilities (57%) and identifying critical assets for management and control (56%).

2017All responses

All responses North America Europe

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CLIENT INSIGHTS

DIGITAL MATURITYPace of digital transformation acceleratesInsurers continue to drive digital transformation, with 69% of executives interviewed indicating they have a digital transformation strategy in place. For those leaders having a defined digital transformation strategy, 26% indicate they have operationalized an enterprise-wide strategy for the internal organization. Just 17% say their strategy extends to their external partner and supplier ecosystem.

Stage of digital transformation strategy implementation

Don’t know OtherProducing results Operational Launching Building

Top challenges 2018 2017

1 Cultural change and change management 91% 75%

2 Demand for speed versus legacy constraints 85% 75%

3 Human resource capabilities 72% 7%

4 Increasing cyber, regulation and data protection changes 68% 35%

5 Deriving insights from customers and in-house data 59% 45%

For the entire enterprise, with a scope focused on the internal organization

12%9% 17% 24% 27% 11%

For the entire enterprise extending to our external partners and suppliers

18%4% 13% 24% 31% 10%

While the top two challenges to digital transformation in this sector remain unchanged from 2017, executives increasingly cited human resource capabilities and cyber, regulatory and data protection changes as challenges this year.

Interviewed executives provided more than one response.

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CLIENT INSIGHTS

While insurance executives interviewed say they are progressing transformation initiatives in areas such as omni-channel experiences and robotic process automation, they are just beginning to investigate emerging technologies like artificial intelligence.

This year, 61% of insurance executives interviewed say they jointly empower their CIO and lines of business to drive digital transformation. Nearly half say they embed these capabilities in lines of business and just a third say their CIO is primarily responsible.

CIO and lines of business

Line of business

Team or role primarily responsible for driving transformation

61% 49%

Other

Stage of technology transformation

Interviewed executives provided more than one response.

41% 9% 7%

Artificial intelligence (AI)

14% 26%

15%25% 22% 20%

Robotic process automation (RPA)

7% 11%

Investigating Transformation in progress Transformation achieved Not for usProof of concept

13% 8% 49%

Omni-channel

9% 12%9%

3%

CIO

34%

DIGITAL MATURITY

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CLIENT INSIGHTS

Investment in new applications and infrastructure risingNearly half of insurance executives we interviewed (46%) report an increase in overall IT budgets compared to just 15% who are reducing overall IT spend. More than one-third are decreasing their operations and maintenance (O&M) budgets. Of these, 36% are cutting O&M budgets by 10% or more.

Budgets continue to grow for new investments in this sector, with an increase in new application and infrastructure investments of 4.9% on average. Cited as top IT spending trends are digital transformation, data analytics, and innovative services, products and customer experience. Within the next three years, insurance executives plan to accelerate investment in dynamic pricing and data insights, as well as emerging technologies to support efficiency and business growth.

Planned investments in innovation

Now Within 3 yearsDigital channel solutions

90% 89%

Agile IT delivery and infrastructure

77% 74%

Cybersecurity

70% 63%

Dynamic pricing and use of data insights

69% 82%

Innovation technologies - blockchain and Internet of Things

44% 64%

INNOVATION SPENDING

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CLIENT INSIGHTS

BENCHMARKING IT SPENDING PATTERNS

The CGI Client Global Insights offer a wide range of benchmarking capabilities to support clients with their business planning. For example, in the area of IT spending, we asked insurance executives to estimate their IT spend increase or decrease year-over-year. The average of their responses is a 3% increase, with 54% indicating that budgets are increasing, 31% citing flat budgets, and 15% citing decreasing budgets.*

Drawing on more than 1,400 interviews across 10 industries, the CGI Client Global Insights offer numerous benchmarks, including client priorities, investment plans, innovation activities, digital transformation, cybersecurity and data privacy practices, human capital and more. This data can be compared among peers and across industries and geographies. Through our client engagements, we draw upon these benchmarks to support the development of their strategies and publish CGI Perspectives to share the findings.

Overall IT spend increase or decrease year-over-year

> 6%

5-6%

3-4%

1-2%

Flat

-1-5%

-6-10%

> -10%

30%

14%

5%

5%

31%

6%

4%

5%

Data shown for answers providing a specific percentage only.% of

responses% of increase or decrease

*Percentages may not total 100 due to rounding.

Average 3%

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CLIENT INSIGHTS

Global average 6.1

Global average 5.7

Global average 5.9

Global average 6.3

Industry average 6.1

Industry average 5.6

Industry average 6.3

Industry average 6.5

This year, business and IT executives interviewed ranked their satisfaction with their own IT organizations based on 10 key attributes of a world-class IT organization, providing a comparative view of business and IT satisfaction both within and across industries. In the Perspectives section of this report, we share how this data helps insurers measure and benchmark their progress toward building a world-class IT organization.

In the insurance sector, executives we interviewed give their IT organizations better-than-average marks compared to global averages in the areas of alignment with line of business needs and the ability to deliver on time and on budget. It is noteworthy that business leaders give their IT organizations higher marks for innovation than the IT organizations give themselves. However, business leaders grade their internal IT below the global average for delivery of cost-effective services.

Business leader satisfaction vs. IT leader satisfactionScores from 1 to 10, with 10 most satisfied

Providing cost-effective service

Consistently introducing innovations

Delivering on time and on budget

Providing services aligned with the line of business

Business leaders 5.7

Business leaders 5.8

Business leaders 5.9

Business leaders 6.3

IT leaders 6.3

IT leaders 5.5

IT leaders 6.5

IT leaders 6.6

CGI can provide clients with a discussion of all available benchmarking, including each client’s positioning, on topics such as digital maturity, IT budgets, IT satisfaction, innovation investments and more.

BENCHMARKING SATISFACTION WITH THE INTERNAL IT ORGANIZATION

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CGI PERSPECTIVESIn this section, we present CGI’s viewpoints on the insights insurance executives provided this year.

INDUSTRY TRENDSRegulatory compliance dominatesAs the insurance industry prepared for GDPR and the UK’s Data Protection Act, regulatory compliance was top of mind. While European insurers felt the impact more than their North American counterparts, the global nature of the industry and significant volume of personal data processed and exchanged required insurers to prepare for the May 25, 2018, GDPR enforcement date. The threat of serious fines made the level of investment in compliance a subject of debate. We see “audit” now coming into sharper focus to demonstrate that controls are in place so remedial action can be taken should something go awry. Our view is this sector is now watching to see how compliance will be monitored and penalties assessed.

The customer proposition and customer journey also have come into sharper focus as insurers respond to changing consumer behaviors and expectations, particularly in the direct retail space. Insurers need to move quickly to meet the demands and expectations of the contemporary insurance customer. With mobile interactions now

accounting for more than 50% of exchanges between customers and insurers, the omni-channel and mobile-first experience are becoming musts. Much like the FinTech impact on the financial services industry, InsurTech startups are raising the bar for customer experience.

Insurers must embrace new technologies to enable improved processes, services and education for both customers and employees. Here, the right technology investments will help reduce operational expenses while mitigating claims frequency and expense. Emerging technologies such as artificial intelligence, Internet of Things, robotic process automation (RPA) and blockchain have the potential to revolutionize consumer interactions and industry operating models.

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CGI PERSPECTIVES

BUSINESS AND IT PRIORITIES

Customer firstAs insurers continue their laser focus on the customer, they need to create differentiated, seamless experiences across the life cycle to attract new customers. To retain those customers, extending self-service capabilities will be key. At the same time, understanding customer interactions, journeys and behaviors is critical to improving services, personalizing coverage and driving new business.

Operating models continue to evolve quickly, with both business and IT priorities focused on applying intelligent automation to simplify and rationalize IT ecosystems and drive efficiencies. With InsurTechs continuing to gain traction, CIOs look to reduce operating costs in order to invest in new technologies. The need to streamline and modernize operations is stronger than ever.

To keep pace in the competitive insurance market, leaders are looking to new business models such as peer-to-peer and connected insurance. They are leaning-in to new technologies and partnerships, expanding their ecosystems to embrace emerging technologies such as the Internet of Things to connect with customers. As lifestyle-integrated technologies such as wearable health and fitness devices continue to penetrate consumer markets, insurers must continue to explore new ways to interact with their customers and proactively encourage behaviors that reduce risk.

Our view is that the insurance industry recognized its exposure to cyber threats earlier than most sectors. And, while security is still a high priority, it takes slightly a back seat to customer experience. In effect, while industries like communications and retail started their digital transformation from front (customer) to back, insurance companies were dealing with legacy platform and infrastructure issues and now are addressing their customer experience challenges.

While cybersecurity becomes a top five business priority for the first time this year, it ranks lower as a priority compared to other industries.

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CGI PERSPECTIVES

DIGITAL MATURITY

Digital strategies continue to evolveThe insurance sector continues to keep pace with or outperform other industries in digital maturity, moving from a low maturity level in 2016 to the top third of industries we profiled in 2018. While the business side is starting to take the lead in determining digital direction, innovation is still driven largely from CIOs and IT leaders. As insurers explore new business models, many look to partnerships with third parties or to creating separate innovation teams to evaluate new technologies, accelerate developments and provide transformative insights.

To date, RPA largely has been limited to the claims arena; however, we anticipate extension of RPA capabilities to other functional areas within the enterprise.

In terms of barriers to transformation, insurance executives increasingly cite human resource capabilities, reflecting the challenge of attracting and retaining skilled talent in a highly competitive market.

Insurers are leveraging emerging technologies to digitalize the customer journey and deliver more self-service capabilities. While customer-centric solutions will continue to dominate, we foresee a parallel focus on process automation.

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CGI PERSPECTIVES

Focus remains on new technology investmentTechnology continues to serve as a key enabler of digital transformation, driving substantial new investment today and in the foreseeable future. Investment in areas such as digital channel technologies, agile delivery models, cloud and cybersecurity are expected to maintain their current pace over the next few years. Dynamic pricing, data analytics and blockchain initiatives will experience increased investment as insurers attempt to gain business process efficiencies and even greater insights into current and potential customers.

At the same time, the sector is seeing a shift as decreasing profit margins bring forward divestment alongside merger and acquisition activity that is changing the competitive landscape. Consolidation in the market brings added pressure to manage the legacy more efficiently and free up spend for investment in new technologies.

INNOVATION SPENDING

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CGI PERSPECTIVES

PROGRESS TOWARD WORLD-CLASS IT

Today’s enterprises need world-class IT to compete in an increasingly digital worldWhen there are gaps between business and IT executive expectations, advancing the transformation agenda is challenging at best. To become a top-performing enterprise, there should be continuous interaction between the business and IT sides of the organization that focuses year-over-year improvement efforts on key attributes of successful IT operations.

CGI asked 1,400 global leaders about their satisfaction with their own IT operations focused on the 10 attributes that define a world-class IT organization, providing a benchmark among industry peers and a foundation for continuous improvement. The resulting insights identify ways clients can bridge the gaps and align activities of business and IT leaders.

As IT leaders pursue new ways to operate efficiently while continuously innovating, they must do more to deliver services that the business deems high quality and cost-effective. In comparing how insurance business and IT leaders assess IT services value, some minor gaps exist, such as in the measure of cost-effectiveness of services and ability of IT to deliver services on time and on budget. IT executives may wish to conduct enterprise-wide assessments of key IT projects and operation and maintenance activities to identify gaps in expectations for delivering on time and on budget.

While the feeling that one pays too much for a service could be deemed universal, the imbalance here suggests opportunities to both improve services and communicate value. As they look to close this gap, IT leaders should conduct benchmarking assessments of costs across their service catalogs against like organizations to create a baseline if none exists. Where opportunities exist for decreasing costs, improvement plans should be put in place. If the challenge is one of perceived value, IT leaders should take concerted efforts to analyze how cost-effectiveness is communicated across the organization.

ABOUT CGIFounded in 1976, CGI is among the largest IT and business consulting services firms in the world. Operating in hundreds of locations across the globe, CGI delivers an end-to-end portfolio of capabilities, from IT and business consulting to systems integration, outsourcing services and intellectual property solutions.

Within the insurance industry, we help clients digitally transform their information technology and business processes across the value chain while improving their security and regulatory compliance posture.

CGI works with clients through a local relationship model complemented by a global delivery network to help clients digitally transform their organizations and accelerate results.

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